The Biggest, Weirdest Rip-Off Yet

The widening of the M25 is a private finance initiative scheme that requires little private finance. Or initiative.

By George Monbiot. Published in the Guardian, 7th April 2009

Here’s what the banks have taught us: wherever you come across unnecessary complexity, you know that someone is being swindled. So please bear with me on this one. The tale I’m about to tell is a tangled one, but you should read it. Why? Because the person being fleeced is you.

Over the next few days, the deal to expand the M25 (the orbital motorway around London) will be completed. Construction has to start by the end of the month if the road is to be ready in time for the Olympics in 2012. The new lanes will be built and managed by private companies in a deal worth £5 billion. It’s the second-biggest private finance initiative (PFI) scheme launched in the UK(1). And the all-time biggest rip-off.

Under PFI, private companies build public infrastructure – roads, bridges, schools, hospitals, prisons and the rest – then lease it back to the state for 25 or 30 years. Over 800 deals have been signed since the scheme was launched in 1992. They commit the taxpayer to future spending of around £215bn(2).

The government says that because private companies are more efficient than the state, PFI is cheaper than public procurement. And it is – if you accept Mr Brown’s accounting devices.

All PFI schemes must be tested against a yardstick called the public sector comparator. It looks straightforward: you work out how much they would have cost to build by conventional means, compare this to the cost of PFI, then go private if that’s the cheapest route. But that isn’t how it works.

When Labour took power in 1997, it told public servants that there would be no alternative to PFI. “When there is a limited amount of public-sector capital available, as there is,” the health secretary Alan Milburn announced, “it’s PFI or bust”(3). After 12 years, the policy hasn’t changed. A leaked email summarising a meeting with the current health secretary, Alan Johnson, in January this year revealed that “PFIs have always been the NHS’s ‘plan A’ for building new hospitals … There was never a ‘plan B’.”(4) If you apply for public funds, you won’t get them: to build a new hospital or school or prison, you must PFI it.

But the bid still has to show that private finance beats the public sector comparator. As Jeremy Colman, then the UK’s assistant auditor-general, pointed out, “If the answer comes out wrong you don’t get your project. So the answer doesn’t come out wrong very often.”(5) Some of the public sector comparators used, he said, are “utter rubbish” and “utterly irrelevant”.

How do you produce the right answer? By costing risk the right way. When private companies take on a PFI project, they are deemed to acquire risks the state would otherwise have carried. These risks carry a price, which proves to be remarkably responsive to the outcome you want. A paper in the British Medical Journal shows that before risk was costed, the hospital schemes it studied would have been built much more cheaply with public funds(6). After the risk was costed, they all tipped the other way; in several cases by less than 0.1%.

Britain’s PFI rip-offs would make the Camorra splutter into their grappa. A bridge from the mainland to Skye which shouldn’t have cost more than £15m stung local people and the taxpayer for £93.6m(7). A hospital scheme in Coventry was reverse-engineered by health chiefs to attract private capital. The city’s two hospitals were to have been renovated by the public sector for £30m. Instead they were demolished and one was rebuilt for £410m(8). To attract backers for the Norfolk and Norwich University Hospital, the Department of Health, acting on instructions from the Treasury, left a £95m sweetener in the contract(9). The companies which built the first eight PFI road schemes in the UK have made average annual operating profits of 68%(10). But the worst is yet to come.

Like the hospital in Coventry, the M25 widening scheme appears to been designed to maximise corporate profits. The Campaign for Better Transport points out that if the whole scheme had used existing hard shoulders rather than building new lanes, the total cost would have been £478m – not £5bn(11). Like all PFI projects, because the contract is so long and the costs of breaking it are so high, this road widening locks us into existing transport patterns: if in future a government tries to respond to climate change or peak oil by changing the way we travel, it will have to pay a stonking penalty to the companies which enlarged the road. Those perversities are standard. But this scheme gets much weirder.

The government, as usual, is telling us as little as it can get away with. But the Department for Transport has admitted that, to make the project viable, it might have to bail out the M25 consortium(12). Some reports suggest that to make sure the consortium remains solvent during the construction phase of the contract – which is worth £1280m(13) – the government will have to lend it £400m(14,15). The European Investment Bank has already pledged £500m(16), which is also taxpayers’ money. This private finance initiative scheme doesn’t require much private finance, or initiative.

If the government underwrites the scheme, the greater part of the risk will fall on taxpayers, negating the entire rationale of PFI. But, citing higher lending risks during the recession, the banks backing PFI infrastructure projects have increased their margins, in some cases by 500%(17). The government will lend or promise to lend cheap money to the banks, which will then charge us, through the consortium, crushing rates of interest for the use of our own cash.

Weird enough for you yet? Well one of the banks reported to be backing the scheme is RBS. The taxpayer now owns 58% of it. This is likely to rise soon to 95%(18). If the government underwrites the M25 expansion, it will in effect be bailing out RBS twice then charging itself for the privilege – and for the bankers’ fees, including salaries and bonuses. RBS – in other words you and me – already has £10bn invested in PFI schemes in this country(19), for which we are paying extravagant rates. If you have come across a state spending scheme madder than this, please let me know.

So why doesn’t the government just cut out the middleman and fund the project – or a much cheaper version of the project – itself? The old explanation – that PFI allowed it, like Enron, to keep its public liabilities off balance sheet – no longer holds. The government has bowed to the demands of accountants and auditors: from this month onwards, PFI schemes will be counted as public sector debt.

This is something quite different: a toxic combination of ideology and terror. No lesson, however brutal, can divert the government from its central project of propitiating its old adversaries: industrialists and the rightwing press. Gordon Brown will keep feeding the beast, however much this costs. True disciple, he worships still at the altar of market fundamentalism, even when the market no longer exists.


1. The biggest is the £12bn Defence Training Review.

2. Nicholas Timmins, 24th February 2009. Projects seek partners. Financial Times.

3. Alan Milburn, quoted in The Guardian, 4th July 1997.

4. Rebecca Omonira-Oyekanmi, 4th February 2009. Root of the Problem. PPP Bulletin.

5. Quoted by Nicholas Timmins, 5th June 2002. Warning of ’spurious’ figures on value of PFI infrastructure spending. Financial Times.

6. Allyson M Pollock, Jean Shaoul and Neil Vickers, 18th May 2002. Private finance and “value for money” in NHS hospitals: a policy in search of a rationale? BMJ vol 324:pp1205-1209.

7. George Monbiot, 28th December 2004. A Scandal of Secrecy and Collusion. The Guardian.

8. George Monbiot, 4th September 2007. The Fat Cats Protection League. The Guardian.

9. George Monbiot, 9th May 2006. An Easter Egg Hunt. The Guardian.

10. Pamela Edwards, Jean Shaoul, Anne Stafford and Lorna Arblaster, 2004. Evaluating the Operation of PFI in Road and Hospital Projects. The Association of Chartered Certified Accountants. Accessible via

11. Campaign for Better Transport, 8th May 2008. Award of £5bn M25 PFI contract shows “appalling judgment.

12. New Civil Engineer, 18th March 2009. Government: Still no close for £5bn M25 PFI.

13. ibid.

14. Ed Owen, 29th January 2009. M25 DBFO funding hitch. New Civil Engineer.

15. Mark Hansford, 19th March 2009. M25 mega-deal edges closer as RBS looks to put in £100M. New Civil Engineer.

16. ibid.

17. Mark Hellowell and David Batty, 4th February 2009. Loss of initiative. The Guardian.

18. Jill Treanor, 2nd April 2009. RBS locked in talks with Treasury over renegotiating terms of insurance scheme. The Guardian.

19. Nick Mathiason, 19th October 2008. Crunch puts M25 revamp in jeopardy. The Observer.