Militant Loans - The Tories Inspiration for PFI?

By Paul Clein on Jan 2, 13 09:32 AM in Liverpool City Council

The insane off balance sheet funding of public capital projects known as the Private Finance Initiative (PFI) was first introduced in the latter years of John Major's Tory government of 1990-97.

The Militant Loans taken out by Liverpool City Council in the mid-1980s involved borrowing £101 million from Swiss and Japanese banks over 15 years with total repayments of £157.5 million. These ended in 2001.

This means of financing was condemned by both the Tory and (national) Labour parties at the time. We do not know what finders fees were paid for brokering these loan deals but they must have been significant. They always are. This off balance sheet deal meant that payments were skewed such that the majority of the repayment amount came in a four financial years' period between April 1989 and March 1993.

This resulted in money which should have been earmarked for other capital projects and revenue spending being diverted to those repayments, crippling ongoing spending programmes. For example, this was the reason for the controversial Charterhouse deal whereby most of the Ropewalks area was sold off for a knockdown £10 million late in the 1991-2 financial year in order to balance the books for 1992-93, although all it actually achieved was to postpone the day of reckoning for 12 months.

The evil genius of the Tories was to combine the accounting contrivances underpinning the Militant Loans with their privatisation agenda to create the PFI homunculus. This was another off balance sheet device which involved borrowing money from the private sector - underwritten by banks of course - to finance public capital projects, with a repayment period of 25-30 years, often repaying 2 or 3 times the sum borrowed, but also including the outsourcing of any public services related to the capital projects in question. This Tory strategy was condemned by Labour in opposition, then swiftly adopted by them in government. Labour's version of PFI (pretty much indistinguishable from the Tory one) was condemned by the Tories and Lib Dems in opposition then swiftly readopted by the Coalition government, albeit after a short period of denial and with a few cosmetic tweaks. The Coalition claims that their revised version of PFI - which will reportedly soon undergo the Sellafield strategy and be renamed - will cost the taxpayer less in the long run. It won't. There will still be huge consultant fees incurred, long term outsourcing and a drain on revenue budgets due to the ongoing age of austerity measures, leading to additional service cuts and redundancies.

Who could have forecast it back in 1985? Derek Hatton and Tony Byrne being the inspiration for John Major, Gordon Brown and George Osborne's major capital financial strategy, spending money you haven't got today, safe in the knowledge that having taken the political credit for delivering your capital projects, someone else will have the knotty problem of actually paying the bill in the future when you are long gone from office? You couldn't make it up.

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David Bartlett

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