Carillion

[Nefertiti2]

Yes - did you read the Financial Times article, Tubby?

[Tubby Isaacs]

What did you think wasn't right in Zelo?

[Tubby Isaacs]

That FT article. For a start, the contract now ends 3 years earlier. So we can get something like £300m a year for that.

So how does that work? We gave VTEC a £2bn bailout and got a £900m freebie off someone else?

[Tubby Isaacs]

But the main point is that VTEC could get out of the contract because we aren't delivering what we said in the way of trains and infrastructure. Osborne (it's Treasury driven, Grayling isn't trusted with money like this) wanted the biggest number on the contract, even though there were problems delivering our side and he likely knew. So that £2bn never existed.

Plenty to attack in this and Carillion. Why is Corbyn bullshitting?

I've an idea. We're being softened up for Hard Brexit.

[Nefertiti2]

Not for the first time I have no idea what you're on about.

Grayling allowed Virgin Stagecoach to wriggle out of contractual obligations and huge losses. He allowed them to do it in a way that was extremely advantageous to the company. They were on the hook for 2 billion pounds in total- which would have been subject to renegotiation if the promised upgrade were not there in 2019 - by avoiding it now they " may have to cough up no more than a £165m parent guarantee."

as the Financila Times article goes on

hat leaves the unpleasant smell of a “heads I win, tails you lose” arrangement.

Many train operators have sobering cheques to write under the deals they’ve signed with government. No doubt they’d love to swap these bills for one of Mr Grayling’s new “partnerships” on easier terms.

The transport secretary may think he’s been politically clever. At a time when the Labour leader Jeremy Corbyn is loudly banging the drum for renationalisation, he has avoided pushing the East Coast franchise back into public hands for the second time in a decade.

In practice, however, his actions betray a tin ear when it comes to the political dynamics of the privatised railways. By letting private, dividend-paying owners off the hook, he has at a stroke delegitimised future dividends, a feeling that will only grow if further contracts are renegotiated.

Given the company made a completely unjustified and untrue political attack on Corbyn I think he's treated them with remarkable leniency

[Tubby Isaacs]

Corbyn lied then too. The government oversees rolling stock.

[Tubby Isaacs]

I explained about "on the hook". You can see from the way the payments shot up in the last 3 years of the contract what was going on. Why would Souter/Branson have bid like that? What else were they expecting to happen?

[Tubby Isaacs]

And that FT article. It's obviously not true that it was this deal or renationalizing. He could have done another tender starting ASAP.

[NHH]

And, as if on cue, here comes John 'the SNP are finished' McTernan, the sage of Edinburgh, to give the message from the inner sanctum of High Blairism. Fucking bellend.

Value for money, you say John?

[sw2borshch]

Apparently there's no reserve army of labour these days? Really? Or just not in the right places?

[N est à?]

Perhaps this Exciting New Centre Party for people like McTernan which we so eagerly await can buy the Carillion name.

[Tubby Isaacs]

I'd thought McTernan had been much more involved with Blair than he in fact was. 2 years as chief of staff (2005-7). The sub that got sent that article must have enjoyed himself. "Outsourcing is a powerful public good". The biggest claim that's ever been made for it before is that it can save money.

I'm actually more sympathetic to PFI than some other kinds of outsourcing. There was a genuine problem with terrible neglect of public buildings (albeit exacerbated by Labour going even more austere than Major till 2001) and it would have been difficult to borrow all that upfront with 7% interest rates. We weren't talking the sort of bargain basement rates that make borrowing directly for infrastructure now a no brainer. But they didn't have the expertise at that time to negotiate the deals properly. I think they did get better at it, just as the SNP did their own PFI in government and have apparently got respectable value from it.

As I understand it, at least some PFIs can be bought out to save money. In Northumberland, the county council had a cash pile and lent the NHS trust money to buy a PFI out and saved a lot of money. Something similar happened in Herefordshire too. I assume that this is what McDonnel means by bringing PFI back in house, and that makes a lot of sense. I expect some of the deals would be put out to tender once bought out, but they needn't be.

Interestingly too I see Stella Creasey is pushing a PFI windfall tax. I don't know if that's a "moderate" attempt to head off McDonnell buying the PFIs out, or something that could be considered in addition. I don't know if it's legally viable.

[NHH]

He was knee-deep in party hackery; his actual working time with Blair was comparively brief, but he's been a true believer for decades.

[Tubby Isaacs]

His response to the Panama Papers was quite something.

[Ginger Yellow]

There was a genuine problem with terrible neglect of public buildings (albeit exacerbated by Labour going even more austere than Major till 2001) and it would have been difficult to borrow all that upfront with 7% interest rates

But it was borrowed up front. It's just that the principal didn't get added to the PSBR. Until it was, in a lot of cases, because the risk transfer wasn't there.

As I understand it, at least some PFIs can be bought out to save money. In Northumberland, the county council had a cash pile and lent the NHS trust money to buy a PFI out and saved a lot of money. Something similar happened in Herefordshire too. I assume that this is what McDonnel means by bringing PFI back in house, and that makes a lot of sense.

It's pretty rare that they can be bought out without big payoffs that will eat up most if not all of the savings. You might be able to negotiate a discount with the contractor for the performance fees, but the bonds are going to have Spens and/or swap break costs. See for instance the Tube PPP being brought back in house, where even where they were able to take over the contracts, they still had to buy out the creditors.

[Tubby Isaacs]

The capital investment was borrowed up front by the PFI company not the government. Logically, of course, that's the government borrowing and it's an accounting trick, but equally the PSBR going up much faster much more quickly wouldn't have pleased the Bank of England.


This is the Northumbria PFI buyout.

https://www.ft.com/content/cc4f10b2-...8-00144feab7de

The savings are pretty significant, and I can't see there's anything particularly unusual about the particular PFI.

The cost (over the next 19 years) comes down from £249m to something like £185m.

[Tubby Isaacs]

I'd remembered that slightly wrong- it seems that the County Council borrowed their cash from the Treasury.

I don't know why the Treasury couldn't lend directly to the NHS Trust.

[Ginger Yellow]

The savings are pretty significant, and I can't see there's anything particularly unusual about the particular PFI.

The way the bonds are almost always structured, you have to pay as much (or more) as you would to leave them outstanding. I'm guessing that was bank rather than bond financed, and hence had lower break costs. That article does also have a quote saying the situation was "relatively unique".Nothing wrong with borrowing £114m to save £64m, if you can get the £114m cheaply and sustainably, of course.

[Tubby Isaacs]

Ah, OK, I'd missed that. Probably not too widely replicable.

[Ginger Yellow]

Looks like it was bank debt, but swapped to a fixed rate at around 6%. So the swap break costs would have been pretty sizeable, but no Spens (which would be even more expensive).

[Tubby Isaacs]

Actually, the "relatively unique" bit in that article is the council's relationship with the hospital. That doesn't sound like it should be insurmountable across the board.

[Tubby Isaacs]

What does McDonnell mean by "bringing PFI back on the books" if it's not buying out?

[Tubby Isaacs]

Seeing it's being chucked in with Carillion, I repeat the point I've made about Corbyn and VTEC.

“What they’ve done is underbid, made a lot of money out of it and then moved on,” Corbyn said. “When the East Coast mainline was publicly-owned, it paid in a handsome profit to the Treasury and it was well-run.

The East Coast Mainline has never stopped being profitable to the government. Something like £525m has been paid to the government over 2 years so far. This is either ignorant or trying to pull the wool over people's eyes. I wish he and others on the Labour left wouldn't do it. Their rail adviser, Ian Taylor, makes the case for nationalization on the basis of reducing "friction points" between different organizations. That's a much better argument than the sort of nonsense being put forward about VTEC.

[Lang Spoon]

I fear we will look back on the last decade of infrastructure and rolling stock investments in the railways as a golden age if the railways get nationalized during anything but the softest of Brexits. I just can’t see the bastards in the Treasury waving much in the way of large scale railway investment through (roads though, probably not a bother).

[E10 Rifle]

Interestingly too I see Stella Creasey is pushing a PFI windfall tax. I don't know if that's a "moderate" attempt to head off McDonnell buying the PFIs out, or something that could be considered in addition. I don't know if it's legally viable.

But how much would such a windfall tax bring in, if part of the problem is that PFI firms' profits have been squeezed in the age of austerity? Also, it strikes me as an inefficient circulation of money – government splurges money to PFI firm, gets some of it back at a later date once tax returns have been filed.

Feels like a 1997 answer to a 2017 problem, an apt description of the MP who proposed it.