Rory Stewart explains how privatisation goes wrong

Picture of Rory Stewart

16 January 2024

Last week the tsunami of shock and outrage following the ITV docu-drama Mr Bates vs The Post Office gained in scope and ferocity, and it didn’t take long for the scandal to be covered by The Rest is Politics, a podcast hosted by two veterans of the political scene: Alastair Campbell, previously Director of Communications and Strategy for the Labour Party under Tony Blair; and Rory Stewart, former Conservative MP and Secretary of State for International Development.

Their focus was on the significance of a PFI (Private Finance Initiative) contract in the whole shameful saga. 

The Government defines PFI as “a long-term contract between a private party and a government entity where the private sector designs, builds, finances and operates a public asset and related services”. All well and good in its vanilla, innocuous way. But, as Rory Stewart explained, this method of dishing out payments for public services has been consistently exploited by private companies who know the game far, far better than their counterparts in government and the civil service. 

Here’s Rory Stewart and Alastair Campbell’s description of PFI, transcribed with some edits for readability (you can hear the original wherever you get your podcasts, or watch it on YouTube.

[RS] “Horizon was a PFI [Private Finance Initiative] scheme. It is this system that was used by the Post Office, with incredible bugs and errors, and that ended up with people being completely unfairly prosecuted.

“PFI is something that the New Labour government went into a great deal, but which the Conservatives were doing before. And the idea was that you get the private sector to pay for some of the upfront costs, and then the government pays rent later.

“That’s very attractive to Government because it's really good for their public balance sheet and debt, because it all theoretically sits with the private sector.

[AC] “In the case of Horizon, Fujitsu said that they would build this entire computer system for free in exchange for getting the revenue every time somebody swipes through their benefits card.”

“It’s one way of the government getting money into the system without raising taxes or borrowing…In a sense, you're sharing the risk. [However,] you're dependent on the same standards being applied as you would to a public sector operation, and that is not always going to be okay.

[RS] “One of the things that I noticed when we were dealing with these things in the Ministry Justice is that unlike a normal commercial contract, the government is really over a barrel.

“The problem with this type of privatisation is that if the private sector company doesn't deliver, [for example] it doesn't supervise people on probation or it doesn't maintain prisons. In the end, it drops back on the government anyway. You can't just say, oh, well, you know, sort it out, you promised to do this.

“And what we found is the private sector would come in and it would massively underbid. We were spending £185 million a year maintaining prisons. The private company comes in. And they said they would do it for, I think, £45 million.

“Sure enough, a couple of years later, none of the prisons are being maintained, windows are breaking, there's filth everywhere. And the company basically says,‘well, what do you expect?  I mean, you know, you were doing it for £170 million. We're doing it for £45 million. So, obviously, it's rubbish.’

“And we then try to insist on our terms - at which point the company simply declared bankruptcy and walked away. And it was the same with the probation system.

“So we ended up covering tens of millions of pounds worth of debt, having to bring the whole thing back in the house. And then, of course, we have to spend £180 million on maintenance instead of £40 million. 

I think the problem with a lot of these PFI's is that in the end, the government has to carry the can. Because we still have to run the schools. We have to run the hospitals. So there's no risk for these companies. They can get the contracts, and under-bidding, they can under-perform. 

“And in the end, if it all goes wrong, we have to take it over.”

Fujitsu and many other companies have been using their vast resources and negotiating experience to exploit the whole PFI model for decades. 

Make no mistake - Fujitsu have a huge part to play in the terrible scandal that wrecked the lives, livelihoods and reputations of hundreds of postmasters across the country. 

Since 2012, the government has awarded Fujitsu nearly 200 contracts worth £6.8 billion. They’ve been plied with contracts by successive governments, despite it being widely known in Whitehall that their systems were not fit for purpose. They were even awarded contracts while they were in litigation with the government.

If you think that’s all wrong, then sign our petition now and demand that Fujitsu be banned from all public sector contracts.

Picture of Rory Stewart

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Michael Lenton replied on Permalink

Both New Labour and the Conservatives believe in a market economy with the smallest possible public ownership. A new party is needed that believes in a mixed economy.

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