Labour is putting its plans for Britain in the hands of private finance. It could end badly

[Emrys]

Handing vital infrastructure to private investment companies will generate windfalls for investors and leave the rest of us worse off. We need a better plan

Daniela Gabor is professor of economics and macrofinance at UWE Bristol

The Labour party has a plan for returning to power: it will get BlackRock to rebuild Britain. Its reasoning is straightforward. A cash-strapped government that wants to avoid tax increases or austerity has no choice but to partner with big finance, attracting private investment to rebuild the infrastructure that is crumbling after years of Tory underinvestment. Labour has already done the arithmetic: to mobilise £3 of private capital from institutional investors, you need to offer them £1 in public subsidies. But every time you hear Labour announce such an infrastructure partnership, think of the hidden politics. BlackRock will privatise Britain – our housing, education, health, nature and green energy – with our taxpayer money as sweetener.

BlackRock has long peddled the idea of public-private partnerships for infrastructure, climate and development. Yet its political momentum has recently accelerated. When its chair, Larry Fink, the world’s most powerful financier, sat with world leaders at the G7 summit last month, he promised the following: rich countries need growth, infrastructure investment can deliver that growth, but public debt is too high for the state alone to invest the estimated $75tn (£59tn) necessary by 2040. Trillions, however, are available to asset managers who look after our pensions and insurance contributions (BlackRock, the largest of these firms, manages about $10tn, as a shrinking welfare state pushes us – future pensioners – into its arms).

If governments work with big finance, Fink explained, they can unlock these trillions. But to do so, they will need to mint public infrastructure into investable assets that can generate steady returns for investors. Why does BlackRock need the state? Why can’t it deploy trillions without the government’s helping hand? The British public remembers all too well PFIs, the private finance initiatives through which the state ended up paying extortionate amounts to private contractors that designed, built, financed or operated public services such as prisons, schools and hospitals before handing them back to the state, often in poor condition.

But for big finance, there is more now at stake. In this golden age of infrastructure, financiers plan to own our infrastructure outright and transform it into a source of steady revenue. Since buying Global Infrastructure Partners in January 2024, BlackRock holds about $150bn in infrastructure assets, including US renewable energy companies, wastewater services in France and airports in England and Australia. It plans to expand aggressively, just like other private infrastructure funds. Direct ownership is the main game, but not the only one. Big finance can also invest in infrastructure indirectly, by lending to private infrastructure companies. The key is returns. For this, BlackRock wants the state to “derisk” investments. This financial jargon was included in the 2024 Labour manifesto, and it in essence involves the state stepping in to improve the returns on infrastructure assets.

https://www.theguardian.com/commentisfree/article/2024/jul/02/labour-plans-britain-private-finance-blackrock

Many parts of Britain are indeed still paying off the debts resulting from deals arranged under the Private Finance Initiative contracts instigated by the Tories in 1992 and enthusiastically embraced by Labour Chancellor of the Exchequer Gordon Brown from 1997 onward to fund infrastructure projects, including roads, hospitals and schools, while keeping the government's books less in the red than they might otherwise be.

The Tories announced in 2018 that they would abandon the use of PFI. The deals currently in force - there are around 700 of them in the UK as a whole - still apply, but the earlier ones are beginning to expire, a major part of that shift beginning next year, meaning the assets will be returned to local authorities or the state. And given the shoddy workmanship in some cases which has seen disasters like whole walls of some schools collapsing, along with unsuitable materials such as reinforced autoclaved aerated concrete now revealed to have been used in a number of public buildings, that may prove even more costly than the already too business-friendly terms of some of the deals.

And now Labour looks set to expand this adventure in capitalism as a desperate attempt to fulfil its latest fetish for out-Torying the Tories and avoiding having to hike taxes by nationalizing the risks involved and privatizing the profits in a pattern that's grown all too familiar over the years.

[2naSalit]

1. (((GONG)))!!!!!!!!!

NO!

[OnDoutside]

2. Hmm not sure how accurate that is. The bigger picture is

Labour's at best, current EU stance, which may be a tactical ploy to deflate it as an election issue. If it is, it has worked well, if not they'll be faced with the same issues the Tories are having with the economy.

[Emrys]

4. It's in Labour's manifesto, as mentioned in the article

She's a professor - her reputation wouldn't withstand making things up, whereas future funding is something Labour (and the Tories) have been shady about during the whole campaign, and what they have said has borne out the argument she makes.

And yes, any opening up on relations with other European countries would be beneficial and no doubt help to plug the finance black hole. But with Starmer, I reckon rowing back on Brexit is very unlikely to happen in any meaningful way. It's like a throwback to the Blair years - "It's worse than you think. I really do believe in it."

[OnDoutside]

6. Jonathan Turley is a professor too, and his reputation is .... oh wait....

I don't know enough about her to make a judgement call, however that said, Labour are hemmed in by the state of the UK economy and there are few ways to generate the income for investment. Outside investment is one option, while another is growing the economy by increasing trade. They most obvious is to move closer to the EU, perhaps starting with full EU standards realignment and then to do what it takes to somehow re-enter the Single Market. Starmer has mentioned realignment in some areas but has ruled out re-entering the Single Market. That being the case, they don't have much leeway to do anything else, apart from making massive cuts, as he's ruled out tax rises.

[T_i_B]

7. Labour's policy offer is very over-cautious

To the point where they are going to have to be a lot more radical than they promise just to stop things like universities and local councils from going bust.

Labour's campaign might talk about change in vague terms but actually delivering positive change will require bold and at times radical thinking!

[Emrys]

8. Nobody, but nobody from Labour has indicated that they have any intention

Last edited Wed Jul 3, 2024, 09:54 AM - Edit history (1)

of relaxing their adherence to Brexit except in the vaguest terms. I don't know why I can't convey that to you. If all you have is ad hominems about an academic you admit you know nothing about, it's not much of a basis for a discussion.

Entering the single market would entail accepting freedom of movement of people as one of the EU's Four Freedoms (of movement of people, goods, services and capital). Given the rhetoric they've come out with about immigration, that's a non-starter.

That also rules out being part of a customs union, and that is one of the aspects that's hitting the country's economy worst. They can "realign" all they like, the goods still have to be traded across frontiers, and that entails costs.

And it's notable how much the question of costs has been glossed over during the election campaign. The most concrete commitment Labour's given while it seeks to change as little as possible from the Tories' pledges on tax and fiscal policy etc. is to crack down on tax avoidance (though not evasion for some reason) among the very rich. That's obviously worth doing for its own sake and long overdue, but it's a drop in the ocean compared to the depth of the problem.

IFS warns of Labour and Tory ‘conspiracy of silence’ over future tax and spending plans

Toughest outlook for public finances for 80 years means next government must find tens of billions in cuts or tax rises, says leading thinktank

https://www.theguardian.com/business/2024/mar/07/ifs-warns-of-labour-and-tory-conspiracy-of-silence-over-future-tax-and-spending-plans

Estimates of the black hole being faced as a result of the manifesto's fiscal policies range from £12 billion to £18 billion.

they don't have much leeway to do anything else, apart from making massive cuts, as he's ruled out tax rises

Yes, that's the nub of all the materials I've cited in and under this OP. Only the SNP has raised both the effects of Brexit and the shortfall in financial projections during the leadership debates. Both the current major parties of government would rather not talk about them.

Another thing Labour in particular doesn't want to talk about is this:

‘When power shifts, so does the money’: mega-donors fill Labour’s coffers

https://www.theguardian.com/politics/article/2024/jul/02/how-labour-has-wooed-big-donors

Although Labour's been less aggressive and somewhat more careful about the larger donations it accepts, Labour's new leader in Wales, Vaughan Gething, has already been embroiled in a scandal over a large donation he took, and may yet be unseated by it. Wes Streeting, who has championed a greater role for privatization in the NHS and is likely to be the next health minister, has so far accepted £175,000 from donors linked to private health firms. I could go on.

[OnDoutside]

10. I'm not suggesting that anyone from Labour has

spoken about moving back towards the EU, apart from Starmer's view on alignment

https://www.politico.eu/article/labours-plans-to-ease-post-brexit-trade-likely-to-require-accepting-eu-rules/

I AM saying that they are likely to be left with little choice because of the economic situation that they will continue to find themselves in.

I am also saying that I don't expect much if anything in that change to occur before at least the first half of the next parliament, maybe even by the start of the following parliament.

Finally if there is a point at which the UK makes an application to rejoin, it will likely be in as much as a couple of decades time. What might preclude any rejoining is the mandatory joining the Euro and Schengen.

[Emrys]

11. Joining the euro needn't be a barrier to any candidate for entry to the EU

Candidates are expected to commit to joining the currency union, but the timescale is deliberately vague - the EU doesn't want countries which aren't economically ready to do so to adopt the euro as it would risk destabilizing that country's economy and the currency as a whole. There are a number of examples of member states which have signed up to such a commitment and have delayed the process by many years, even indefinitely. There are no penalties for doing that. Schengen might be a barrier, but given its obvious advantages for countries that have agreed to it, one would hope the debate about immigration might have become less heated that far down the road so it might be a non-issue.

I'm at a loss to try to figure out what you're trying to say at all. In one post you say, "The most obvious is to move closer to the EU, starting with full EU standards realignment and then to do what it takes to somehow re-enter the Single Market", then you're backtracking from that impossible scenario and kicking the ball down the road and saying "it will likely be in as much as a couple of decades time". By that time, I'll probably be dead and our remaining national utilities will have been long traded away.

None of what you've written is germane to the argument of the OP, in fact it seems like you're floundering for a counter-argument to an argument that hasn't been put forward.

Muriel and a few others of us have pointed out how Labour's wilfully painted itself into a corner, and you seem to agree. Its lack of choices is a result of political decisions, and those are the same decisions many of us are alarmed at because we went down that road in the Blair years and following them, and it looks like we may be facing that scenario writ large because Labour hasn't needed to seriously account for itself during this election because the Tories are such basket cases and Labour is set on much the same route. That stance by Blair and Brown in turn led to a backlash that landed us with another extended term of Tory rule, continuing the ratcheting effect that sees the UK's politics tend ever rightward and our public services degraded to the point where it's possible to sell privatization as the only possible course of action.

[Emrys]

12. Maybe Starmer reads DU

Keir Starmer has insisted the UK will not rejoin either the EU, the single market or the customs union within his lifetime, in his firmest pledge yet that Labour will not seek much closer relations with Europe for as long as he is prime minister.

The Labour leader told reporters on Wednesday he did not think Britain would go back into any of the three blocs while he was alive, all but ruling out rejoining even if he wins a second term in office.

https://www.theguardian.com/politics/article/2024/jul/03/britain-will-not-rejoin-eu-in-my-lifetime-says-starmer

So that translates as "over my dead body".

[muriel_volestrangler]

9. The problem is that "borrowing to invest" by a government is being ruled out, but not by private corps

You're actually doing it yourself, by saying "they don't have much leeway to do anything else". But yes, they could build the infrastructure by borrowing as a government, rather than asking private corporations to borrow to do it and take ownership. In the long term, it's be a better deal for the country, because it wouldn't be paying BlackRock etc. to be allowed to use the infrastructure. It's the problem we've had with PFI and privatised water. Those made the country's balance sheet look better in the short term, and worse in the long term.

[T_i_B]

3. Here in Sheffield...

Last edited Wed Jul 3, 2024, 04:13 PM - Edit history (1)

The local Labour party was put in special measures by Keir Starmer last year owing to the many issues surrounding the PFI deal struck between Sheffield's Labour run City Council and Amey for road maintenance.

Even if a lot of councillors on all sides can't admit it publicly, privately many will admit that the PFI deal has been a disaster.

So yeah, it does beg many questions of Labour as to why they are bringing PFI back. It has the potential to fail on a major scale, which could cause serious damage to both Labour and the country.

[Easterncedar]

5. From prisons to toll roads to what used to be "public utilities" the US is doing it too

And it’s costing us more than we generally admit