It's a dream - going to work, on a train that you know will be there on time, taking a trip to the A;E at your local hospital knowing that you wont have to wait for more than 4 hours until you are seen. Waiting one year for an operation, a waiting list on the NHS of one million (UK pop is approximately 60m as at June 2002). Does this seem far-fetched? Ludicrous?Well it does exist - just not in the UK.
The UK is one of the richest countries in the world, especially with the current decline in the global economy. We are one of very few that is managing to keep our heads above water. So why can't our government deliver these public services that have been promised, in this and more or less every election speech we have had.The Chancellor has pledged hundred of billions of pounds to build the public sector: �180bn into transport alone, and we are all too aware of the disaster of our railway network.I work in the public sector - for the local government, and I know why Tony Blair admires entrepreneurs like Richard Branson so much - he gets it done!Our office has been waiting for a scanner system to upload our documents for two years. If this were the Virgin Offices they wouldn't wait more than 2-3 months before getting another supplier.
Mr Blair and the Tory before him started to think that maybe the answer was not only private funding, but their thinking too. They needed the money because throwing (public) money at the situation was not helping. Yes, money was needed, but could they really afford to raise taxes? Well it is common knowledge that voters don't like a tax hike. So politicians looked elsewhere to fund these projects.
It was the Conservatives that looked at the idea of involving the private sector in improving the public services. They introduced Compulsory Competitive Tendering - CCT - obliging public bodies to offer contracts to the lowest bidder. The problem soon became clear that although a service might be cheap, but it could also be bad.In 1993, the Tories pioneered the Private Finance Initiative (PFI) scheme. This involved cash raised by the private sector to build new public infrastructure. Not only did they bring in cash, but for ambiguous Treasury reasons, the cash didn't count against public borrowing, so it seemed as though public expenditure stayed low.
Under this scheme, the private consortium is responsible for the designing, financing, building and operating public projects in a contract that typically last for 30 years. The private consortium will be paid regularly from public money depending on its performance throughout the contract, leading to opposing politicians saying that the government are "mortgaging the nations future". At the end of the period the project can be passed to the public sector. The government says PFI provides a way of upgrading Britain's old infrastructure on a large scale without increasing the burden of public debt. A major attraction is also avoiding making one-off large payments.
PFI also gets round tough public rules that prevent public bodies raising private cash.The attraction for the private sector is similar to that of a bank, (or building society) providing a mortgage to a homebuyer. They get regular payments for an extended period. Critics point out the interest rates and the repayments are costing more for the public. A survey of 200 members of the ACCA found that only 1% strongly agreed that PFI provided value for money. About 25% of these members had worked on PFI projects.
Various projects are involved with the PFI scheme - housing, property, transport and street lighting, waste management (Onyx), individual scores, one police station. This shows that the range of public services that the government want to involve the private sector. Seems to contradict the comments Mr Blair has made to the unions that the public sector will never be privatised (!).The Skye BridgeThe Skye Road Bridge was the first major PFI project and in its breathtakingly mocking budgeting (�12m that "we" contributed, although it was supposed to be a PFI project) and its contempt for the people who actually use it, symbolises and typifies everything that is wrong with letting money into what should be state enterprises. It opened on 17th Oct 1995. The project's major funder, the Bank of America provided �23million and this huge outlay would inevitable mean charges for use on the bridge.
Tolls for the Skye BridgeSource; www.skye-bridge.co.ukAt �5.70 for a one-way journey the toll is steep.
This lead to locals not paying the toll and getting fined. Since then the toll has been cut - a practise of price discrimination and discount books issued to regular users, which is a form of using bundle pricing.Source; www.skye-bridge.co.ukThe ferry that used to run between Kyle and Kyleakin has now been removed so it is now the only all year round method of access to the Island from the mainland - which makes it a monopoly in that area.
Does this mean that if it is only way to get to Skye that is a success?Cost benefit analysis is a technique that attempts to evaluate the social costs and benefits of an economic decision. In this case, the decision is whether to have built the bridge or not and whether to have used the PFI scheme.Cost benefit analysis is on the whole used by the public sector, because although both public and private projects produce externalities, private firms do not consider these, because unlike the government they do now have an obligation to the public to maximise social benefits. It is relatively easy to place a value on private costs and benefits; however, it is not so easy to place a value on the social benefit and costs. What would be the value on the extra pollution that cars using the Skye Bridge would produce and the loss of business for the ferry companies, which was the main form of getting to the Skye Island? There are positive externalities too - increases in tourism, easier links with main land (better financially for export orientated firms), time saved in travel.
But how we put a value on these externalities. How can one put a value to the hours saved in crossing? One example would be to estimate the money that would be generated by firms given the extra hours? How can we take into account the value of human health that would deteriorate (asthma sufferers) given the extra traffic on the Island? It is difficult to put a value in present time on the funds borrowed by the government as they have a lower interest rate than the Bank Of America (major funder of Skye Bridge) would.This is because government borrowing is seen as low risk and given low rates. Determining the interest rate of public funds is known as the Social Rate of Discount (SRD).
How important is the social rate of discount? The discount rate for government projects has critical implications for national budgets, for regional development, for choices, for the environment and for the size of government. Too high an SRD can mean under-investment in social programs. Too low an SRD can mean over-investment. Thus, the choice of discount rates can have ramifications that transcend the mathematics.
