Who Can You Really Bank On These Days?

"Neither a borrower nor a lender be," old Polonious advises his son Laertes in Hamlet, "For loan oft loses both itself and friend/ And borrowing dulls the edge of husbandry."

A modern version of the drama perhaps should have Laertes played as a young banker. A Diamond geezer. Bankers were once the scrupulous, punctilious J Alfred Prufrocks of London (T S Eliot used to work for Lloyds). What are they now?   

Arthur Daley, the London spiv played by George Cole in Minder used to say "Stand on me" when he had to convince somebody that he was telling the truth. Del Boy Trotter, David Jason's wide boy in Only Fools And Horses protested his innocence in very demotic French. Alors du combat! Rod-nee!

Redtops loved Arthur and Del Boy. They were conservative working class heroes: chancers, opportunists flying by the seat of their pants, living by their wits, making the most of what little they had dubiously come by. Others, cultural interpreters perhaps, saw them as exemplars of Thatcher's Britain, the Loadsmoney yobboculture caricatured by Harry Enfield.

Little did we realise that these comic characters were prefigurations of what was to come. Those who thought the selfish Eighties was as bad as it could ever get were wrong. Boring old financial probity was defenestrated as building societies became banks and banks became casinos. In the City of London the holy skyline created by Wren and Hawksmoor was desecrated by the Nat-West Tower and other symbols of sky's-the-limit capitalism. But we didn't know the scale of the enormities of the Nineties until the summer of 2007.

Constraints were embedded in the financial market for very good reasons: to keep the bent from going crooked and offer the trusting public an assurance of honest dealing. In the exciting catch-me-if-you can ethos that Oliver Stone memorably caught on film in Wall Street, constraints were for wimps. Asset-stripping corporate raiders like Gordon Gekko now look tame compared with the real-life sub-prime species who Swiss Rolled debts and flogged them on.

This week the underhand price-fixing dealing of Barclays, RBS and their pals was exposed once again. Simultaneously, reports came out that some heath care trusts developed by Private Finance Initatives were in a state of terminal financial decline. This business with PFIs rang a bell. 

A few years ago I came across a book called Plundering the Private Sector by David Craig and Richard Brooks. I must have read it for I bashed out a paper to a friend who was trying to make a living in the regeneration game in Prague. The paper was called: BEWARE - CONSULTANTS AND PRIVATE FINANCE INITIATIVES. 

Craig and Brooks detailed the ways in which Tony Blair's Labour Government had, since 1997, conspired with private consultants to bring forth the brave new world of health care centres, hospitals, schools, roads and prisons, at an estimated cost to the public purse of £70 billion (2,800 billion Czech Crowns). Deloitte, Ernest & Young, KPMG and Pricewaterhouse Cooper did exceptionally well out of these deals. Consultants use private finance to plan, design and build on behalf of central government. Without the stewardship of a Thomas Cromwell these build now and pay later schemes accumulate colossal debt and inevitably lead to cuts in services and jobs to keep up the interest payments.

PFIs were thought up by Conservative MP David Willetts and were adopted by John Major's erstwhile Chancellor of the Exchequer Norman Lamont. Post 1997, PFIs were seen as a way of quickly bringing about huge capital-intensive building programmes. By 1995, Craig and Brooks estimated that 725 PFI schemes had been signed up, worth an estimated £46 billion.

PFI schemes, unless strictly regulated as they apparently are in the United States, invariably result in snowballing debt and revenue cuts. The authors listed five characteristics of unregulated PFI schemes: they are inordinately expensive; they are inflexible; the social costs are enormous; they offer no value for money. The fifth is possibly the most serious in its implications for a representative democracy: they are so convoluted as to be unaccountable.

I sought enlightenment from my friend Richard North, co-author of The Great Deception, a comprehensive history of the European Union in its various incarnations, and once upon a time researcher for the CP (Conservative Party). He explained what may seem obvious to you but was news to this bear of incalculably little brain:-

Public sector finance can be kept off the official accounts book; because it is classified as private finance it is not accounted for under public borrowing. Nor does it fall foul of the growth and stability pact rules of the EU. These rules state that a member state's annual budget deficit should not exceed three per cent and that total public debt should not begreater than 60 per cent of total Gross Domestic Product. For other bears of little brain GDP refers to the total amound of lucre spent on goods and services in the whole economy.

Transactions with consultants are 'off books',  fees are charged to the user and in Britain all-in-one packages complicate matters. These packages include service charges and other costs as part of an annual fee. These fees never appear in the Public Sector Borrowing Requirement figures because transactions are funded out of annual revenues. Stay with this, it gets better.

Newly built hospitals and hospitals that are part of a larger trust are paying full commercial rent for a site and commercial rates for basic services. Because the charges are so high, payments have to be found from money paid by the government to run the service. This means hospitals, deeply in debt, struggling with top-heavy management tiers set on by consultants, are obliged to lay-off nurses and close wards. The same applies to new technology IT systems devised and installed by private consultants to run vast public sector schemes. The cost runs into many hundreds of millions and often the systems do not work. Hundreds of millions of public money have been written off in failed IT schemes in Britain since 1997.

Why not simply borrow the money from the markets directly and cut out the middle man? Presumably because it wouldn't look good on the books inspected by the EU.

Most PFI schemes involve bungling. All-in-one packages are very difficult to monitor: it is impossible to tell how much each component part of the package costs. It is impossible to measure value for money. There is loss of accountability and accountability is the basis of democracy: without it democracy means nothing.

The authors of Plundering the Private Sector say in the mid-1980s the kind of unregulated nightmare current in the UK used to be the norm in the United States. The tide turned in 1996 with the Republican Clinger-Cohen Act. "The Act changed the way IT systems were bought and implemented in the US public scetor, forcing departments to take responsibility for and report to Congress on the results achieved...Since passing the Act the performance of IT systems consultancies in the US has been judged to have radically improved and government expenditure on IT has begun to fall....Under New Labour, the whole process of democratic accountability has broken down and been replaced by cronyism, profiteering, spin and outright lies."

Craig and Brooks recommended the abolition of PFI schemes and the disbanding of tiers of extra management and advuisors. Consultancy fees should be slashed by 30 per cent immediately. Excessive profiteering should be investigated by the Serious Fraud Squad.

That was then, in the days of innocence before the Credit Crunch, the Parlimentary expenses scandal, phone hacking and the latest banking scams. Nevertheless, I hope the above is of interest to those who, in spite of everything, maintain the hope in their hearts that change is going to come.