The 40% golden rule and "Prudence" Brown's neoliberal debt legacies.

Gordon "prudence" Brown's PFI debt legacies
will haunt the UK economy for decades.

When the subject of government debt arises some commentators still point to Gordon Brown's era of "fiscal prudence" as an example of good economic policy. The fact that Gordon Brown was lauded for his stupid and arbitrary 40% "golden rule" is part of the debt problem, because the Labour party openly subverted their own arbitrary system by not counting their PFI debt legacies in official government debt calculations.

In setting a strict limit on normal government borrowing but leaving a backdoor that involves the secretive neoliberal privatisation of state infrastructure and the accumulation of an estimated £240 billion of debts, Gordon Brown was undermining his own "prudence" through the reckless incentivisation of neoliberal economic alchemy schemes.

The effect of "Gordon's PFI backdoor" is that the state finds itself tied into growing numbers of rigid and overpriced contracts with private sector operators that expect 30 years of profiteering at the expense of the state, even if the state can find no way of using the infrastructure efficiently. In August 2011 the Parliamentary Treasury Select Committee finally got around to admitting that PFI is as an "extremely inefficient method of financing [public infrastructure] projects".

The fact that the arbitrary 40% rule was used as a mechanism to divert ever increasing flows of state funds through inefficient and inflexible neoliberal investment vehicles become even more infuriating when Brown & Darling decided to tear up their golden rule overnight to pour an estimated 91% of GDP into the banker's black holes of debt in the form of bailouts and nationalisations, another tranche of government borrowing (that like PFI is misleadingly excluded from government debt calculations).

Of course the banks that Neo-Labour smashed their 40% golden rule to nationalise (and save from ruin) have huge investments in these PFI schemes that are designed to leech on government funds, meaning that whenever the government owned banks provide finance to new PFI projects, they are totally undermining the stated justification for PFI (that the private sector would raise additional infrastructure investment funds and bear the burden of risk). If the government backed banks provide the investment and shoulder the burden of risk, the risk is transferred back to the state and done so via a methodology that politicians have finally begun to admit is grotesquely inefficient.

Neo-Labour were a deceptive bunch, as evidenced by their lies and distortions over the stated reasons for the Iraq invasion. Over Iraq they were badly found out, however on PFI they won an enormous yet almost entirely unpublicised victory for economic neoliberalism. It was apparent from the beginning, that schemes built via expensive private borrowing and reliant upon staggeringly complex and expensively negotiated agreements would struggle to compete against inexpensive direct government borrowing. The whole justification was based on the myth of private sector efficiency, when the lesson should have been learnt from the botched and increasingly expensive rail privatisation; that offloading infrastructure to the private sector is not by definition more efficient than direct state operation.

It is incredible that the Labour party were allowed to launch so many of these inefficient privatisation by stealth projects, given that the majority of their funding came from the trade unions and a hefty proportion of their core voters fundamentally opposed privatisation. Their only mandate for their prioritisation of these neoliberal economic alchemy schemes seemed to be an astonishing level of public ignorance, something for which the mainstream media must be considered culpable for, if not complicit in.

Much of the right wing media opposed the Labour party but remained silent on the subject of PFI as it is exactly the kind of neoliberal economic policy they approved of. The reason the comparatively tiny left wing media remained silent on the issue is much more difficult to fathom, they either didn't even understand what was going on, or they refused to criticise it out of fear of rocking the New Labour boat.

Huge credit must go to Private Eye and editor Ian Hislop
for their relentless criticism of PFI inefficiancy.

The only media organisation that refused to remain silent on the great PFI ripoff was Private Eye, who remained fiercely critical of PFI inefficiency and the spurious justifications used to defend it. It is amazing that one small circulation fortnightly magazine was the lone voice of protest in the media for over a decade.

It was almost as if the editors of the mainstream UK media thought that PFI was too boring and complicated for us ordinary cretins to even understand and that allowing the politicians to get away with siphoning away £billions in taxpayers' money for so long would be in their best interests because had they chosen to criticise the policy, they may have experienced a tiny drop in sales as people too dim to understand the scam started buying dumbed down crap like the Daily Express instead.

I am often amazed by the public level of PFI ignorance, most people don't even know what PFI means and many of those that do recognise the term, treat it as if it is a subject of mind bogglingly complexity such as quantum mechanics or neuroscience. In fact PFI is not that complex, if it is possible to satirise, it must be possible for people to understand the basics.

Returning to the original theme: The PFI scandal should be seen as an absolute refutation of Gordon Brown's "prudent economic policy". His 40% golden rule served to massively increase the amount of government funds being siphoned into secretive and economically inefficient privatisation deals based on the construction of long term debt legacies that are far more expensive than direct government borrowing in order to artificially reduce short term government borrowing figures.

As well as the creation of £240 billion worth of overpriced debts, PFI creates another legacy problem because any attempts to subject PFI deals to the cuts being imposed on directly financed government infrastructure via "austerity measures" would trigger punitive compensation clauses in the PFI contracts. This means that PFI schemes are likely to be protected from spending reductions, forcing even greater cutbacks in state funded infrastructure, even if it is demonstrably cheaper, more efficient and more flexible than PFI legacies in the same sector.

I find people that maintain the fiction that Gordon Brown was "prudent" as infuriating as those that claim that the economic crisis is a result of the Labour party's left-wing policies. The fact that Gordon Brown's economic rules incentivised state financing of inefficient neoliberal PFI privatisations demonstrates that he was both economically incompetent and an adherent of dangerously far-right economic policy.