Why did the Labour Government promote PFI? This question is answered in chapter 2. The Labour Party came to power in 1997 in a situation in which the electorate were perceived as not wanting to pay higher taxes while at the same time demanding improved public services. It was in this context that New Labour came into power with the so-called 'Third Way' approach, an approach presented as being between the dogma of the Right and that of the Left.
PFI was attractive to New Labour because it seemed to offer a way of funding public sector investment without raising income tax or public sector borrowing while also promoting the private sector which many in New Labour believed to be more efficient than the public sector. It was in this context that Gordon Brown, the incoming Chancellor of the Exchequer in 1997, adopted two fiscal rules. One was the so-called golden rule of matching current government revenue with current expenditure over the economic cycle; the second was to keep the public debt-to-GNP ratio down below 40%. Investment under the PFI was seen to be useful to the second rule even though, over the long-term, it was likely to threaten the first.
Now (in April 2009), with the onset of the recession, the debt-to-GNP is expected to rise from 43% at the end of the 2008/09 financial year to 79% in 2013-14 (Guardian, April 23 2009, 5). The 40% target is in tatters. Thus a PFI policy which (as this report points out) is micro-economically disastrous was introduced to meet a target which has itself been smashed by an incompetent macro-economic policy.