Cloudy future for public-private partnerships

Report casts doubt on privatisation in the health service

by BBC News Online's Steve Schifferes

The Institute of Public Policy Research - the centre-left think tank closest to the government - has released its long-awaited report on public-private partnerships.

New Labour's rhetorical commitment to greater private involvement should not be trusted

Lord Blackwell, former advisor to John Major

The IPPR report, which was widely leaked in the press in the run up to last month's general election, does not in fact contain the ringing cry for further privatisation that upset many of the left of the Labour Party.

Instead, the report argues for a "pragmatic rather than dogmatic" approach to the use of the private sector in providing public services - and argues that several flagship government privatisations, including the London Underground and the National Air Traffic Services, may have been mishandled.

A brave attempt in murky waters

John Monks, TUC General Secretary

Speaking at the report's launch, Cabinet Office minister Barbara Roche welcomed the report and said that private-public partnerships had a role, but were not a panacea for improving public services - the key objective of Labour's second term.

She said that the what the public wanted was quality and delivery of services, and accountability, which should be at least as important as ownership.

Economics of privatisation

The IPPR warned the government that the private finance initiative - which gives the private sector responsibility for building and managing projects like roads and hospitals in return for a yearly fee - should not be used as a way round public spending controls.

Monks: Cautious welcome to report

It pointed out that the PFI represented less than 10% of public capital investment.

And it said that it was questionable whether PFI projects were really good value for money in health and education - as opposed to the roads and prisons sectors.

The institute criticised the Treasury for insisting on too high a return on investment for competing public sector projects, and said that lowering the so-called "discount rate" on these projects by just 1% from 6% to 5% rate of return would make many more of them competitive.

Speaking at the launch, Will Hutton, former editor of the Observer and head of the Industrial Society, warned that the need to test every project for suitability for PFI had paralysed the public sector expansion programme planned by the government.

It had prompted underspending of £5bn by government departments in each of the last two years.

Business pleased

The business community was broadly pleased by the tone of the IPPR report.

"It has been welcomed by the companies involved in PFI, although it did not say all they wanted it to say," said Roger Baird, editor of trade journal PFI Report.

"It makes PFI look like a serious option. It has legitimised PFI to a certain extent,"

Many construction firms, in particular, are hoping for a big expansion of public sector work as the government drive to boost public services gathers steam.

And CBI director-general Digby Jones, who also spoke at the launch, also sounded a conciliatory tone towards the unions.

Too often in the past, privatisation had been used as a means of lowering workers' wages and conditions rather than improving the delivery of services, he said.

Mr Jones warned, however, that the government's drive to improve the UK's overall productivity record must be extended to include the public sector.

For the TUC, John Monks said he hoped that the report signalled a less confrontational tone by the government towards the trade unions.

He called it "a brave attempt in murky waters" and said that unions should celebrate the re-election of the Labour government "as a moment of triumph" in the fight to defend public services, and seek a partnership with the government to improve them.

Growing debate

And the debate on the future of the public services is raging in all political parties.

On Tuesday, a senior figure in the Conservative Party will argue that it needs to take on - and win - the debate on public services.

Lord Blackwell, who was one of John Major's closest advisors in government, will say that "public services will be at the core of the new agenda".

"They are right at the top of the public's list of concerns. And the reason for that is that they patently don't work at present."

He will also argue that "New Labour's rhetorical commitment to greater private involvement should not be trusted," citing the IPPR report as an example of backtracking, and calling for a reduction in the role and power of government as the organiser of people's lives.

It is a debate Labour thinks they can win.

Barbara Roche warned that if Labour failed to modernise and deliver on public services, there were "dark forces" which would not hesitate to force the public sector into a residual role.