Ministers face rough ride over PPP

The IPPR identified "significant problems" in bringing PPP to London Underground

by BBC economics analyst Steve Coulter

Labour's favourite think-tank has urged the government to rethink its strategy of revamping public services by enlisting the help of the private sector.

An eagerly awaited report by the Institute for Public Policy Research (IPPR) warns that so-called public-private partnerships (known as PPPs) have had mixed results, and should not automatically be considered the best route to improving services.

Instead, it calls for a "non-ideological approach" when deciding whether to use private sector money or know-how.

The report is significant because of the IPPR's influence at the heart of government.

Controversial schemes

Earlier IPPR proposals on private involvement in the NHS were incorporated directly into government policy.

PPPs have been used by Labour to build large numbers of schools, hospitals and roads.

More controversially, it is also the chosen route for part-privatising the London Underground and the air traffic control system.

These schemes were singled out for particular criticism by the IPPR.

"There are significant problems with the proposed PPPs for these two public enterprises," the institute said.

Restrictive approach

The report says the government has often relied on a limited pool of service providers and too restrictive an approach towards undertaking large building projects.

It needs to come up with better ways of deciding whether PPPs are the right way of delivering a service, based on wider criteria than simply slashing costs.

It criticises in particular the Private Finance Initiaitive, or PFI, were firms build and run capital projects in return for a yearly fee from government.

"PFI seems to be offering significant gains in roads and prisons, but not in hospitals and schools," it said.

Not far enough?

But in keeping with its "New Labour" reputation, the IPPR said there are also plenty of cases - particularly in health - where more, not less, private involvement could be beneficial.

It also argues that there is too much official squeamishness about letting private firms loose on core services:

"The private/voluntary sector should not be restricted to providing services only after a public sector agency is deemed to have failed."

And it points to some areas - for example the Post Office - where privatisation might have been an appropriate model, but was rejected by the government on political grounds.

The report also served to highlight common ground between those engaged in the debate.

Reaction

The TUC leader John Monks welcomed the report, and called on unions to "think positively".

John Monks: positive thinking

Digby Jones, the director general of the CBI, said: "The private sector has a vital role in improving public services."

Despite the implicit criticism of the government, the Cabinet Office Minister, Barbara Roche, was also enthusiastic: "Public-private partnerships are not a panacea - they are only one of our approaches."

Election issue

Labour is desperate to improve the quality of public services, and knows that failure to do this will be judged harshly at the next election.

Health and education are getting some of the sharpest increases in spending seen since the war.

But extra cash alone may not be enough. Reform has to go to the heart of the way services are delivered.

Prime Minister Tony Blair has shed "Old" Labour's ideological disdain for the private sector in favour of a pragmatic "will it work?" approach.

This has narrowed the policy gap between Labour and the Conservatives on enhancing public services.

'Quality and value'

In one of Blair's main election speeches, he said: "State schools aren't any less state schools because they are built by private contractors and buy books and computers from private suppliers.

"In the real world, virtually every public service engages private partners to a greater or lesser degree.

"What matters is the quality and value of the services on offer."

The resonance of Labour's emphasis on public services during the general election has not been lost on candidates for the Conservative leadership.

All the four runners so far - not just Michael Portillo - have been at pains to state their commitment to improving public services.

Rough ride

But opponents of PPPs promise a rough ride for the government.

Last week Unison, the trade union representing 1.3m public sector voters, decided to review its financial support for the Labour party in protest at the government's support for PPPs.

The government seems unlikely to have much truck with attacks from the left over PPP.

"If you're lying on a hospital trolley, you're not interested in ideologies, only in what works", said Barbara Roche.