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Tuesday, 1 October, 2002, 14:37 GMT 15:37 UK
Blair: No compromise on PFI
A fierce row about hospitals is holding up reform

Prime Minister Tony Blair has laid down the gauntlet to the unions and his other critics of the private provision of public services.

Let's put partnership in place of paternalism

Tony Blair, Prime Minister
In his conference speech, the prime minister made it clear that if anything the government "had not been bold enough" in pressing for public sector reform.

He said that the Labour Party, the government and the country itself were at a cross-roads, and that his central domestic ambition was to reshape the post-war settlement that created the welfare state.

And he warned against the attitude that "if we change a service, we betray it".

He said that he did not care who built new hospitals and schools as long as they were available to his constituents and the people of Britain.

Union concessions

But in a concession to the unions, he said the government was prepared to ensure that workers' terms and conditions in the new private sector firms which are to run some public services were preserved.

And he said that the government was prepared to end union fears of a two-tier workforce - when new workers hired by these firms received worse conditions than existing staff.

"Work with us on the best way of delivering the service, and we will work with you on the best way of ending the two-tier workforce," Mr Blair told the unions.

Economic worries

Mr Blair said he was proud that Britain was the only government in the Western world that was still increasing the proportion of spending on health and education.

He was also quick to emphasise the economic achievements of the Labour government, including 6bn more for pensioners and long-term youth unemployment of just 5,000 across the country.

But the huge spending plans announced in July are coming under increasing pressure from the slowing global economy.

The government was hoping for economic growth this year of 2.25-2.75% - but, privately, aides to Chancellor Gordon Brown now admit that it more likely that growth will be under 2% this year.

Mr Brown will formally revise his plans in the November pre-Budget report, and under his own spending rules he is allowed to run a larger deficit if the economy slows down.

But in the long run, the slowdown will threaten the expansion of public services without another round of tax rises to follow those already announced, and which take effect in April 2003.

Unresolved issues

On the public partnership with the private sector, Mr Blair was careful to emphasise that Labour's means - the universal provision of health and education services - remained the same, but that the means had to be changed, by the use of such instruments as the PFI.

And he affirmed that both the health service and schools had to be focused on patients and parents, not doctors and teachers.

But he did not make clear his position on the fierce row over how far to reform the NHS.

Mr Brown is objecting to plans by Health Secretary Alan Milburn to give new Foundation Hospital Trusts the freedom to borrow money privately, arguing that it would breach his spending limits.

In his own conference speech on Monday, he said that "there would be no playing politics with the fiscal rules" and insisted that hospitals could only borrow from within the public sector.

The row is threatening to hold up the announcement of first wave of Foundation Hospitals, the centrepiece of Mr Milburn's reforms of the NHS.

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