HM Treasury News Release
22 July 1999
SHAKE-UP FOR PFI AND GOVERNMENT PROCUREMENT
PLANS WILL SAVE UP TO £1 BILLION
The Government is to create a new private sector-led body to help
increase and improve investment in the UK's public services from private
Partnerships UK will employ City experts to help the public sector
get the best deal from the Private Finance Initiative and other forms
of public-private partnerships.
A new Office of Government Commerce is also being set up as part
of a shake up in how Whitehall goes about managing its £13 billion
a year procurement budget.
The changes, which are expected to produce savings to taxpayers of
up to £1 billion over three years, follow recommendations
made in two separate but interrelated reports - one from Sir Malcolm
Bates, Chairman of Pearl, about improving the Private Finance Initiative
and the other from Peter Gershon, Managing Director of Marconi Electronic
Systems Ltd, about improving Whitehall procurement processes.
Launching the reforms, Chief Secretary to the Treasury, Alan Milburn,
said that Partnerships UK would provide the public sector with the
key commercial skills to forge more and better partnerships with the
private sector on equal terms.
The Government's reforms to the Private Finance Initiative have already
produced £4 billion worth of signed deals in services such
as hospitals, schools and transport but Ministers want to push the
initiative forward to help deliver the Government's modernisation
programme for public services.
Ministers also want to avoid a repeat of some of the problems they
have inherited in large PFI computer deals where a lack of expertise
in the public sector has led to contracts being signed without a proper
assessment of risk.
Partnerships UK will act as a project manager for PFI deals, providing
public sector organisations - from Whitehall departments to local
education authorities - with expert advisory and implementation skills.
The new organisation follows the recommendations made by Sir Malcolm
Bates in his second report on the PFI.
His first report in June 1997 resulted in the creation inside the
Treasury of a PFI Taskforce, drawn from the City, to help build up
PFI expertise in government. The Taskforce's two year life is now
drawing to a close and Sir Malcolm has now recommended that a permanent
organisation be formed to replace it.
The ground breaking Partnerships UK will itself be formed as a partnership,
with the private sector taking a majority stake in a joint venture
with central government and with a Board Chairman drawn from the private
Public sector bodies thinking of entering into PFI deals will be
able to use Partnerships UK on a voluntary basis. It will have no
monopoly and will seek to win business on the strength of its expertise.
Partnerships UK will not operate as a bank. Instead, as recommended
by Sir Malcolm Bates it will be able to provide development funding
to get PFI deals off the ground, where existing forms of private finance
are not available. In these cases it will, where necessary, provide
a range of financial products, tailored to the needs of public sector
bodies in the early stages of the procurement process, which enhance,
rather than undermine, existing flows of private finance.
Partnerships UK will be one of two new organisations formed as a
result of the Bates and Gershon reports.Mr Gershon recommended that
a new Office of Government Commerce should also be formed to maximise
the Government's buying power.
The public sector is the largest buyer of goods and services in the
country but Mr Gershon found that procurement activity was too fragmented
with 180 departments and agencies having separate dealings often with
the same supplier.
The new Office of Government Commerce will aim to maximise the Government's
buying power in the case of routine items while bringing scarce professional
expertise to bear on major capital projects. It will deliver over
£1 billion of efficiency savings over the next three years while
cutting project delays and overruns. It will be overseen by the Chief
Secretary to the Treasury.
Speaking today Alan Milburn said:
"Sir Malcolm Bates and Peter Gershon have done an excellent job.
We are actioning all of their recommendations.
The changes we are announcing today will mean more value for money
in Whitehall and more investment in front line services.
The Government is modernising how we do business to provide a better
deal for taxpayers and public service users alike.
Partnerships UK will provide the public sector with the expertise
of the private sector. It is the final piece of the jigsaw in the
modernisation of PFI that we promised in our manifesto.
We have turned the PFI around. Ending universal testing, providing
certainty through new accounting treatment, offering staff a fairer
deal and standardising contracts have reformed the PFI. In place of
public versus private we now have public and private in partnership.
The challenge now is to use the new PFI to help drive forward the
Government's modernisation programme of our public services. We want
to expand the PFI especially in sectors where it has not worked before.
Partnerships UK will help deliver that. It will help get more PFI
deals done more quickly. And by enlisting private sector skills it
will get the public sector better value for money deals. It will have
world class project management skills to help deliver world class
Cabinet Office Minister Peter Kilfoyle said:
"I very much welcome Peter Gershon's report and the creation of
a stronger centre through the Office of Government Commerce. This
new body will enable Government commercial relations to contribute
fully to the modernising agenda and to improve service delivery. I
am pleased that the transfer of three Cabinet Office agencies to OGC
- CCTA, PACE and TBA - will enable them to play a more significant
role in Government commerce."
NOTES TO EDITORS
1. Following the announcement of Partnerships UK, a Steering Group
will be formed to oversee the development of its business case, to
consider governance issues, and to prepare for the raising of private
sector capital, which is not expected to take place before March 2000.
The Government will appoint financial advisers during this period
to advise it on its involvement in Partnerships UK.