HM Treasury News Release
20 September 1999
SPEECH BY THE CHIEF SECRETARY TO THE TREASURY, ALAN MILBURN,
AT THE LAUNCH OF THE IPPR COMMISSION INTO PUBLIC/PRIVATE PARTNERSHIPS
Attached is a copy of the speech made by the Chief Secretary today.
I am grateful to the IPPR for establishing this Commission on the
Future of Public Private Partnerships, and to KPMG for sponsoring
it and for hosting today's event. The IPPR's previous Commissions
have contributed significantly to policy debates in Britain, and I
look forward to the contribution this Commission can make to the debate
on Public Private Partnerships.
Today I want to outline the Government's approach. Let me say at
the outset that partnerships between the public sector and the private
sector are a cornerstone of the Government's modernisation programme
for Britain. They are central to our drive to modernise our key public
services. Such partnerships are here and they are here to stay.
I say that for two principal reasons. Firstly, because they are necessary.
PPPs make possible more investment in our key public services after
years of systematic under-investment. Over the last Parliament (and
over the last cycle) public sector net investment fell by 1 per cent
of GDP (and by 2 and a quarter per cent of GDP between 1979 and 1997.)
This government believes in our public services. We believe in the
values of public services and in the staff who deliver them. We believe
too that they can be better than much of the private sector. But we
also believe that they have to dramatically improve their productivity,
their efficiency and their performance. Indeed this government was
elected with a mandate not just to save services like the NHS but
to modernise them too.
To do so we have launched the most far-reaching programme of reform
our public services have ever seen. And we have matched our commitment
to deliver significant improvements by putting our money where our
mouths are. Not only record extra cash for hospitals and schools but
record levels of investment as well to modernise the fabric of our
country. After years in which public sector infrastructure was allowed
to deteriorate we are doubling public sector net investment in Britain's
infrastructure over the next three years. An extra £12.5 billion
of public money going into the fabric of our hospitals, schools, transport
and other services to begin the process of modernisation that is so
long overdue. Our ambition is to close the all too clear gap that
exists between the quality of our public sector buildings and facilities
and those of the private sector. We are harnessing private sector
capital to help us bridge that gap. But whilst the previous Government
sought to use private investment as an alternative to public investment,
this Government is using private capital as an addition to public
The principal means of this extra investment has been the Private
Finance Initiative. Since the election we have signed £4 billion
of PFI deals and we have got PFI working in sectors like health where
it has not worked before. 31 major hospital developments worth almost
£3 billion are in the pipeline. The biggest new hospital building
programme in the history of the NHS. We are now seeing the benefits
of private sector investment spread too into other parts of the public
services such as schools and colleges. By the end of this year we
estimate that private sector investment in PFI projects will account
for around 14% of overall public sector investment. By the end of
this Parliament we aim to have signed PFI deals worth £12 billion.
That of course is on top of the direct up front investment we are
making available through Exchequer capital. All of this investment
is necessary - and not just because the public has a right to first
class services - but because in a fast moving world public services
will not be able to keep pace unless they are capable of investing
in the modern technologies. New IT systems in particular will help
deliver quicker, better and more integrated services.
So PPPS are needed. But I said at the outset that there were two reasons
why they are here to stay. Not only are partnerships necessary, they
The changed world in which public services operate demands the marrying
of private sector and public sector skills if modernisation is to
deliver the responsive convenient quality services people need. Today's
public services were designed at a time when needs were more uniform
than they are today and users were less vocal. Mass produced services
for an era of mass production. Today people rightly expect public
services to be tailored to their needs, delivered efficiently and
to the highest standards. We pay for insurance over the phone so we
expect to be able to do the same with our council tax. We shop at
all times of the day and night and we expect the same 24 hour access
to our health services. Today's public services have to be shaped
around the needs of the people who use them.
Harnessing the commercial consumer orientated management skills of
the private sector then will help in the public service modernisation
process. But what is more the public sector needs other private sector
skills if it is to successfully meet the challenges it faces. It needs
commercial expertise to help manage the enormous and complex investment
process that is now underway in IT, in transport and in other services
across the public sector. By introducing private sector investors
who put up their own capital, skills and experience, the public sector
gets the benefit of commercial disciplines, innovations and efficiencies.
The result is not only better services but better value for money
too. Prisons built through PFI that brings savings of 10%. Defence
training projects delivering savings of up to 15%. IT in schools delivering
savings of up to 30%.
Under PPPs the public sector specifies the outputs required from new
investment but the responsibility for and, crucially, the risks associated
with delivering those outputs is transferred to the private sector.
In PFI projects for example this means the Government no longer needs
to build roads as a primary activity - instead we purchase miles of
maintained highway. We no longer need to buy computers and software
- we can instead purchase managed IT services.
This is a seismic switch in the business of government itself. It
recognises that in today's world governments are judged not so much
on what they own - or even what they spend - but more on what they
do. The yardstick for success in the modern world is whether the services
we fund deliver their core purpose. So our focus now, in all that
we do, has to be on outcomes not on inputs. The products of our spending,
not just the size of our investment or the scale of our ownership.
This new approach represents a decisive break with what has gone before.
The dogma of the right - both yesterday and today - insists that the
private sector should be the owner and provider of services. The old
left insisted that this was all the responsibility of the state. This
Government rejects both of these arguments.
In some areas the private sector is best able to provide the services.
In others the public sector is in the best position. In the case of
the health service for example clinical services are best delivered
by public sector staff not least because the NHS is more efficient
than the private sector alternative. But in many cases the best way
forward is through new partnerships between the public and the private
sectors. Where each brings something to the table. Where we combine
private sector enterprise experience with public service values. For
this Government the key test is what works. We recognise that what
the public want is better quality, more responsive services. Their
concern - like the Government's - is about outcomes not ownership.
Hence our emphasis on standards. Our drive to improve performance.
Our determination to reward success and to root out failure. And,
above all else, our ambition to provide the public with services in
our country that really are the envy of the world. Our ambition is
not to undermine our public services but to modernise them.
We have developed new levers to bring about these reforms. League
tables. Inspections. Targets. Sanctions. Rewards. Partnerships between
the public sector and the private sector are a further lever for change.
They are part and parcel of our new modernisation approach. And to
ensure that PPPs such as the PFI are capable of playing a key role
in the modernisation process we have instituted a radical reform programme.
We have done so too in part to address some of the failings we inherited
in the PFI. There have been over 250 successful PFI deals. But of
course a few have run into difficulty. No one should underestimate
the complexity of the investment programme we are taking forward in
our public services. Often there are individual projects running into
hundreds of millions if not billions of pounds. Those who think that
partnership is easy have got it wrong. It isn't - but the prize on
offer is enormous providing the private sector and the public sector
can develop a shared understanding to overcome what can be very different
cultures and ways of operating. That process has not been helped by
the previous government's hostility to the public sector nor by its
failure to properly structure some PFI deals.
We have had to sort out these problems. To do so we have fundamentally
reformed the PFI so that it is now better able to contribute to the
First, we took the tough decision to prioritise which schemes should
get the go ahead. Now in the NHS for example the building of new hospitals
is determined according to health need and not the whim of the market.
Second, we ended the previous Government's insistence on universal
testing. We now only use PFI where it is the right thing to do and
only where it demonstrates better value for money than using Exchequer
capital. Some critics say this cannot be. But under PFI we not only
get a new asset we get it fully serviced for the lifetime of the contract.
Unlike under conventional procurement, cost and time overruns - if
they occur - are met by the private sector not the taxpayer. And if
we are in any doubt about value for money under PFI we simply do not
sign the contract and instead use Exchequer capital just as we have
done with four new NHS hospitals.
Third, we have ensured openness by publishing information
about PFI deals so that local communities know what is being planned
for their public services and so that staff and other interested bodies
are properly consulted.
Fourth, we have given a fairer deal on pensions for staff transferring
between the public and private sectors as part of a PFI deal.
Fifth, we have ended the requirement for staff providing services
such as portering, cleaning and catering in hospitals to have to transfer
automatically to the private sector.
Sixth, we have reformed the accounting treatment of PFI deals
to provide a platform of certainty for PFI in the future.
Seventh, we have introduced standardised contracts into PFI
deals, preventing the public sector from having to re-invent the wheel
at considerable expense every time a hospital or a college entered
into a PFI arrangement saving both time and money.
. Eighth, we have ensured that ownership of assets built through the
Private Finance Initiative will revert to the public sector at the
end of the PFI contract, where it is in the public sector's interest
to do so and where there is no alternative use for the asset. This
will guarantee that the taxpayer inherits top quality fully maintained
schools and hospitals capable of serving local communities for many
years to come. It will give the public a lasting stake in the services
they fund through the PFI. This final reform ends once and for all
the argument that PFI is about mortgaging the future. It isn't. It's
about investing in the future.
. These reforms we have made to the PFI have put it on a stable
and modern footing. The challenge now is to use the new PFI to drive
forward the Government's modernisation programme for our public services.
We want to expand the PFI especially in sectors where it has not worked
before. To help achieve this we are setting up Partnerships UK which
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.
. Partnerships UK will provide the public sector with the expertise
of the private sector. It will help get more PFI deals done better
and 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 public
services. It is the final piece of the jigsaw in the modernisation
of PFI that we promised in our manifesto at the last general election.
In place of the previous Government's use of PFI as a battering ram
for the privatisation of public services the changes we have made
allow us now to use it to drive forward their modernisation
. But there is one other way in which our approach is radically
different from that of the previous Government. Unlike them, we do
not apply a one size fits all solution to bring about change in the
public sector. Privatisation was their solution. Modernisation is
ours. PPPs are central to that modernisation process but if they are
to work effectively they need to be tailor made to the particular
needs of each industry or service.
. Partnerships are different from privatisation. Privatisation created
listed private companies that, while they brought benefits, all too
often had insufficient safeguards for consumers, employees and the
wider community. PPPs ensure the key objective - the delivery of high
quality public services - through means that are appropriate to the
circumstances - contractual agreements, regulation, government shareholdings
and so on.
. Our approach to PPPs involves examining the needs of the customer,
the competition in the sector and the levels of investment and management
skills required to bring about change. The starting point is to define
the specific outputs the Government is seeking to deliver and to determine
whether and in what ways the private sector can make a contribution.
The PPP is then designed to fit.
. Differences in structure reflect different objectives and different
circumstances. We are using PPPs, where it is appropriate to do so,
to ensure that public services are freed from the straight jacket
of monopoly control whether by the private sector or the public sector.
That means tailoring solutions to solve specific problems. I can tell
you today that later this year I will be publishing a prospectus setting
out the range of partnerships that the Government is seeking to develop
with the private sector. Already we have put in place a range of partnership
structures. Commercial freedoms for state owned enterprises, joint
ventures, the sweating of public assets, leasing, strategic equity
partnerships, minority share sales, concession arrangements, as well,
of course as the PFI itself. So while we are committed to making the
PFI work even better not all of our eggs will be in the PFI basket.
Again for us what counts is what works. In the future we will be looking
to develop new innovative forms of partnership too.
. There is huge international interest in the UK's approach to developing
partnerships between the public and the private sectors. It is an
area of public policy where the UK leads the world. Over 50 countries
have consulted the Treasury about the PFI. Some, like Italy, Holland,
Ireland and Japan, are following us in the way we organise within
government to deliver partnerships. Some are legislating to enable
PFI to happen.
. Partnerships are a huge UK success story. We are blazing a trail
that others will undoubtedly follow. Governments throughout the world
are seeking new solutions to keep pace with change in a modern, globalised,
rapidly changing world where the public, rightly, expect their governments
to deliver excellence for the many and not just the few. In the UK
in place of public versus private we now have public and private working
in partnership. The result will be better services for the public
and a better deal for the taxpayer. I look forward to the new IPPR
Commission helping the Government take forward that approach.