HM Treasury News Release
7 December 1999
SPEECH BY CHIEF SECRETARY TO THE TREASURY,
RT HON ANDREW SMITH MP, TO THE PARTNERSHIPS UK CONFERENCE, 7 DECEMBER
Attached is a copy of the speech made by the Chief Secretary
to the Treasury, Andrew Smith to the Partnerships UK Conference
earlier today. CHECK AGAINST DELIVERY
SPEECH BY CHIEF SECRETARY TO THE TREASURY,
RT HON ANDREW SMITH MP, TO THE PARTNERSHIPS UK CONFERENCE,
7 DECEMBER 1999
Thank you all for being here and allowing me the opportunity
to address this gathering of key public and private sector players
in the field of PFI and other public private partnerships. I know
many of you here have been waiting for the opportunity to contribute
to the consultation process on the setting up of Partnerships UK and
there will be ample opportunity to do that later on this morning.
I want to start this conference, however, by explaining our approach
to public private partnerships. I hope it will put Partnerships UK
Public private partnerships are a cornerstone in building public services
for the twenty first century - an approach for equipping the public
services to meet the challenges they face for many years to come.
Our partnerships are already a great success story, arousing interest
from all over the world. But we now need to maximise their contribution
to our modernisation programme. To do so, we need to enlist the best
possible skills and expertise so that we deliver value for money and
public services fit for the twenty first century.
Drawing the best from public and private sectors
In the past, Governments were judged on what they owned and how much
they spent rather than the services they delivered. Today, that has
changed - for the better I believe. In the modern world 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.
Arguments about whether public ownership is always best or whether
privatisation is the only answer are arguments for the history books.
Today we see the debate as a mistaken legacy. Because today Labour
recognises that the only way we can deliver the modern, high quality
public services the public want and increasingly expect is by drawing
on the best of both public and private sectors.
To do this, we need to first recognise the fundamental roles of Government.
In their fevered pursuit of privatisation, the previous Government
never fully recognised or accommodated this.
First and foremost, Government is the collective purchaser of public
services, providing democratic accountability for service choices,
monitoring and enforcing service standards, and safeguarding public
The Government has clear responsibility for these objectives and seeing
that they are delivered to the standards required. We believe that
public private partnerships must be founded on this principle.
Indeed, public private partnerships enable responsibility for many
elements of service delivery to be transferred to the private sector.
And at the same time the public sector retains responsibility for:
- deciding on the right level of public services, and the public sector
resources which are available to pay for them; and
- setting and monitoring quality and performance standards for delivery
of the services and taking action if these standards are not met.
And in the case of state-owned businesses, public private partnerships
enable the Government to bring the private sector into the ownership
and management of the business while at the same time it remains responsible
for safeguarding public interest issues.
Public private partnerships also recognise what the public sector
can bring to the table in terms of the skills and dedication of its
workforce; its assets and businesses, and its ideas and intellectual
property. Our Wider Markets Policy is aimed at making the most of
public assets such as scientific research, not just to obtain greater
value for the public purse but also for wider economic benefit.
But how often do we see this potential wasted? That is where the
private sector and public private partnerships can help the public
sector to deliver modernised public services.
(i) commercial incentives
First, the private sector provides commercial incentives. Private
sector organisations either generate profits or they die (unless of
course you are an internet stock!). The realities of the market place
exert powerful incentives on private sector management and employees
to maximise efficiency and take full advantage of business opportunities.
But these disciplines can never be fully replicated in the public
sector, where there are many complex and diffuse policy objectives
to consider in addition to the need for delivering value for money,
and many more stakeholders to consult.
Public private partnerships enable the Government to harness the disciplines
of the private sector, by introducing private sector investors who
put their own capital at risk. In this way, public private partnerships
are helping to improve value for money, so enabling the Government
to provide more public services and to a higher standard.
(ii) a focus on customer requirements
Secondly, the private sector can also encourage the public sector
to focus more clearly on the needs of customers. Private sector businesses
are more adept at looking for innovative ways of enhancing their services,
and adapting to changing requirements and expectations.
(iii) new and innovative approaches
Thirdly, the search for new opportunities to develop profitable
business provides the private sector with an incentive to innovate
and try out new ideas - this in turn can lead to better value services,
delivered more flexibly and to a higher standard.
(iv) business and management expertise
Finally, the private sector brings specialised skills - skills 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; skills to assess the commercial opportunities of potential
business venture; skills to focus on delivery to customers; and skills
The disciplines, incentives, skills and expertise of the private sector
can help release the full potential of the people, knowledge and assets
in the public sector, enabling the Government to deliver its objectives
Implementing the vision
Our ambition is to deliver public services which will be the envy
of the world. This will never happen if we undermine our public services.
We believe in our public services and that is exactly why we are modernising
them. Modern services which recognise the Government's responsibilities,
and which employ the best of both the public and private sectors.
We have already had one step change in the delivery of public service
infrastructure since this Government came into power. Over the last
two and a half years, we have fundamentally reformed PFI. By prioritising
projects, ending universal testing, offering a fairer deal to staff
and standardising contracts, we have streamlined PFI and put it on
a more sustainable and successful basis.
The flow of deals has risen rapidly as a result. In less than 2 years
contracts with a combined value approaching £5 bn have been signed
compared with £4 bn over the whole of the previous Parliament.
PFI will generate some £11 billion worth of new investment over
the period 1999/00 to 2001/02.
The next step is to use the new PFI to drive forward our modernisation
programme. This means expanding the PFI and applying it in sectors
where it has not been extensively used before and enabling smaller
projects to combine so PFI is a more cost-effective option. In order
to implement this vision of a greater volume and effectiveness of
partnerships, we need to develop further the right skill base in the
public sector. We need to be a better, more intelligent, more effective
partner, client and procurer of private sector services.
We need to be able to
*specify with more clarity our requirements and ensure they are enshrined
in the partnership
*understand better what we can and cannot expect the private sector
to deliver and what risks we can expect them to take
*obtain better value, not necessarily with lower returns for the private
sector, but with better structured deals
*overall, implement PFI deals more quickly and more effectively
*and critically as PFI is about long term partnerships, to be a better
manager of long term contracts with the private sector.
As is commonly acknowledged, there is also something of a gap in the
private sector's understanding of the operations, decision making,
accountability, and other requirements of the public sector.
Delivering better partnerships will require bridging the gap between
the skills base of the public sector and the private sector's understanding
of public sector requirements. Partnerships UK is one of the mechanisms
with which we expect to do this. It will itself, of course, be a novel
public private partnership.
Following Malcolm Bates' second review of PFI which reported back
in Spring, we announced our intention to set up Partnerships UK to
help us in the public sector improve the way we work with the private
sector in PFI projects. It will offer to the public sector, the key
commercial skills which we need to forge better partnerships with
the private sector, on equal terms.
Partnerships UK will fill a unique role - there is nothing to equal
it in the private sector - of addressing the weaknesses, particularly
in terms of skills and commercial experience within Government.
It will be a co-venturer strengthening the public sector client in
PUK will help the public sector raise its game in the same way the
Treasury Taskforce has done. And together with PUK, the public sector
can become a much more effective client, which should mean more opportunities
for everyone - more deals, lower costs and greater clarity and speed
in PPP deals.
As a part of PUK's business planning process, we have been discussing
within Government a range of circumstances in which it might play
a role. Let me give you a few examples. In the education sector, Glasgow
City Council is seeking to replicate the success if its current PFI
scheme for its secondary schools estate; and three English local authorities
are considering working together on what are essentially similar schemes
in different authorities. The Department of Health is considering
an innovative approach to bundle up the development of primary and
intermediate care centres.
In addition to its role in PFI which may be more familiar to you,
we expect Partnerships UK to also help us implement transactions in
our Wider Markets policy to use public sector assets. There are two-three
pilot projects that are already being considered for PUK. For example,
the Forensic Sciences Service is working with the Treasury Taskforce
on a project to realise the commercial potential, especially overseas,
of its very advanced crime detection technology. British Waterways
is considering a scheme where its canal network, technical capability
and local knowledge could provide infrastructure to transfer water
from places of surplus to places of shortage.
These are few of the 25 or so projects that have been identified so
far in the development of Partnerships UK's business plan. All of
them have involve a significant degree of innovation which is an important
part of PUK's mandate. It will not only improve deal flow in existing
PFI sectors but open up new sectors and develop new models of public
The Treasury has employed Rothschilds and Herbert Smith to advise
it on the development of Partnerships UK. A Steering Group - containing
representatives from both the public and private sectors - has been
overseeing the development of the business case, making sure that
PUK will bring benefits for all the stakeholders in PPPs.
I am pleased to announce that yesterday, the second reading of the
Government Resources and Accounts Bill in the House of Commons put
public accounts on a proper accrual basis and also allowed for the
establishment of Partnerships UK.
I am also delighted to be able to announce today the role of Derek
Higgs, Chairman of Prudential Portfolio Managers, as Chairman Designate
of Partnerships UK. Derek needs no introduction for all of you. We
are very pleased indeed to have his support and expertise in guiding
us through the next critical phase in the launch of Partnerships UK.
He will of course work with Adrian Montague who I am also very pleased
to announce has accepted the position of Deputy Chairman designate.
I am confident we have the right team at the helm to drive forward
what this Government sees as crucial policy for delivering front line
services and the second step change in the flow of PFI deals since
we came into Government. We are, as planned, on schedule for Partnership
UK's launch in the Spring.
We have been supported and advised in consultations by many representative
organisations involved in PFI. The conference today provides you with
another opportunity to give us your views on the further work that
has been done. We look forward to a continued dialogue with you and
to your support in creating a unique body - one which holds out the
exciting prospect of real benefit to public and private sectors in
helping to create for Britain a world class infrastructure.