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KEYNOTE ADDRESS BY PAUL BOATENG MP
FINANCIAL SECRETARY TO THE TREASURY

PUBLIC PRIVATE PARTNERSHIPS / PRIVATE FINANCE INITIATIVE GLOBAL SUMMIT DUBLIN 9 -12 OCTOBER 2001

1. Today I want to talk to you about partnership. Partnerships between:

• the public and private sector;
• Government, the taxpayer and the consumer of publicservices; and
• businesses and governments around the world.

2. Partnerships between the public and private sectors are driving a resurgence of the idea of public services. Private sector ideas, private sector efficiency, private sector investment, are helping us to rebuild the partnership between the government, the taxpayer, and the citizen.

3. This is an international conference, so we also need to think about partnership between Governments and businesses around the world, sharing best practice, pooling expertise, learning from each other.

International partnership

4. International co-operation can help us improve our focus and deliver better Public Private Partnerships. And this means we can fulfil our responsibilities to the taxpayer and the citizen:

• For the taxpayer - value for money and a return on their social investment.
• For the citizen - the consumer of healthcare, education, and transport - enhanced public services delivered on time and to budget.
• For the private sector - the rewards of efficient management, innovation and sustained service quality.

That is what we are about as a government and that is what public private partnerships will help us deliver.

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5. In the UK, we have made a great deal progress in recent years: we have had to. Some things have worked better than others - we have inherited old problems as well as building new successes. What we have learnt is that there is no one size that fits all projects. To get the greatest benefits from PPPs each and every one must be carefully tailored.

6. This conference is an opportunity to celebrate each other's successes, to learn from what we have done well and to acknowledge where we have done not so well. This is a learning process: Public Private Partnerships are not fixed, they are part of an evolving process.

7. In some areas, after 1997, the UK has blazed a trail, set down markers for other countries to follow. In other areas the story has not been so good. I think it is important that we can acknowledge that, so that we can avoid the second rate and less than satisfactory and build, for the future, the world-class public services people expect and deserve.

Lessons of the past

8. When we took office, we faced a record of chronic under investment in public services and a £27 billion deficit on the books. Our first task was to build a platform of stability and sustainable public finances. We did what was necessary, and so today we not only have low inflation and stable growth but sound public finances and the national debt falling towards 30 per cent of GDP.

9. It is this sustained improvement in our public finances that makes possible the prospect of sustained investment in our public services. In our latest three-year spending review we embarked on a wholesale modernisation of public services. We announced an additional £4 billion of capital spending next year, and net investment by the public sector is set to double over the next three years.

10. The Private Finance Initiative and Public Private Partnerships are essential tools for delivering this investment. Since May 1997, over £16bn and around 400 signed deals. And there are another 300 projects in various stages of procurement, worth an estimated £16 billion, which will take us to a total of around £30 billion. This is a key contribution to investment in public services and the regeneration of our country.

11. We inherited an unstable economy and a legacy of under-investment in public services. But that was not all: we also inherited Railtrack.

12. Railtrack's position as a floated company which is dependent on Government paying around two thirds of its revenue was unique and quite unlike a PPP. Unlike the way in which Government funds flowed to Railtrack (via an independent Regulator), PPPs involve output focussed bilateral contracts, under which risk allocations are clearly set out. The greater use of the PPP approach on the railway is an important part of the Government's proposed solution to the Railtrack problem.

13. As Stephen Byers announced on 7 October, the Government could not justify any more additional public money for Railtrack. We provided a substantial package of financial assistance in April 2001, but the company came to him in July asking for additional public subsidy. They subsequently also requested suspension of the regulatory regime.

14. Railtrack's costs and poor service penalties are expected to exceed the Regulator's October 2000 determination - and the Government's April rescue package - by over £2billion over the next five years. This is before taking account of the additional costs relating to Hatfield. In addition, projects, such as the West Coast Main Line, are significantly over budget - the West Coast upgrade may now exceed £7billion, compared to the original £2.3 billion.

15. The Government will stand behind the rail system and is prepared to spend over £30billion over the next ten years to ensure a substantially improved rail network, but is not prepared to fund the poor performance of individual companies.

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Partnership with the taxpayer

16. Railtrack is one story, but there are others to be told. The story I want to tell you is about the reform and rejuvenation of the public services.

17. In the UK, the Treasury is at the heart of reforming our public services - because the taxpayer has a right to know what is happening with their money. Our overriding aim is always to secure better value for money in all forms of procurement - not as a cost-cutting exercise, but as a way of delivering more, better services for our public investment.

18. PPPs are making an important contribution. The public expects and deserves services to be delivered on time to the best standards attainable and the taxpayer deserves to know that they are delivered at the best value and to budget.

19. There are those who claim that the private sector is making a profit at the expense of Government, front-line delivery and public sector staff. This is not the case: bringing in the private sector adds value, helps deliver better services, and in many cases enhances the experience of working in the public sector - at all levels.
20. The benefits of better risk management, and better project design add more value than private sector profits remove. We are already realising cost savings that can help us to deliver more outputs for every pound of the taxpayer's money committed to public service delivery.

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Partnership with the consumer of public services

21. Taxpayers are also citizens - consumers of public services. So we also need to think about the partnership between Government - the provider of public services - and the citizen - the consumer of public services.

22. To be successful in the global marketplace we need a dynamic economy delivering higher levels of growth. To build a strong economy we need a strong society. Government responsibility to the citizen requires the delivery of high quality public services - the vital infrastructure of healthcare and education that we all rely on. This infrastructure is also the basis of economic growth - who can doubt that a healthier, better educated society will be more productive, more dynamic and better able to compete in the new global marketplace ?

23. So the Government's two main aims - a strong economy and a strong society - are crystallised in our approach to public services. Investment in public services is investment in economic dynamism. So the partnership between the Government and the consumer is a partnership for collective provision, community, and social solidarity; but also a partnership for economic dynamism, productivity and growth.

24. We need to place the needs and aspirations of the citizen at the heart of our public service culture, so that services are built around the needs of consumers, and not around the capacities of agencies.

25. To get this flexibility, to deliver the improvements, we need to change the way Government works. We need to instil in the public sector the virtues of efficiency in procurement, investment and delivery. In short, we need to instil in the public sector the practices that drive the growth and development of the best companies.

26. And we need to liberate the workers in the public sector from the layers of bureaucracy, the inertia that has undermined the people's faith in public services. Public servants do not do it for the money or for glory. They do it because they find fulfilment in a child well taught or a patient well cared for.

27. But for many, working in public sector has been a frustrating experience. Many work in systems and structures that are hopelessly old fashioned or even worse, work against the very goals they aim for. So we need greater flexibility - greater flexibility in the terms and conditions of public sector workers, greater flexibility to deliver the improvements to the services we all rely on.

28. We are not talking about eroding workers' rights, creating two tier work places or undermining confidence in our public servants. We are talking about getting the right system, the right framework, to allow us to deliver on our commitment to the consumer.

29. We are talking about strong public services, driven by hard working, fairly paid public sector staff: staff working - innovating - within a flexible labour market, building services around the needs of consumers. So :

• for workers - new opportunities
• for employers - new flexibility
• for the consumer - modern public services, developed around their needs.

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Partnership with the private sector

30. To deliver these world-class public services we need to build a better partnership with the private sector.

31. Some people will say that the private sector and the profit motive are the enemy of public services. This is quite simply not the case.

32. It is the years of under-investment and the habit of under-performance that have undermined the people's faith in our hospitals, our schools and our transport infrastructure. And it is through a constructive, managed engagement with the private sector that we will build the world class public services that are central to our vision of an inclusive and dynamic society.

33. I do not need to tell you about the benefits that PPP can bring. I do not need to tell you about:

The commercial dynamism, innovation and efficiencies harnessed through the introduction of private sector investors;

• the way that PFI and other arrangements harness private sector management skills by putting private sector capital at risk;
  
  
• the benefits of competition for government business - a process of dialogue that drives down costs and ensures risks are distributed to whoever are best placed to bear them.
  
  
• how PPPs force the public sector to define the outputs they require, and in order to do so, engage with stakeholders more constructively than ever before.

34. The success of PPPs can be shown by the new hospitals and new schools that are opening on time and on budget for the public sector, and will go on to provide high quality reliable services year after year.

35. And for the future we plan 100 new hospital schemes - including 26 new PFI hospitals to be up and running by mid 2005 - eight already up and running, 15 more at various stages of construction. An investment in our nations health that would not have been possible without finance from the private sector.

36. In education PPPs will play a major part in renewing and refurbishing 450 schools - with no doubt more to come in the future. 450 schools better built, enabling thousands of children to be better taught: a real investment in all our futures.

37. Of course, we all recognise that there are some things that the private sector does best and some areas where the public sector has most to offer. It is not just the public sector that has things to learn. The private sector can benefit from our focus on the long term, our ability to thing strategically about investment and capacity building.

38. It is a dialogue and all sides have a lot to learn: but it is important that we do not lose sight of the core responsibilities of the public sector.

39. The public sector will remain responsible for the collective purchase of services, the level of service that people have the right to expect, the monitoring of safety and standards, and the enforcement of those standards. The Government will remain accountable to the taxpayer and committed to the consumer in these areas.

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Partnerships UK

40. To enable the public sector to act as an effective partner, to work with the private sector and tap new sources of investment, we have established two new organisations: Partnerships UK and the Office for Government Commerce.

41. PUK was established in June 2000 to help increase and improve investment in the UK public services from private sources. We practice what we preach, so in March 2001 it became a PPP: 51% of the share capital was sold to private sector institutions. PUK aims to help us deliver PPPs that are developed quickly and efficiently; built on strong, stable relations with the private sector; with savings in development costs on both sides.

42. Of course, getting the structure right is no good if you do not have staff with the expertise and enthusiasm to see projects through. The commitment of staff at all levels is essential to the success of the process: PUK has the experienced and expert staff to act as a resource for the whole of government.

43. But it is crucial to the success of PFI projects that individual Government Departments also attract and retain staff who are able to manage PFI projects effectively. So we are focussing on getting the right staff, with the right skills onto our most important projects, and encouraging enthusiasm and commitment at all levels of Government.

44. PUK is already beginning to deliver results. We have seen them involved in

• the next phase of urban transport schemes;
  
  
• a joint venture with the department of health to provide £1bn of investment in primary healthcare;
  
  
• a project assisting the Ordnance Survey to put their maps to more practical uses.

45. Looking outwards, PUK is helping us identify the possibilities for commercialising spare capacity within Government assets.

46. There are many reasons why the public sector does not gain the full commercial of under-utilised assets. Sometimes agencies lack the skills or the consumer focus to bring their assets to market or identify the commercial possibilities they have.

47. The private sector can provide significant investment, and has the right skills to identify market opportunities and utilise them fully. We are using the private sector to put public sector assets to work - a partnership with the markets to help us fulfil our commitment to the public.

48. Putting Government assets to work requires expertise and ingenuity. Over the past few years companies in Britain have blazed a trail, developed the expertise to make partnerships work. Many of them are now stretching their hands out across the seas, sharing their expertise with partners in the rest of the world.

49. Ingenuity and expertise is also required to unlock the potential in British inventiveness. Our history of science and innovation is only matched by our history of failing to realise the commercial value of that innovation.

50. Research going on in Britain's laboratories now has the potential to change the world: Dolly the sheep was cloned at Roslin laboratory, and elsewhere laboratories are working on projects from flat loudspeakers to understanding DNA. This is a huge opportunity for Government - the Roslin laboratory already has a £12.5 million research contract to develop its technology commercially.

51. The Science and Technology Unit at PUK is helping us deliver similar deals. By bringing in the skills, the focus, and the investment of the private sector, we can make sure everybody wins: the public sector, our commercial partners, the consumer, and the economy.

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Office of Government Commerce

52. Innovation is important, but we also need to make sure we get the basics right. That is why we set up the OGC eighteen months ago as a central procurement organisation. It works with Departments and acts as a catalyst for improvements across the full range of central Government's commercial activities. It is already beginning to add real value.

53. In supporting Government objectives on efficiency, OGC is encouraging:

• the reduction of transaction and process costs: the Government Procurement Card has already yielded £29m of process efficiency savings;
  
  
• a cross-Government approach, which is key to the success of strategic partnerships, eg the partnership with Vodafone which is expected to provide over 38 million pounds of value for money gains over 2 years];
  
  
• the development of a level playing field for small and medium enterprises: enhancing our ability to deliver projects with a broader range of partners.

54. The OGC also works on improving the quality of Government procurement. That is why we launched the Gateway review process: a best practice initiative that facilitates independent peer group review of complex procurement projects. Departments open their books to experienced people, people who have been there and done it before, and who are there to help - not to criticise.

55. To date, over 70 projects have benefited from Gateway reviews, covering £18 billion pounds worth of public investment. And that means benefits for the private sector too, because with the Government acting as an intelligent consumer the costs of bidding for Government business have got to come down.

56. By enhancing the ability of the Government to do business with the private sector, we are also enhancing the ability of business to profit from the relationship. We are standardising the bidding processes, increasing competition and driving down the costs of working in partnership with Government. That can only be good news for the business community.

57. The OGC is also taking the UK lead on negotiations for an updated European Directive on procurement rules. There have been concerns expressed about the Directive increasing costs for bidders in the procurement process. We believe it is very important that the current legislative proposals provide for the dialogue that is essential to concluding PFI and other contracts, which are effective for both the public sector and its private sector partners.

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International Partnership

58. I am pleased to be at this conference. It has been good to meet people from so many different countries who are involved in partnerships of so many different kinds. It has been very informative - both through the formal sessions and through the opportunity to chat, share experiences, and pool expertise.

59. The type of partnership I want to return to is international: partnership between Governments sharing experiences, partnership between companies stretching their hands out over the seas.

60. Clearly each country will have to develop its own approach, in its own way, in accordance with its own policy objectives and circumstances. Some countries have more in common than others: but there are always issues that cut across all countries and all cultural divides. I think that delivering high quality public services is one of those issues, and so I know we all have a lot to learn from each other.

61. That is why I am delighted that so many countries are turning to the UK Government and companies operating in the UK as a source of expertise and advice on PPPs.

Conclusion

62. I began this speech by talking about three different types of partnerships.

63. The first - the most important - partnership is between Government, the taxpayer, and the consumer of public services.

64. It is an enduring partnership with rights and responsibilities on all sides. The taxpayer has a responsibility to contribute to the well being of society. In return they have the right to expect high quality public services, building a strong society and contributing to the economic dynamism of the country.

65. Government has the responsibility to deliver those high quality public services; but in order to deliver we have the right to innovate, to evolve, to use new techniques and build new partnerships.

66. The second type of partnership is between the public and the private sector - the theme of this conference.

67. This is a partnership for investment, for efficiency, and for delivering high quality public services: universally available, collectively funded - as they have always been. It is a partnership to deliver traditional commitments in a modern setting: helping us sustain investment in our vital services in the face of a changing and uncertain global economy.

68. Some people will say that this is the old project; this is rolling back the boundaries of the state. They are wrong.

69. We are not rolling back the boundaries of the state; we are rolling forwards the performance of the state: public and private sector, hand in hand, facing the new economic realities and delivering the services people have the right to expect.

70. The third type of partnership is between Government and businesses. This arises because in the new global economy we are all increasingly interdependent, because partnership between Governments and businesses around the world, sharing experiences, pooling expertise, working together to build the public services of the future is essential for the future. That is what this conference is about. Let us get on and do it.

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