Getting the public/private relationship right


The Parklands School in Liverpool which is costing us £4.3 million a year to keep empty is a prime example of what went wrong under Labour’s PFI back ‘Building Schools for the Future’ programme

The collapse of Carillion and the potential collapse of other large multi financed, multi-functional companies, has raised the level of public discussion about the relationship between the public and private sectors. Thank goodness for that as a revision of the relative power of the relationships is well overdue.

For 4 years at the turn of the century I was the Chair of 4Ps a local government owned consultancy which was responsible for helping councils use the concept of partnerships with the private sector to optimum advantage for service users and the finances of councils. Often that mean saying, “don’t do it”. But our advice was not always heeded because councils wanted to be ‘innovative’ and because the then Labour Government saw PFI as the way forward to tackle decades long under-investment in much of the nation’s infrastructure. We should never forget that more PFI contracts were signed per year under the Blair/Brown Governments than under any other Government.

Typical of this is Parklands School in Liverpool which has been empty for 4 years and still costs the Council £4.3 million a year in financing costs. The School was built under Labour’s ‘Building Schools for the Future’ programme and the preferred finance route for this was PFI funding. Something had to be done about the failing Speke Comprehensive and the Council resolved to build Parklands using PFI as it was the only possible route.  Mayor Anderson was kind enough to accept at the last Council that Liverpool has less PFI schools than any other core city. That is because the Lib Dems with Cllr Paul Clein as our Education Cabinet member found imaginative ways to use existing council assets to fund or part fund a huge development programme.

When the Coalition Government stopped the BSF programme an independent report found that it had wasted over £2 billion. That is before adding in the costs of PFI! That is why the Government called time on the whole of the BSF because all the money allocated to it had already been spent and more. In fact, there are now more than 15 ghost schools built under PFI which are similarly empty nationwide.

But it is the NHS where PFI was used most on major infrastructure projects like Hospitals. The Royal Liverpool Hospital was one of these. The design work and initial studies were done under the Labour Government on the basis of a PFI route and the Coalition Government, just 6 months after taking control felt obliged to follow this route.

Some people are saying that the Government should build its own hospitals and that councils should build their own schools ‘just as they used to’. That of course, is wrong. Governments have never built schools, hospitals, houses or roads. We have always paid the private sector to do this because local and central governments do not have the skills to project manage or build such works. In fact, we should always be wary of returning to the good old days and we can take the current Royal Liverpool Hospital as an example. That was provided no less than 13 years late and at a cost which was more than twice the original estimate even allowing for inflation over that period.

So, what went wrong is not so much the private sector building or providing things but the complex mechanisms that PFI uses to take transfer fund raising, risk and management to the private sector. If any Government at any level decides to do that the cost will rise because the private sector will do more and will expect a bigger return. If we look at those three elements in turn we can see that there is a better way, starting with initial funding:

  • Funding should either be by grant or by direct borrowing by the government. Governments do not financially fail. They can borrow money more cheaply than anyone else for that reason and do not want to make a further profit from that money.
  • If risk on things like overruns or unexpected site difficulties is transferred then we should expect to pay a little extra for that. You can consider this to be a form of insurance. BUT if we have paid extra for the risk then the private sector must cough up if the risk eventualises. A scandalous situation has occurred on the East Coast Main Line when the Government paid extra for risk but went it all went pear shaped the Government bailed out the private sector.
  • We should then manage things ourselves. The ongoing management and maintenance contracts seem to have two effects. Firstly, they take high profits out of the provision of these services and secondly, they de-unionise and exploit workforce vulnerabilities with poor conditions and pay levels.

These three things can and should be done.

If we do that we can return to creating build only contracts with the private sector. In turn those companies would spend more time investing in their building and construction capacities and capabilities because that is what we want them to be good at and where they can make reasonable profits by using that capability.

We will leave out the sharks and charlatans with which the high-end finance market is crawling. The spivs will lose out and the service providers will get lower costs. What’s not to like?!

About richardkemp

Leader of the Liberal Democrats in Liverpool. Deputy Chair and Lib Dem Spokesperson on the LGA Community Wellbeing Board. Married to the lovely Cllr Erica Kemp CBE with three children and four grandchildren.
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1 Response to Getting the public/private relationship right

  1. Paul says:

    Excellent and very concise Richard
    The other equation is PFI tax that never goes back to their UK economy it’s off to offshore companies

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