Alan Milburn – 1999 Speech to the Further Education Funding Council

The speech made by Alan Milburn, the then Chief Secretary to the Treasury, on 13 July 1999.

Thank you for inviting me to speak at your important conference today. I hope it will see the further education sector picking up the opportunities afforded by the Private Finance Initiative. Today I want to outline to you the Government’s approach to modernising key public services like education, the part that PFI can play and the reforms we are making to PFI to give it an even bigger role.

Modernising public services

When we came into office two years ago, we did so on a promise to modernise our public services. That is why after running the economy well, delivering top quality public services is this Government’s most important political priority. This government believes in our public services and in those who work in them. But we also believe that our public services have to prove their worth. They have to dramatically improve their productivity, their efficiency and their performance.

Today people rightly expect public services to be tailored to their needs, delivered efficiently and to the highest standards. They expect modern, convenient, quality services delivered in modern, convenient, quality premises. The Government wants that too. We want to shape our public services around the needs of the people who use them. We will play our part in that process. We are making record extra resources available for key services like health and education. But it is investment for a purpose. This is money for modernisation.

The Private Finance Initiative has a key role to play in our modernisation agenda. It is a modern way of investing to produce modern public services.

That is why the government is committed to public private partnerships in general and PFI in particular. In the past, the dogma of the right insisted that the private sector should be the owner and provider of public services. And the left insisted this was all the responsibility of the state. The modern approach to public services rejects these arguments both of the new right and the old left.

In some areas, the private sector is best able to provide the services. In others, the public sector is in the best position. And 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.

This is where PFI fits in. One of the main drivers behind it is to give the public sector what the private sector has long expected to be the norm – modern, well-designed purpose-built buildings that maximise savings over the whole life of the project. Better design means less wasted space, more efficient energy management, lower maintenance costs. It also means more savings that can then be reinvested in frontline services.

This is what the PFI offers. A better deal for taxpayers and better services for the public. Since we came to office in May 1997, we have revitalised PFI so that today we can rightly say that it is a key tool in helping provide effective and good value public services. Since the election, we have signed £4 billion worth of PFI deals and we have got PFI working in sectors like health where it had not worked before. We are now seeing its benefits spread to other parts of the public services such as schools and colleges. In your own sector, further education, the 7 signed projects alone have a capital value of £37m, and there is also much PFI and PPP activity in the Higher Education and Schools sectors. By the end of this year, we estimate private sector investment in PFI projects will account for around 14% of overall public sector investment. Accompanying this turnaround has been a tremendous upsurge in confidence both in the public and private sectors that PFI can deliver the goods.

Getting PFI to work has not been a painless process. When we came to office the PFI was in a mess. In health for example not a single major hospital deal had been signed. But £30 m had been spent on consultancy fees. Two years on – after we took the tough decision to prioritise which schemes should get the go ahead – we have set underway the biggest hospital building programme in the history of the NHS. 31 major hospital developments worth £2.9bn. Only last week, the Prime Minister announced the latest tranche of six hospitals to be built by PFI. Purpose built, well designed, high quality buildings that will enable those at the frontline of service delivery, our nurses and our doctors, to deliver better healthcare.

Prioritisation was one of a number of major steps that we have taken to reform the PFI in order to revitalise it. Our reform programme also included ending the previous Government’s insistence on universal testing. We only use PFI where it is the right thing to do.
We have also taken head on some of the logistical problems that bedevilled PFI in the past. As you know, one of our first actions was to appoint Malcolm Bates to review the PFI process. He did a great job in analysing problems and more importantly finding solutions. Since Malcolm reported we have fully implemented all of his recommendations.

Following Malcolm’s recommendation we established the Treasury Taskforce to provide the public sector with much-needed private sector expertise. We have been very privileged to have Adrian Montague and his team working over the last two years to grease the cogs of PFI and get it working properly.

All of these changes have helped instill new confidence in the ability of PFI to deliver the goods. We have acted to improve confidence too among the local staff and local communities involved with PFI deals. We have taken action to publish information about PFI deals in a way that is compatible with the needs of commercial confidentiality. PFI should not be a secret process because it is about providing better services to the public. We have published guidelines for the consultation of staff and other interested bodies. We have taken action to give a fairer deal on pensions for staff transferring between the public and private sectors as part of a PFI deal. And we have made it clear that is no longer a requirement for staff providing soft facilities management services, in hospitals for example, to have to transfer at all.
Just a fortnight ago we also resolved the thorny issue of the accounting treatment of PFI deals. The new guidance that we published will provide a platform of certainty for PFI in the future.

So, step by step, we have been improving and reforming the Private Finance Initiative. We want the PFI to work even better. That is why with the impending expiry of the Taskforce’s 2 year mandate this summer, we asked Sir Malcolm Bates to take a second look at the PFI and public private partnerships more generally to see how the government could further improve our approach. We have been studying his recommendations and I will be making an announcement in due course.

In the meantime I can tell you that the PFI reform process will take another step forward tomorrow when the Treasury Taskforce launches its guidance on the Standardisation of PFI Contracts. Consultation with hundreds of interested parties has produced guidance which provides the public sector with a practical toolkit for delivering the very best value to the taxpayer. The guidance will avoid the pitfalls of the past – where the public sector, let alone those in the private sector, have had to re-invent the wheel at considerable expense every time a hospital or a college entered into a PFI arrangement. Standardised contracts will take time the effort and expense out of doing PFI deals. They will save both time and money.

The new guidance will do something else too. It will end once and for all the argument that PFI is about mortgaging the future. Nothing could be further from the truth. PFI is about securing a better future. It does so by providing modern high quality public service facilities for staff and public alike. Assets built through the PFI already come complete with a money-back guarantee of quality through the life of the contract. Unlike conventional procurement, PFI provides a legal guarantee that facilities are maintained as new. That is one of the great advantages of PFI. Nor is it true – as some have alleged – that PFI is just a rental scheme where the public sector pays money out but gets nothing back. It is already possible for PFI contracts to specify that the asset should return to public ownership at the end of the contract.

Now though the new guidance makes it clear that this should be the norm where it is in the public sector’s interest to do so and where there is no alternative use for the asset. In the future, where it is appropriate, ownership of assets built through the Private Finance Initiative will revert to the public sector at the end of the PFI contract. This further reform to the PFI will guarantee that the taxpayer inherits top quality fully maintained schools, hospitals and colleges 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.

So our commitment to PFI – just like our commitment to our public services – remains undiminished. But both have needed substantial reform. The reforms we are making to the PFI will allow it to play a key role in helping modernise our vital public services. We have taken action to get PFI moving. We have put it on a modern and stable footing. In place of public versus private we now have public and private in partnership. We have removed the obstacles that have stood in the way of PFI delivering to its full potential.

Now the challenge for both the public and the private sectors – now that the road is clear – is to expand the PFI. We want to see more deals done. We want to see PFI working in sectors like further education where it has not worked before. And we want to see it making an even greater contribution to producing modern public services that are shaped around the needs of the public. The challenge now is to use the PFI to drive forward the Government’s modernisation programme for our public services. We do not want to see business as usual in our public services. We want to see change for the better. The PFI is part and parcel of that change process.

After years of neglect this Government is massively increasing investment in our public sector infrastructure. We are doubling the level of public sector capital investment. On top of that, the PFI should help lever in billions of pounds worth of extra investment.

But it is not just extra investment that we are making. By bringing in private sector management, finance and skills, public private partnerships, such as the PFI, help to improve the efficiency and quality of public services; and they help deliver the best return for the economy as a whole from assets and enterprises currently in the public sector.

That is why the Government is committed to developing a whole range of PPPs. We are taking forward public private partnerships for many of the remaining commercial organisations in the public sector – such as London Underground, National Air Traffic Control, British Waterways and the Commonwealth Development Corporation. The particular form the PPP takes depends upon the particular problem and the particular setting. Although each project is different they are all united by the public and private sectors working together.

Conclusion

In further education partnership is nothing new. Colleges work effectively with businesses throughout the country. Now there is a new opportunity for the two to work together on modernising the infrastructure of the FE sector. We want to see this Government’s commitment to further education mirrored by a new commitment from PFI partners and colleges alike to make the Private Finance Initiative as much a success story in education as it has been in health. There is huge potential here. I hope that today’s conference will help to realise it.