Alan Milburn – 1999 Speech to the PFI Transport Conference

Below is the text of the speech made by the then Chief Secretary to the Treasury, Alan Milburn, to the PFI Transport Conference on 2nd February 1999.

Introduction

Thank you Adrian for your warm welcome. We have been very privileged to have Adrian Montague to head up the Treasury Taskforce on PFI. Under Adrian’s leadership the Taskforce has done a first class job – getting actively involved with projects on the ground and enabling progress where previously there was deadlock.

What I would like to do today is to outline the Government’s progress on PFI, the further plans for reform we have in mind and our wider commitment to developing and defining other forms of PPP.

Government’s progress with PFI

Indeed, since we came to office in May 1997, this Government has 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. 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. And we are now seeing its benefits spread to other parts of the public services such as our schools.

As Lord Whitty will explain later, transport is a sector that led the way in PFI. It’s worth remembering that it was John Prescott a decade ago who first proposed the sort of public private partnerships arrangements that are now delivering the goods in transport. Schemes on the stock range from those of national and indeed international significance such as the Chunnel high speed rail link to smaller schemes such as the Nottingham Express Transit where PFI is making possible an integrated public system within a busy urban area.

The Government is proud of our record on PFI. We have been able to get it moving for three reasons.

Firstly, because when we came to office we were prepared to take tough decisions. In my previous job as Minister for Health for example we had to prioritise a number of major new hospital projects in order to break the logjam that had been allowed to build up. Health service need now dictates which PFI projects get the go ahead. To date 25 new hospital developments have been given the green light as part of the biggest hospital building programme in the history of the NHS. Work on 9 is already under way. The challenge now in the NHS is to get PFI working in smaller scale projects in primary care, mental health and at the interface with social services.

The second reason we have made been able to make PFI work is because we have been prepared to take 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.

We have also recognised the importance of getting the management of staff right when evaluating bids and contracts. Openness between bidders, trade unions and staff is an essential part of any well run procurement process. PFI should not be a secret process because it is about providing better services to the public. That is why we have published guidelines for the consultation of staff and other interested bodies.

The third and final reason why we have been able to rejuvenate PFI is because this 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 old 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. We recognise that what the public want is better quality, more responsive public services. Quite rightly, they want their services to be both dependable and modern. Their concern – like the Government’s – is about outcomes not ownership.

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 designs means less wasted space, more efficient energy management, lower maintenance costs. It also means more savings that can then be reinvested in frontline services.

Take the example of the contract recently signed by Falkirk Council, involving the replacement of five schools. It has been enthusiastically received by teachers and pupils alike who all stand to benefit from a decent environment for education. It is also delivering a 15% saving over the life of the contract compared to conventional procurement.

So we are pioneering new ways of doing things. New partnerships between the public and private sectors. A new understanding that improved public services and better value for money go hand in hand. The Government is committed to investing in our key public services. From April this year there will be an extra £40 billion for health and education. But it is not something for nothing. It is money in exchange for modernisation. PPPs and PFI are one way we are pursuing our investment for reform agenda.

And we will go on doing so. We have come a long way in the last 21 months. We are proud of what we have achieved but we recognise that there is more to do to make PFI and PPPs more generally a genuine national success story.

First, then we will be taking action to make PFI deals easier to complete. We are now looking at how to streamline the process of putting a PFI deal together. There is little doubt that the similarities between many PFI deals means that both time and money could be saved by having more standard template contracts. We will publish a guidance paper on standard model clauses by the end of this month. And next month we will publish guidance on accounting treatment that will help determine the optimal level of risk transfer that will deliver value for money.

These are both important developments in PFI because they will improve the efficiency of procurement, reduce transaction costs and secure better value for money.

Bates II

Second though we will continue to improve, identify and develop new opportunities and partnerships with both the public and private sectors. As many of you will know, with the impending expiry of the Taskforce’s 2 year mandate this summer, we have 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.

I am not able to speculate about the contents of Sir Malcolm’s report but I am looking forward to reading his report in a few weeks.

Looking beyond PFI

What I can say at this stage is that the Government is committed to taking forward a whole range of public private partnerships. That will of course include PFI but not to the exclusion of other forms of partnership. We are committed to making PFI work even better. But not all of our eggs will necessarily be in the PFI basket. Again for us what counts is what works.

One of the reasons we extended the terms of the second Bates review is that we want to develop PPPs further to exploit all commercial potential and spare capacity in public sector assets.

Because we are not wedded to a single model for financing arrangements, it means there are new opportunities opening up to enable us to modernise the infrastructure and improve the quality of public services. We need look no further than the Channel Tunnel Rail Link to see the benefits of our flexible approach. Here we are completing the fast rail links between London, Brussels and Paris by restructuring the deal so as to make it commercially viable.

Elsewhere in transport we are developing very different forms of PPP. In the case of London Underground and National Air Traffic Control, for example, we are restructuring public ownership. Here PPPs are allowing investment above and beyond what would be possible directly through Government. And so we can begin to tackle the legacy of under investment and inadequate maintenance in those organisations.

Elsewhere we are pursuing other public private partnerships that involve greater commercial freedom for services with a core public function. The Post Office and the Royal Mint are good examples.

Our Wider Markets Initiative takes a different approach still. It is looking at how we can make better use of the public sector’s great many under-utilised assets. Some assets are surplus – so it seems a nonsense to hold on to them. Other assets can’t be disposed of but are under-utilised. So we are looking at how we can use these assets to the benefit of both the private and public sectors. So for example, the private sector might take a lease, run it, and bring private sector work and services into it. Or make recreational use of Forestry Commission land. Or commercially exploit the intellectual property derived from defence research.

Each project is different. That reflects different problems and different motivations in very different settings. Improving the quality of public services. Getting value for money. Providing incentives for effective business management. Correcting under-investment. Sweating public assets. Optimising capital investment flow. This diversity calls for the development of new approaches to enable public and private to work together. The Government will be taking a lead in that process in the months ahead.

Conclusion

In developing and defining PPP models we will build on our success in getting PFI working. Ours will be a twin track approach. One, improving and extending the PFI. Over the next three years we expect that PFI deals will contribute £11 billion pounds worth of investment in our public services. And two, building on the reservoir of expertise that is growing by the day in both the public and private sectors in finding forms of PPP that best suit the specific needs of particular public services. Today’s conference will help build that capacity still further. I am sure you will find it productive. Thank you for listening.