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Charles on PUBLIC FINANCE; Mechanism for social progress

Public-private partnerships have a chequered history, but as the only way forward for infrastructure projects we need to make them work The appalling Grenfell tragedy, followed by the collapse of Carillion, the profit warnings and challenges faced by Interserve and Capita, and the rough ride for the Haringey Development Vehicle, have brought concern about major infrastructure developments to the top of the practical and political agenda. The policies of the official Labour opposition best illustrate the political consequences. Renationalisation of the utilities and rolling back all publicprivate partnerships seeks to install ‘the state knows best’ as the operating principle. Of course, these issues have always been controversial, but, at the moment, there is a definite sense in all sectors that they are becoming more acute and challenging. It is important to get two things clear. First, it has never been the case that private is good and public bad – or the reverse. Second, even if it were desirable, it is never possible to remove the private from public provision, short of establishing a Sovietstyle command economy, in which every form of production is owned and controlled by the state. Similarly, the public interest can never be removed from private projects – from wholesale ownership to regulation and legal requirements. The important issue is how to make the partnership between public and private work best. And those recent events show that we clearly need to do a lot better. We should not abandon private involvement in public interest projects or, at the other extreme, leave it all to the markets. We have to eliminate the very serious problems that have occurred. We need to examine and revise our practices, whether in the relevant professional disciplines, in business, in politics or in national or local government, to find the best way to improve what we do. We must get the legal forms of partnerships and co-operation right. There have been different and evolving kinds of publicprivate partnerships, various forms of private finance initiative, diverse types of joint venture, plus new ideas, such as sovereignstyle wealth fund co-operation and a ‘new social contract’. Some of these approaches have dramatically accelerated investment in important social benefits, such as schools and hospitals, which otherwise would not have happened. The starting point is to deal with the issues that distort some public decision-taking. The often contorted processes that have been followed to keep certain spending ‘off balance sheet’ have delivered little public benefit. Every public-private partnership agreement should be open and transparent and require both parties to commit to:

  • Putting the interest of the citizen at the core

  • Establishing the partnership’s explicit social and moral purpose

  • Sharing risk fairly and transparently

  • Treating workers properly, by having proper employment contracts, pay and training, pensions and trade union recognition.

  • Strong agreements for future maintenance (a strength of PFI).

Both sides need to perform better. Public partners need improved commissioning, taking into account quality and cost; higher-quality staff and better political commitment; and full scrutiny of private contracting partners, encouraging genuine markets and avoiding oligopoly. Auditing should be strengthened, as should the public reporting roles of the Financial Reporting Council, National Audit Office and the Public Accounts Committee. Private contractors need to avoid overreaching, working across too many markets, excess complexity, acquisitions to drive growth, risky international commitments and vulnerable supply chains. Both need to take their decisions on a long-term basis. The agenda is challenging, but it is time to listen to genuine public concerns to recreate public-private partnerships as the best way to build powerful mechanisms for social progress.

Charles Clarke is a former Labour home secretary and research fellow at the Policy Institute, King’s College London.

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