Labour is preparing to kick off a new wave of public-private partnerships (PPPs) in England to build the neighbourhood health centres at the heart of its NHS 10-year plan.
Ministers will make a final decision in the autumn budget about whether to use the funding approach, which was put on pause eight years ago.
But critics say lessons have not been learned about the pitfalls of PPPs, and point to the chaos unleashed by the 2018 collapse of the mega-contractor Carillion, with its complex portfolio of projects.
While it was originally conceived under the Conservatives, Tony Blair’s Labour government made significant use of the private finance initiative (PFI), a form of PPP used to build schools, hospitals and other public infrastructure, without adding to the national debt.
Backers of PFI say this approach allowed public infrastructure to be built that otherwise would not exist; but opponents say the taxpayer was often left footing huge bills for inflexible contracts that ran for as long as 30 years.
Treasury data shows that 560 PFI contracts are outstanding in England, for projects including schools, hospitals, libraries and road maintenance. Hundreds of these contracts will end in the coming years, raising questions about the state of the assets being inherited by the taxpayer, and potentially triggering legal battles about the precise conditions of “handback”.
A report last year from the Association of Infrastructure Investors in Public Private Partnerships (AIIP), chaired by the Labour peer and former frontbencher John Hutton, warned of the risk of “serious disruption” as these deals come to an end, amid what it called “mistrust between the parties to some PFI contracts”.
Rachel Reeves will be under no illusion about the pitfalls of PPP, having chaired the House of Commons business select committee when MPs examined the fate of Carillion, which was enmeshed in a number of PFI deals as well as being a direct contractor to government.
However, the government is under pressure to transform the UK’s crumbling public services, with limited resources, and recent announcements have made clear that ministers are ready to dip their toe into this controversial area.
The 10-year infrastructure strategy, published in June, said the government would “explore the feasibility of using new PPP models for taxpayer-funded projects (for example in decarbonising the public sector estate and in certain types of primary care and community health infrastructure) in very limited circumstances where they could represent value for money”.
Scotland and Wales have developed their own, alternative approaches to public private partnerships, called “non-profit distributing” partnerships and the “mutual investment model” respectively.
Darren Jones, chief secretary to the Treasury, says reviving PPP in England could “allow us to do more, quicker, than you would otherwise be able to do”.
He is clear that that includes neighbourhood health centres, which are meant to transform NHS care by shifting more treatment out of hospitals. The NHS 10-year plan made a commitment to “develop a business case for the use of public private partnerships for neighbourhood health centres, ahead of a final decision at the autumn budget”.
Jones said: “We’ve got the new hospital programme building stuff, which is obviously huge. We’ve got the maintenance backlog, which is huge. We’ve chosen to invest a lot in technology to improve productivity and diagnostics and all that type of stuff. And you don’t have an infinite budget. So if there’s an innovative way of delivering a key objective for us, that’s what we’re trying to make happen.”
Nevertheless, there is some anxiety inside and outside government about the risks attached to potential contracts, even if they are much more narrowly conceived than the mega-projects of the Blair years.
When the NHS 10-year plan was launched, Unison’s general secretary, Christina McAnea, warned: “Basing any funding on a failed market system and expensive private finance model would be a major error, especially with money so tight.”
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The legacy of previous waves of public private partnership is complex. Research this year, by the economist Max Mosley, then at the National Institute of Economic and Social Research, looked at 1,000 schools built through PFI. It found that £13.5bn was being spent at local level on repayments, 31% of which was going on interest.
Mosley, now at the New Economics Foundation, said: “When PFI projects failed it carried devastating consequences, from huge costs levied on hospitals, to state-of-the-art schools having to close down.
“Clarity is crucial. We need to understand what types of services are in scope, how risk will be managed, and how the mistakes of the past will be avoided.”
Backers of PPPs argue that the assets being handed back to the public sector when decades-long contracts come to an end are in better condition than crumbling public buildings whose upkeep has been left to the taxpayer.
A recent National Audit Office report on the use of PPPs to fund public infrastructure called for a series of changes, including better sharing of risk between taxpayers and investors. “Departments should assess risks, determine who is best placed to bear them, and design agreements that clearly establish the corresponding risk allocation,” said one recommendation.
Hutton, of the AIIP, said that “despite the myths”, PFI had delivered “hundreds of schools, hospitals and health centres that would have never otherwise been built, with ringfenced maintenance”.
He added: “PPPs operate in every other western economy. By applying the lessons learned and harnessing technology to reduce complexity and avoid disputes, PPP can rebuild our vital public services with buildings that will stand for decades to come.”
Labour has set up a new body, the National Infrastructure and Service Transformation Authority, to be the government’s centre of expertise on these issues, though sceptics argue that it is more of a rebranding exercise than a significant beefing-up of resource.
Iain Murray, the director of public financial management at Cipfa, the professional body for public sector finance experts, said it was understandable that PPP was back on the table but that its success would depend on learning the lessons from earlier generations of projects.
“A lot of these deals were modelled in [a] low-inflation, low-interest-rate environment and all of a sudden the world turns on its head – and that’s not just about the money, it’s about the services they’re providing to the public,” he said. “How do you build that flexibility in? Is there a way you can think about structuring those deals to get the kinds of outcomes you want?”
