Labour can beat Reform by rebuilding public services

Labour’s path to electoral victory lies in tangible public service improvements. Modern Public Private Partnerships could be the key to delivering results without breaking fiscal rules, say former Labour cabinet ministers Alan Johnson and Lord Hutton

There are two answers for a government under threat from Reform. You try to outflank them on the right like Rishi Sunak and end up in a Rwanda-style mess. Or you take the approach of Keir Starmer: focus on delivering stuff on the ground by the next election. Potholes fixed, neighbourhood police, secure borders, new schools, GP surgeries and hospitals. 

Which sounds simple until you come up against the Chancellor’s fiscal rules. Even before the current economic headwinds your room for the investment needed to rebuild our social infrastructure is limited. 

Since 2000, investment in public sector assets has averaged 2.5 per cent of GDP – a third lower than the OECD average.

As a result, our social infrastructure isn’t fit for purpose: one in seven NHS hospitals predates Nye Bevan’s landmark creation; schools with aerated concrete need urgent attention; our prisons are full to bursting.

Health sector leaders estimate that the NHS alone needs an additional £6.4bn per year in capital investment over the next three years. That affects services – the National Audit Office (NAO) pointed to 5,400 clinical service incidents occurring in the NHS every year due to property and infrastructure failures.

Modern PPPs

In the 15 years after the millennium, around 100 new hospital projects were completed in the UK, mostly using Public Private Partnerships (PPPs). In the last decade, that fell to single figures. The same is true in education with hundreds of schools built or refurbished under the last Labour Government of which we were members.

Britain invented PPPs in the early 1990s. Between then and 2018 they evolved to become more flexible and transparent with a notable and more recent inclusion being the NHS LIFT programme, which built 350 health centres in some of the most deprived communities. The NAO said LIFT offered “clear long term benefits to both the public and private sector”, and “value for money”. It is surely worth examining such approaches again at a time when investing in primary healthcare is such a priority? 

Almost every other Western country in the world now uses a version of PPPs to build the hospitals and other public assets they need. Ironically, we no longer benefit from their use on new infrastructure projects in England.

Ending the moratorium on PPPs is the way to square the circle of the constraints of the fiscal framework. And these partnerships – under a mutual investment model in Wales, and in Scotland are delivering, which begs the question, why not in England? 

Critics of PPPs point to high maintenance costs. But that assumes the lifetime cost of maintaining a school or hospital through a public private partnership should be compared only to the upfront costs if the public sector had done the work itself. That rests on a fantasy of flawless buildings needing little upkeep by the public sector.

PPPs have ringfenced maintenance of our public buildings, from cost-cutting Chancellors or local authorities desperate for savings

PPPs have ringfenced maintenance of our public buildings, from cost-cutting Chancellors or local authorities desperate for savings. The NAO found the contractually agreed standards resulted in higher maintenance spending in PFI hospitals and LIFT health centres have used facilities management contracts to ensure they don’t become part of the NHS maintenance backlog.

PPPs were three times as likely to be built on time and on budget compared to traditional procurement. A recent report from the NHS Confederation found that PFI projects “appear to offer better value for money than the recent New Hospitals Programme (NHP)”. That value is irrespective of whether things are ‘on’ or ‘off’ the balance sheet. 

That’s not to say there aren’t lessons to be learned. As a recent NAO report sets out, the public sector needs the capacity to manage and scrutinise private contractors; procurement processes need to be simplified; and we need an end to cross-Whitehall silos to regain investor confidence.

£5bn worth of contracts, mainly from the 1997 government are due to expire in the next parliament against a backdrop of increasing disputes exploited by some legal firms and third party advisors. An independent report commissioned by the Infrastructure Projects Authority argued for a reset to ensure the focus is not on spending money on disputes, but on building and maintaining the assets that keep our public services functioning. This is essential to avoid the minority of problem projects undermining the value that has been delivered under PPP given the vast majority are performing well. Think tanks like the Future Governance Forum have suggested a new independent regulator to adjudicate on disputes, and smooth the path for future investment.

Private investment cannot be compelled. A recent survey by the AIIP, who represent PPP investors, found that 91 per cent of the members thought the PFI market was likely to either remain static or deteriorate in the next three years. The government needs to create the conditions that persuade the capital markets to see the value in UK infrastructure. Planning reforms are a good start, but investors need the confidence for 25-year cycles of financing. That requires a credible and consistent forward pipeline of upcoming opportunities.

As the government prepares its 10 Year Infrastructure Strategy, we need partnerships that can deliver. 

Politics isn’t purely a retail transaction, but to have a chance of winning, every MP in every marginal constituency will need to be able to point to two things in 2029: sustained economic growth; and improved NHS facilities, schools and other vital public services that they delivered.

Alan Johnson is a former health secretary and Lord Hutton is a former Health minister and business secretary