Public-private partnerships are back – but we can do it better this time

Despite the high-profile problems with PFI, Ellen Little of Dow Schofield Watts Business Planning says new partnership models could be a way to deliver badly needed infrastructure and growth.

Six years after the controversial Private Finance Initiative (PFI) model was finally abandoned, it seems that public-private partnerships are back on the agenda. With the launch of the new national wealth fund, the government has announced it wants to ‘work in lock-step with industry’ to unleash private investment and grow the economy.

The PFI has cast a long shadow over the very concept of partnerships between the state and private sector. Launched in 1992 by Tory Chancellor Norman Lamont, the scheme was embraced by New Labour and used to build, finance and operate numerous schools, hospitals, housing schemes, prisons and other assets, which were then to be handed over to the public sector at the end of the contract.

PFI was problematic from the start, and despite attempts to achieve better value, horror stories abounded – such as companies charging £300 to change a lightbulb or install a plug socket and NHS trusts requiring a government bail-out due to the ongoing costs. New PFI projects were finally stopped in 2018 after a National Audit Office report said Britain had incurred billions of extra costs for no clear benefit.

Nevertheless, partnerships between the public and private sectors have a long history, with the construction of London Bridge, which started in 1176, being one example. And despite the high-profile failures under PFI, many of the more recent partnerships have been genuine success stories.

The truth is that by the time PFI was abandoned, we already understood the pitfalls – such as the complex, rigid contracts and faulty approach to risk sharing. The newer partnership models were designed to overcome these issues.

Vehicles such as the NHS LIFT (Local Improvement Finance Trust) and BSF (Building Schools for the Future) aim to create a true partnership through a type of joint venture arrangement, offering greater flexibility within the contracts and better alignment of stakeholder objectives. Risk sharing is a key issue, and we now better understand which parties are best placed to manage that risk and deal with the financial impact. In these new partnerships, the different parties sit around the table together and take a long-term view, often delivering a series of projects through one procurement vehicle.

At a time when the country needs investment but the public finances are tight, it would be a mistake to let PFI failures rule out the benefits that public-private partnerships (PPPs) can offer. Admittedly, with changes in the fiscal rules, private sector involvement no longer means debt and liabilities can be magically removed from the public balance sheet. However, the involvement of the private sector does bring some key benefits, such as attracting outside investment, innovation and expertise. From the London Bridge to the Channel Tunnel, PPPs have been proven to deliver ambitious and important projects while creating jobs and economic growth.

Of course, they need the right conditions in place – a true alignment of values between the different stakeholders, clear objectives, good governance, watertight contracts and a thorough risk assessment. But having learned the lessons of the past, there is genuine optimism that we can get it right this time round.