In 1997, faced with public spending constraints, the incoming Labour administration looked to “partnership” with the private sector for solutions, a policy that was ultimately unsuccessful. Nearly 30 years on, Jürgen Maier’s “Rail and Urban Transport Review”, written for the transport secretary Louise Haigh, is tempting another Labour government to repeat the error, arguing for a “new integrated partnership approach between the public and private sector” that enables “more infrastructure to be delivered, and to shorter deadlines, by leveraging private investment and alternative delivery models”.
In 1998 Geoffrey Robinson, the paymaster general, declared: “at the heart of New Labour is the desire to establish a new partnership between the public and private sectors… We inherited public finances in poor shape… the Private Finance Initiative is enabling government to support a significant number of additional projects beyond what can be provided through public purse.” Under the direction of chancellor Gordon Brown, that administration became obsessively committed to the Private Finance Initiative (PFI) and its sibling, Public Private Partnerships (PPP), to the extent that officials in central and local government came to understand that they were “the only game in town”. However, New Labour’s 30-year PFI and PPP contracts with the private sector did not deliver all they had promised and were finally abandoned by the Treasury in 2020. Their legacy creates problems to this day, for instance in consuming current budgets to pay for PFI schools and hospitals.
The Maier review proposes that: “national government should mandate private partners in PPP to arrange special-purpose vehicles (SPVs) to deliver projects. The SPV should require a mixture of debt and equity for the duration of the project, and should receive commensurate funding through, for example, track access charges or availability payments.” This could be a description of the controversial London Underground PPP of 2003, by far the largest of New Labour’s PPPs, which proved a very expensive failure.
The review is ambitious, declaring “we have an important moment to reimagine a better connected, more affordable and high-capacity UK transport network” and aspiring to deliver “Greener, Faster, Cheaper” infrastructure. The difficulty is that most of these propositions, such as HS2, are not commercially viable—it would be easy to build them if they were—and so require extra funding from somewhere. As New Labour eventually discovered, new partnerships may offer alternative ways of financing and other benefits such as better design, whole-life costing (estimates the total cost of an asset or product over its entire life cycle), and more effective use of labour, but they do not, in themselves, generate funding. They are high-cost borrowing, and the efficiency gains that might offset the expense are not always achieved.
Although under Boris Johnson’s administration the Treasury forswore further use of PFI and PPP, private finance can be a useful mechanism if—but only if—it is used appropriately and is properly understood for what it can and what it cannot do. One reason for disenchantment with PFI and PPP was that the public—and politicians, apparently—thought that private investors were funding these facilities. It must be understood that the private sector’s initial investment has to be repaid in full, with interest, out of the annual charges. The corresponding debt may or may not be formally classified as on the “public balance sheet”, but either way it is a liability for the taxpayer.
In reality, if we want better, cheaper and greener public transport then either other public spending is sacrificed or the local or national taxpayer pays more. Given that government support for the railway is already running at well in excess of £10bn a year and the current plan for HS2 will continue to cost an additional £7bn for some years, it will be difficult to act on Maier’s proposals until the economy recovers.
The public sector has always been in a commercial “partnership” with the private sector. That is where most of the supplies come from, as illustrated by the companies credited as contributors to the Maier review such as Alstom, Balfour Beatty Rail, Bechtel, Hitachi Rail and Mace. The important discussion is about which public services to procure under contract and which to deliver in-house through direct employment of a workforce. Setting ideological considerations to one side, the issue is what kind of agreement is sensible given the particular characteristics of the services in question and where the money is coming from.
A second source of dissatisfaction with PFI was very long-term contracts. For procurements any larger than getting a friendly local to maintain a piece of green space it is likely that any “partnership” will need to be supported by a formal contract that specifies a schedule of payments and defines the quality and quantity of service to be provided. Delivery of that service to the contract needs to be capable of open scrutiny and audit: it must be possible to specify what is required over the term of the contract in an objectively verifiable way.
The contract must be actively managed and capable of being enforced. The threat of early termination must be credible. Otherwise, since supplying poorer-quality service at lower volumes will generally save money for the provider, that is what will happen. The cost and delay of the initial procurement and the costs of contract management also need to be considered. None of this is particularly problematic for contracts of around five years. London bus tendering works well, for instance, like any number of other local authority service procurements. But where the private sector’s initial capital investment is to be recovered through annual charges, the contract durations have been more like 30 years, which is too long for many public services because it is impossible to anticipate demographic, technological, economic and political change over such a long period.
The Maier Review suffers from the syndrome of stating ambitious targets without justification or support. It calls for a doubling of the proportion of travel by rail (which, at its highest, accounted for 10 per cent of mechanised passenger miles in Britain in 2018) without stating a plausible means for achieving it or how much it might cost. It makes suggestions as to how the cost of projects could be reduced by 20 per cent and the time to deliver them by 25 per cent through improved scheduling and reform of the planning system. In principle this may be so, and it would clearly offer more without increasing the call on taxpayers. But successive governments have been attempting to do these things for many years and it is unclear how, in practice, such savings will be achieved when they have proved so elusive in the past.
The review is right to point out the urgent need for a coherent, long-term national strategy and stability in programmes and funding in order to achieve better efficiency in the supply industry, but Maier advocates creating several new central organisations that could create a bureaucratic mire. A strategic transport plan is to emerge from a wider Industrial Strategy Council, the latter to be “part of Labour’s plan to create a National Infrastructure and Service Transformation Authority”. Then, “delivery of the vision will be facilitated by a national Transport Strategy for England”, which is to be “part of a 10-year infrastructure plan locked in by a parliamentary debate”. Then, corresponding sub-national strategies for transport are to be established by regional bodies, which will have first produced economic and spatial plans. The review recommends that the “British Infrastructure Council brings together key actors from the public sector and investors to develop a new approach to private finance”. Meanwhile, Great British Railways is “accountable to the public, the UK and devolved parliaments and operates within a long-term strategy for services and infrastructure that is determined by the Secretary of State”.
At the same time the review advocates further devolution of powers to local authorities, sub-national transport bodies and bodies representing users. It is true that for devolution to become meaningful it must include much greater transfer of funding powers and accountabilities from the centre to local authorities, including the ability to raise local taxes and charges—and more effective capture of enhanced land values. The review is implicitly advocating reform of both the system of central government grant support for local government and the local taxation regimes. That would certainly remove the current blockages and open new opportunities for procurement and to establish vehicles for local government borrowing such as the public trust—examples include the 1933 London Passenger Transport Board and the Port of London Authority—or the North American public benefit corporation, for example the Port Authority of New York and New Jersey, and New York’s Metropolitan Transportation Authority. But the review does not acknowledge the fundamental conflicts here, in particular the Treasury’s unwillingness so far to cede control of local authority expenditures, not to mention the political unpopularity of any hint of increased local taxation to fund these projects.
The review says that “each part of the system needs to be aligned to deliver the same goal and to ensure priorities can be delivered”, but it does not acknowledge that the point of devolution is that local authorities can reflect their own priorities. Similarly, it advocates streamlining the planning system without acknowledging that the present system has been designed to balance local interests against regional and national ones. Reform is going to be slow and difficult.
Helpfully, the review is about general principles. However, in places it reverts to lobbying for a shopping list of specific rail schemes without any new supporting argument, including digital signalling, rail schemes in the north of England and reinstating parts of HS2. It only mentions buses in passing, which is a shame since buses are available in many more places than trains, are used for 40 per cent more trips than rail and yet receive one tenth of the public funding support given to rail. Bus users also typically have much lower incomes than rail users.
Like so many industry-led reviews, Maier assumes that all infrastructure investment is a good thing and fails to recognise that when public expenditure is constrained, the correct question is not “Would this proposal produce benefits?” but “Would this proposal produce sufficient benefits to justify taking public expenditure away from elsewhere?” When public money is as tight as it is now it is doubly important not to waste it—as we repeatedly seem to do by choosing projects with inadequate evidence to support them. Maier does not acknowledge the usefulness of the five-case model set out in the Treasury’s Green Book in helping to address this challenge: the cost:benefit appraisal being the economic case alongside the strategic, commercial, financial and management cases. If, as the review suggests, the industry wants alternative methods of project appraisal to be used, they will have to be as firmly based as current official methods are on the evidence of what actually generates productivity, growth and wellbeing.
Any government needs a good working relationship with private sector providers and it is right to explore alternative forms of contract and finance. Greater long-term stability in transport policy is essential. But we must be realistic about the unavoidable choices that have to be made and we should not forget what has worked and what has not in the past, including at the start of the last Labour government.
