Written evidence submitted by Professor
Lewis Lesley, Technical Director, Trampower
Before diving into the effectiveness or otherwise
of PFI, I would like the Committee to consider the definition
of a public service. This term is used very loosely. Does it mean
a service provided by tax payers funding, or does it mean a service
provided for the benefit of the public?
The danger of the former definition, is that it becomes
an end in itself, used by Government to "mop up" "unemployment"
or to demonstrate virility by the volume of spending.
If it is the latter definition, then many if not
most public services in the UK are not funded by taxes, eg. fresh
food distribution, electricity, gas, telephones, etc. In this
definition the role of (central) government is to set the rules
of engagement, and provide a regulatory framework.
Having worked in a Communist Country, the Government
as the provider of services and the protector of the environment/population
are often in conflict. Similarly in the UK the Government as the
provider of services and regulator are intrinsically in conflict,
even before the question of political control/micro-management.
Predecessor Select Committees have noted that Ministers are supposed
to provide strategic guidance, and leave the daily management
to professional managers. In practice often there is little or
no strategic guidance and a lot of day to day interference.
Two recent public service developments, namely cable
TV & Broadband and mobile phones, have been undertaken with
a regulatory frame but private funding and management in competitive
environments. A very effective way of making the provider accountable.
The basic flaw with PFI is that it is an expensive
way for the public sector to invest. Firstly the risks involved
may on paper be passed to the private sector, which then factors
these into high costs, paid for by Government (and taxpayers)
over a large number of years, with inflexible contracts.
The biggest risk faced in PFI or any other public
contract is the public agency procuring the investment. Both the
National Audit Office and District Audit Offices have numbers
of Reports underlining this.
The most cost effective way of buy investments for
the Public Sector, is one where the public procurer takes the
risks, and agrees contracts where the contractor warrants workmanship
and materials to an agreed cost and time frame, with penalties
for lateness, and rewards for early completion. If the public
sector procurer then wants to change the project or specification,
then it has to be paid for and it is clear why the extra costs
occurred and how should pay.
PFIs have enabled Government's to boast that so many
new hospitals, schools etc have been built, many of which cannot
really be afforded from current taxes but obviously can be funded
by the private sector. These will have to be paid for over the
next 20 or 30 years, significantly reducing the ability of future
governments from making new capital expenditures.
As the cable TV and mobile phone developments show,
the private sector can deliver cost effective investments, and
make a just profit AND contribute tax revenues. The Government
only has to redefine what constitutes public services and many
more could be delivered by the private sector to meet real consumer
needs, paid for by users with fair prices, and corporate profits
taxed for the benefit of those services which cannot be commercial,
like defence, security, education, universal health care.
April 2011
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