MEETING THE INVESTMENT CHALLENGE

1.2 The Government's objective is to deliver world class public services. To achieve this, sustained increases in investment and matching reforms are needed to deliver efficient and responsive services, which meet public expectations throughout the country. Strong and dependable public services lay the foundations for a flexible and productive economy. They also promote opportunity and security for all, helping to tackle poverty and social exclusion and improving the quality of life. Chapter 2 contains detailed information on the Government's extensive programme of capital investment in the public services, and PFI's place within that programme.

1.3 A prerequisite for delivering high quality public services is having the right public service infrastructure in place. In 1997, Public Sector Net Investment (PSNI) stood at just £4.9 billion - 0.6 per cent of GDP - the lowest level for more than a decade. Investment in public services had been on a declining trend since the 1970s, resulting in falling standards in schools, hospitals and other public service assets.

1.4 The Government is committed to reversing this legacy of under-investment in public service infrastructure. Public Sector Net Investment will rise to 2.1 per cent of GDP by 2005-06, while total investment - which includes PSNI, depreciation, recycled proceeds from asset sales and estimated private sector investment in public services through PFI and PPPs - is set to rise to more than £47 billion over the same period. This is the largest sustained increase in public sector investment in over twenty years.

1.5 The vast majority - over 85 per cent - of this increased investment is conventionally procured public investment, with the proportion of estimated private sector investment in public services through PFI remaining relatively constant over the period 1998-9 to 2003-4 at between 10 and 13.5 per cent of total investment. This overall picture does not change when looked at for individual departments.

1.6 This investment programme is beginning to deliver extensive new and modernised infrastructure to public services. PFI investment has now delivered over 600 operational new public facilities, including 34 hospitals and over 200 new and refurbished schools. The decision to undertake PFI investment is taken on value for money grounds alone, and whether it is on or off balance sheet is a subsequent decision taken by independent auditors and is not relevant to the choice of procurement route. Almost 60 per cent of PFI projects by value are on balance sheet.