The Government believes that private sector investment, innovation and skills should continue to play a significant role in the delivery of public infrastructure and services. The Open Public Services White Paper sets out the Government's plans for modernising public services. Increasingly, services will not be delivered by the public sector itself but from outside, whether by employee-led mutuals, joint ventures, social or charitable enterprises or commercial providers.
There are a number of ways in which the private sector delivers public infrastructure and services. These arrangements can range from, at one end of the spectrum, privatisation where both ownership and risks are transferred to the private sector, to conventional procurement models where the Government contracts with the private sector for specific packages of works or services. Under conventional procurement the public sector generally retains the risks associated with ownership, operational performance and services integration.
There are also a number of Public Private Partnership (PPP) models, characterised by joint working and risk sharing between the public and private sectors. These can include relatively simple outsourcing-type partnerships - where services are provided on short or medium-term contracts - or longer-run private finance partnerships such as the Private Finance Initiative (PFI). Well-formed partnerships with the private sector have delivered clear benefits: in driving forward efficiencies; getting projects built to time and to budget; and in creating the correct disciplines and incentives on the private sector to manage risk effectively.
While the Government remains committed to private sector involvement in delivering infrastructure, it recognises the concerns with PFI and the need for reform. There has been widespread concern that the public sector has not been getting value for money and taxpayers have not been getting a fair deal now and over the longer-term. There has been a lack of transparency of the financial performance of projects and the returns made by investors and insufficient transparency of the future liabilities to the taxpayer created by PFI projects. This has led to an increasing tension in the relationship between PFI providers, the public sector and the wider public. There have also been recent economic developments to which PFI has needed to respond, particularly changes that have occurred in the global financial markets.
This document sets out the Government's new approach to involving private finance in the delivery of public infrastructure and services through a long-term contractual arrangement, Private Finance 2 (PF2). This continues to draw on private finance and expertise in the delivery of public infrastructure and services whilst addressing past concerns with PFI and responding to the recent changes in the economic context.