Public Private Partnerships – surely not again!

I thought I wouldn’t need to write about PPP ever again. However, as the Chancellor is considering private finance for new infrastructure projects, a new generation of politicians and officials must be reminded of this bonkers idea.

 

A Public-Private Partnership (PPP) is a funding model for public infrastructure projects. It is an umbrella term for schemes like the Private Finance Initiative in the UK. It encompasses schemes such as the Hub programme and the Non-Profit Distributing (NPD) model in Scotland. The Tories invented PPP, although the Blair/Brown governments massively expanded it. The SNP came to power in 2007 and committed to ending these schemes but simply rebranded them through the work of the Scottish Futures Trust. Even the Tories abandoned them for new projects in 2018.

The Chancellor is considering such models because of the fiscal pressures the UK is currently under. They are proposing to tweak the model with the introduction of ‘value-for-public-money’ clauses. This test looks similar to those in the old model, which was easily circumvented. PPPs claim to offer a way to avoid tax rises (in the immediate) and break fiscal rules. However, whilst PPPs provide a way to get around short-term budgetary rules, they simply push expenditure forward and pressure revenue budgets. New Labour era ministers promote the model despite admitting it ‘is not without its shortcomings’. The industry is already salivating over the prospects of easy profits while claiming they have learned the lessons of PFI.

 

The evidence against using PPP is extensive. This briefing sets out the major problems and risks the UK has encountered through its extensive experiment with PPPs, including how they have:

·       Cost the government more than if it had funded the public infrastructure by borrowing money itself

·       Led to large windfall gains for the private companies involved at public expense

·       Enabled tax avoidance through offshore ownership

·       Led to declining service standards and staffing levels

·       Hollowed out state capacity to design, build, finance and operate infrastructure

·       Eroded democratic accountability

 

This is not just about historical costs; the price continues to be paid. PPP projects in Scotland typically run for 25-30 years, and you can view the cost for each legacy project here. In the UK, over 700 projects have been built using PFI since the early 1990s, worth around £60 billion. They distributed £300 million in dividends to investors from £1 billion in profits between 2005 and 2022. As NIESR points out, “We are spending far more in PFI repayments than the value of the assets and are locked into these contracts for decades to come. Most households wouldn’t take out loans on terms like this, so why did the public sector?”

A study of parliamentary inquiries into PPP scandals examined a consistent pattern of wrongdoing. Over the past decade and a half, billions of taxpayers’ funds have been unaccounted for. This appears to be mainly because private interests have been prioritised over public needs. Other findings showed that companies regularly reduced the quality of a service to maximise profits. Companies sometimes breach the terms of their public-private contracts because it’s in their economic interest. This even has a name – economists call it ‘efficiency breach’. As many of these contracts come to the end of their life, buildings are being handed back with huge maintenance bills.                               

Successive opinion polls show that the public wants essential public services to be nationalised, not handed over to private companies to make rip-off profits. The hard lessons of the past should not have to be relearned. We already know that taxpayers and consumers will pay the price.

ScotRail: public ownership is not enough

 The Herald has been running a series of articles on ScotRail since it was taken into partial public ownership as the ‘operator of last resort’. As is often the case, the headlines don’t always reflect the content, which is generally good, and the usual suspects have claimed it shows public ownership doesn’t work.

Last September, I wrote a briefing for the Reid Foundation, All Change on the Railways, which looked at ScotRail and the UK Government reforms. This was a warm-up for Mick Lynch's lecture at the Jimmy Reid Memorial Lecture in October 2024. It is worth remembering that under the Tories, only 85.5% of trains ran on time, and many more failed to run at all, not least because industrial disputes were deliberately left unresolved, wasting £1.25bn of taxpayers' money. This was also the case with Abellio in Scotland. Fragmentation, waste and bureaucracy beset privatised rail. While welcoming the decision to bring ScotRail into public ownership, I highlighted several challenges. These included driver shortages, ageing rolling stock, retiring engineering staff, passenger safety, and the need for an integrated transport and ticketing system. These all reflect years of mismanagement, which cannot be fixed in under three years of partial public ownership. ScotRail still operates under the failed franchise model, which has additional costs baked in.

The usual suspects have focused on increased costs, pointing to the grant increase from £446m pre-pandemic (2019/20) to £737m. However, we also know that Abellio was running at a loss above £100m, which they, or another operator, would insist on to keep the franchise running. Then, there is the need to settle the pay disputes, record inflation rates, and other costs associated with the mess Abellio’s desperate cost-cutting caused. Some of us can remember the shambles of the 2018 winter timetable, with months of cancellations and service disruption. So, while it is right to question any cost increases, they must be contextualised.

There is a lot of confusing data in the articles about passenger satisfaction based on different surveys over varying timelines, with some highly subjective questions. For example, what is the difference between 'sometimes' and 'rarely' in relation to delays and cancellations? However, overall performance and passenger satisfaction continue to be better than the GB average and trains in Scotland are more likely to arrive on time. As someone who regularly uses the train, I have to agree. Much was made of cancellation costs (still better since public ownership), but these are anyway mainly outwith the control of ScotRail, either due to the weather or Network Rail issues. A public service operator should ensure that passengers get home, which often means expensive taxis because coaches are not always available. I can recall several lengthy disputes with Abellio, who fiercely resisted paying the actual cost of their service failures - no MSP to complain to then!

ScotRail is also running 75% more services, and while that is slightly down on the pre-pandemic figures, other rail companies have not achieved similar pandemic recovery numbers. There has been a significant shift to home working, which has been encouraged in Scotland, with no Jacob Rees-Mogg leaving cards in civil service offices!

It is no surprise that passengers think rail fares are too high – they are. The peak rail fares pilot scheme boosted demand for ScotRail services by around 6.8%, short of the 10% target. However, this criterion ignores the policy's wider benefits, including two million car journeys taken off our roads. 

So, in three years of partial public ownership, services have improved marginally as the Abellio shambles have been patched up. However, that is only part of the story; as Transform Scotland says, a clear, coordinated strategy and long-term investment are needed to ensure railways are a “national success story rather than a symbol of missed opportunity". They criticise the ending of the peak fares scheme and point to the need to adapt services to evolving work and leisure patterns, with greater cohesion between improving rail services and facilitating traffic reduction. The Scottish Government has committed to spending over £6 billion on new road capacity on the corridors from Perth and Aberdeen to Inverness. Yet no similar ambition exists for the parallel rail routes. We have an ageing rail infrastructure and one of the oldest train fleets in Britain. If this sounds familiar to ferry users, it should. Transform argues that the strategy should include simplifying fares, prioritising user experience, improving service reliability, and investing strategically.

As I argued last September, the key to the future of our railways and climate change is to get us out of our cars and onto the train. Rail is in a unique position to accommodate transfer away from the car. To achieve that, we need a radical policy shift and investment. Public ownership is an essential step on that journey but not enough.

Social Murder?: Austerity and Life Expectancy in the UK

Life expectancy has increased in the UK more or less constantly for more than a century. Around 2012, this all stopped, and among poorer populations, it actually went in reverse. In some parts of the UK, the change to premature mortality rates (death under the age of 65 years) has been nothing short of astonishing. This is the starting premise of David Walsh and Gerry McCartney's new book, Social Murder? Austerity and Life Expectancy in the UK. 

The authors, from the University of Glasgow, demonstrate how evidence shows that these extraordinary changes to life expectancy and mortality rates have been mainly caused by UK government policies implemented in 2010 by the Conservative-Liberal Democrat coalition. This is all carefully evidenced, showing what happened, when it changed and who was most affected. While we often bandy around the word austerity, the scale of the cuts to UK government spending is poorly understood. By 2019, annual spending was down by around £91 billion compared to pre-austerity levels. To put that in context, that’s more than the GDP of entire countries like Croatia, Bulgaria and even Oman. Over the period 2010–19, the cuts add up to a total reduction of approximately £540 billion. These are changes on an extraordinary level.

While the authors provide a mass of statistical and other data to make a case that was downplayed by many public health organisations, they also tell the stories of how austerity impacted individuals through case studies. These also show how the coalition government introduced a policy of vilification and demonisation of people in receipt of social security benefits. One case study highlights the impact on so many, "Moira was now terminally ill. But even that was not enough to satisfy the DWP. One of her daughters, Nichole, was told in a ‘cruel and heartless’ phone call that they would not believe Moira was terminally ill unless they were told by a doctor that she only had a few weeks left to live. They had requested evidence from the general practitioner (GP), they said. The GP told Nichole they had received no such request. In August 2015, one month after her cancer diagnosis, Moira died. She was 61 years old."

There are also startling non-public health statistics that illustrate the arguments. For example, in 2010/11, the Trussell Trust, the largest food bank provider in the UK, had only 35 food banks across England; by 2019/20, they had almost 1,300.

They don't deny the impact of other factors on life expectancy, such as COVID-19, obesity, and inflation. However, they point out that the trends pre-dated COVID-19 and the cost-of-living crisis - austerity made them worse. As with the title from an apt Friedrich Engels quote, they don't mince words, "Put more bluntly, poverty kills. And austerity has increased poverty levels in the UK." Austerity kills through physical and mental illness, and children are impacted the most. The book also looks at the international evidence, showing that the greater the austerity implemented by those governments, the worse the life expectancy and mortality trends. They also criticise public health agencies – most notably PHE and the WHO, for not raising the alarm that austerity policies were causing life expectancy to stop improving overall and causing it to fall rapidly in the most deprived communities, which they argue 'is a dereliction of duty', and lessons need to be learned.

If mortality rates are to improve, the new UK Labour government and other governments worldwide must understand the evidence, quickly reverse the erosion of public services and social security systems and protect those at greatest risk. The authors conclude, "If poverty in a wealthy country is a political choice, as Philip Alston so eloquently pointed out, then so too is no poverty. It is not only within the gift of our political leaders to achieve this: it is surely their moral obligation." It is not just governments; we all have a responsibility: "To really change our politics we need to be active citizens: building campaigns and protests; creating and supporting institutions and organisations that can help."

The recent budget was a start, as the impact analysis below is the reverse of the austerity years. However, as I argued in my Budget blog, this direction change must be sustained. If you want the evidence, look no further than this excellent book.

Europe after Trump

I participated in a European foundation workshop last week, which examined the impact of a Trump presidency on Europe. While European leaders politely congratulated Trump and emphasised long-standing links, the policy community is less sanguine.

As you might expect, there was a lot of emphasis on the need for Europe to be less dependent on the USA. However, other strains of thought saw developments within Europe, making it more challenging to develop a coherent European response. When Trump was last in power, he faced a reasonably united Europe led by centrist moderates. Today, Europe has its own populist leaders who have a deep-seated scepticism of the EU and a desire to erode it from within. Many of these leaders also welcome Trump's return, although wary of his policies, particularly trade tariffs and the consequent dumping of China's overproduction on Europe. Add to that the political uncertainty in France and Germany, and Europe looks anything but united.

Despite Brexit, the EU remains Britain’s biggest trading partner, representing about 40% of UK exports. However, the US is the UK’s largest trading partner as an individual country, accounting for about a fifth of all exports and worth more than £190 billion a year. If it's an either/or, re-establishing ties with the EU is in Britain’s financial interest. Neither option is good news for the Chancellor's growth strategy.

My presentation was on the implications for defence. A Trump presidency means Europe and NATO must get serious about their defence. European defence policy has traditionally been heavily reliant on US support, without it NATO will be diminished, While there are some traditional Republican policy voices in his cabinet picks, we also have Pete Hegseth running the Pentagon and Tulsi Gabbard at national intelligence. Having a Putin apologist within the Five Eyes intelligence alliance is a frightening prospect, particularly for Ukraine, which could lose funding and the vital intelligence assets, mainly high-end satellites, that are essential to its defence.

The following two months could be critical for Ukraine as Russia intensifies its offensives to strengthen its bargaining position. Biden's missile decision helps Ukraine, but it's not a silver bullet. Trump's buffer zone plan is doomed to failure, as the UN peacekeepers in Lebanon would tell you. Putin will simply use the time to regroup before his next aggression. Front-line European countries identified this more than others at the workshop.

The silver lining is that it could galvanise the UK and the EU enough to take action on UK-EU security and defence cooperation. Germany, in particular, needs to develop a new defence policy with funding to match, ending reliance on the USA for protection and supporting Ukraine. To date, the average German military support for Ukraine represents approximately 0.1% of Germany's GDP annually. According to projections by the Kiel Institute, ceasing support for Ukraine could lead to costs ranging from 1% to 2% of annual GDP over the next five years.

Britain also needs a new defence strategy to end the myth that we can do everything. The British Army cannot deploy a whole division for combat. The Royal Air Force struggles to defend its airfields, especially against missile attacks, and the Royal Navy lacks enough crew for its remaining ships. In a sustained Ukraine-style conflict, our ammunition supplies would quickly run out. We should not forget that the so-called independent nuclear deterrent almost entirely relies on US technology. These were highlighted in a House of Commons Defence Committee report, and the new UK Government is developing a new strategic defence review. 

Since the Second World War, Britain has acted as a supporting player to the US, pursuing global goals without the means to sustain them. The last government's 'tilt to the Pacific' and 'Global Britain' rhetoric was just the latest iteration of this delusion. As Frank Ledwig put it recently, "The UK must decide: is it a global power or a regional force in the Euro-Atlantic area? It cannot be both."

Autumn Budget 2024

 I am sadly old enough to remember when budget purdah was a thing. Clearly, no more, with relatively few surprises in today's budget, which hadn't either been formally announced or at least briefed in advance. That doesn't mean it wasn't a massive shift in direction, arguably transformational. I would highlight three in particular.

The first is the distributional analysis. After 14 years of the Tories rewarding the rich, this looks like a proper socialist budget. This point is reinforced by specific measures such as changes in Capital Gains Tax, Inheritance Tax, and, the one I particularly enjoyed, private jet passenger duty.

Second, there will be a big increase in spending for devolved administrations. An extra £1.5bn for the Scottish Parliament this year and an increase of £3.4bn next year. As Stephen Boyd points out, this doesn't end all the Scottish Government's long-term challenges, but if I were Shona Robison, I would sleep better tonight. 

Third are the fiscal rule changes, which many of us have been shouting about for weeks. This means more significant public investment in rebuilding our public services. As the OBR highlights, this alone won't boost GDP in the medium term, but it does start to fix the foundations of the economy after many years of neglect. Some of us would argue it could have been more significant and, as the OBR also highlights, must be sustained. The historical record shows (below) that it is not the 1960s and 70s, but greater than the manifesto implied and a move in the right direction. The OBR assessment of the impact on inflation, debt, and the bank rate is marginal. 

Other excellent announcements include the above-inflation increase in the minimum wage and reserved spending on defence, although this is still below where we need to be as a proportion of GDP. Hopefully, the Defence Review will address the huge threats to our national security. Confirming the ending of VAT exemptions for private schools thankfully showed the absurd lobbying failed. I was also pleased to see action on the mineworkers' pension scheme. 

If there is one big disappointment, it is the failure to increase fuel duty. I filled up my car on the way home yesterday, and when I left the petrol station, I thought it would not likely be that low for some time. However, Fuel Duty was frozen, and the 'temporary' 5p cut was kept. For a government that cares about climate change, this is bonkers, particularly when increasing the cap on bus fares. Some economic downsides around household incomes and employment have to be acknowledged. Increasing Employer NICs is not a free lunch.

Overall, I was very impressed with this budget. Of course, there are actions I would have liked to see that are missing, and she could have gone further with others. Serious tax reform is still needed, particularly on wealth. However, this was a step change in direction, and you can't do everything at once. There is still some headroom against fiscal rules, so there is scope for further structural changes.

Great Britain? How We Get Our Future Back

 If you are interested in economic policy, I recommend reading Torsten Bell’s new book, Great Britain? How We Get Our Future Back. In it, he provides a detailed analysis of the key economic challenges facing the UK today and proposes policies to return the country to economic and social prosperity. Torsten Bell is best known as the chief executive of the Resolution Foundation, whose economic and social policy analysis is always worth reading. Before that, he was a Treasury civil servant and now a Labour MP.

His analysis of what's gone wrong is trenchant and well-argued but not new to anyone who follows the Resolution Foundation's work. He argues that the austerity economics pursued by the Tories was economically damaging and socially disastrous. A toxic combination of high inequality and low growth left the UK exposed to Brexit, a global pandemic and the biggest inflation shock for a generation. In particular, this negatively impacted both poorer and middle-class Britain. He also highlights the breakdown of the intergenerational contract, ‘The young are earning lower wages than their predecessors, in more insecure jobs, while renting smaller properties for longer, as their aspirations to homeownership sail out of view.’

Bell points to a productivity gap that has doubled in the UK compared to France and Germany despite the well-publicised challenges those countries face. British workers produce in five days what their competitors produce in four, resulting in stagnant real average wages. Rising property prices and rents mean the average family spends twice as much of their income on housing costs compared to 1980. The cost of housing in the UK is the second highest out of 38 OECD countries. 

For the degrowthers (the theory that growth is undesirable), they’ve got what they wanted. Anyone thinking the problem is that we have had too much growth has missed the news that we haven’t had any. This is not normal, even after recessions.

There is much more about what's wrong, but the vital part of the book is how to put it right. I suspect not all his views will be universally accepted. For example, he opposes a Universal Basic Income (UBI), arguing, ‘an affordable UBI would be inadequate, and an adequate UBI would be unaffordable.' I agree, but many on the left don't. He is not opposed to directly elected mayors (I am) but argues that they have been tasked with providing economic leadership without the means to deliver it. He is absolutely right about the need to build up a smaller number of larger pension funds, but that is being resisted, including by many councils in Scotland.

The core of his prescription is investment, public and private. Britain has had some of the lowest investment spending of countries in the OECD; consequently, we have substandard water systems, transport, and road infrastructure. He argues that Britain should adopt a 'golden rule' level of investment of 2.5%- 3% of GDP every year, pointing to the opportunities for investment in the necessary decarbonisation of the economy.

None of this is exactly radical economic thinking, but has the Chancellor read his book?  The signs are mixed. Some reports indicate a possible change to the fiscal rules, and others say the Chancellor is demanding cuts to infrastructure spending of around 10%. There has been some more positive news today. The Chief Secretary to the Treasury, Darren Jones, has announced a 10-year infrastructure strategy at the full spending review next year, which includes housing and schools as key economic growth drivers and will be overseen by a new body. But note, that is ‘next year’. 

And don’t expect the private sector to come to the rescue. Non-government investment in almost every other G7 economy is in a narrow range from 16.8 to 18.7 per cent of GDP, but in the UK, it's not even 15 per cent. Foreign ownership has increased from just over 10 per cent in 1990 to over 55 per cent in 2020, with no pressure to make long-term investment decisions. Bell points to the evidence that worker representation on company boards boosts investment levels and productivity. A policy that even Tories from Macmillan to May have supported – so let's do it!

Returns from higher investment in the form of increased productivity and growing real wages will take some time to realise - outwith the political cycle. However, short-term cuts could damage the economy and Labour’s electoral credibility. It may be early in the UK administration, but Scottish Labour has an election next year.

Bell concludes, ‘We must reclaim the confidence that progress is possible… it is politically and economically possible for the UK to escape from its union of slow growth and high inequality.’ Knock, knock – let’s hope the Chancellor is reading this book.

New Local Democracy for Scotland

I was in Edinburgh today, speaking at the launch of the New Local Democracy for Scotland Declaration.

Building a Local Scotland is a group of academics, trade unionists, former council leaders, and journalists who have launched a campaign to tackle the creeping centralisation that has left Scotland as one of the least locally governed countries in the world. You can read more on our website: https://buildlocal.scot.

In my contribution today, I argue that while the Scottish Parliament has brought democracy closer to Scotland, it hasn’t created the promised local democracy for our communities. Instead, we still have some of the largest basic council units in the world, and public services have been centralised.

Despite initiatives between COSLA and the Scottish Government, several commissions and numerous reports, we are no closer to achieving the principle of subsidiarity. In practice, powers have been stripped from councils and services such as police, fire, further education, and water have been centralised. Three-quarters of public spending is directed by Scottish Ministers, including around £23 billion spent by unelected quangos.

I have been involved with most of those initiatives. The Commission on Strengthening Local Democracy (2014) is a good starting point for understanding why local democracy matters. I was an expert advisor to the Christie Commission, which recommended, ‘A first key objective of reform should be to ensure that our public services are built around people and communities.’

The Jimmy Reid Foundation has published several reports on this issue. In Building Stronger Communities (2020), I argued that the starting point is subsidiarity, building integrated public services from the bottom up and sharing where appropriate. The role of central government should be to set the strategic direction based on outcomes – rather than trying to direct services from Edinburgh. In a paper published last week, Building the Local Economy, we highlight the impact of centralisation on the local economy.

However, a country the size of Scotland cannot justify duplication and difference for its own sake. Therefore, we need public service frameworks that allow local services to focus on what matters to achieve positive outcomes. Even where decentralisation is not viable, services should still be required to cooperate locally more effectively than currently. 

It sometimes feels that the only discussion around local government comes from those advocating directly elected mayors or provosts. These top-down initiatives have yet to produce a strong sense of local empowerment. Instead, they centralise power in a single individual, which could lead to unaccountable, authoritarian leadership.

There will be trade union and workforce concerns over creating a larger number of councils and other public bodies, along with cost concerns over duplication. This is where national frameworks are essential. Local decision-making should be focused on what’s important to communities, such as service design that reflects local needs. We do not need a hundred-plus procedures, different terms and conditions, contract documents, etc. Neither do we need a bureaucratic infrastructure of senior managers. This is an opportunity to explore the concept of a single public service worker on standard terms and conditions with joint introductory training for all jobs – both envisioned by the Christie Commission.

In an era dominated by austerity economics, local services continue to face the brunt of budget cuts. Successive administrations have ducked the reform of local government finance despite credible proposals in the Burt Report (2006) and The Commission on Local Tax Reform (2015). The Council Tax accounts for less than 20% of council expenditure. In European countries, the equivalent councils have between 50% and 60% of income raised locally. Local election turnout is generally significantly higher in countries with greater devolved taxation. Smaller councils on the European model also enable local people to engage with local democracy. The many initiatives to improve citizen engagement and participatory practices in Scotland have failed to engage working people because they haven’t put real power in the hands of recognisable communities. 

I view the Declaration as a starting point for a new conversation about genuine local democracy in Scotland and how we deliver public services. We must put right the forgotten aim of devolution - to disperse power not just from Westminster to Holyrood but onwards to communities. A comprehensive reform plan built up from communities not imposed from the centre. If you agree, please sign the declaration.