A problem shared? The Role of PPPs
Date: Friday 04/12/09
Public Service Review: Central Government Issue 19 – Wednesday, November 11, 2009
Andrew Larner, Managing Director of Improvement and Efficiency South East, explores the role of PPPs in an ever changing public services market
The 2008 public services industry review(1) shows that delivery of public services by the private and third sector in the UK is the most developed market in the world. The UK market was worth £79bn in 2007/08, a 126% increase on the 1995/96 figure.
Hardly surprising, then, that there are many examples of Public Private Partnerships (PPPs) to deliver public services in local government. However, the challenges facing public finances in general, and local government in particular, may mean that the nature of the public private relationship needs to change.
PPPs have been used in local government since their conception in 1992. Whilst it is possible to find both advocates and detractors of PPPs, it is clear that successful PPPs have saved councils millions; for instance, the East Sussex and Brighton and Hove Waste Partnership has saved councils £200-300m so far(2).
Perhaps, then, it is not a matter of joining the debate of political ideals about whether or not the private and public sectors should be in partnership. Rather, it is a case of accepting firstly that they are, and that in many cases, it would appear they need to be (for example, looking at PFIs and the funding strains that give authorities no choice but to seek private investment through partnership). Instead, the question of central importance today is what it is that makes a successful partnership, and how this is likely to change given the changing economic and cultural climate.
Local government spends approximately £42bn a year through third parties(3), with 96% of this spend in four major areas: construction, corporate services, social care, and waste. Costs in these areas are rising fast. The costs of waste disposal are doubling with the move away from landfill, and on current models of delivery, social care costs will also double. At the same time, local government is being driven to find savings. The Comprehensive Spending Review target has been raised from £30bn to £35bn, and additional efficiencies rising to £9bn through procurement, IT, and running costs to support the economy and front line services are required. £5.5bn savings are expected of local government in total.
Even in the medium term, things are not set to improve. The unprecedented hole in public finance and the tendency to protect health and education before local government will put pressure on this spend as never before. Not only will public funding be going down, but receipts from other sources will be hit also. A recent survey of local authorities by the Local Government Association showed that 74% of authorities have revised their budget as a result of the recession, and this is due in most cases to loss of interest, fees and charges.
At the same time, the demand for services is not only growing but becoming more complex. The current scenario of reduced income and increased demand means that ‘salami slicing’ local authority budgets is not tenable. The Chartered Institute of Public Finance and Accountancy has stated that ‘normal efficiency procedures won’t deliver the goods. You need a completely different delivery model(4). In its recent report, DEMOS5 sets out three routes to true efficiency in the public sector: personalisation, prevention and collaboration.
In today’s world, the consumer demands tailored services born out of greater choice in a world decreasing in size through globalisation and the internet generation. The private