News from British and Canadian Conservatives

Monday, July 16, 2007

Public Private Partnership - Failing together

Metronet, the larger of two pivate consortia maintaining the London Underground under the PPP deal signed 7 years ago, looks set to fall into administration. The news follows a refusal to meet the group's demand for almost £1 billion from public funds. The failure of the PPP deal transfers the risk back to the taxpayer, meaning that we, and Londoners in particular, will now need to find the money to put maintenance back on track.

The news won't be a complete surprise. Many, including both London Mayor Ken Livingstone and Conservative challenger Steve Norris recognised the failings of the deal before it was signed. Sadly, the Treasury, lead by then Chancellor and now PM Gordon Brown, was not prepared to take heed of the warnings.

The move brings home the real problems and dangers of Public Private Partnerships, which have been used to hide debts off the national balance sheet in recent years. I don't know the extent of the taxpayers' liability today, but it certainly runs into at least twelve figures - not a sum to be sniffed at. In many cases, the PPP schemes have been given the go-ahead purely because they enable costs to be hidden off balance sheet, rather then because they were the best way of funding the scheme. The fact that the liabilities can so easily be transferred back to the taxpayer demonstrates how important it is that PPP liabilities are recorded on government balance sheets as a form of debts. When it comes down to it, many PPP schemes differ little from mortgages any way and repayments on the existing schemes are often at uncompetitive interest rates - one of the reasons that the NHS is on its knees despite record "investment." For investment, read massive sums of taxpayers' money being thrown at a problem in the hope that some of it might actually make the problem go away.

The second problem that needs to be resolved is in the business practices themselves. The theory of PPP is that it will bring private sector expertise and management skills into the public sector. There is little sign of that happening, with the private firms seeming to embrace (often unwillingly) failed public sector practices.

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