PUBLIC - PRIVATE PARTNERSHIPS: As Labour enters a second term, the future for universal public services hangs in the balance. Will private-sector partnerships bring the fast results the electorate expects? Rachel Lissauer foresees a painful transition and

The election has left little doubt that public services are now the battleground on which the real fight for public support will take place.

Labour is relying on achieving tangible and quick improvements in the quality and responsiveness of NHS services if it is to keep pace with public expectations over the lifetime of the next parliament. The vital question is whether it has the policies to make this happen.

Partnership between public, private and voluntary sectors is being presented as a key policy tool by which the government hopes to move towards a modern and effective health service.

Through its manifesto and the NHS plan, Labour has become committed to a range of different forms of partnership with the private sector. We will see private companies managing new diagnostic and treatment centres, the private finance initiative continuing as the main method of delivering major capital investment projects, and private hospitals providing a range of operations for the NHS. The direction, if not the detail, is clear.

An acceptance of private providers delivering and managing health services is often presented by politicians as pragmatic - necessary to ensure improvements in services. But it seems its significance for Labour now runs deeper.

'Partnership'with the private sector has become a key. While there may be valid and convincing arguments to support the use of public-private partnerships (PPPs), the fervour of Labour's attachment to the idea of partnership - and the symbol that this has become - has the potential to increase the government's vulnerability.

Public service reform has come to mean increased reliance on the private sector. A lack of clarity about important details and an absence of clear underlying rationales are, understandably, fuelling the fury of those already wary of what is seen as privatisation by stealth.

The Commission on Public Private Partnerships often seemed to be guided more by anecdote and assumption than by evidence-based evaluation.

Our approach has been to challenge two intransigent perspectives on the roles of private/voluntary and public sectors.

On the one hand, we reject a 'privatisers'' standpoint - which argues that the state should seek to withdraw from both the provision and the funding of public services wherever possible.

Yet we also question the 'public-sector monopoly' perspective which, in all cases and as a matter of principle, favours public sector monopoly over procurement and service provision.

The commission's final report takes a different starting point, beginning with an open mind about the contribution that partnerships might make but acknowledging the serious failures of some recent models of PPPs. We are only interested in looking at partnerships as a tool to strengthen the performance of publicly funded services. Any consideration of moving towards greater reliance on private health insurance, or charging for healthcare, has been ruled out.

Too often, the motivation for going down the PPP route appears confused. Take the recent announcement that diagnostic and treatment centres built through PFI will be managed, in some cases, by the private sector. An argument in defence of this idea is that using the private sector has worked in the past: PFI has 'delivered for the NHS'.

The implication is that using private finance has enabled more investment in public services than would otherwise have been the case.

This is misleading. Privately financed schemes are still publicly funded. So the important measure of success must be whether PFI schemes have offered the NHS value for money, and whether they have accelerated innovation. Yet evaluation of the evidence on whether hospital PFI projects have offered value for money is not encouraging.

Given that the value for money currently demonstrated by PFI projects within the health service is, at best, marginal, and that retrenchment of the PFI and PPP programme does not appear to be on the agenda, policy-makers have several options.

Rather than setting up PFI as an example of successful partnership, some flaws in the current model must be acknowledged and repaired. The public finance rules that set up artificial incentives to go down the PFI route must be revised, allowing for a genuine 'level playing field' on which to compare the benefits offered by conventional or privately financed schemes.

This could result in fewer capital investment projects being procured using PFI. However, those that do proceed may offer greater gains.

The other option explored by the commission is consideration of the ways in which PPPs may contribute towards health service reform. The government should start a serious investigation of the implications of contracting for complex health services and be clear what it hopes to achieve through use of the private sector.

It is certainly not the case that managers or providers in the private sector are automatically better than those in the NHS.

Linking the design and the management of a new hospital may allow for innovation and greater efficiency in the delivery and planning of clinical services. Contracting for hospital management might allow public sector purchasers to focus on the service they wish to see, choosing providers on the basis of their ability to deliver on these goals. Yet these arguments are, currently, speculative.

The government should be thinking in terms of small, closely evaluated pilot projects, only if there is evidence that a range of criteria can be fulfilled.

On a practical level, managers would need to be convinced that writing a contract for hospital management was a viable possibility. There would have to be gains in service quality and value compared with the cost of drawing up and monitoring the contract.

The public would need to know that social equity could be protected. Private providers must not be able to select and treat only the healthiest or lowestcost patients at the expense of others. And if their use creates problems in moving patients between different areas of the health service, or blurs public accountability, then plans should not proceed.

Crucially, partnerships should be based on a desire to bolster professional and public support for public services. If savings in PPPs are achieved at the expense of employee terms and conditions, they undermine their very purpose.

The commission concluded that contracting for complex services would demand the use of partnership techniques that are still in their infancy.

But experience of contracting for complex services indicates that these techniques can be developed. In the UK, for example, we already see private companies responsible for the design, construction and the management of prisons.

But there has been little conclusive evidence to demonstrate the success or failure of using partnerships to build and manage hospitals. We would have particular concerns about the possibility of contracting for emergency services.

The private sector lacks experience. Demand and case complexity are unpredictable, and protocols for prioritising treatment are difficult to specify.

Even the most effectively written contracts may allow scope for poor performance or inappropriate behaviour by providers.

One reason for piloting any involvement of private/voluntary sector providers in other public service areas could be to avoid being locked into relations with a single provider. Yet proposals for private sector management of hospitals actually risk recreating this inflexibility by binding a public authority into a long-term contract.

The commission's approach leads it to propose bold, but careful change, with careful and systematic evaluation of new measures adopted.

Clear thinking is now needed on certain latent issues: whether, for example, it will be possible for private providers to act as 'managers' in hospitals without employing staff - and who, within these arrangements, will act as the purchasing body.

The likelihood of making the right decisions and keeping professionals and the public on board will depend on evidence of a pragmatic, balanced view from government and rejection of dogmatic commitment to partnerships at any cost.

Key points

Public-private partnerships are one of the government's key policy tools.

There is little conclusive evidence of the ability of partnerships to manage hospitals.

The government should launch small pilot projects.

Managers and the public need to be convinced of the viability and equity of public-private partnerships.