Alan Milburn – 2002 Speech to PPP Forum

Below is the text of the speech made by Alan Milburn, the then Secretary of State to Health, on 17 September 2002.

It is a pleasure to be here tonight at this first 1st Annual Dinner of the PPP Forum. To have gained sponsorship from over 40 major organisations that play a leading role within the PPP industry in such a short period of time is a considerable achievement and a welcome development.

The reason I wanted to attend this evening was to emphasise the importance and priority the Government attaches to the relationship between the public and private sectors, and the pivotal role these partnerships are playing in improving our vital public services.

Indeed I believe the time is right to further develop the relationship between the public and private sectors in health care – both through the Private Finance Initiative’s central role in modernising the infrastructure of the NHS and through a broader relationship between public and private in the direct provision of services to NHS patients.

Let me start with PFI. PFI is a partnership that works. It is delivering results for patients and good value for money for taxpayers. PFI is here – and here to stay.

Thanks to the involvement of the private sector, we are now in the middle of the biggest hospital building programme in the history of the NHS. Of course after decades when the NHS was starved of the capital it needs, the Exchequer is today providing huge increases in resources for buildings and equipment.

But set against the scale of the challenge – with one third of NHS hospitals older than the NHS itself – Exchequer funding alone cannot deliver the investment that is needed. The role of the private sector, through the PFI is vital, as an addition, not as an alternative to mainstream public sector capital funding, in securing the modernisation of the health service. It is allowing more new NHS buildings to be built more quickly.

Our ten year NHS Plan promised over 100 new hospital schemes between 2000 and 2010. 68 major hospital development projects worth over £7.6 billion have already been given the go-ahead. 64 of these projects involve private finance.

A dozen new PFI hospitals are now open with a further dozen under construction. Indeed tomorrow I will officially open the new Worcestershire Royal Hospital, part of the new generation of PFI built NHS hospitals.

PFI is also successfully delivering a range of medium sized community and mental health facilities, as well as smaller scale specialist projects such as heat and power plants, staff residences and IT systems. All areas incidentally where we are looking to expand and develop new investment opportunities.

Almost 100 smaller schemes – each worth up to £25 million – have now reached financial close bringing extra investment into the NHS of over £650 million.

In primary care NHS LIFT is levering in initial investment of £300 million in those parts of the country where provision is poorest and need is greatest.

PFI has proved itself in practice to be an effective way to deliver high quality, patient-focussed services out of modern, purpose designed buildings. PFI has delivered on time and within budget – something that public sector led investment projects haven’t always managed to achieve. And of course the public gains with a legal guarantee that each of these new hospitals must be maintained as new throughout the lifetime of the PFI contract.

Because PFI is delivering the goods and is supporting innovation and new solutions to delivering public services, it is little wonder that countries in Europe and across all continents have started to think about and use PFI, looking to the UK for advice and experience. The success story in the UK is something we should trumpet to the world.

Developing these partnerships has not always been easy of course. And I want to thank the PPP Forum and many of the individual organisations here tonight for working closely with us to bring about many of the improvements to the PFI.

PFI remains controversial. But I believe much of the criticism is just plain wrong.

Initially the criticism was that PFI contracts were “mortgaging the future”; that there were years of paying out for no final return. We ended that objection by ensuring that at the end of the PFI contract, the NHS can own the hospital if that is in the best interests of the local health service and it’s what the hospital wants.

Then, the criticism was that PFI inevitably meant fewer hospital beds. It is true that in the initial rounds of PFI there were fewer beds in the new hospitals than in the old ones they were replacing, but this would have been true whether private or public capital had been used to build these hospitals. Bed losses were not caused by PFI any more than Railtrack’s problems were caused by the wrong leaves on the line.

What led to fewer beds in new hospitals was the prevailing culture in the NHS at the time that more beds were not needed or were somehow bad. A culture that over a period of 18 years or so led to the loss of tens of thousands of beds, long before PFI ever arrived on the scene.

Today – precisely because this Government have ended decades of bed reduction as part of our programme to expand NHS capacity – new hospitals, whether PFI or not, do not get the go-ahead with fewer beds. Today the number of hospital beds is rising not falling. The tranche of 19 major schemes which will go out to market this year will increase NHS bed numbers by 1700 over existing provision.

Then some argued that if PFI wasn’t bad for NHS beds it was certainly bad for NHS staff. We made a commitment in our manifesto that PFI should not be delivered at the expense of the pay and conditions of staff employed in these schemes. The Retention Of Employment scheme provides just the protection that unions representing cooks, porters, cleaners, security and laundry staff have been calling for. And I can confirm tonight that the first scheme incorporating RoE at the Walsgrave Hospital, will reach financial close next month and that all future PFI schemes where soft FM services are included will have to incorporate this new approach.

Next the argument went that the taxpayer was getting a rotten deal. But the National Audit Office in examining PFI schemes has found they will all deliver value for money. And vfm continues to improve. The legal framework and payment mechanism has become standardised. You understand the risks in PFI better. This has been reflected in the improvement in lending terms over the past few years. The better and tighter pricing of risks. When you look at it in the round, PFI is simply a better means of procurement. The NHS no longer has to rely on stop-start funding with each spending round. We can plan for the future. We can plan and invest, rather than as we used to, simply patch and make do.

On all of these counts the sometimes fierce criticism that the PFI has been subjected to has proved seriously wide of the mark. Nonetheless it is all our responsibility – private sector no less than public sector – to explain clearly the benefits of the relationship and the value it can add to improving public services – and to do so energetically and forcefully. When some newspapers, and others, criticise your work, as second rate and a shoddy product, the industry alongside Government surely has a responsibility to defend its work and reputation. Indeed, I understand that, through the PPP Forum, you have plans to market PFI more aggressively.

At the same time we will continue to reform how PFI works not least by standardising the process and bundling smaller schemes into larger deals where we can extract better value for money. We will also take the PPP approach into the provision of pathology, diagnostic and IT services.

And it shouldn’t stop there. I believe this partnership between the public and private sector is more than just about providing bricks and mortar.

Just as we have harnessed private investment through the PFI to modernise NHS buildings, we now look to harness new forms of private sector investment to modernise NHS services. With the NHS still facing major capacity constraints, increasing numbers of NHS patients are already being treated in UK private hospitals as part of the wider effort to get waiting times down for treatment. New partnerships between the public and private sectors are being developed to provide stand-alone surgery hospitals in a new generation of Diagnostic and Treatment Centres. The first DTCs are already open and I expect the first privately-run NHS DTC to be operating by the end of this year. We are also working to bring new providers from overseas into this country in order to further expand services for NHS patients.

Like NHS use of existing private sector providers, this is not a temporary measure. These new providers will become a permanent feature of the new NHS landscape. They will provide NHS services to NHS patients according to NHS principles. And in the process more diversity in provision will open up more choices for NHS patients.

These reforms are about redefining what we mean by the National Health Service. Changing it from a monolithic centrally run monopoly provider to a system where different health care providers – public, private, voluntary and not-for-profit – work to a common ethos, common standards and a common system of inspection. In such a system wherever patients are treated they remain NHS patients because they get care according to NHS principles – treatment that is free and available according to need not ability to pay. This is the modern definition of the NHS.

It is also a fundamental change. Not in how the NHS is funded or the values on which it is founded, but in how it is organised. NHS healthcare no longer always needs to always be delivered exclusively by line managed NHS organisations.

As the NHS Plan indicated a complex organisation, employing over a million people cannot simply be run from Whitehall. For patient choice to thrive it needs a quite different environment. One in which there is greater plurality in local services with the freedom to innovate and respond to patient needs.

You see the Budget on April 17th marked a watershed for the NHS and not just in the scale of the resources or the length of time for which they have been committed. Yes, it is true that against any historic benchmark they are generous with five years of real terms growth averaging 7.5% taking health spending in our country beyond the EU average.

But when we put taxes up to get more resources for the NHS we entered into a new contract with the people of our country. In exchange for extra resources we need to deliver better results. Not just improvements in services for patients but services which are increasingly shaped by the informed choices of patients. Not the old style take it or leave it NHS of the last century but an NHS that is tune with the needs of this century – where services are responsive, where patients have choices, where quality always comes first. This is the challenge we now face.

It is an explicit objective of our reforms therefore to encourage greater diversity in provision and more choice for patients particularly for elective surgery. Hence primary care trusts having the explicit freedom to purchase care from the most appropriate provider – whether public, private or voluntary. From next April we will begin to move to a system of payment by results for NHS hospitals. Resources will follow the choices patients make so that hospitals who do more get more; those who do not, will not. For the first time in the NHS patients will be able to choose hospitals rather than hospitals choosing patients.

Local health services will be independently rated for their performance. There will be more information for patients. Hospitals that are doing less well get more help, those that are doing best will get more freedom. Where there are persistent problems we will step in. Where there is progress we will step back. At one end of the spectrum new management teams – whether from the public, voluntary or private sectors – will be brought in through the franchising process to turn round NHS organisations that are in trouble. At the other the best performers will become NHS Foundation Trusts legally free from Whitehall direction and control. And let me make it quite clear, as we develop our proposals for NHS Foundation Hospitals we will ensure that any change of status for an NHS Trust does not adversely affect the delivery or sponsors of a PFI project which may be associated with it.

The scale of the investment we put in must be matched by the courage to radically reform the NHS. The NHS has great strengths in how it is organised. Its ethos and its staff express the values of our nation. Its primary care services, led by Britain’s family doctors, are the envy of many other countries. However, in addition to its long standing capacity problems, the NHS has great structural weaknesses too – not least its top down, centralised system that tends to inhibit local innovation and its monolithic structure that denies patients choice.

These weaknesses are a product of the health service’s history. They need now firmly to be consigned to its history.

At the time the NHS was being formed as a nationalised industry in the UK elsewhere in Europe many socialist or social democrat governments were creating institutions which favoured greater community ownership over state ownership. Whereas in the UK’s health care system there is uniformity of ownership, in many other European countries there are many not-for profit, voluntary, church or charity-run hospitals all providing care to the public health care system. There are private sector organisations doing the same. As other European nations testify, there is no automatic correlation that tax-funded health care has to mean health care supply run purely by central government. Tax funded health care can sit side by side with decentralisation, diversity and choice.

We can build a broader spectrum of public service providers in our country, across the public and private sectors it is true but including existing and new models of voluntary, and not-for-profit organisations. We should not constrain our reforms to what exists already but look to more radical approaches to public service reform. At the heart of these reforms must be a commitment to form effective partnerships for the benefit of the patients, pupils and public who rely on public services.

Your forum is an important element in strengthening the partnership approach in our country. We share your commitment to widening and deepening these partnerships. I applaud your efforts here tonight and I look forward to working with you as we reform, invest and enhance our public services.