Dose of reality for Labour’s public-private partnership deals

Two months in, the government will be well aware of the challenges of being in office. Public services are under strain and the calls for more spending are loud. Yet taxes are at a 70-year high and the markets may be nervous about higher borrowing. Sir Keir Starmer leads a government that yearns to get things done but cannot spend its way to solutions. How will Labour square the circle?

Rachel Reeves makes the case for an active and strategic state, willing to intervene in the economy to an extent not seen for decades. But she is also at pains to make clear that a Labour government will work in partnership with the private sector.

That is sensible. But here is the challenge. Too often the relationship between the public sector and the private sector does not work well.

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Negotiations are dysfunctional, with mutual misunderstandings, political and fiscal short-termism, and a lack of innovative thinking. Short-term, transactional agreements result, leaving both sides dissatisfied and underinvested in fixing problems that then arise. Opportunities for both public service innovation and private sector growth are missed.

Understandably, the public sector is focused on achieving the best value for taxpayers. This often, however, translates into an excessive focus on headline price. Government negotiators often lack delegated authority to pursue wider sources of value or the incentives to seek broader deals that are likely to have more sticking power.

The private sector, meanwhile, often misunderstands the institutional and political constraints on government. It thinks in terms of lobbying, not negotiating; focusing on evidencing the case for its favoured solutions rather than thinking creatively about options that could better serve the public interest. This results in missed opportunities for a broader discussion and relationship that might deliver better outcomes for all.

As a minister, I saw too many examples where the relationship simply did not work. When parts of the probation service were privatised, the agreement between the government and the service providers failed both sides. A more constructive negotiation at the outset, with greater clarity about what the parties were trying to achieve, and what true value looks like, might have prevented many of the difficulties.

There are exceptions that prove the rule: true public-private partnerships, negotiated to be mutually beneficial and sustainable. The recent medicines deal between the government and pharmaceutical industry showed long-term strategic thinking and creativity, delivering a positive deal for both the taxpayer and the industry.

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The government agreed to move over time to internationally competitive terms for innovative medicines, accepting that otherwise they would neither be researched here nor consistently available to NHS patients. As quid pro quo, the industry agreed to co-invest in the NHS’s clinical trial infrastructure, while accepting much tougher commercial terms for older medicines.

The need for such deals looks greater by the day. Partnership with pharmacies, to take workload off overstretched GPs and strengthen communities. Incentives to make long-term investments in decarbonisation in our water and sewage infrastructure. A framework for private investment in public services that learns the lessons of PFI.

There is, therefore, a challenge for both government and the private sector. Each needs to explore how, through constructive and creative negotiation, they can maximise value for all parties by developing and investing in relationships that stand the test of time.

This requires an appreciation of where the other side is coming from and a recognition that getting the deal over the line is necessary but not sufficient. Sustainability and mutual benefit must not be sacrificed upon the altar of political expediency and unrealistic time deadlines because, together, we all bear the costs of subpar deal-making.

It is in the interests of the government, business and the public to ensure that these negotiating relationships work. Get that right and the benefits for all sides will be immense.

David Gauke is chair of negotient LLP and a former MP, minister and lord high chancellor of Great Britain