The Labour Government has huge ambition - but will only succeed if it makes good on its promise of genuine partnership with the private sector
Difficult economic circumstances mean Labour needs to act now to forge new partnerships which deliver on its priorities
The sheer scale of Labour’s General Election victory has transformed the UK political landscape and given Starmer’s Government huge power to deliver their mandate.
That mandate necessitates partnership with the private sector. The central conundrum of Labour’s victory is that their plans require a lot of money, but raising sufficient tax to fund their ambitions purely from public resources is arguably impossible, not least given manifesto constraints. Squaring this circle requires significant economic growth to generate the revenues needed to improve public services without raising the tax burden.
Hence Labour's policy focus in opposition was on growth, alongside net zero and public service reform – with the NHS the overriding, although by no means exclusive, priority. It is clear from the manifesto and the Government’s earliest announcements that these have carried into office. In practice, this means that much (although by no stretch all) of the new Government’s public-private deal-making is going to happen across 6 policy areas: healthcare; housing; energy; infrastructure; transport; and regional and local devolution.
None of these are particularly surprising. All are likely to involve significant decisions around capital investment – although the preferred mechanism or mechanisms for financing those deals are unconfirmed. And although much of the negotiation in each of these areas will be around capital, in health, in particular, there is also a substantial workforce reform agenda which will result in significant collective bargaining.
There are two cross-cutting issues which are likely to have significant implications for the prospects for success across the board: the need for a replacement private finance mechanism to fund public infrastructure and services; and the nature of the devolution deals.
A new Private Finance Initiative
There is an urgent need to find a suitable vehicle for a replacement of PFI, the Private Finance Initiative, use of which was discontinued by Philip Hammond as Chancellor. PFI originated under John Major, but was heavily used to fund the building of infrastructure and public services under the Blair Government. Many of those deals have since been severely criticised for their perceived inflexibility and relatively expensive ‘soft services’ (cleaning, catering, etc) at a time of very constrained public sector budgets.
PFI as a structure has a bad reputation; however, given the parlous state of the public finances, some kind of mechanism needs to be found to fund the infrastructure upon which the Government is pinning its economic and political hopes. Investors have an opportunity now to negotiate this – as the finance structure that is agreed now is likely to be the one which is adopted across the board and used as the template for future PFI negotiations.
New Devolution Deals
On the new devolution deals – how transformative they will be depends on whether the results match the rhetoric. But if they do, then they could have significant impacts for many policy areas including transport, housing, skills and health. The Government has talked about delivering devolution through Local Growth Plans which will enable “regional Mayors ... to make changes that help them deliver local economic growth with better housing, education and jobs for local people.” The rhetoric, at face value, implies a dramatic expansion of the powers available to, particularly, Combined Authorities – and therefore that many more decisions will be taken locally or regionally.
This necessitates potentially very wide-ranging negotiations, encompassing broader deals of longer duration, and involving a wide range of bodies in central government and other bits of the public sector. The detail on individual deals will inevitably differ between areas – but with some creativity, the negotiations could involve public sector bodies including the NHS, DWP, HM Prisons and Probation Service, and HMRC – as well as the more traditional Whitehall interlocutors (DHCLG, DfT, HMT). These deals in turn are likely to unlock a much wider range of negotiations between Combined Authorities and the private sector – including bus and rail companies, larger local employers and developers.
The new Government has significant ambitions, and a big mandate with which to deliver them. However, poor public finances and low economic growth will require them to work closely with businesses to that end. This necessitates swift decisions. The Government should seek to build genuine, long-lasting and value-generative relationships across their key priority areas. Success now might allow them in 5 years time to tell a story of real success and improvement – and invite a mandate for more of the same.