Treasury minister says backlash to Carillion must not 'throw baby out with the bath water'

Liz Truss said the alternative to private sector involvement would mean taxpayers taking on huge liabilities

Treasury minister Liz Truss has warned against throwing “the baby out with the bath water” as private sector involvement in public services is thrust into the spotlight.

Ms Truss said working with firms and signing controversial private finance initiatives (PFIs) had helped government deliver schools, hospitals and other services successfully for decades.

But Labour’s Shadow Chancellor John McDonnell said his party would push for less private sector involvement and repeated a pledge to bring costly PFI deals in-house.

It follows the collapse of contractor Carillion risking some 20,000 jobs, and after a report from the UK’s spending watchdog revealed the taxpayer faces a bill as high as £200bn for PFIs.

A string of inquiries have already been launched into what happened at Carillon, which collapsed under pressure from large debts and liabilities, despite having signed public contracts since profit warnings started coming in.

On ITV’s Peston on Sunday, Ms Truss said: “What I think is important is that we don’t throw the baby out with the bath water.

“We do have lots of public sector contracts with the private sector that work extremely well, whether it’s Crossrail, the Docklands Light Railway, energy companies, water companies, that have brought down bills for people and are actually providing a great service.”

Speaking on Sky News’s Sunday with Niall Paterson, she added: “Before we started having these PFIs and involvement of the private sector, it took eight years to build a school; before we privatised the telecoms companies it took months to get your phone installed; there’s been huge improvement delivered.”

She argued that the alternative to private sector involvement would mean the taxpayer accepting liability for any losses and debts incurred from running public services, and politicians being put in charge of large-capital projects like Crossrail.

But Mr McDonnell pointed to a report this week from the National Audit Office that found 716 deals are currently operational under PFI and its successor PF2, with annual charges amounting to £10.3bn in 2016-17 – and due to stretch into the 2040s.

The report was compiled before the collapse of contractor Carillion, but its release came as the construction giant’s failure sparked furious debate about the future of a system which Labour leader Jeremy Corbyn has denounced as a “costly racket”.

Speaking on BBC’s Andrew Marr show, Mr McDonnell said: “[PFI] started with John Major, New Labour really took it up and then in the last seven years it’s continued on as well.

“One of my team dug out for me some of the speeches I made, going as far back as 1998 in Parliament, and the articles I wrote.

“I opposed private finance initiative. Why? I said then, and this is not me being boastful I’m just telling you what happened, it is cheaper for us to use the state to borrow funds to fund our public services rather than going out to the private sector. In addition to that we will have control and ownership of the asset.”

After several former executives at Carillon received significant pay and perks packages before it collapsed, Theresa May on Sunday announced a new drive to clamp down on corporate “abuse”.

The Prime Minister said “tough new rules” will be introduced to tackle the behaviour of “executives who try to line their own pockets by putting their workers’ pensions at risk – an unacceptable abuse that we will end”.

She added: “Too often we’ve seen top executives reaping big bonuses for recklessly putting short-term profit ahead of long-term success. Our best businesses know that is not a responsible way to run a business and those who do so will be forced to explain themselves.”

But the rules would only come into play where there had been clear wrongdoing, which raised questions as to whether they would have had any impact in the Carillon case.