Leading Article: Good sense from Labour

BRITAIN'S hospitals are run down, its school buildings have deteriorated and the transport system urgently needs investment. Yet raising taxes further or borrowing more to pay for improvements seems out of the question. Until now politicians have faced a frustrating dilemma: they have been unable to offer a plan to restore the country's infrastructure that would not also plunge Britain into financial ruin.

Yesterday, innovative thinking from Labour's leadership suggested new ways of squaring that circle. Gordon Brown et al have been converted into champions of private finance as the saviour of declining public services. This may sound like just the latest volte-face of a party desperate for power. But in putting practicality above out- dated ideology, Labour has adopted an idea that is becoming increasingly accepted.

Its proposal is that private finance should partly fund large public sector projects, inner city and regional developments and equipment that might be used by the NHS and the state education system. Over time, the private funders would get their money back - with profits - as the state paid for the use of the buildings, roads, housing and services that private money had made possible.

There is little that is new about such proposals per se. But their acceptance is a radical move for the Labour Party. Furthermore, the enthusiasm of the party's leadership for these proposals eclipses the Government's stumbling advocacy of public-private partnerships. The Channel tunnel high-speed rail link, whose construction still lacks a start-up date, is an example of several serious failures to foster such alliances. The Government has not worked out a way of sharing the risk of these ventures that ensures the private sector is not frightened off.

Labour's proposals are designed to circumvent strict rules requiring all sorts of spending - even that financed privately - to be included in the public-expenditure balance sheet. They offer a clever way to raise investment in British Rail and the Post Office without having to privatise them. Yet the scheme amounts to more than creative accounting. It is the face of the future.

Every modern company now accepts that it must concentrate on what it does best. So more and more firms contract out cleaning, maintenance, even the ownership of the buildings that they occupy, so energy is focused on creating the product.

The same should go for government. Its role must be to ensure that all citizens enjoy the best education, health and transport that can be created within available resources. Achieving the optimum deal for each individual may mean that the state withdraws from roles that it performs inefficiently.

The Labour Party, given its ties with the unions, is still a long way from seeing government as a facilitator of efficient services, rather than as their owner. But yesterday's bold document shows a way forward.