Exclusive: Labour to abandon its key policies: Role for private firms even in health and schools

LABOUR leaders will tomorrow unveil a fundamental shift in policy, abandoning the party's historic commitment to state-run business in favour of a partnership with the private sector reaching even into the health service and schools.

Three Shadow Cabinet economic ministers have drawn up a review of strategy that makes Clause Four on nationalisation a dead letter. Gordon Brown, the Shadow Chancellor, will launch the 6,000-word document, which says that the remaining state-owned industries should be turned into 'public interest companies' operating under the same financial regime as the private sector.

It envisages an 'ambitious and expensive' concept of public-private partnerships covering not only the railways and other public utilities where such schemes have already been embraced by Labour, but urban and regional developments, training, childcare, and defence diversification.

The paper suggests: 'We also see a limited application in the provision of private finance for publicly-led projects in education and health.'

The importance of the policy document, prepared for a Labour Finance and Industry Group symposium to be attended by leading businessmen in London later this week, lies not only in its content, but its oripgins. Financing Infrastructure Investment is the first fruits of joint policy-making by Mr Brown and the Shadow Secretaries for Trade and Industry, Robin Cook, and Employment, John Prescott. Though presented as a consultative document, it represents the main thrust of party planning on the issue.

Mr Brown said last night: 'Historically, there has been a battle between public and private, as if it is a matter of territory. The real issue is how you can have private and public sectors working in the public interest.'

Labour's economic chiefs say in their document that capital investment is badly needed, and one potent way of providing it is through a partnership between public and private finance. They seek to 'open up the debate between politicians and those in busines' and explore 'more imaginative' sources of funding.

They insist: 'There should be no ideological dogma over the source of funds for public projects. For too long, political ideology has dominated the issue of public financing.

'Some politicians have convinced themselves that if the public sector is not already doing it, then it probably is not worth doing, while others have insisted that only the public sector can be relied on to deliver the funds necessary for public works.'

This disavowal of the public spending's supremacy is accompanied by proposals that would allow a Labour government to work closely with the private sector - for instance, eliminating much of the commercial risk for companies willing to engage in business relationships with a John Smith administration, and loosening constraints on benefits for developers.

'That would introduce more certainty into decision- making, allowing the private sector to calculate whether it is worth getting involved in a project, and avoid a cat-and- mouse game of mutual suspicion,' Labour argues.

But the most radical sentiments emerge in the section on funding public bodies. It admits: 'There is a lack of accounting transparency in state- owned industries, which means that potential private-sector partners never know quite what they are letting themselves in for.'

Drawing on the Tories' experience of privatisation, the shadow ministers argue: 'It is anomalous to leave the remaining state-owned industries with unconventional financial structures and arcane accounting practices. The principle for government in state-owned industries is that the state owns the equity in them and sets the core objectives.

'Apart from that basic fact, they should be no different in their corporate financial structure from any other company. It may be necessary, therefore, to change the financial and operating structure of state-owned industries, turning the remaining state-owned industries into 'public interest companies' which would operate with the same structure as private-sector companies, but which would be accountable to government and would maintain specific social objectives.'

Only the Post Office is singled out for more traditional treatment, and even here Labour offers 'an alternative model of a public-sector trading corporation, which facilitates entrepreneurial activity within the context of public ownership'. As much freedom as possible, it says, should be delegated to the management of Royal Mail.

To implement their plans, Shadow ministers propose a task force that would recommend changes to Treasury rules and 'take the ideology out of the public-private debate'. An investment broker would advise on projects, with the government having the final say.

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