We'll cut red tape on private funds, says Labour

Public-sector finance: councils to share risk capital, says Paul Gosling

A Labour government would increase the amount of private finance attracted into the public services by reducing the bureaucratic hurdles attached to the Private Finance Initiative, according to a series of Labour Party policy statements this month. Public bodies would be permitted to contribute more risk capital, in order to attract greater private involvement.

It is unclear exactly what Labour plans to do, but it is understood that there would be an easing of the current restrictions on raising finance imposed by Section 137 of the Local Government Act. Councils would be given more freedom to borrow commercially, and have some restrictions lifted on trading with other local authorities, the private sector and the public.

In a clear signal of the change in emphasis of Labour's approach, a statement from the Treasury spokesmen Andrew Smith and Alistair Darling criticises delays in the privatisation of Ministry of Defence houses, which they blame on "arcane" disputes over statistical classifications. They say the process for attracting private capital needs greater transparency, including clear guidance on the split on risks and returns for joint public/private projects. Local authorities, they say, should be allowed to invest more of their capital receipts into housing and infrastructure.

It is the obligation that all risk should be borne by the private sector that Labour says is the reason why the Private Finance Initiative has not been more successful.

Frank Dobson, Labour's environment spokesman, wants local authorities to be given a new duty to promote social, economic and environmental well- being, with fund-raising powers to respond to local needs. He says there are several examples of Labour authorities working with the private sector that could be copied elsewhere. One of these is the Sir Alfred McAlpine Stadium at Huddersfield, winner of a Royal Institute of British Architects' design award. Kirklees Council led the initiative to replace a decaying, council-owned football ground with ultra-modern sports and leisure facilities. The original capital costs were met by a pounds 2m contribution from the authority, plus pounds 5m from the sale of the old ground, and pounds 1m from the Government's Urban Programme. Private-sector sponsorship of pounds 4m has since been raised, plus pounds 3.5m from private trusts, with more private involvement being sought.

Critics will point to other grand schemes that have gone less well, such as Sheffield's World Student Games disaster, which lost the authority pounds 10.4m because of its inability to attract the anticipated private-sector contributions. Nor is business likely to be happy with proposals that give local authorities the opportunity to compete commercially, backed by public money.

Labour's environment team is unwilling to explain how their proposals would work in detail, though party sources say the Audit Commission and district auditors would be used to prevent councils having inflated ambitions, and that the electorate has the final word. But these sanctions failed to prevent catastrophe at Sheffield.

The Labour-controlled Association of Metropolitan Authorities has welcomed the plans, and last week launched a pounds 500,000 unit to promote private finance arrangements, which, it says, is based on Labour's proposals. However, it will also help to facilitate deals conducted through the Government's Private Finance Initiative.