Fiscal Studies Private Opportunity, strongPublicstrong Benefit.pdfVIP

Fiscal Studies (1998) vol. 19, no. 2, pp. 121–140 Private Opportunity, Public Benefit? * JOHN HALL Abstract The newly elected Labour government has pledged to ‘reinvigorate the Private Finance Initiative’, as part of the new emphasis on ‘public/private partnerships’ in the delivery of core public services. This article assesses the merits of using private finance to deliver public services against three criteria: whether it will lead to additional investment in social infrastructure, whether it represents good value for the taxpayer’s money and whether the use of private finance will reduce the public sector’s flexibility to pursue its public service objectives. JEL classification: H54, H11. I. INTRODUCTION In recent years, governments world-wide have sought to increase the involvement of the private sector in the delivery of public services. These initiatives have taken many forms such as outright privatisation of previously state-owned industries, contracting out of services such as refuse collection or cleaning to private firms, and the use of private finance in the provision of social infrastructure. Privatisation has occurred in over 100 countries, most notably in the former Communist countries of central and eastern Europe. Contracting out of labour-intensive services has also been widespread.1 Concessions to build and operate large-scale infrastructure networks such as roads have been of particular * Senior Research Economist at the Institute for Fiscal Studies. This research was financed as part of the programme of the ESRC Research Centre for the Microeconomic Analysis of Fiscal Policy at IFS. The author is grateful for comments from Tom Clark, Andrew Dilnot, Ian Preston and two an