Public Interest Companies

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Public Interest Companies

• Paul Maltby
• Research Fellow on Public Private Partnerships
• The Institute for Public Policy Research
• www.ippr.org

2
Context

• The PPP debate is moving from infrastructure to
  public services
• Also, there is continued debate about the optimal
  organisational form for monopoly essential
  services.
• Do PICs provide a potential answer to both these
  situations?

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What are Public Interest Companies (PICs)?

• Broad definition
• Organisations that deliver a public service
• that do not usually have shareholders
• that are independent from the state
• PICs can take a range of organisational forms,
  including
• Company limited by guarantee
• Industrial and provident society
• PLC where users or government own all shares
• In the future a Community Interest Company too?

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Examples of PICs

• Utilities NATS, Network Rail, Glas Cymru
• Public services Foundation Hospitals, housing
  associations, further education colleges
• Charities Turning point, Help the aged
• Funding intermediaries Housing finance
  corporation, Education capital finance
• Commissioning bodies Primary Care Trusts?

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Potential benefits of PICs

• Avoiding the problems of incomplete contracts
• Decentralisation
• Protecting government subsidies
• Aligning interests of owners and users in
  monopoly utilities
• PICs have a potential role for
• taxpayer-funded public services
• enterprises dependent on user charges.

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1. Incomplete contracts

• Purchaser / provider split can provide greater
  clarity over what services are to be delivered
• Relatively easy to specify contracts for new
  roads, but difficult for complex public services,
  eg clinical care
• PICs provide an additional safeguard for the
  public interest through stakeholder governance

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2. Decentralisation

• Command and control in public services becoming
  discredited. New Localism.
• Purchaser / provider split gives service
  providers greater autonomy
• Citizens could get involved in the governance of
  PICs. Issues of trust are important
• Public involvement particularly suitable where
  increasing social capital is the main policy aim,
  eg, regeneration

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3. Subsidies

• Potentially suitable for private enterprises that
  depend on large amounts of government subsidy
• Railtrack demonstrated how shareholders are adept
  at extracting and distributing additional subsidy
  from government.
• PICs could reduce gaming in such circumstances

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4. An alternative for monopoly enterprises

• There is an inherent conflict of interests
  between users and owners in privatised monopoly
  essential enterprises
• Independent regulators usually arbitrate where
  there are public interest issues
• If users of the service can become effective
  governors this can eliminate the conflict of
  interest and the need for price regulation
• Effective governance will usually imply a serious
  financial commitment to the industry, eg NATS

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Difficult issues for PICs

• Finance and Risk
• Accountability and Governance
• Politics

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Not-for-profit PFIs

• Term not-for-profit is misleading people will
  make surpluses, but these will not be distributed
  to shareholders
• PICs can be seen as politically correct PPPs
• Argyle and Bute Council Not for profit PFI
  same as a normal PFI except 100 debt financed
  (rather than a mixture of equity and debt)
• Few obvious policy benefits (besides some
  diversity in PFI models) driven instead by
  antipathy to profit
• High risk that this approach could backfire

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Conclusion

• PICs can be of potential use for
• contracting for complex public services
• local regeneration projects or services where
  public involvement is key
• monopoly utilities where users can be effective
  governors
• For enterprises dependent on significant public
  subsidy
• Difficult issues remain about risk and governance
• A new legal form is not really necessary, but
  will do no harm
• Government should exercise caution but should
  consider PICs alongside other organisational
  forms
• www.ippr.org