Philip Hammond, shadow chief secretary to the treasury

The combination of the worst recession since the war and the parlous state of Britain's public finances is inevitably taking its toll on PFI projects and Public Private Partnerships. The global credit crunch is affecting the availability of financing for PFI ventures, bringing a clutch of school, hospital and road building projects to a standstill.

With Britain's escalating public sector debt at the forefront of the political debate, and Alistair Darling's Budget slashing future capital spending, the spotlight is once again on PFI accounting and its use as a tool for keeping public debt off the balance sheet. The government's decision to finance PFI projects with public money, so that the public purse bears all the risk in the project and the benefits of external credit management disciplines are diluted away, does not help to reinforce the argument for PFI as a risk transfer mechanism.

The Treasury's recently issued guidelines to government departments indicate that PFI liabilities are set effectively to remain off the government's books for the Treasury's budgeting purposes. This may come as a relief to departments that are reeling from the implications of the announced halving of public capital expenditure over the next five years. But it looks like yet another fudge that will neither address Britain's worsening debt crisis nor restore public confidence in PFI.

In this tough economic and fiscal climate, Britain needs a fresh approach to private sector involvement in public service provision, evolving from simply being a convenient tool for the concealment of government debt, to becoming the means by which Britain's public services start delivering more for less.

So as we move towards economic recovery, we should push for fundamental changes to the way PPPs are currently structured. We need to ensure full transparency, with all appropriate risk fully transferred to the private sector, and all contracts being based on a few simple and clear measured outcomes. Government should be able to terminate and seek liquidated damages in the event that the contractor fails to deliver agreed minimum outcomes, while the benefits of overperformance should be shared.

With transparency established and public confidence restored, PPPs can play their part in the longer-term challenge of public service transformation as governments seek to protect frontline public service outcomes in the face of the inevitable fiscal consolidation. They should focus less on the provision of fixed capital and the delivery of buildings, and more on investment in the supply of complete service outcomes to the public. And, in turn, government must strengthen the management and oversight of public private contracts, and ensure that the process itself is focused upon maximising the value to the public sector of involving the private partner.

Then, perhaps, we can end the decade-long debate over PPP and PFI, and get on with the real task of ensuring that high- quality public services are delivered in a way that is sustainable for our children and our grandchildren to enjoy.