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11.8 am
Mr. Clive Betts (Sheffield, Attercliffe): I welcome the comments of the Chairman of the Treasury Select Committee, the hon. Member for Hazel Grove(Sir T. Arnold), who fairly reflected the areas of
consensus in the Committee's report and members' collective concerns about the PFI. I should like to express some more critical views of the issue, to which I hope the Minister will respond.
I was previously a member of a local authority that was engaged in many partnerships with the private sector, so I have no philosophical or principled objection to them. I believe that partnership is appropriate where the private sector can work with the public sector to bring additional value to a project. Therefore, although my approach to the PFI is slightly sceptical, I am prepared to accept that it may have benefits if it attracts additional resources to important projects from which the public will benefit.
Having considered the evidence and having further read the Government's response to the Committee's report, I am now cynical rather than sceptical. It is obvious that what we have now is not additional expenditure on projects, but a replacement for what was initially planned public expenditure. There is now a substitution of funding to allow the Government to cut their public sector borrowing requirement commitments, perhaps to provide some leeway before the next election. In some respects, we are embarking on potentially the biggest deferred purchase scheme in British financial history, and it is being proposed by a Government who criticised local authorities--such as the one of which I was a member--for previous deferred purchase schemes.
There has been an interesting shift in the Government's position in another respect. The manual on the way in which schemes are compared, which the Committee considered, states that the Government are neutral on whether the private or public sector route would be the most appropriate. In their latest response, the Government have made it clear that they believe the private finance route to be better, and that it will generally provide savings. That is a distinct shift in emphasis.
The Government's main claim about the possibility of efficiency savings is that the private sector will produce, design, build and operate schemes and will carefully incorporate in them low maintenance costs for the future, as it will be responsible for operating those projects. If the Government are saying that the public sector is incapable of designing low-maintenance schemes, that says a lot for their procurement policies in the past 17 years. If that is the Government's complaint, it must be possible to improve the way in which they purchase in the public sector.
One of the main reasons why maintenance problems emerge is that sufficient capital is not spent on designing better projects. All too often, that is a product of Britain's financial systems, which concentrate so much on controlling initial costs and not enough on downstream revenue implications. In that respect, the PFI is a step forward, as it enables us to look at the life costs of a project rather than its initial costs. My criticism is a reflection on the Government's financing policies of the past 17 years as much as on anything else.
Mr. Nick Hawkins (Blackpool, South):
Is the hon. Gentleman suggesting that the way in which the Treasury has dealt with the accounting of these matters in the past 17 years has differed from the method that it used under previous Labour Governments?
Mr. Betts:
I am suggesting that many people in local government will know that the regime has become an
The Government claim that savings will always be made, but the PFI is hardly cost free. The Committee heard a lot of evidence about the bureaucracy and delays in the procedure, including evidence on the Stonegrove annexe to the Royal Hallamshire hospital in Sheffield, which has been a committed priority for three years and has been in the PFI pipeline for approximately 12 months. Examples of delays were repeated in evidence given by representatives of the construction industry.
The other day, I was reading The Mail on Sunday--a newspaper that is not normally sympathetic to the Labour party--which carried a report on the Walsgrave hospital in Coventry. The contract for the PFI scheme at that hospital ran to 17,000 pages and a cost of £500,000--just for the beginning of the project's documentation. Someone will presumably have to account for that cost, which probably will be borne by the public purse. Similar examples are repeated around the country.
The report referred to difficulties with cost control in PFI schemes, and the Chairman of the Committee also referred to this matter. In a recent debate on the health service, we criticised the Minister for saying that the external financing limit was to be the control because it covers only the forthcoming three years. Many of the costs of PFI schemes, however, do not become apparent until at least three years after a project has been initiated. I am pleased that the Government are now setting up a proper monitoring system and that they will publish figures on the downstream commitments of PFI schemes. That is a step forward, although I would have been happier if more details had been provided.
There is great difficulty in making accurate comparisons between PFI and publicly funded schemes. There is no up-front cost in a PFI scheme, the costs of which can be considered only on a year-by-year basis once it gets off the ground. Under current rules, a public sector scheme will always have that cost--it is a hurdle to get over. The chairman of the PFI panel, who was appointed by the Government, said in evidence to the Committee that this gave an in-built bias to PFI schemes, rather than to traditionally funded schemes. If they want to make fair comparisons, the Government must look at their approach to the control mechanisms of publicly funded schemes. I hope that resource accounting will increasingly be viewed as a better way of dealing with those issues.
The Government responded to our concerns that we are handing decision-making powers over to private sector funding consortiums by saying that decisions on which projects go ahead remain with the Government. However, this year's Budget cut public capital expenditure by £2 billion. If a project has been identified as a priority--such as the annexe at the Royal Hallamshire hospital--but no PFI scheme is available to complete it, are the Government guaranteeing that public funding will be available to enable it to go ahead? The Royal Hallamshire
hospital has already worked with three firms for nearly a year, two of which pulled out at the last minute. If the Government are not prepared to give that guarantee, they are saying that schemes will go ahead only if a PFI funder is willing to complete the project. In other words, the responsibility for deciding which projects are completed will have passed to the private sector, and that is worrying. It is one of the fundamental criticisms of the scheme and the Government must reply to it.
There are real problems with risk transfer, which is at the heart of the Government's message. They believe that as they are transferring the risk from the public to the private sector, they can stand back and any mistakes will be picked up by the private sector. Arthur Andersen's experience with the national insurance computer--and the Government's triumphant lauding of the fact that the £10 million losses will be borne by a private sector firm--will not encourage private firms to participate in similar projects. The Government should be worried about that.
It is relatively easy to transfer risk where a private customer pays for goods or a service produced under a PFI scheme. I draw the attention of the House to the combined heat and power project in Sheffield, which is not a PFI scheme as such but a partnership scheme. Sheffield university, local shops and other private sector institutions can purchase a heat source from a partnership company. That is clear--the risk lies with a company selling its product in the marketplace. It is a lot more difficult to transfer risk when the Government are paying for that service, and they must make sure that a clear mechanism is established so that risk is really transferred to the private sector. If risk transfer takes place, there is a further problem with many such projects.
Mr. Hawkins:
Will the hon. Gentleman give way?
Mr. Betts:
If the hon. Gentleman will excuse me, I will not give way because my time is limited and other hon. Members want to speak.
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