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Mr. Fallon: I do not entirely agree with my hon. Friend the Member for West Worcestershire (Sir M. Spicer) that the new clause gives the impression of control--that is not the way that I read it. However, I agree with him that the Government have chosen precisely the wrong cap.
It is after all ironic that the Treasury, which is telling every other Department of State that what matters is the quality of spending, not the quantity, and is negotiating public service agreements all over Whitehall, is simply setting a quantitative cap on the expenditure of its own body, rather than a qualitative cap. It is saying that it does not matter what the body gets up to, provided that it does not spend more than £400 million.
I would far rather that new clause 7 fleshed out the meaning of the terms and conditions in clause 16. At the moment, PUK and the Treasury can simply make things up as they go along. They can draft whatever terms and conditions they like under which assistance can be provided. Rather than setting a quantitative cap of £400 million, the Minister should have come to the House with a new clause that imposed qualitative control over the type of assistance provided, whether grants or equity, and gave us a handle on that process in statute, so that it was not left to the Treasury or to PUK to define the terms and conditions themselves. That is a central weakness of the new clause.
A second weakness of the new clause and of clause 16 is the coyness about what the body is. I notice that even my hon. Friends refer to it as a "body". Let us be clear that it is a bank. The Government deny that. In a written answer to me last July, the then Chief Secretary said:
Mr. Letwin:
My hon. Friend raises an interesting question. Does he imagine that the body would or should
Mr. Fallon:
I shall deal later with the way in which the valuation is carried out, but my hon. Friend touches on an important point. A banking function will be carried out by an agency of the Treasury, so perhaps that function should be subject to supervision by the banking authorities.
The first step in the whole process is for us to stop being coy and to call the body a bank. It is a state investment bank. I know why the Minister does not want to call it a bank: it conjures up rather dismal memories of the 1970s, which you, Mr. Deputy Speaker, will recall. The previous Labour Government made a rather unhappy attempt to pick winners through the National Enterprise Board, but none turned out to be a winner--"picking losers" might have been a better description of its activity. It would have been helpful if the Minister had clarified the purpose of this body.
I turn now to the lending function. The body will be able to commit money in the form of a loan, so it is essential that it is subject to terms and conditions that it does not itself define. There must be independent assessment. We shall come to the accounting function later, and that is the afterthought because it consists of examining whether the money has been properly spent for the purpose for which it was designated. However, we cannot get a handle on the accounting function unless we can measure and audit what the loan was intended for in the first place.
As the Bill is drafted, nobody is clear about who can decide the terms and conditions under which financial assistance may be provided. Clause 16(4) simply says:
There is a good example of that practice in public-private partnerships in the new commercial freedom being given to the Post Office. Even before legislation was brought before the House, the Post Office was enabled, under secret terms and conditions, to go wandering around Europe, playing at being an international business and buying outfits such as German Parcel. When we asked what were the terms and conditions under which the Treasury had allowed the Post Office to purchase other businesses, we were told that they could not be made available because the memorandum of understanding could not be published. Now the Government have had to bring legislation before the House and the matter may well become a little clearer.
There is no point in the Minister saying that the Government cannot clarify the terms and conditions or tell hon. Members exactly how the money will be lent, but they can tell us that, however messy it all is, at least the amount involved will not be more than £400 million. That does not help us at all, and that is a weakness in the new clause.
The third aspect of the new clause to which I want to draw the attention of the House is PUK's power to take an equity stake. I am surprised that, even at this late stage, the Minister has not had second thoughts about that. Everyone else thinks that it is a thoroughly bad idea. The Minister will have seen--it has been published--the evidence taken on the matter by the Select Committee. The Major Contractors Group, the Business Services Association and the CBI all think that it is a bad idea, and even the Trades Union Congress was opposed to the Government taking an equity stake through Partnerships UK.
The reason is simple. Even the TUC understands that once Partnerships UK can take an equity stake in some projects rather than in others, the projects that it chooses will be labelled and endorsed. There will be an A list and a B list. There is obviously the danger that Partnerships UK may cherry-pick the best projects. There is equally the danger that having invested political capital in particular projects, it will start interfering with the contract terms to make sure that it achieves the right outcome. The project must succeed if Partnerships UK has not only been working on it but invested in it.
There is a huge danger that there will be two different types of project--those in which there is a significant equity stake, and all the others. There is nothing in new clause 7 to eliminate that danger or to clear up the confusion. I was pleased to hear my hon. Friend the Member for Arundel and South Downs (Mr. Flight) draw attention to the difficulties that Partnerships UK will have with other bodies, particularly with the Office of Government Commerce, which will try to police this aspect.
I am not sure what powers of supervision the Office of Government Commerce will have over Partnerships UK. Perhaps my hon. Friend, who has been labouring on the Bill in Standing Committee, is a little clearer. I am not at all sure what will happen when Partnerships UK has taken an equity stake in a project with a high political profile and the project starts to go wrong. If PUK starts tweaking the original terms of the contract, will the Office of Government Commerce be able to come in at that stage in a supervisory role and prevent PUK from doing that? Can my hon. Friend enlighten me?
Mr. Flight:
I am as unclear as my hon. Friend, but there is a further matter on which he may wish to comment. How can Partnerships UK negotiate in the same way with the Treasury and Government Departments in circumstances in which it is an equity investor, and in circumstances in which it has no involvement at all? How can it continue the existing role of the Treasury taskforce if it is charged as an investor?
Mr. Fallon:
That is precisely the weakness of giving Partnerships UK a banking function. That is tantamount to asking PUK to construct within it a Chinese wall that cannot be constructed.
Everyone will know which projects Partnerships UK will invest in or is considering investing in. If we are to go down that route, we will have to hear a great deal more about the Office of Government Commerce and give it more supervisory power, to make sure that PUK does not abuse its position, otherwise PUK will be able to muscle all over Whitehall and all over the contracts, putting others at significant risk.
In an earlier intervention--I apologise, Mr. Deputy Speaker, for having to slip out of the debate for another meeting--I referred to the weakness of subsection (3). What is the point of setting the limit at £400 million if the Government can increase it any time they want? I do not understand that.
Mr. Ruffley:
Is my hon. Friend as troubled as I am about how the figure £400 million was arrived at? How were limits determined in the 1960s and 1970s for nationalised industries? What was the methodology?
There are no plans for a state investment bank.--[Official Report, 16 July 1999; Vol. 335, c. 367W.]
Now we are to have a body that is enabled by the state to make investments on behalf of the state. If it sounds like a bank and looks like a bank, it probably is a bank, and we should refer to it as a bank, because it has banking functions. They are set out clearly in clause 16 and new clause 7. They are functions of lending and of taking an equity stake, whether in assets or securities.
Financial assistance . . . may be provided on terms and conditions. . .
That is completely meaningless; it does not even make it clear whether PUK or the Treasury will set the terms and conditions, or whether the terms and conditions will be made public.
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