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6.30 pm
The problems with the £400 million limit, so called--the unlimited limit--do not end there. The situation gets considerably worse. Here, I am much indebted to prolonged discussion with my hon. Friends. The scope of the £400 million limit is constricted in another respect: it very specifically refers to the expenditure of moneys by the Treasury, not to the expenditure of moneys by the body itself--the body which my hon. Friend the Member for Arundel and South Downs referred to as a bank. My hon. Friend the Member for West Worcestershire (Sir M. Spicer) pointed out that the £400 million limit in no respect limited the totality of PFI expenditure. This we must agree, and knew.
I am speaking not of that failure of control, which might be expected in such a new clause, but of the fact that there is no limit on the activity of the body which it was the purpose of my hon. Friend the Member for Arundel and South Downs to have limited: there is a limit only on the expenditure by the Treasury on that body. According to my reading of the new clause, the body itself is capable of piling up unlimited liabilities that are not capped by the £400 million limit: indeed, there is no articulation in the new clause that would allow such liabilities to be capped.
After traversing some other ground, I shall come on to the question of the accounting of those liabilities, which is a vexed question indeed. Before we come to that, let us deal with the economics. I take it that it is part of the body's purpose that it should not be utterly controlled in its day-to-day operations by the Chancellor of the Exchequer, because were it to be so, as my hon. Friend has repeatedly pointed out, the purpose of transferring
from a Treasury taskforce to a separate body would be nil. PUK may well seek to build up large liabilities in carrying out its business, and if it does, the following economic question arises: is the full faith and credit of Her Majesty's Government behind this body in what may be sizeable guarantees?
If those guarantees should, for example, grow to billions of pounds--or tens or hundreds of billions of pounds--over time, will Varley Marshall Assurance principles obtain? Will ECGD principles obtain? Which principles will obtain? Who can say how much Parliament will find Her Majesty's Government have turned out--on purpose or by error--behind liabilities that we thought, or might have thought, would be capped at £400 million but which in practice have not been capped at any amount, £400 million or otherwise?
Mr. Edward Davey:
Does the hon. Gentleman think that the solution is to introduce in another place a cap on the liabilities, or does he think that Partnerships UK should have in its constitution a no-bail-out clause? I was probing the Minister for her views on that. Does the hon. Gentleman think that it may be the way forward?
Mr. Letwin:
The hon. Gentleman and I are swapping inclinations. I was about to observe that I thought that his proposal of a no-bail-out clause to handle this potential problem was highly intelligent. I do not know, and I do not know whether the Government's lawyers in all their wisdom--and they have much--know, whether a no-bail-out clause would work. I do not know, because I do not think there has yet been a case that has been seen to work.
We all recall the vexed situation when local councils got into considerable financial difficulties and lenders found to their surprise that there was no bail-out, without that having been stated. But there have also been cases--British Leyland and Varley Marshall Assurance, to which I alluded, are cases in point--in which it was at least believed that full faith and credit might operate, notwithstanding the fact that the original agreements had been so constructed as to avoid its operating. This is a vexed area of law, about which great experts may disagree. It may be that a robust no-bail-out element could have been inserted in the new clause; I do not know.
What is clear is that either Ministers did not intend such a result, or that the draftsmen did not know how to achieve the desired result because it cannot effectively be achieved in law, or that Ministers did not consider the question. If Ministers did not consider it, of course the draftsmen would not have considered it. In fact, no one would have considered it. That, I suspect, is the empty box into which we are staring.
I think that what happened is that the force of rhetoric of my hon. Friend the Member for Arundel and South Downs in Committee, and the force of logic behind his rhetoric, were such that Ministers said, "We are in a frightful fix. The PAC, the Liberal Democrats and the Conservatives--and, for all we know, many of our own Members--are worried that we are doing something that may not be quite kosher. Officials--go away and construct the best limits you can that will have the following characteristics: they will not limit anything or even seek to impose a limit that would actually limit anything because they will not to any degree control the activities of the body but will merely control the
Treasury. And just in case there is any kind of gap in the total discretion that we shall allow ourselves, just make sure as well that we can give PUK however many billions we want up front without any control whatever." If that is what happened, it is a symptom of an attitude to our proceedings in Committee and on Report that is very distressing.
Another possible interpretation, I admit, is simply that there was undue haste. It is possible--it may even be plausible--that the problem with the new clause was brought about by undue haste. The whole of the Bill has been afflicted by the insertion of an extraneous foreign body. In the first place, there is no reason for clauses 16 and 17 being in the Bill; they belong in quite another Bill--a serious Bill dealing with the serious matters concerned--and got into this Bill, where they now sit, by the mysterious processes of Cabinet committees and the like. The Government have been in undue haste to get the whole of the rest of the Bill, which deserved prolonged consideration, through because they are so desperate to get clauses 16 and 17 through. That, at least, is what we have been told.
If the result of that is that, through honest error, new clause 7 has been introduced in its present form--with a limit that is not a limit and does not address the problem--the situation is much less distressing. There is the possibility of the Government's bringing forward on slightly more mature reflection--for which I have no doubt their lordships will give them ample opportunity, because I hope that another place will reject the new clause as it stands--a proper new clause that provides the limit that we seek. Then we can ditch all the ghastly conspiracy theories and recognise that the problem was simply one of undue haste.
Why this haste? I know that this is a matter of Government policy, but there are many Government policies. It does not seem to me to be a matter of life or death whether these provisions are passed tomorrow or the day after. I cannot see that there is such a rush. This is not controversial--so in principle it will not be got rid of by a future Government. We all accept in principle that the PFI is an excellent thing.
In constructing the new clause, therefore, Ministers should have had in mind the necessity for something with consensus behind it--something that provided a robust solution in the long run for a policy that hon. Members on both sides of the House support. The new clause certainly does not do that in respect of control.
Mr. Edward Davey:
Has the hon. Gentleman considered two other possible reasons why the Government have not adopted the no-bail-out solution to their problems? One may be that they are concerned that it would set a precedent that could be applied to other public corporations or corporations in the public sector in which they have an interest. The other is that the Treasury is so used to exercising absolute power that it does not believe that, if a no-bail-out clause were written into the constitution of such a body, Parliament would not, because it is sovereign, simply override it.
If the hon. Gentleman agrees with that second possible answer to the question of why the Treasury did not go down that route, does he not think that that demonstrates the dinosaur attitude in the Treasury?
Mr. Letwin:
I do not think that the first explanation can be right. If, in this instance, the Treasury were
The hon. Gentleman suggested a second possibility: that the Treasury, or the draftsmen--or, indeed, Ministers--did not wish to create a precedent. I am well aware that Whitehall is particularly keen not to create precedents. Government are not like other bodies; they are often afflicted by precedent, and often take steps that they do not consider right in particular cases because they are influenced by the argument that they have done the same in other cases. They may have acted without due heed.
I accept that that is frequently a powerful argument, and it is possible that the desire not to create a precedent is one of the causes--or even the cause--of the opposition to a no-bail-out clause; but, if that were the explanation, it would be irrational. I see no reason for the Treasury to object to such a clause becoming a widespread precedent: it is the bail-out clauses that create the precedent to which, on a rational basis, the Treasury should object. The idea of a range of bodies that are somehow associated with the state, but against which no claim ought to be made entailing a claim on the state and in respect of which no faith and credit are given by the state, is surely attractive to the Treasury. It might not be attractive to a Department wanting to achieve a particular result in particular circumstances, but I should have thought that it would be highly attractive to the Treasury.
I cannot think that that is the explanation; certainly, I hardly ever accuse Her Majesty's Treasury of being irrational. I think that the explanation is either undue haste, or a mild conspiracy. I hope that the Minister will tell us that it is a case of undue haste: that would give us an opportunity to reverse the position, and improve on new clause 7.
My right hon. Friend the Member for Haltemprice and Howden (Mr. Davis) and other PAC members have tabled an amendment dealing with the important question of the scope of action of the Comptroller and Auditor General--a theme that we shall traverse in awesome detail when we discuss the general issue of the CAG's scope of action in regard to non-departmental public bodies, which we debated at length in Committee.
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