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Mr. John Bercow (Buckingham): Before the hon. Gentleman moves on to the lessons that we might usefully draw, does he agree that computer inadequacy is also the principal reason why the Department for Educationand Employment has been obliged to tell us that approximately 50,000 young people have left the new deal to proceed to what it euphemistically calls "destinations unknown"?
Mr. Rendel: I am sure that the hon. Gentleman knows a lot more about that than I do, and if he claims that that is right, I have no reason to suppose that it is not, but it is certainly not a subject that I know enough about to confirm to the House that he is right. He may have a chance to catch your eye, Mr. Deputy Speaker, and to say more about that later.
We need to consider how such projects are conceived and what they are meant to do. In future, the Government must consider more carefully how the programmes will
be used, how people will be able to handle them, and the real requirements of the end users. The Government's needs may be taken into account, but sometimes the end users--the benefit recipients--are not sufficiently taken into account.
A further point concerns contingency plans. The very fact that such programmes are necessarily large and complex means that, almost invariably, they will go wrong, particularly when they are first introduced. That means that those who operate the systems must have enough time to get them up and running properly and to iron out all possible initial difficulties alongside the old system.
There must also be a contingency plan for dealing with problems after the introduction of the new system. It was the lack of a proper contingency system that caused such enormous problems when NIRS2 was introduced; there was no way of returning to the old system when the new system was introduced, causing many further and, to my mind, unnecessary problems. We must ensure that services can continue to be delivered to our fellow citizens whatever happens to a new computer system.
Many of the new large systems will be introduced under the private finance initiative, whichever party is in power, even when my party takes over in government--[Interruption.] Some of us think long term, even if most do not.
It is important to recognise that the whole point of introducing such systems under the PFI is to transfer some of the risk and its cost to the private sector. When such systems are introduced they are necessary. With regard to NIRS2, only a small amount of compensation has been paid by Andersen Consulting, which produced the system, because once it started going wrong the Government were over a barrel. In effect, they were told, "You need us to make sure that it works in future, so if you start demanding compensation we will back out and leave you in a hopeless situation." The Government were, in effect, almost blackmailed, so they allowed the company to try to iron out the problems without its having to pay a lot of compensation.
Therefore, the risk that the Government thought they had transferred to the private sector was not so transferred at all and, in effect, the taxpayer has had to pay for all the problems. If we are to continue to use the PFI, we must recognise that difficulty. We must recognise that, once such massive projects are under way, it is hard to change the contractor running them, giving them a great hold over the customer. In such a situation, it is hard to see how the risk can be transferred. That is a problem that the Government have not answered. I do not pretend that I have an answer to it, but it is something that needs to be worked out. If the PFI is to work properly, we need to find a way of genuinely transferring the risk to the private sector.
Mr. Gerry Steinberg (City of Durham):
This is the first time I have participated in one of these debates, and I shall be brief. I shall certainly be briefer than the Chairman was. It is a pity that he is no longer present because I wanted to remind him of how long he spoke this afternoon and how little time he gives me in Committee. If he returns, I shall do so.
First, I pay tribute to the Committee staff. I have read past debates, and paying tribute to staff is a convention, but I do so sincerely. The staff are excellent; they keep us supplied with the briefs and papers that we need. The right hon. Member for Haltemprice and Howden (Mr. Davis) has returned to the Chamber. Earlier, I told that House that I intended to be much briefer than the right hon. Gentleman in view of the amount of time that he grants me in PAC meetings.
Mr. David Davis:
My entire speech probably did not make up for the hon. Gentleman's overruns this year.
Mr. Steinberg:
We shall not continue the argument.
I pay tribute to the National Audit Office, without which the PAC could not survive. Indeed, we would not exist without it; it does an excellent job.
I have been a member of the PAC for just over a year. It has been one of the most enjoyable experiences that I have had since coming to Westminster 12 years ago. Whitehall needs to be kept on its toes, and the PAC does that. One of the most incredible aspects of interrogation in the PAC is the complacency that some senior civil servants demonstrate. I sometimes despair when billions of pounds have been wasted and senior civil servants remain complacent about it. Perhaps they object to being questioned by, in my case, a minor Back Bencher. The PAC thus has a vital role to play. The Committee is well controlled by the right hon. Member for Haltemprice and Howden. He is a fair man who does a good job, although I am convinced that he gives me less time than anybody else.
It is the Committee's strict convention to be non-political. That convention is well respected, although it has been difficult to be non-political in the past year--I have been brought into line on several occasions. However, I suspect that it will become easier to be non-political as time goes on and we consider reports from this Government rather than those of the previous Administration.
Today presents an opportunity for a more open debate, which is welcome. This afternoon, we can express opinions that we cannot present in Committee because of the convention that I mentioned. I shall not philosophise like my right hon. Friend the Member for Swansea, West (Mr. Williams) and the right hon. Member for Haltemprice and Howden; I shall be a little more blunt.
I believed that we could discuss approximately 40 reports today, and the right hon. Member for Haltemprice and Howden said that the number was indeed 40. However, I want to concentrate on the two reports that I found the most interesting and, politically, the most
controversial. I want to discuss the reports on the two privatisations--of British Energy and Railtrack--that the previous Government undertook. I believe that the previous Government proceeded with them purely for reasons of dogma. My argument this afternoon will clearly demonstrate that.
Let us consider British Energy. The PAC's report examined whether the Department of Trade and Industry took reasonable steps to minimise taxpayers' financial exposure to nuclear liabilities, and whether it maximised the proceeds obtained from shares. Not long after I first entered the House in 1989, the then Prime Minister made it clear that she would not touch the privatisation of British Energy with a bargepole. Yet in 1995, the previous Government went ahead with the sale. Initially, the sale of shares was a flop, and many remained unsold--indeed, only 88.5 per cent. were sold. The sale raised approximately £1.26 billion at a time when British Energy owed the Treasury £600 million. A simple sum shows the amount of money that the sale of shares raised. The remaining shares were sold later--not by design, but because they could not be sold initially. That extra sale raised £198 million. The total raised was due to good luck rather than good management.
The eight most modern nuclear power stations were sold while the older stations were retained in the public sector. The older nuclear power stations are nearing the end of their useful lives and will soon need tobe decommissioned. The sale ultimately raised approximately £1.5 billion, yet it was hoped that it would raise £3.7 billion. So the loss to the taxpayer was enormous; one does not have to be a mathematician to work it out.
The original construction of Sizewell B, one of the power stations that was sold, cost approximately £3 billion. I would have expected the privatisation to raise at least the original capital costs of the eight power stations that were sold. Yet the sale fell well short of the cost of one power station. To make matters a darn sight worse, the Treasury had expected to receive from the nuclear industry approximately £560 million in 1996-97 and £1.12 billion in 1997-98. Yet after privatisation, the industry cost the taxpayer £950 million over the same period. That is not a good deal.
After privatisation, the nuclear industry changed from an income-generating industry into a revenue drain. It now costs the taxpayer more to run the nuclear industry in the form of British Nuclear Fuels plc because it no longer controls profit-making modern stations. To make matters worse, the taxpayer will have to pay for decommissioning the older magnox power stations without the benefit of any revenue from the modern stations. Again, that is not a good deal for the taxpayer. The decommissioning will cost approximately £8 billion. Even worse, the privatised industry will be expected to make a contribution of only £16 million towards paying for long-term liabilities of nearly £15 billion. Clearly, that privatisation was an absolute failure that caused a huge loss to the taxpayer.
The PAC concluded that the nature of nuclear liabilities caused inevitable uncertainties, especially in the long term, about British Energy's ability to finance them and that, therefore, the Government should monitor carefully the company's on-going ability to meet its liabilities without recourse to the taxpayer. The Committee also
concluded that the taxpayer was still open to financial liability for British Energy's nuclear power stations. Those financial liabilities arise from several causes.
First, British Energy has a fixed-price contract for fuel reprocessing with British Nuclear Fuels plc, which isstill publicly owned. Secondly, there is currently no technology for the disposal of nuclear waste in the United Kingdom. Thirdly, there is a residual risk that, in the long term, neither the trust fund that was set up, nor British Energy, will be able to finance the full cost of nuclear decommissioning. For those reasons, it is my view that that sale should never have gone ahead--there are too many doubts regarding an industry that must, at all times, have safety as its paramount consideration.
When the Department of Transport privatised Railtrack in 1996, it sold all the shares at one time, for £3.90 each, through a stock market flotation that raised about £1.9 billion. About two years later, when the NAO wrote its report, those shares had risen in value to £16 each. The report clearly states that one of the aims of the sale was to get a good deal for the taxpayer. Although that was a simple aim and £1.9 billion was raised, Railtrack was worth £8 billion two years later. Quite contrary to the stated aim, the deal was dreadful: the British taxpayer and the Treasury lost a fortune and the company was sold off for about £6 billion less than it was worth. That money could have gone into Treasury coffers to be used in health or education or to build hospitals. Quite obviously, the policy was to sell at all costs.
The situation was made worse because, as a result of previous privatisations, the Department should have known what to expect. It was clear that selling shares in stages had produced substantial increased proceeds: the price rose over time and became higher than that achieved when all the shares were sold at the initial issue price. Two examples come to mind: the sales of National Power and PowerGen by the Department of Energy. The shares were sold in two stages and, as a consequence, the overall proceeds from the two sales were £2.3 billion higher than they would have been if 100 per cent. of the shares had been sold initially.
At the time, the Department of Energy set out its reason for adopting the phased sale strategy in great detail and circulated the information widely throughout Departments so that its experience could be of benefit during future privatisations. Did the Ministry of Transport take any notice of the information that was given it? No. The information and advice that the Department of Energy had passed on to all Departments were ignored and the Ministry of Transport lost billions of pounds for the taxpayer. In my view, that is a scandal. However, when the PAC questioned the chief accounting officer on those issues, the response was quite complacent. It did not even seem to have been accepted that what had happened was anywhere near a scandal.
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