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Mr. David Davis: I listened with interest to the hon. Gentleman's comments on numbered accounts. It is inevitable that it is easier for illicit money to hide in a large financial centre. I accept entirely what he said about numbered accounts. It is clear from our report that the strategy followed by this Government and the previous one is failing. The best demonstration of that is that the price of drugs on the street, which is tabulated in the report, has gone down over the past 10 years, both in real terms and in money terms, in almost all cases. Whatever change of strategy emerges, there certainly needs to be a change.

Mr. Dalyell: The Committee's Chairman makes a crucial and pertinent intervention, which I can only endorse.

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My impression as an outsider reading the evidence is that the Committee felt that Customs and Excise could do more. I am certainly not going to criticise Dame Valerie Strachan or Mr. Dick Kellaway who gave evidence, but I refer to the latter's answer to my hon. Friend the Member for Liverpool, Garston (Maria Eagle) on page 19. He said:


As the Committee says, it is a matter of resources.

Having been here a very long time, I can only say that I am more fussed, from the point of view of my constituency, about what is happening with drugs among young people than any other subject, even unemployment or all the difficulties that we have been through over the years. Nothing hurts so much as the terrible havoc that is being wreaked by drugs.

I know that there is no magic solution but I would be interested, at the Minister's convenience, either by letter or in answer to this debate, to learn the general reaction of the Treasury to the Committee's twelfth report. It is a very valuable report and I can only thank my parliamentary colleagues for their work on behalf of the whole Parliament.

5.40 pm

Mr. Andrew Love (Edmonton): I should like briefly to comment on the private finance initiative, and will draw heavily on the twenty-third report of the PAC, entitled "Getting Better Value for Money from Private Finance Initiative." I make no apology for that, as I have been trying to resolve many of the complex issues that are involved in this initiative, which is still considered somewhat controversial. One need only listen to the debates in the House or read any of the daily newspapers to know of the controversy that surrounds it. As it develops in new areas, such as education and health--the most recent development is in housing--controversy continues to surround it.

The whole idea of a private finance initiative is questioned in the public mind. In my constituency in Greater London, London Underground is at the centre of the controversy. Although that may not strictly be a PFI scheme--it may be a public-private partnership--the debate is about whether it is a privatisation. Whichever it is, it will not be a privatisation.

These are complex issues. When I tried to resolve them for myself, I looked back to the introduction of the PFI seven years ago, when the Chancellor of the Exchequer at the time, now Lord Lamont, said in his autumn statement that PFI was intended to improve the value for money of public sector projects by encouraging the development of closer relationships between the public and private sectors through the transfer of risk and

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responsibility, and to enable the public sector to benefit from private sector skills and innovation in the delivery and procurement of services.

That statement clearly contends that the private sector initiative is about risk and value for money. It is not about value for money in the short term, because we all know that not having to pay capital charges up front will make it value for money in the short term. It is about achieving value for money in the longer term.

I should like to suggest four ways of improving the private finance initiative. The hon. Member for Newbury (Mr. Rendel) and the Chairman referred to the transfer of risk. When the PAC considered the first report on the replacement national insurance computer, the NAO reported to Parliament that that PFI represented strikingly good value for money, provided that the service contracted for was delivered. That is the important part. We cannot transfer all the risk through a PFI. If the project is not delivered, the Department concerned still risks suffering the fallout from the failures of the PFI.

The second report of the PAC showed the fallout from the problems of the Department of Social Security and the Contributions Agency. There was a substantial backlog of payments to pensioners. Some of the poorest people suffered because of that failure. Thousands of long-term and short-term payments could not be made or were made on an interim or emergency basis. That increased the confusion, and the Department failed to respond to the services needed by that community.

We could consider reports on immigration and nationality that are still to come before the Committee. The Passport Service has had similar problems. A little noticed press release from the Cabinet Office a week or two back said that a central IT unit is being established to review the failures of PFI initiatives. Those involved will have to deal with a tall order, in that they will have to specify some particularly complex projects. However, I am glad to note that the problem is at least being tackled.

I also want to discuss the private finance initiative and the alternatives to it. Is the traditional procurement method better? I believe that it is necessary to have a robust public sector comparator in order to make the choice. Let us cast our minds back to the original PFI, which featured in the Skye bridge project. Those involved made little effort to choose a public sector comparator, because they had already decided that they wanted to build the bridge, and only private finance was available.

As the situation has developed it has got better, but mistakes are still being made. A report published this year on the first health service private finance initiative, relating to Dartford and Gravesham hospital reveals that, according to the report on the basis of which the decision was made, the PFI was supposed to provide £17 million-worth of advantage--9 per cent. of the overall cost. When the position was examined more closely, however, the figure fell to £2.5 million, a mere 3 per cent. of the overall cost. That does not call the PFI into question, but it calls into question the calculations that have been made, and in the long term it may also call into question the whole issue of the PFI.

The Select Committee noted the complexity of the issues in its twenty-third report, stating that


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    That could not be more true, in the context of some of the reports with which we have been presented. It suggests that we must have a rigorous review of the choices before a PFI is undertaken, and I feel that that must include a sensitivity analysis. We have to know what the tolerances are. Given that projects of this kind last for some time, we need to know whether the PFI is likely to work to our advantage in the long term.

Another example is provided by the four road schemes that we examined last year. We used a discount factor of 8 per cent.; Treasury guidance suggests a factor of 6 per cent. That may not sound very much, but it amounted to £69 million. Although the difference was significant, it did not call the PFI into question in the short term, but if we consider the long term and the changes that are likely to occur, this may be a problem waiting to happen.

I am also concerned about the appropriate allocation of risk. Although the intention of the PFI is to transfer as much risk as possible to the private sector, that is not always appropriate, especially when the risk involved cannot be controlled by the private sector partner. The widening of the A74 in Scotland is an example. The PFI payments were based on "shadow tolls"--on the number of vehicles that would travel on the road. The private sector partner cannot control that factor, which inflates the cost of the scheme.

In an earlier report, the Committee suggested that the PFI should be provided in the context of things that can be controlled: the continuing use of the road, or dealing with accidents on the road. In any event, I feel that we should allocate the risk appropriately.

My final comment on the PFI relates to compensation. This was mentioned by the hon. Member for Newbury. I refer to the transfer of risk: is the risk transferred if adequate compensation arrangements are not in place? We see the problem in all the information technology projects.


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