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David Taylor (North-West Leicestershire): The full title of the debate, which I am delighted to have secured, is the rather prosaic "Implications of the Private Finance Initiative". If I were to provide a subtitle, it would be "Myths, Sorcery and Other Accounting Devices". As a public sector accountantI declare an interest to that extentI must confess dismay and astonishment at the readiness of my Government to prod and coerce public agencies down the PFI and public-private partnership route using a rationale that is frequently dubious, shot through with subjectivity and based on figures of doubtful authenticity to demonstrate the desirability of projects that, in the medium term, are costly, inflexible and will depress the quality of public services, accelerate privatisation and divert taxpayers' hard-earned cash into the pockets of multinational companies that view the ethos of public service and the existence of the public sector only as a barrier to trade and an obstacle to profit.
I referred at the outset to myths. One of the most persistent myths is that PFI somehow squares the circle of bringing in new money while reducing the need for scarce public finance that otherwise could not be afforded. That is financial illiteracy raised to an art form. Every penny raised for PFI schools, hospitals and the prisons to which tomorrow's electorates will no doubt commit today's responsible Ministers is paid for by the public purse, plus interest, plus profits. Stretching over half a century, in some cases, PFI does not lever in private finance; it merely allows private shareholders to dip their large ladles into an increasing stream of tax revenue.
Independent research shows quite unambiguously that the Government could have paid for the whole programme of PFI projects without breaching the sustainable and golden fiscal rules articulated by the Chancellor. The Major Government lost control of public borrowing. In a frenzy of creative accounting, they conceived public-private partnerships and involuntarily bequeathed that poisoned chalice to Labour on 1 May 1997.
It is a sadness that the Government have been so seduced by the flawed and feeble justification for this abandonment of prudence that they have conveyed the firm impression that PFI is the only show in town. Local government and health authorities have trudged down this rocky path with increasingly heavy hearts and increasingly lighter purses.
Let me deal more thoroughly with value for money. PFI projects cost much more than conventionally funded projects, not least because the private sector borrows at higher rates than the public sector, which is underpinned by the lowest-risk borrower of all: the Government. The extra costs are boosted by lengthy negotiations with expensive City lawyers, consultants and fine wines employed by both sides. The escalation of costs is accelerated, notwithstanding the low risks, by the large returns demanded and the ballooning of scale.
The Birmingham schools PFI is a good example. It started in 1996 at £20 million for eight schools and presently stands at £80 million for 13 schools. The higher levels of finance unsurprisingly lead to an
At the heart of the judgment as to whether PFI provides better value for money than its public sector comparator is the allocation of risks between the public client and the private deliverer. At this point we enter the seedy world of accountancy massage parlours, where figures are pummelled and distorted into unrealistic shapes. Research for Unison by Professor Allyson Pollock into the transferred risks that allegedly made schools and hospital projects value for money showed that calculations of risk are arbitrary and unreliable; what a surprise. A specific example is that the average cost overrun for national health service capital projects in the 1990s of 7 per cent. can be almost doubled in typical transferred risk calculations to upwards of 12.5 per cent. No wonder that the first PFI hospital at Dartford failed to make projected savings.
Despite frequent assertions by Front Benchers of both main parties, there is little or no evidence that private sector management, with its hallowed status as a third way icon, is more efficient at delivering quality services than workers in the public sector. As PFI projects come on-stream, the anticipated quality standards and adherence to cost and time scale are not delivered as frequently as their advocates suggest.
There is insufficient time to examine the litany of failures. Three will suffice: the fiasco at the Passport Agency, when Siemens paid only £2 million of the £13 million bill; Andersen Consulting's national insurance recording system, which needed to provide £35 million compensation to pensioners; and PFI's own big daddythe channel tunnel rail link, bailed out by a Government bond guarantee that, at a stroke, took back the project's risks.
The belief in the natural superiority of the more creative, innovative and risk-taking private firm over the poor old public authority is seriously flawed. In practice, the private sector relies on the expertise of public sector professionals to run their newly acquired services. It shies away from too-intensive competition, through takeovers and mergers that have led to a handful of mega-multinationals dominating the sector. Such touching faith in private management flies at the speed of sound into the face of the evidence experienced on a daily basis by those who must endure some contracted-out services in the public sector. Most notoriously, Britain's filthiest hospitals are cleaned, if that is the right word, by private contractors.
My party and my leader seem to take it as read that innovation and the efficiencies of the private sector can be straightforwardly harnessed to deliver public health priorities and goals. However, the fragmentation caused by the PFI approach will divert resources and miss more goals than a Chris Waddle penalty. A key component shoring up the whole PFI edifice is the lowered pay and conditions of staff engaged. High-quality public services need high-quality employment and although transferred staff receive some protection, new ones tend to have poorer pay, weaker conditions and little in the way of
The Government state that value for money is the sole issue when PFI projects are assessed against the cost of traditional procurement. That appraisal is heavily shaped by the discounting of future cash flows at 6 per cent. Payments from taxpayers for the capital elements of PFI schemes are typically made later than is the case under conventional procurement. The higher the discount rate used, the better value the PFI project will look in comparison with the public sector option. Such discounting to a net present cost is flawed in two key ways. First, it does not acknowledge that public sector purchasing now tends to spread costs over time through borrowing, and the formulaic approach tends to assume a clumping of expenditure in the early years of public sector projects.
Secondly, the real costs of public borrowing have reduced and the arbitrary 6 per cent. discount rate used by the Treasury can no longer be justified. Reducing the rate to 5 per cent. would make a typical PFI project in this cost area 5 per cent. more expensive over its lifetime than its public sector comparator. That difference is enough to level the spreadsheet in favour of public purchasing for a raft of projects that have been forced down the PFI route. This is not some arcane discussion between sad accountants who should get out more; it really does matter.
The recent Sharman report reviewing accountability for public expenditure showed the difficulty of accounting for public funds when the private sector is the provider of public services. In the brave new PFI world, it is not clear that the Government have sufficiently strong and flexible mechanisms to guarantee the probity of public expenditure. Politically, PFI and the wider use of PPP restrict the operational terrain for politicians and inhibit our ability to make a difference. Services are supplied increasingly by private bodies that are not accountable in any way that people can recognise. That may lead to a lack of responsiveness by service providers to users, a blame culture between different public bodies and widespread electoral disenchantment.
Ms Diane Abbott (Hackney, North and Stoke Newington): I am reluctant to interrupt my hon. Friend's excellent speech, but I want to comment on the issue of transparency as regards elected Members of Parliament. In my borough of Hackney, in common with many other inner-city boroughs, the housing benefit service was privatised and the service promptly collapsed. As a Member of Parliament, I found it almost impossible to get information from the private service contractors. There was no transparency whatsoever in that case.
David Taylor : I am pleased to be given further evidence of the flaws of private sector management, which, in my experience as a senior public sector manager, are as frequent as in the public sector. At the
In responding to today's debate and to the stream of criticism about PPP that will no doubt characterise this Parliament, the Minister and the Government may be tempted to pray in aid the recent publication from the Institute for Public Policy Research entitled "Building Better Partnerships". The commission that produced the report was critical of how some PFI and PPP projects operated in the past, but endorsed the Government's view that expansion of private sector involvement into the heart of public sector provision should be pursued energetically.
Even that stacked commission felt moved to say that the link between private provision of public services and cost-cutting would have to end, and that partnership should not be seen as privatisation by stealth. It, too, asked that PFI proposals be subjected to a sensitivity analysis to examine whether different assumptions on risk allocation would lead to different value for money conclusions. Even that commission comprehensively demolished the fatuous theory, so frequently articulated in this place by people who should know better, that PFI allows Governments to undertake more projects than would otherwise be the case. It does not, cannot and never will.
The IPPR is to be congratulated on initiating what appeared to be a rational and measured debate on this most provocative of topics, the interface between the private and public sectors and the possible takeover of the latter by the former. However, we must set that report in context. The commission carried out its inquiry in private, with an unprecedented coalition of big business and Government movers and shakers. Sponsors of the commission can in no way be described as politically neutral; they have a direct interest in the expansion of the PFI market and in tapping into public funds for education and health. They have been quick to recognise the possibility of positioning themselves to benefit from the dismantling of the barriers that previously protected the public sector from the warm embrace of private firms.
As the Catalyst Trust said, the IPPR makes the case for extending PFI by setting aside or downplaying the fact that almost all analysis of the potential of PPP acknowledges the inability to improve efficiency, concentrating instead on the benefits of alleged risk transfer. I referred earlier to the lack of objectivity in risk calculation, but the position is worse than that. The methodology used does not take into account the additional risk presented by outsourcing services when the most vulnerable people in our society are the ones who will suffer most if essential services falter or fail and, to quote the intellectual mother of PFI, "there is no alternative". Even when risk has been transferred, it has frequently proved impossible to enforce that contract in a practical way. PFI apologists will say that these are just teething problems. My view is that the private sector seems to talk up the risks in contract negotiations but talk them down when raising capital finance from the market.
Our party should be the last to stand aside when the necessary modernisation of public services on which millions of our people depend is accompanied by the unnecessary collateral damage inflicted by the PFI: the inflexibility and rigidity of service provision, reduced access, decreased diversity and, ultimately, the failure to meet public need. We should resist the PFI-inspired erosion of the foundations of our public services that usher in the expansion of user charges and show the door to the principle of the public funding of services that are free at the point of delivery.
My comments have drawn on research from a range of organisations and the early evidence of the effect of PFI contracts on a number of public services, not least the NHS, which has experienced significant changes whenever PFI has been utilised. The express concerns of health professionals encapsulate the serious flaws inherent in PFI and render it incapable of being a long-term strategy for increasing capital investment.
The British Medical Association is concerned that the planning of PFI hospitals presumes increased output because of reduced bed numbers, with attendant implications for clinical services in the hospital as well as for primary care and social services in the community that do not have provision in the contracts. The BMA also points out that an implicit assumption of long-term contracts is that there will be a continued demand for the services of a particular hospital. That pre-empts revenue decisions to be made by local health authorities and primary care trusts for the foreseeable future.
Naturally, the BMA points out that PFI funding is effectively hypothecated and forces resource constraints to focus on staffing. That may lead to unplanned changes in work force configuration. The non-NHS owners of PFI hospitals will employ former NHS staff, but there has not been guidance to back up the welcome assurance from the top of our party that clinical staff will remain in the NHS. I am unconvinced that that is possible in a PFI context.
Mr. Edward Davey (Kingston and Surbiton): I realise that the hon. Gentleman is reaching the end of his speech, which I have enjoyed. He is speaking rationally and clearly. So that others do not try to misrepresent his remarks, does he think that there will ever be a role for the private sector in the delivery of public services?
David Taylor : Of course there is. The private sector has always been involved in the delivery of public services; the debate is about scale and location. In the recent election campaign we were told by the electorate to invest or lose. In yesterday's speech, the Prime Minister told us to reform or bust. Today, we should robustly say that public provision, not privatisation, is the way ahead.
It may be clear that I am opposed to the PFI on accounting, economic, social and political grounds. I remain convinced that public finance and provision remain the most effective, efficient and equitable way in which to modernise our hospitals, schools and other public services. The route that we are pursuing will take us more steeply into a private sector swamp that is populated by those who set the price of everything but who rate the value of public services as low.
A former Prime Minister criticised a later Administration for selling off the family silver. We run the risk of a house clearance of that on which our national family depends. When my children ask me in 2020if I am still alivewhat I did in Parliament to prevent the disaster of the PFI that will, no doubt, beset them at that time, I shall point to the text of this debate and, I hope, future debates. The PFI is prohibitive in cost, flawed in concept and intolerable in consequences for the taxpayers, citizens and workers who put us in this place and look to us to defend their interests.
Mr. Frank Cook (in the Chair): Order. I remind right hon. and hon. Members that it is normal procedure in such debates to commence Front-Bench Members' closing statements 30 minutes before the termination of the debate, which in this instance is 12 noon. It is not necessary to be a great mathematician to work out that with eight Members trying to catch my eye, 40 minutes does not allow much time for anyone. I hope that right hon. and hon. Members will bear that in mind and make their contributions pertinent, proper and brief.
Hywel Williams (Caernarfon): I shall make two broad points on PFI in health; one on risk, and the other on value for money. We all face the risk of ill health, and health care will always be in demand. As the private sector realises only too well, under this Governmentas with the previous onethe market for health care is good. PFI projects in health are a rock-solid investment for the private sector. Demand is infinite, and the Government are the guarantor; not the final one, but the first and only one necessary. It is right to ask how the obscene profits that have already been reported are justified. PFIs are a licence to print money; money that the NHS can ill afford.
On value for money, people see through the "Buy now, pay through the nose for 30 years" scam. My constituents have campaigned long and hard for a hospital at Porthmadog. One may now be on offer, but on the basis of PFI, if a private investor can be tempted. What are my constituents to say about that? Should they say, "No thanks, PFI is a con we'll do without. We prefer to travel up to 50 miles to the local district general hospital up in Bangor"? They have no choice but to take a bad deal, as no other deal is on offer. The market is good for the seller, if not for the buyer.
The hon. Member for North-West Leicestershire (David Taylor) referred to a distinguished critic of the previous Administration, who said that they had sold off the family silver. It is a case not of selling off the old family silver but of gambling in silver futures.
Before I came to this place, I ran my own business. Had I done so in the way I have described, I would be not here but in the poorhouse. It is not this Government who will pay the price in 30 years' time. They will be long gone. It will be our children and, I fear, our children's children who will have to face the results of the Government's actions.
However much we in Wales might object to PFI, the National Assembly in Cardiff has no choice in the matter. That is one more reason why the so-called devolution settlement is untenable in its present form. We in Plaid Cymru call for proper investment in a reconstructed public sector that has faith in its capacities, is publicly accountable and whose activities are not shrouded because of alleged commercial sensitivity. New Labour may not have an ideological objection to putting shareholders before hospitals and profit before patients, but Plaid Cymru most emphatically does.
Mr. Kelvin Hopkins (Luton, North): I congratulate my hon. Friend the Member for North-West Leicestershire (David Taylor) on initiating this important debate and on his magnificent introductory speech. His was a root and branch demolition of any case that might have been made for PFI. Many Labour Members believe that PFI is irrational nonsense, and it is also extremely unpopular with the public. An opinion poll for The Guardian suggests that only one in ten thinks that bringing the private sector into the public services is a good idea. That means that privatisation and PFI are less popular than the poll tax, and the Government ought to take careful note of that. The poll tax destroyed a previous Prime Minister. If Labour Members are not careful, we could find ourselves in political trouble. I want to avoid that above all, because it is vital for the future of the country that our party remains in government and continues to do its best for the great mass of ordinary people, and not for big business and those who make money.
Popularity is not everything, of course. Sometimes I am slightly unpopular with my Whips, but I do not necessarily take that as conclusive evidence that I am wrong. On the other hand, popularity is important in politics. We should bear it in mind that, although we have won two elections with big majorities, the public are watching us. We should note that they do not like privatisation and one day they may judge us more harshly than they have so far.
My hon. Friend the Member for North-West Leicestershire talked about the costs of privatisation and the rates of return. The rate of return required on private investment is vastly higher than on public investment. The typical rate in the old days of the Public Works Loan Board was, perhaps, bank rate plus 2 per cent. Current examples of required rates of return are 18 per cent. for the Skye bridge and 19.4 per cent. for
The illogicality of insisting on expensive private investment instead of cheap public investment defeats me. We have been told that it is about the importance of containing the public sector borrowing requirement. However, there are two types of borrowing: borrowing to finance the poor and unemployed during a recession, which is cyclical borrowing, and borrowing for long-term investment in assets, which is different. The risk involved in the provision of public hospitals and schools is not high. It is not a risk at all, because there will always be a demand for such facilities. It is just pushing extra cash into the pockets of the private sector rather than paying more cheaply to get things done in the public sector.
Llew Smith (Blaenau Gwent): The hon. Member for Caernarfon (Hywel Williams) gave a somewhat different view in his criticism of the PFI. He said that, for the companies involved, PFI was a gamble; they could have their fingers burned. Does not all the research from people such as Professor Allyson Pollock prove that the risk is virtually minimal? It is a sure way for a few multinational companies to make a lot of money.
Mr. Hopkins : Of course I totally agree. The channel tunnel is one of many examples. It was a type of public-private arrangement that effectively was underwritten by Government. It made vast losses, which have been financed by the public sector. I do not mind paying from the public purse for those things that are valuable and essential for public use or a vital part of our infrastructure. However, let us not pretend that things must be bought in either the private or the public sectors. Indeed, the public sector could have built the channel tunnelI would have preferred thatand it would have been built more cheaply, more effectively and, I suspect, more quickly. However, that is neither here nor there.
The important point is about public borrowing. On the continent of Europe, much of the public borrowing that we include in the PSBR is not included. Those Governments rightly look at the public borrowing level in relation to the state of the economy. Those countries are concerned with cyclical borrowing and not long-term borrowing for risk-free investment in necessary public services. We have introduced a new ethos into the public sector, which is deeply worrying. If we pursue it in the long term, a situation may develop in which some of the values that now drive people who work in the public services may be lost for ever. That would cause terrible damage to our society.
Many outside the Government take a critical view of privatisation and the PFI. I end with a quotation from Will Hutton, the director of the Industrial Society and former editor of The Observer. He said:
Dr. Richard Taylor (Wyre Forest): I congratulate the hon. Member for North-West Leicestershire (David Taylor) on his demolition of the arguments for the private finance initiative. I was delighted to hear so much understanding of it and its iniquities. All he missed out was the devastating fact that the first call on a trust's money, before anything goes into patient care, is paying off the PFI debt.
I shall briefly mention two concerns, illustrated by local events in Worcestershire. First, everyone knows that most PFI hospitals have far fewer beds than the hospitals that they replaced. To our amazement, the Worcestershire health authority has tacitly admitted that fact, by agreeing to provide an extra 112 beds, over and above those in the PFI hospital, in existing buildings that were to be decommissioned. As beds represent money, that must immediately put the cost of the PFI above the hallowed public sector comparator.
Secondly, I shall give a characteristic example of the spin that has been used. When the previous Secretary of State went to Worcester to cut the first sod for the marvellous new PFI hospital, the press releaseof which I have a copyfrom the Department of Health heralded it as costing £116 million. When Professor Allyson Pollock conducted the survey last year, she was kind and said that the cost was £108 million; she excluded the cost of equipment and of money that would be obtained from land sales. The health authority pilloried her for getting the sums wrong, although they were taken from health authority figures, and claimed that the cost was only £91 million, despite the figure of £116 million given in the press release.
Now, the health authority has at long last admitted that the true cost is £109 million. The difference between £91 million and £109 million is the cost of raising the finance to provide the buildingwhich cements the arguments of the hon. Member for North-West Leicestershire that the initiative will damage the health service in the long term. In a comment column just before the election, The Guardian, described the PFI as "bleeding the hospitals".
Jeremy Corbyn (Islington, North): I welcome the debate and the contribution of the hon. Member for Wyre Forest (Dr. Taylor). I had hoped that he would tell us the rate of return on the £109 million capital invested in the new hospital in Kidderminster and the comparative figures if it had been built by traditional public sector finance methods, which would, I suspect, be much cheaper.
Dr. Taylor : I can compare it in another way. The cost to a trust of capital charges, which were the previous way of paying for one's premises and equipment, is approximately 8 per cent. of a trust's income. The cost under the PFI is approximately 13 per cent. of income.
Jeremy Corbyn : I thank the hon. Gentleman for his comments. A report by Professor Allyson Pollock compares the cost of repayments for several hospitals, pre and post PFI: for Norfolk and Norwich hospital, it was 0.7 per cent. pre PFI and 18.9 per cent. post PFI, for Swindon and Marlborough trust, it was 3.3 per cent. and 14.3 per cent. respectively, and for Calderdale Healthcare, 3 per cent. and 11.3 per cent., and so forth.
I welcome the debate, because it gives us a chance to challenge the ethos that the use of PFI finance in public services is the manna from heaven, money from God-knows-where that will give us the shining new building on the hill. A good, new hospital can be built, apparently at no cost, under PFI. However, the reality is that we are storing up an enormous charge for future generations; if there is a problem in financing those hospitals, the first call, the absolute priority of the debtors, is the private finance, not the patients.
Mr. Hopkins : Is it not unfair to ask a local electorate, "Would you like a PFI hospital or no hospital?" Local people could be asked, "Would you like a PFI or a publicly financed hospital?" Which would they choose?
Jeremy Corbyn : Indeed. As my hon. Friend suggested, it is a ridiculous question, because clearly there is an option. Either projects are financed by the public sector in the normal, traditional, cheaper and more secure way, or the vultures of private enterprise banks are brought ina rip-off at public expenseand given an absolute guarantee of income.
It is time that those promoting PFI realised that public attitudes have changed. I was brought up on a diet of publicity that told me that public investment in industry and anything that was publicly owned and publicly run was intrinsically dangerous, probably imported from the Soviet Union and a threat to freedom, health and democracy. I remember the campaign, "Say no to nationalisation". Those who are even older than I am will remember Mr. Cube.
On a cold morning in March, I was outside Euston station in the company of the general secretaries of RMT, ASLEF and the Transport Salaried Staffs Associationvery nice people, fine folkhanding out leaflets saying, "Bring back the track. Take Railtrack into public ownership". The leaflets pointed out that Railtrack had been given away to its shareholders by the Conservative Government at much less than the capital value of the land it owned, never mind all the infrastructure. Is that a rip-off or what? We were collecting signatures from people who wanted Railtrack to be brought back into public ownership. That is nationalisation if you likea word that people do not like to use these days. There was a queue across the concourse to sign the petition and the staff asked us if there was anything we could do about it. I told them there was nothing I could do about it because people wanted to sign the petition to secure the jobs of staff and to ensure that Railtrack was properly run. We must think again about the ethos of privatisation.
My hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) described what happens when public services are put out to private contractors. I have wearied the House before on that subject, so I shall speak briefly about housing benefit in my borough, which used to be run by the local authority. The system was not wonderful, but people could get answers and solutions to problems at the neighbourhood offices. The system was centralised by the local authority and it got worse. The local authority was then denied the capital allowance from central Government to invest in the new computer systems that were necessary and along came the wonderful company from Birmingham known as IT Net, which said that it would run the scheme for the local authority.
A short time later, 20,000 people were awaiting answers to their queries about housing benefit, private sector tenants were being evicted, people were having breakdowns and families were breaking up. There were horrendous problems because of the sheer incompetence of the company, which seemed to have the local authority in an armlock. That company was being paidthe directors were even getting bonuses. My right hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) and I have been tearing out what remains of our hair to ensure that the company does its job properly. We were reduced to having a meeting with two directors of IT Net to ask them to improve the service.
Public money paid through a local authority should be providing a service to local people, but we have been reduced to talking to two directors who are answerable to shareholders, who have no interest whatever in the needs of the people of Islington. It is a negation of democracy that we hand our services over to the private sector.
Ms Abbott : The privatisation of housing benefit caused the collapse of the service and there was a total lack of transparency. One could not discover anything from the private firms about internal targets, or any other information. Those were not the only bad aspects of the privatisation, however. When it was clear to my local authority that the housing benefit service in Hackney was collapsing, it delayed a long time before removing the contract. People in the authority said, "In practice, Diane, we cannot remove the contract once we've handed it over to them, because there is no genuine in-house competitor or capacity."
Jeremy Corbyn : My hon. Friend is right. On Thursday, the Liberal Democrat-run council in the London borough of Islington will have a chance to remove that contract from IT Net. As I understand it, however, the Liberal Democrats propose to continue with the contract. I trust that when the Liberal Democrat spokesman speaks, he will give us some good news after his promise to intervene with the local authority leadership on that matter.
Finally, I am a former official of the National Union of Public Employees, I later became part of Unison and I am acutely aware of the enormous commitment that public sector workers make to the public sector. They resent the fact that their jobs are sold to the lowest bidder every few years, even under Transfer of Undertakings (Protection of Employment) Regulations
Mr. John Horam (Orpington): We are all in debt to the hon. Member for North-West Leicestershire (David Taylor) for this debate, because PFI is an important part of the debate on public services that will, I am sure, play a huge role in this Parliament. I apologise to him, to the Minister and to you, Mr. Cook, for having to leave before the end of the debate to attend a memorial service for the late Reg Prentice in St. Mary's Undercroft.
I want to contribute briefly to the debate because I was responsible for the PFI in the Department of Health in the last Conservative Government. I am sure that the Minister will point out that PFI has at least enabled a lot of new hospitals to get under way since the beginning of the last Parliament. That is to the credit of PFI.
At the same time, there are severe problems with PFI, which I want briefly to adumbrate. First, as the hon. Member for North-West Leicestershire said, every penny of PFI comes from the public purse and the taxpayer. It amounts to spending now and paying later, which builds up a huge problem for the future. In the March Budget it was revealed that £79 billion of PFI project finance would have to be financed in the future. Later figures suggest that another £16 billion have been added to that sum. That money will have to be provided by our children and our children's children in 30 or 40 years.
David Taylor : Even those costs understate the true impact because of the asset and land sales to which the hon. Member for Wyre Forest (Dr. Taylor) referred, which tend to be invisible in the equation advanced by advocates of PFI.
With PFI, one is over a barrel with the finance houses, which are in a position to exact a hard deal. Governments under the pressure of public opinion are naturally anxious to get a move on with building hospitals, and so on. Therefore, one is always a demandeuras it wereand the finance houses, companies and consortiums that finance the PFI can sit and wait until they get what they want. One must eliminate as much risk as they want, and it goes on from there. That is a problem.
I agree, too, with the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) about transparency. I hope that the Public Accounts Committee will investigate the matter thoroughly, because we still do not have the facts on PFI in anything like the detail that the House should have before it commits itself to further billion-pound deals.
The existence of PFI causes huge problems for the management of large infrastructure projects, especially hospitals, which I am interested in. Such projects are extremely complex to negotiate. The piles of documents are enormous, as is the amount of time that senior executives of the hospital have to put in to negotiate them. During that period, their eyes are inevitably off the ball when it comes to running the hospital. I frequently found such examples when I ran the PFI in the Department of Health. The standard of service deteriorated during the two or three years in which senior executives were negotiating the PFI, even though they had a contract team to deal with the matter, but it is enormously complex. One or two people had heart attacks and their health seriously deteriorated during the time that they were involved.
The end results of such projects are also extremely inflexible. The hon. Member for Wyre Forest (Dr. Taylor) made that point about beds. One may have fewer beds in a new PFI hospital and one may find oneself in the situation that we face in Bromley, where rising house prices have resulted in developers converting nursing homes. There are fewer nursing spaces in the area and fewer beds. The budgets of the local authority and the social services department are under pressure and the result is that far fewer people can find nursing care, which is a real problem for the local authority.
To get public services on their feet Governments of all persuasionsthis is a non-political pointshould give primacy not to financial considerations but to the management of the resulting utility and its employees. The hon. Member for North-West Leicestershire rightly said that one cannot have a satisfactory public service without motivated employees who can come only from properly structured management. Wherever possible, one should not get involved in complicated financing deals. One should keep the managementwhether public or private sector, which I support in many casessimple and uncomplicated so that it can do the job that it is meant to do.
Mr. Tony Colman (Putney): I declare an interest in being the founding chair of the Public Private Partnerships Programme Ltd., which is a PFI local government company. I remain an unremunerated director, appointed by the Local Government Association.
My experience is not in the health service but in local government, dealing with schools, social services, housing, police, the fire brigade and transport. In each case, PFI has been the result of a choiceone in five of the investments made since 1987 have been PFImade by local politicians. Unions are consulted and there is full TUPE and pension transfer. It works: the finance is almost as cheap as Government borrowing, buildings are built on time or earlier and long-term maintenance costs are agreed so that no future local authority leader inherits the squalor that I inherited. The staff will remain in comparable pension arrangements and significant savings to the public pursefrom 5 to 12 per cent.are made on schools alone. I was surprised that the IPPR report did not fully analyse what was happening in local government. In each case, because local politicians are involved, PFI must be proven to be better value than running the project under any other basis.
I am not an expert on the national health service, but I believe that it can learn from local government. My constituency has one of three trials in which facilities management stays with the NHS. The trial is at Queen Mary's hospital, and I await developments, because I understand that all other PFI arrangements for the NHS are waiting for the completion of those trial projects before they go any further.
I understand that the maximum delay is about six months, so we should deal with the protection of workers' rights, which to me is the nub of the implications of PFI. PFI provides much better value than other arrangements, but the key is the protection of workers. I suggest three alternative ways forward for the NHS. First, if there is staff transfer, there should be full TUPE rights including full pension entitlement for existing staff. That is what happens in local government. Any new staff should be recruited on the same basis as those transferring, and there should not be two-tier pay and conditions. The Minister should examine how Lincolnshire county council has dealt with PFIit balloted its staff three timesand Middlesbrough council's work on the matter.
The alternative is that if staff stay in the NHS, the operational side of PFI should remain in the public sector. When I first set up the Public Private Partnerships Programme in 1996, I met the right hon. Member for Fylde (Mr. Jack), who agreed that direct service organisations could act as the operational section of the design, build, finance and operate contracts, which are in PFI. That has been done by Cornwall county council, where the catering staff remain council employees, and by Cumbria county council, where the architecture department is part of the council.
The third option is for staff to stay fully in NHS employment. It is interesting to note what happened yesterday in Liverpool, where a joint venture has been set up with British Telecom for the corporate services. Some 900 members of staff have been seconded to BT but remain employees of Liverpool city council. Those different projects are all worth examining.
The phrase "build and disappear" was used by Digby Jacks at the launch of the IPPR report in terms of the situation, which he describes as the bad old days. All public infrastructures have been built by the private sector for a profit. It built them and disappeared, creating the squalor that I inherited. On the other side, we must protect workers' rights. Last weekend, I saw the excellent film by Ken Loach called "Bread and Roses". In fact, I saw it twice because I was so moved by it. We must ensure that justice for janitorswhat that film is aboutalso means justice for public sector workers as they move forward with any new arrangements.
Ms Diane Abbott (Hackney, North and Stoke Newington): I want to join colleagues in congratulating my hon. Friend the Member for North-West Leicestershire (David Taylor) both on securing the debate and on giving such a brilliant demolition job on PFI.
PFI has been analysed extensively in the past 45 minutes and I want to make only a few points. In the first part of the Labour Administration, our slogan was "what works", and that is still the slogan of Labour Back Benchers. However, people are regarding with increasing horror the doctrinaire belief that the private sector has a magic answer to the problems of the public sector.
Nobody on the Labour Benches is opposed to any private sector involvement in the public sector; there has always been private sector involvement. Indeed, some public sector projects, such as toll bridges, are suitable for a PFI. Any public sector project with a natural revenue stream is probably a suitable candidate for PFI. However, once we move away from such projects, PFI becomes much more problematic, and hon. Members have explained some of the issues.
Ministers in previous Governments and the current Government have extolled the virtues of private sector management and talked about how it can achieve value for money. The truth is that it achieves value for money in highly labour-intensive public sector operations such as hospitals and schools mainly by bearing down on employees' wages and conditions.
As my hon. Friend the Member for North-West Leicestershire said, most of those employees, particularly in the health service, are women. In the inner city, many are working-class white, black and Asian women who are the sole wage earners in their families. If my right hon. Friend the Minister is still uncertain about what working under private sector contractors is like for those women, he can go to
As a Member of Parliament for an inner-city area, I have seen what happens to employees when they have to work for private sector contractors. An important issue of PFI schemes is what happens to staff and at whose expense the savings are really extracted. I make no apologies for repeating that point, made earlier by my hon. Friend the Member for North-West Leicestershire.
All too often, private sector contractors obtain supposed increased efficiency, savings and output by the simple rigging of the public sector comparator that is used. We have tried to debate the virtues of the PPP proposals for the London underground with Ministers, but for a long time they would not reveal the public sector comparator, because they knew that if they did so, we would see how rigged it was. The improvements and savings that the private sector is supposed to produce are often the result of rigged comparators and management's bearing down on wages and conditions.
All that Labour Members want is to return to the Government's earlier mantra"what works". Time and again, we can point to PFI schemes that have not worked and have produced a worse service and worse conditions for workers. These include a host of schemes for hospitals and the administration of housing benefit in local authorities that have not produced the outcome that the public wanted. If PFI schemes were so wonderful, we would not be sitting in this Chamber with the independent hon. Member for Wyre Forest (Dr. Taylor).
I congratulate all hon. Members who have spoken. I urge the Government to move away from an excessively ideological approach to the so-called magic of the private sector and to adopt a more pragmatic approach, building on experiences with PFI schemes and listening to the informed contributions that we have heard this morning.
Recently, there has been a big debate about privatisation or the role that private companies will play in public services. Some people give the impression that that is a new debate about a third way, but we all know that that is not the case. The United States went down the road of privatising public services many years ago. I was reminded of that and the role of money for companies when I read a book about the so-called privatisation of public services in the USA. It mentioned that the chair of Kentucky Fried Chicken had decided to resign his position to join the new Hospital Corporation of America because the growth potential in hospitals was enormous; even greater than Kentucky Fried Chicken. I do not know how many hon. Members have tasted Kentucky Fried Chicken's product; those who have will be justifiably concerned that the quality of that product will be transferred and affect the quality of our public services.
That is already happening. As Professor Allyson Pollock pointed out, four out of the five trusts that control 10 hospitals are the same trusts that are responsible for the dirtiest hospitals in the United
If we are to believe the Government, there is no contradiction between opposing privatisation and supporting PFI. We are told that they are totally different creatures. As a party, we certainly did not hold that view a few years ago. In 1995, a Labour party document stated that PFI was "creeping privatisation". The Solicitor-General, my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman), proclaimed that when the private sector builds, owns, runs and manages a hospital, it has been privatised. I agree, and so does the Trades Union Congress, which instructed its council to campaign for the end of PFI.
The public services are an integral part of my socialism. Whatever the leadership has dumped from the party's past, our constitution still commits us to democratic socialism. I am supporting the party constitution in opposing PFI; those who support PFI are opposing the constitution. Some people have a lot to learn from the 1945 Labour Government, who developed a pact with the people to expand the public services, which were to be owned by and accountable to the people.
If we go down the road of privatising services and implementing PFI, our pact, some 50 years later, will no longer be with the people, but with the multinational companies that are making so much money from these initiatives. For them, the public services are simply another opportunity to make a profit. A financial analyst estimated that expanding trade in the public services could yield the private sector £30 billion extra revenue a year. Those companies will end up controlling not just the expenditure but the policy.
For the vast majority of people, public services are not about profit, but provide an opportunity to make life more decent and dignified. Without public services, many opportunities would be absent. We must respond to need, not to private profit. We must view people other than according to how much money they have in their pockets as consumers.
I have the privilege of representing the constituency of Blaenau Gwent, the birthplace of the national health service, which is the jewel in our crown and the finest piece of socialist legislation of the past 100 years. When Nye set up the national health service, he intended it to respond to people's health needs. He was not concerned with how much money those involved had in their pockets.
Sadly, another hospital has been built through PFI in the neighbouring constituency of Chepstow. We were told that it would cost between £13 million and £14 million. The sale of the land brought in £12 million, so the hospital could almost have been self-financing. Instead, the people in authority opted for PFI, which has proved incredibly expensive. The hospital could
We have obviously run out of time but, unlike in 1945, there is no shortage of money. If Nye Bevan were alive today, he would remind the Government that their current account in 2001-02 was in surplus to the tune of £23 billion, while PFI capital investment deals signed between 1997 and 2001 amounted to £14 billion. There is £9 billion to spare for further investment. It is an act of madness to go down the road of PFI. People who want to do so should have the courage to admit that they are going down the road of privatisation. My constituents and I could never accept that and one of my predecessors certainly never accepted it when he introduced the NHS.
Mr. Edward Davey (Kingston and Surbiton): I congratulate the hon. Member for North-West Leicestershire (David Taylor) both on securing the debate and on his initial remarks. He has done the House a service. We have heard today a great deal of hostility to PFI; much of it understandable, most of it well made. The key problem with PFI is that, in too many cases, it has been the only game in town. The capital could not be obtained from other sources in other ways. The decision to go down the PFI route has not been made for value for money considerationsthe real test that should applybut because it is the only way for the hospital to get its improvement. That is a poor way of making capital decisions, whether in the private or public sector.
We should now decide, across parties and across Government, that the PFI is not a way to find new money. The accounting analysis that the hon. Member for North-West Leicestershire gave us in his opening remarks makes that clear. The public sector still has to pay the annual unitary payments for privately financed projects. Unitary payments to the private contractor are equivalent to interest payments on the debt that the public sector will have taken. There is no real difference in accounting or economic terms, so the PFI should never be considered as bringing new money into the game to provide better public services. That is a false argument that should be dismissed for good.
What the PFI can dohere I may disagree with some hon. Membersis produce better efficiency in certain circumstances. That is where the Government's value for money test should be applied. Indeed, it should not be called the private finance initiative but the private management initiative. PFI brings in private sector know-how and may well provide a service to the public. There may be private sector managers who can provide us all with a good service. There may not be enough public sector managers, or they may not have the qualifications or experience to manage a project efficiently. By bringing in private sector know-how, we can perhaps improve efficiency and get a better result for the taxpayer and our constituents, but a much tighter test would apply.
The question that Ministers must ask is how they can improve the quality of public sector managers as well. If the whole argument behind the PFI were about private sector management know-how, surely we should say to ourselves, "Let's see if we can also improve the competences within the public sector." Much can be done in that regard.
The Liberal Democrat approach to the issue comprises several key principles. First, there should be a level playing field. The public sector, whether at local government or national Government level, should be able to contest those tenders with the same financial framework behind it, as should not-for-profit companies and the voluntary sector. That would increase competition and diversity, which would in turn lead to great innovation. A level playing field gives the best of both worlds. To create it, we have to improve public sector competences.
The development of resource accounting of budgeting will give public sector managers the information and the accounting techniques to put forward bids that can equate with ones from the private sector. We should consider giving local government borrowing powers that are equivalent to those of national Departments. We also need to ensure that PFI has tougher tests applied to it.
The public sector comparators that the hon. Member for North-West Leicestershire mentioned are our highest objective. However, we need much greater openness in terms of the information that goes into them. The PFI contracts that we specify need to be more output-based so that the contracts tendered to public and private sector suppliers are based on quality of service delivery. That is often easier to specify than an input-based contract. We need to ensure that if the provider of the contract makes windfall gains, there is a clawback. The clawback and penalties that have existed in PFI contracts have been lamentably lacking in bite.
We need to consider alternatives to the way in which PFI has been developed. A proposal that has much merit and should at least be piloted is open book procurement. That would allow a private sector company to provide the service, using the money raised by the public sector. The open book would be the key to ensuring accountability. The managers and the public sector auditors would have full access to the information, ensuring that the private sector provider is properly monitored. Such a system might enable us to gain the benefits of extra private sector know-how and the potentially better competences of the private sector, while ensuring cheaper capital costs, a better deal for the taxpayer and accountability.
I have talked about a level playing field, but accountability is key to the way in which we should approach the question. In so many PFI deals we have seen a complete lack of accountability. There has not been a full analysis, in the House or in Whitehall, of the deals before they have been signed. The deals have been pushed through with political drive and the issue of whether they are good for the taxpayer and the user of that service has been neglected. We need to build accountability before the deals are signed, while they are going on and afterwards; that would involve a radical change in the way in which Whitehall and some of the private sector contractors approach the issue, in regard primarily to openness of information. We must ensure
Mr. Howard Flight (Arundel and South Downs): I congratulate the hon. Member for North-West Leicestershire (David Taylor) on obtaining the debate at an important time. It is important to look back over the 10 years in which PFI has developed to learn from the mistakes and successes, and it is also important to look forward. This is an occasion when the Government could set out their PFI intentions with regard to the health service. I believe that most citizens do not understand them; nor do I. I have been advised that certain NHS trusts have been notified of a new policy that all non-medical arrangements in PFI-financed hospitals must be PFI-subcontracted. Is that the case or not? People want to know.
The problems with PFI were well commented on by my hon. Friend the Member for Orpington (Mr. Horam), who has been involved with it from day one. There has been a lack of accountability; there have often been cost discrepancies and overruns; there have been problems such as poor cleaning services in hospitals and so on. In my constituency, the results of subcontracting the street lighting maintenance have been appalling. However, the hon. Member for Putney (Mr. Colman) made a good point about why PFI developed. It would be disingenuous for anyone to claim that the record of capital investment, management of capital investment and, in many cases, general management of the public sector was so wonderful that we did not need PFI.
I was particularly struck by the inefficiencies of the operational side when, as a young man of 17, I worked as a hospital porter for three months one summer. I was one of two students who basically ran the hospital for three months, while 10 extremely nice porters sat and enjoyed themselves. They were good people, but they subscribed to an ethos that was not about doing the job efficiently but about doing the minimum work for maximum money. As has been mentioned, efficiency and accountability are crucial.
If PFI is to work properly, first, there must be good contracts. Woolly contracts have been a problem; the public sector has not been good at contracting. Secondly, there must be an adequate and competitive supply of subcontractors and investors. That situation did not always exist as PFI developed, and sometimes profitability was too great for that reason. The National Audit Office pointed out that no provision existed for refinancing. The public were not able to share the benefits when interest rates fell and sometimes PFI profitability was excessive.
There is a crucial difference between PFI, which is about subcontracting the operating risks to the private sector, and many public-private partnership deals, which are about trying to pull in public money but leaving the risk with the poor old taxpayer. That is my concern about the London and Continental deal and the potential arrangements for the London tube. Without that discipline, the public are likely to be ripped off.
The subject of bond issues that are not implicitly or explicitly Government guaranteed has not come up. However, from the experience in the United States, non-recourse bond issues for projects within the public sector have brought some of the disciplines of the private sector. A chief executive or politician whose bond defaults is dead; there is no escaping it. A situation in which Government debt is shrinking and the marginal cost of potential public sector bond issues above gilts is not nearly as great as it was should be considered.
There has been criticism of the unsatisfactory results of PFI in technical work for the Passport Agency and social services. The main problem in both cases was that the contracts were inadequate. In the private sector itself, there have been few computerisation programmes that have not been subject to glitches. A major problem in the national health service is that patient records are not computerised; it still uses an incredibly archaic system of cards, which get lost and delay operations. That is not good public management. When I speak to friends at the sharp end of NHS management, they say that such problems are the real practical issues, and that there are restrictive practices in many parts that are not being addressed. Whether the system of reform is called PFI or something else, it is those issues that need to be tackled.
Finally, I repeat that we are at a crucial point. The Government have made noises about their intentions for PFI in the health service, but it is time to find out what their policies are. There must be a thorough appraisal of the policies in the light of the failures, as well as the successes, of PFI to date.
The Financial Secretary to the Treasury (Mr. Paul Boateng) : This has been a good debate, with passion and commitment, and one for which we owe my hon. Friend the Member for North-West Leicestershire (David Taylor) a debt of gratitude. There was passion and commitment on both sides of the argument. One side was ably put by my hon. Friend the Member for Putney (Mr. Colman), who brought a considerable body of experience as a local government leader; the other was put by my hon. Friend the Member for North-West Leicestershire, who brought his experience as a trade unionist and public accountant.
We have a duty as a Government and party to reverse the record of decades of decline and under-investment in and undervaluing of our public services and our nation's infrastructure. That was seen under the Government who were supported by the hon. Member for Arundel and South Downs (Mr. Flight). Our recently refreshed mandate will allow us to reverse that record of decline and deliver to people better public services and value for money. That is a task in which we are entitled to take pride. As my right hon. Friend the Prime Minister said yesterday:
Several of my hon. Friends referred to that post-war Labour Administration and have done so with approbation, commending them for their zeal and passion. I am here to show that this Government have an equal zeal and passion.
In our first term, our first taskon which we deliveredwas to deliver economic stability and strong public finances. Having secured the fundamentals of our economy, we can now make the sustained investment in our public services and infrastructure that we on the Labour Benches all want and for which we have all campaigned throughout our political lives. We will deliver that in the context of public-private partnerships, which as my hon. Friend the Member for Putney said, originated during our long period in opposition. It is important that my hon. Friends and hon. Members understand that PFI is but one part of public-private partnerships. They, too, must be seen within the overall context of increased investment in our public services, because PPP is but one part of the wider investment in our public services.
We must get the debate in proportion, and understand the extent to which we are investing in our public services. There is an additional £4 billion of capital spending this year and a doubling of net investment by the public sector over the next three years to £19 billion in 2003-04. The scale of the investment in infrastructure that we plan dwarfs the investment of recent years. Total investment has increased from £24.4 billion in 1996-97 to nearly £35 billion this year, and that will rise to £41.9 billion in 2003-04.
We are carrying forward a major programme of hospital building, which is the biggest in the history of the NHS. In England, 68 major hospital developments worth over £7.3 billion have been given the go-ahead since 1997. The hon. Member for Orpington (Mr. Horam) shared his experience of PFI, but he did not deliver a single hospital under PFI. That was the Conservative party's record, but we are in the business of delivering on our commitment to the NHS. However, the matter does not end there. We are carrying forward a £180 billion 10-year modernisation of our transport infrastructure, and the replacement or refurbishment of 650 schools.
Public sector investment is growing rapidly, and we must show that the public sector can spend money well and efficiently to create the infrastructure and services that people want and value and that are delivered on
Our approach is not dogmatic or ideological, but pragmatic. We want public-private partnerships to be used only when they offer value for money. It may be appropriate where projects are complex or long term, or where on-going maintenance and upgrade requirements are significant. The rationale for using PFI is straightforward: it is to ensure that there is a clear discipline on the public sector stating its output requirements, and to build on incentives for the private sector to deliver specified services on time and to the right standard, otherwise it does not get paid. Risk is transferred to the private sector, and its management skills are brought to bear to deliver value for money.
Of course, people are important and no one should pretend that we do not recognise that. We have made major improvements to TUPE to safeguard the transferring of employees' terms and conditions. We are prepared to innovate with Partnerships UK, which was set up to develop new approaches to PPPs. We are piloting new approaches in NHS-PFI deals with ancillary staff remaining in the public sector but being managed by private sector partners.
We are not saying for one moment, "Private is good, public is bad." However, neither are we saying that public is good and private is all bad. We must recognise that the responsibility that we have to the public is to deliver value for money and to ensure that we make the necessary investment to build infrastructure and to deliver higher-quality services. The PFI should not be seen simply as a device to bring about more investment. We are always concerned to improve the quality of investment, and we want better investment when it is appropriate and delivers value for money.
This has been an important debate and we can all learn from the points that have been made. We make a commitment to the public to deliver better public services and better value for money, with PFI and private-public partnerships being but one aspect of that mission.