---

6.10 pm

Mr. Michael Portillo (Kensington and Chelsea): I intend to speak mainly about transport, but before doing so I shall pick up on the comments made by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) about the Chancellor's folly in committing money to health in the way that he has done. The Chancellor's approach of making a vast commitment for the next five years surrenders any possibility of leverage that he might have exploited to bring about the changes that are required in the health service, and it will lead to inflation in just the sort of Budget headings that my right hon. and learned Friend mentioned. This afternoon, the Secretary of State for Health displayed extraordinary complacency and misunderstanding of the degree of change that is needed in the health service. As my right hon. and learned Friend pointed out, the Chancellor of the Exchequer—or perhaps his successors—will come to regret the day.

The House was treated to an extremely good speech by the shadow Secretary of State for Health, my hon. Friend the Member for Woodspring (Dr. Fox). However, although it is foolish of the Government to reiterate, as they do almost daily, that they see no alternative to a health service fully funded by taxpayers, the Opposition will require further time and thought to develop alternative or complementary systems. The Government are indeed foolish to continue to insist as they do: no other health system in the world attempts to fund itself as ours does, and no other system produces such levels of inequality as ours, unfortunately, does. For that reason alone, the Government are wholly wrong to have such a closed mind.

Mr. Levitt: Will the right hon. Gentleman give way?

Mr. Portillo: No. I have only a short time and I have not yet progressed to the main part of my speech.

The proposal to introduce a national insurance surcharge across all employees and their employers looks, in the hands of a Labour Government, like the first stage of the abolition of the distinction between tax and national insurance. Paradoxically, if there were a Conservative Government today who were interested in introducing a system of social insurance, that same change might be an interesting first step in that direction. I mention that because naturally, understandably and rightly, there has been a strong reaction from business to the imposition of those surcharges, which are, as my right hon. and learned Friend the Member for Rushcliffe said, a tax on employment. It is worth noting that one of the likely side effects of introducing a social insurance policy would be heavy taxes on employment, which is one of the reasons why we in this country have been reluctant to adopt that policy. Such consequences are among the things that must be carefully weighed in the balance.

Today the House has shown itself to be keener on discussing how money is raised than how health care is provided and how services in this country are run. I believe that how services are run remains the more important issue. In his response to the Budget, my right

23 Apr 2002 : Column 193

hon. Friend the Leader of the Opposition drew attention to the fact that in Germany there are no waiting lists. Recently, the British ambassador in Germany told me that when he makes a speech in Germany about health, he has to begin by explaining to the German audience what a waiting list is, because the concept is simply not understood there.

During my recent visit to Germany, it struck me that in the eastern half of that country until 1989 there were queues for food, and we Britons, in our rather superior way, used to tell the east Germans that there was no mystery about why they queued for food: it was not because they did not spend enough money on food, but because they had a nationalised food system. I am sorry to report to the House that Germans today, whether they are from the east or the west of the country, tell the British that it is not surprising that we queue for health—the reason is obvious: it is because we have a nationalised health system. We would do well to reflect on that.

Labour celebrated the return to the binge of tax and spend when the Chancellor and the Prime Minister visited the Chelsea and Westminster hospital in my constituency, where Leo Blair was born. My constituency also contains the Royal Brompton hospital and the Royal Marsden hospital, so we are well endowed with health facilities. It is perhaps for that reason that my constituents currently appear less alarmed by the health service than by the state of the transport system. They will be dismayed that the Budget made no mention of the public-private partnership for London Underground, even though decisions on that are imminent. I wish to use my speech to appeal to the Government at the eleventh hour to abandon the PPP.

My reasons are simple. The plan involves no risk transfer to the private sector, the books have been cooked in the effort to present the plan positively to the public, the PPP will offer extremely poor value to the taxpayer, things will get worse during the course of the proposed 30-year contracts, and London Underground will get less money invested than the taxpayer would spend.

Clive Efford: Would the right hon. Gentleman privatise it?

Mr. Portillo: I shall talk about that later.

It is common ground among many hon. Members that public-private partnership can be a good thing, and I am the first to admit that the genuine transfer of risk away from the public sector and into the private sector has a value and is worth paying for. That is the reason why the Government said that they would undertake the London Underground PPP only if value for money could be proved. At this stage, however, the Government have clearly and absolutely failed to demonstrate value for money.

The Government's main claim to have demonstrated that is that the PPP was endorsed—they say—by accountants Ernst and Young. In fact, Ernst and Young, which was employed by the Government, makes the following points clear. First, it found that the judgments used in the analysis to justify the PPP were subjective judgments. Secondly, although the contracts are for 30 years, they have prices for only the first seven and a half years, after which period everything is up for grabs and can be renegotiated. Thirdly, even Ernst and Young acknowledges that

"Risk transfer is complex and subject to various sharing and limitation procedures."

23 Apr 2002 : Column 194

Let me focus on those points. An example of what is meant by subjective judgments having been used in the analysis is that the public sector costs used for comparison to determine whether the PPP offers value for money were arbitrarily increased during the course of the study, by up to 38 per cent. in some cases, whereas the private sector costs were arbitrarily reduced by quite large percentages, on the basis that private sector involvement would guarantee early completion of projects—although that is not a common experience. Accountants Deloitte and Touche said that the values that had been given to the increases and decreases in the basic figures were

"significantly greater than would be expected".

Even using those botched figures, it remains impossible to prove value for money because, as I said, the contracts contain prices for only the first seven and a half years; there are no prices covering the remaining 22 and a half years.

On the question of risk transfer, Transport for London said:

"there is no longer any validity to any claim that private equity is assuming material risk."

To be fair, I have some sympathy with the Government in their dealings with London Underground. It is not a body that inspires confidence and I myself did not find it easy to deal with. As the Government never tire of telling us, the Jubilee line was delivered late and it cost more than expected. However, it is the height of naivety for the Government to believe that simply getting a private contractor to do the work eliminates any danger of projects becoming more expensive than planned or taking longer than expected to complete.

When in government, we made a proper transfer of risk when the channel tunnel was built. The fact that private sector contractors built the tunnel did not prevent it from being vastly more expensive than planned or from being late. However, the risk transfer meant that even though it was late and over budget, the extra cost was not borne by taxpayers. The PPP for London Underground is basically condemned by its failure to transfer risk.

It is extraordinary what the Government have been able to do to London Underground in the five years that they have been in office. When the PPP was first conceived, London Underground was making an operating profit of £265 million a year, which was contributing to investment in the underground. Indeed, that money was counted on for the PPP: the 1998 comprehensive spending review assumed that no public subsidy would be necessary for London Underground by 2001–02, which underlines the point made by my right hon. and learned Friend the Member for Rushcliffe that things do not turn out as expected. The costs per train mile on London underground have gone up by 62 per cent. since the Government have been in office. London Underground is now making a thumping loss, so there is no contribution from an operating profit for investment or the PPP. I dare say that the impossibility of running a shadow PPP, as management have been required to do for the past few years, is one reason why they have taken their eye off the ball and why profits have simply disappeared.

The Government have made grandiose claims about what the PPP will produce for London Underground, but the contracts guarantee virtually nothing at all. None of the major enhancements wanted by people in London—congestion relief, line extensions, improved station

23 Apr 2002 : Column 195

accessibility—are specified in the immensely complicated and expensive contracts which have hugely generous margins for private sector contractors. Money will clearly be spent much more badly with the PPP than without it.

As the House knows, the PPP has no friends. Deloitte and Touche is against it; the Mayor of London is against it; the London boroughs are against it; Transport for London is against it; members of every party in the House are against it; the Select Committee on Transport, Local Government and the Regions is against it; most of London's Labour MPs are against it, and it is about time that they spoke up. The PPP is sustained not by logic or conviction, but by the obstinacy of the Chancellor of the Exchequer.

I have not mentioned safety, but I shall cite the Mayor of London, Mr. Livingstone, who said:

"It would be safer . . . if you just privatised the whole thing to one firm so the chain of command wasn't broken."

That seems pretty sound.

It is the eleventh hour for the PPP, but a really serious error is about to be made. Government money—taxpayers' money—is about to be wasted on a prodigious scale. Although it is late, I appeal to the Government to abandon the PPP, for which they have failed to make a case. It is an abuse of public money, it enjoys no support in the House or elsewhere, and it should be abandoned.

---