Local Government Finance (England) Special Grant Report (No.90) (HC611)

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Mr. Moss: I thank the Minister for his detailed explanation of the mechanism of PFI and local authority borrowing. Will he enlighten the Committee by clarifying that when revenue support is given to local authorities for PFI by means of grants, it does not count against public sector borrowing, whereas the revenue grant provided for normal borrowing does?

Dr. Whitehead: The special grant that goes towards supporting the achievement of a PFI arrangement puts local authorities on a level footing as far as the two systems are concerned. I was halfway through explaining that local authorities have a choice about how they receive grants. The allocation of special grants makes them equivalent, because if local authorities went down the traditional route, they would receive the funds under the rate support grant. Other than that, the system is the same. The money coming into the system puts authorities on a level footing, whether they are in receipt of assistance through rate support grants or special grants as a result of going down the PFI route.

Mr. Moss: I am sorry if I did not grasp what the Minister was communicating to the Committee. I should like a straight yes or no answer: is revenue support through grants for PFI contracts counted as Government borrowing in the same way that revenue grant money for normal borrowing for local authorities is? It would be helpful to know.

Dr. Whitehead: I was attempting to explain that although there are two ways of being appraised, the system comes together in its consequences, so the answer is yes.

The report that we are debating is an essential part of the revenue support process. Annex A lists those authorities that are eligible to receive special grants, and annexes B and C explain how the grant is calculated. Annex D sets out the conditions under which it is paid. Despite the simplifications in the system, I appreciate that the report is not the easiest document to understand. I apologise for that, but it is a legal requirement to draft it in that way. As often happens with grant regimes, the need for financial rigour means that the underlying method of calculation is relatively complex.

The informal guide sent to Committee members may have helped them to gain a better understanding of the methodology used, but broadly speaking the formula for calculating the level of special grants is based closely on that used to calculate the RSG on loans. As I said earlier, we have taken account of the comments of local authorities on the formula previously used, and we have made changes to it. Those changes will not only simplify the way in which special grants are calculated but will make it more equitable for different types of projects. For example, by amending the way in which PFI credits are

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calculated, we have eliminated the need to include a complicated factor in the special grant formula to take account of different construction periods.

Rather than attempting to go into more detail now, I shall leave it to hon. Members to raise specific points—indeed, they have done so, and I have done my best to answer them. I am offering again what was offered last year, and I trust that hon. Members will make full use of it. In the past, we have provided substantial extra resources for local authority projects, and we have done so again this year.

Mr. Moss: I thank the Minister for the informative note that he sent to the Chairman, which was copied to other Members. I am looking at paragraph 9. The Minister has already touched on this point, but I would like him to go into a little more detail, because I am not sure how to interpret the words on the change to the grant calculation from previous years. It says:

    ''the opportunity has been taken to both simplify the way in which PFI Special Grant is calculated''—

I understand that, but it goes on:

    ''whilst at the same time making it more equitable between different projects.''

That is the bit that I do not quite understand. Will he explain in more detail what that means?

Dr. Whitehead: The start date of various projects does not always coincide with the beginning or end of the financial year. The simplification of the scheme this year takes that into account and ensures that money is paid when the contract starts, not before or after. Among other things, that simplifies the situation when a local authority may have entered into a PFI contract. The contract may have started in advance of the projected starting point, and under the previous arrangements it would not have been possible to start the payment of the project at the time that it started. By simplifying and reorganising the arrangements, the equity of projects that may start at different times is distributed more equally.

Mr. Foster: I apologise for my slightly tongue-in-cheek comments, but given that I have in front of me a copy of the speech that was made last year, does the Minister agree that the two examples that he gave to the hon. Member for North-East Cambridgeshire are changes that were made the previous year? They were both referred to in the penultimate paragraph of last year's statement.

Dr. Whitehead: No, I do not accept that, because the example that I gave is undergoing change under this year's arrangements. Over time, changes have been made in PFI arrangements to simplify how the formula is calculated this year. Those arrangements relate to what happened last year and will not happen in future. Equity between start dates and payments is new.

Mr. Moss: In answer to my question, the Minister referred to different start and end times for PFI schemes that will overlap the usual accounting periods. That is acceptable and is par for the course. The note refers to different projects. It homes in on the fact that there is a difference in interpretation between

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whether a road is being built, a school or something else is being built. Why is ''project'' used, and not ''time scale''?

Dr. Whitehead: With the greatest respect, I believe that the hon. Gentleman has been reading the works of St. Thomas Aquinas in preparation for this debate. A project clearly has to exist as a project and also as a project over a particular time. For example, factor Y that is referred to in the note was designed to eliminate an anomaly whereby a project received less grant if the construction period was longer. A better method of achieving that is to change the way in which PFI credits are calculated. That means greater equity between projects. There happens also to be greater equity between time scales.

It is vital that the report is approved to ensure that the revenue support arrangements for the authorities listed can continue. Approval will also be welcomed by many others working on PFI projects to improve local services. I commend the report to the Committee.

4.53 pm

Mr. Moss: May I say what a pleasure it is to serve yet again under your chairmanship, Mr. Gale?

We are obviously in favour of PFI. In fact, it was a Conservative Government initiative when we were in power. I go back to my earlier point that the risk that we were asking the private sector to take on board was an obstacle at that time, yet when the present Government came into power, the skills of the hon. Member for Coventry, North-West (Mr. Robinson) seemed to ease the way in which PFI suddenly blossomed, and it is charging ahead at a great rate.

There are questions of principle. What will the British taxpayer have to pay in the medium to long term because the capital work has been shifted from the public sector borrowing requirement to another sector that does not feature on the balance sheet? We are disquieted by the scale and pace with which the PFI schemes are being implemented. The Government are not making them completely transparent, so that the general public and the taxpayer do not know what they are liable to pay in the medium to long term. They have not come clean about any PFI schemes, not just the ones in the report.

We are concerned about the arbitrary way in which the Government are pushing ahead with many PFI projects. In some cases, of course, they have renamed them public-private partnerships. The commercial risks and responsibility for delivery in the PPP deal on the London underground are not transferred to the private sector companies. That has been debated at great length in the House and in other places. There is also disquiet in the Labour party about why the Government are pushing ahead with the PFI on the tube, as the liabilities are not clear. There is great concern that the public and the taxpayer will have to pay for an open-ended deal if the scheme does not work out in the medium term.

Annex A of the report is a list of local authorities that are to be given PFI grants. The list is not exhaustive. It includes mainly counties and

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metropolitan councils, but few district councils or unitary authorities. Will the Minister clarify whether that is because only those councils that propose PFIs are included, or is there a threshold in relation to the size or nature of a council's bid before it is considered for inclusion in the grant allocation? The obvious question is why many councils with capital programmes are not on the list. He tells us that this is a marvellous scheme from which councils can derive much benefit, so why have not all councils proposed their own PFI schemes? If councils have bid for PFI, what criteria have he and his Department used for selecting them? How are they deemed to be worthy of revenue grant support if they have been included in the frame?

The Department for Transport, Local Government and the Regions recently turned down a credit bid for firefighters' personal protective equipment from the London fire brigade and several other brigades throughout the country. Councillor Brian Coleman is a member of the London Fire and Emergency Planning Authority. He said that

    ''it is beyond belief that the needs of London firefighters should be rejected by the Government at this time. Everyone knows London is a prime target for terrorist attack and it is obvious that London firefighters must have the best possible uniforms and protection. London Fire Brigade should have been given support and priority, not a slap in the face by what can only be seen as a totally out of touch Government.''

Where does that bid appear in the list? It is not there. The Government have turned it down, and yet it was sensible.

It is calculated that, because of the risk of terrorist attack that London faces, £140 million is needed for specialised equipment, but the Government do not seem to be interested. The figure of £280 million is deemed to be necessary for overall protection from chemical and biological attack, but the Government have come up with only a measly £53 million for mass decontamination. The trade unions are also joining the chorus of people who say that the Government are completely underestimating the importance of proper equipment for London, especially in light of the events of 11 September.

As far as the special grant through the private finance initiative is concerned, it is important that local authorities have access to the capital that they need for the necessary capital projects that we would all want to see in place. I posed this question to the Minister twice but did not get a proper answer. Only some councils are applying for PFI, so why are the others not going down that road and instead using the normal credit approvals and borrowing requirements? Is it because those councils know in their heart of hearts that if they went down the PFI route, they would simply stack up a larger and escalating burden for their council tax payers in the medium and longer term.

The Minister did not answer the question about whether the rush that the Government have embarked on in stacking up PFI, not only in local government but in health, transport and everything else, is simply to keep the capital expenditure off the balance sheet and public sector borrowing requirements. I do not know why the City is prepared to go along with that.

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There may come a time when it says, ''Hold on a minute,'' and asks what liability is being stacked up and how on earth we as a nation will be able to pay it back. There is a cost. If the Government have changed the basic rules of PFI, so that the private sector no longer takes the basic risk, they are misleading the country and taxpayer, and the chickens will come home to roost eventually.

Will the Minister tell us why the Government have embarked on the PFI programme? In the end, will the programme cost the taxpayer more than if they had gone down the conventional route of credit approvals and normal revenue support for repayment?

5.3 pm

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