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29 Jan 2003 : Column 960—continued

Mr. Osborne: The hon. Member for Tamworth (Mr. Jenkins) anticipates my concluding remarks. Of course, Tamworth is a historic town for the Conservative party because of the Tamworth manifesto, which I mention for the historians who are present.

While the PFI is primarily seen as a means to get projects past the Treasury, the Government will never realise its true potential or the benefits that I have identified in theory. Indeed, the worst argument for the PFI is, ironically, that advanced by the Chancellor, who says that all those new schools and hospitals could not be afforded otherwise. Even though PFI contracts are substantial, they make up only 9 per cent. of total public investment, so they could be afforded if they were properly structured on the Treasury books. After all, they ultimately appear on the Treasury books.

If the PFI is to bring private sector innovation and expertise to the public sector—I should like that to happen, as it would deliver real risk transfer and value for money—there needs to be a change in mindset in the way that the Government approach the PFI. They need to focus on the outputs, not the inputs. They have to believe that the public get a better service when the private sector is allowed a freer rein in operating projects.

It is striking that the PFI has worked pretty well in prisons. PFI prisons are often much better than public sector prisons—for example, in terms of prisoner reoffending—because they are given a free hand to operate with different staff levels, wage rates, pension arrangements, working rotas and so on. They operate with the efficiency of a private sector employer—not with the inefficiency of public sector employer—but the

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Government find it politically unacceptable to let that happen in the big public services, such as schools and hospitals. They are, frankly, under too much pressure from the public sector unions.

It is striking that the Prime Minister got the biggest applause at the Labour party conference—I watched it on television, although other hon. Members will have seen it in person—when he said that he would "work with you", the unions,

Of course that line got huge applause because it meant that the Government would not allow PFI contractors to have the same freedom in employing people as the private sector.

Mr. Bacon: Was my hon. Friend struck, as I was when we visited the London Heart hospital a couple of weeks ago, that the private sector employees in the hospital were being paid higher rates than the NHS staff?

Mr. Osborne: Although I did not take part in that visit, I was struck by the conclusions that my hon. Friend drew from it.

In conclusion, we still have a long way to go if we want to realise the true potential of the PFI, which is about improving service delivery to the public and saving money for the taxpayer. We have a long way to go until a change in the Treasury mindset allows the PFI's true potential to be realised. We have a long way to go before we break the assumption that public services, paid for by the public, have to be delivered by the public sector.

5.44 pm

Geraint Davies (Croydon, Central): It is a pleasure, as always, to follow the hon. Member for Tatton (Mr. Osborne). I also extend my great thanks to the Chairman of the Committee, the hon. Member for Gainsborough (Mr. Leigh), and my right hon. Friend the Member for Swansea, West (Mr. Williams), who always gives sterling support to the Committee. I thank the Public Accounts Committee Clerk and, like all other Members who have spoken, the National Audit Office in particular.

The reality is that the National Audit Office, which has in the region of 700 auditors and accountants, is responsible for auditing a third of the country's GDP in terms of all Government expenditure. If we compare the cost of that with the cost of accounting for the other two thirds, which is billions of pounds of private sector money, we get some sort of indication of the value for money provided. It is not simply that for every £1 we spend we get an extra £7 back; we are getting expert people at low cost because they are committed to public service. We should all pay tribute to them today.

I mentioned in one of my interventions on the Chairman of the Committee how pleased I was that we were also beginning to take bites out of the private sector, as it had been insinuated that chunks were being taken out of the public purse. It is a matter of public concern that smuggling of tobacco products amounts to about £3.5 billion of lost income to the Government and, therefore, to the taxpayer, which is equivalent to a penny on income tax. It was of particular concern to hear that some 70 per cent. of Imperial Tobacco's exports of Regal and Superking cigarettes were being

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smuggled back, mainly in massive cargo crates through organised crime, thereby avoiding tax. I am therefore pleased that we have taken a step forward, and I hope that we will not hesitate to do so if such opportunities occur again.

I hope to touch briefly on a number of key reports through which the Committee has added value. Some of our hearings and evidence point to the future of policy development and, indeed, to better value for money from the point of view of the Treasury.

First, I want to focus on our 53rd report, "Reducing Prisoner Reoffending". Basically, every prisoner in our jails costs the taxpayer about £34,000. We have about 73,000 people in our jails—the biggest prison population in Europe apart from Portugal—costing about £2.1 billion. The question is: if it costs £15,000 to send a pupil to board at the best public school in Britain and get him or her to be a top-level taxpayer, why are the Government spending £34,000 to generate repeat offenders 60 per cent. of the time, costing enormous amounts? Other than that £34,000, there are costs in terms of extra police, higher insurance, court costs, fear and anxiety.

The Government, of course, have been effective in reducing crime—it is down by about 27 per cent.—especially crimes such as burglary, and vehicle and violent crime. Contrary to public views, they have also taken a tough approach to sentencing. The number of people sent to prison on a first offence is up 50 per cent., and a mandatory sentence of three years is applied to third-time burglars. Despite that, the press talks about Lord Irvine and Lord Woolf saying that we should be soft. In fact, we have an enormous prison population that has grown by 60 per cent. in the past 10 years.

The key question is: how do we stop those people reoffending? Some 60 per cent. of them will go out and reoffend, costing about £11 billion a year. If we look at the profile of those in our prisons, we see that some 75 per cent. of them have been permanently excluded from schools, which was one of the key findings of our hearings. Pupils in those circumstances would often have tuition for one day a week, while, for the other four days, they would wander around, having misbehaved to start with. Consequently, they would start stealing mobile phones and so on. They arrive in jails—universities of crime—with virtually no education, having been on the street committing petty crime, and, before we know it, they are introduced to a new criminal fraternity who teach them how to become better at committing crime. We found that only between £200 and £1,600 a head of the £34,000 that we spend keeping people incarcerated is spent on education. That is not much to get them into a position where they can work again.

As the Committee heard, studies of reoffending over many years have established that the three drivers that prevent it are work, family support and having a home. Prison does not prepare people by giving them education and retraining for integration in the labour market. Furthermore, due to the overcrowding in our prisons, more than 25,000 prisoners are more than 50 miles from their families and 11,000 are more than 100 miles away. New offenders going into institutions have no family support to enable them to study or work for rehabilitation and they are moved around constantly because of the overcrowding problems.

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The situation is much worse for women. Half of women prisoners have children. Two thirds of the 10,000 children affected are under 10 and four in 10 of the families will be permanently broken and lose their home. We need to think carefully about the management of our prisons and our prisoners and its impact on repeat offending, which amounts to an extra million crimes a year, and the costs involved. As the hon. Member for Tatton pointed out, about 40 per cent. of prisoners leave jail and are homeless, which massively reduces their prospects of getting a job or not reoffending.

There are many lessons to be learned from our reports. The Government have responded to some of the issues. For example, the Department for Education and Skills is taking responsibility for prison education. Some prisons have set up links with housing providers, but the situation is mixed to say the least.

Our report is instructive about the provision of small local units, with boarding and intensive education. They could draw on the lessons that we have learned from the use of pupil referral units. In my patch, excluded children are given the opportunity of full-time education in pupil referral units and 70 per cent. of them go on to further education. In the past, many of them would have gone into the prison system.

If such special, intensive education units can be shown to convert people back to the straight and narrow, into the world of work and earning money, they could be options for sentencing in the courts system. People could be given options akin to drug treatment and testing orders, where they are blood tested for drugs for two years and so on and if they breach the order they go to jail. In this case, people could spend a compulsory two years in a centre that would equip them for work instead of spending nine months in a normal prison. Failure to comply with behaviour and learning standards would lead to default of the order and a return to jail. Such reforms of our prison system could convert serial offenders into taxpayers and I hope that the Government will focus on that businesslike approach.

Children who are at risk of ending up in prison could be identified much earlier, during their school life. Initiatives such as sure start and education action zones should be celebrated and built upon. Children who lag behind at school can become misbehaving pupils, minor offenders and then serial offenders. We need to invest in those children early in their lives for the sake of the whole school environment and for society at large.

Our report on access to higher education is obviously topical. Investment in higher education should be a capital item in the national accounts, not a revenue item. If we compare the amount of tax delivered over a lifetime by a graduate and someone with three A-levels, we find that an extra £50,000 comes back from the graduate. As a business proposition—in terms of borrowing money to invest—that recovery of tax revenue provides a strong argument for the Government. Indeed, the Government could also investigate PFI opportunities in that regard. We found in Committee that there are three barriers to access to higher education, the first of which is secondary schools. Some 90 per cent. of those with A-levels go on to

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university. My area of Croydon contains some of the fastest-improving schools in the country. That has been achieved through a combination of things, one being leadership in tackling some of the problems at an early stage through, for example, education action zones. Other studies that I have seen show that social background is a major factor in determining the outputs of schools.

The ambition of students to go to university depends partly on the experience of their parents. Sadly, one in five adults are functionally illiterate and one in four are functionally innumerate. By that, I mean that one in five cannot use the "Yellow Pages" effectively and one in four would have great difficulty in calculating their change if they bought groceries in a shop. Given that starting point, it is difficult for pupils from such backgrounds, which are often dominated by overcrowding, television, no access to books and no history of education, to reach a platform from which to break through into higher education.

When we considered the issue of debt, we found that 46 per cent. of full-time students are already in full-time employment, and that of those giving up their education, nearly 40 per cent. do so for financial reasons. Poorer people are more likely to drop out. Some debates in the House have focused on the idea that the average return of a graduate is about 50 per cent., but I would suggest that the key issue is not the average return, but the marginal return from the marginal group to whom we are trying to provide more access. The current proposal, which I am sure that the Public Accounts Committee will consider, is for 9 per cent. extra in tax on earnings over £15,000, which, with the addition of 22 per cent. basic rate tax and 12 per cent. national insurance, would generate a marginal tax rate of 43 per cent. That compares with the higher band rate of 41 per cent. Some people might think, "It might be worth my while getting three A-levels and not going to university."

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