Examination of Witnesses (Questions 100-107)
HM TREASURY &
PARTNERSHIPS UK
6 FEBRUARY 2008
Q100 Mr Bacon: I want to know what
basis it is on because actually the cash payments going forward
are £170 billion of cash going out, spread out over N number
of years, are they not? What is the £56 billion in relation
to that?
Mr McKechnie: For those projects,
the capital value, in other words the amount that was spent to
build those projects, is £56.9 billion.
Q101 Mr Bacon: Mr Kingman perhaps;
you are the one who likes net present value so much. How much
of the £91 billion going forward in net present value terms
is comprised by things that are not capital?
Mr Kingman: I do not have that
number, but I would be very happy to send you a note.
Q102 Mr Bacon: The thing that interests
me about this is that plainly there is a difference between adding
up all the gas bills and electricity bills in the household going
forward for the next 30 years and paying your mortgage. On the
other hand, there is a difference between that on the one hand
and a legal contractual obligation to pay money in the form of
an annual unitary charge on the other. When, once you have paid
the money, whether the PFI contractor then goes and spends it
on paying bank interest to his bank or whether he spends it on
the cleaner is in one sense another matter. You have to, and you
have a contractual obligation, pay this money over and the Chancellor
has to find it in the budget, as though it were the coupon on
a gilt. It is no different in that sense, is it? It is money you
have to find so it is not debt in the narrow sense of bank borrowings
or a bond, but it is debt that you have to find and pay going
forward.
Mr Kingman: Yes, that is correct.
Q103 Mr Bacon: Going back to the
question of the additions or the changes to the public sector
net borrowing requirement, when do you think there will be more
news on that?
Mr Kingman: We have said that
it is our intention to move to this new accounting standard for
2008-2009, but what then happens is that auditors will need to
study each project in each department under the new standard and
that will in fact impact on the accounts that are published in
the summer of 2009. How the ONS then interpret that data and how
they incorporate that into the public finances and on what basis
is a matter for the ONS and I do not know when they will do that.
Q104 Mr Bacon: But there will then
be subsequent exchanges; once the ONS has opined, there will be
subsequent exchanges between you and departments who come to you
and say the ONS's ruling means that they could have a problem
unless you, the Treasury, amend their budget in the following
way. You would be giving them the capital in order to give it
back to you, would you not, but presumably you would have to do
that?
Mr Kingman: Yes, I would expect
there to be exchanges between us and departments about those issues.
Q105 Mr Bacon: But what I have just
described about potentially having to allow the department to
have more money in order to make a capital charge payment that
admittedly would go back to the Treasury is correct, is it not?
I have basically got the right end of the stick.
Mr Kingman: What I would certainly
say is that if there is a material change that impacts on departments'
budgets and on their ability to resource PFI deals, then we will
have to ensure that arrangements are in place which make it possible
for those deals to be pursued because we have said that we support
the pipeline of present deals.
Q106 Mr Bacon: Finally, on this question
of the operational taskforce, I think it is very interesting.
When did you say it was set up? March 2006? It is fascinating
that you only set it up in March 2006, because here you have this
very clever complicated thing called PFI that has been set up
and evolved over 15 years and really pretty recently in this lifecycle
of this thing, you think: "Right, let's set up a taskforce
to give people advice on a structured basis". I would have
thought, given how complicated it was, given that it relates to
local authorities and to central government, given that it relates
to everything from prisons to government buildings, to hospitals
and schools, that there would very early on have been somebody,
because after all the Treasury is full of very bright people,
saying let us set up something that captures the information and
spreads it around because there is so much learning to get from
all of this. The fact that you did not, the fact that you only
got round to it in March 2006, suggests that what I was indicating
earlier about the fact that actually this is not that interesting,
the really boring business of running a contract is really secondary
to going out and doing deals. Is that not true?
Mr Kingman: The important point
is that the operational taskforce was set up, there was a whole
variety of things that were in place before that, not least setting
up Partnerships UK itself, which occurred well before that. There
had been numerous taskforces to hold departments' hands in various
ways. This was, as it were, a successor body to some of those
predecessor bodies.
Mr Stewart: Two examples. We have
run a helpdesk ever since we started up. What we grew to realise
is that a growing proportion of the helpdesk calls were to do
with operational matters for example. You love the subject of
re-financing: there was a re-financing taskforce which was set
up before March 2006, well before March 2006 and that became part
of the operational taskforce.
Q107 Nigel Griffiths: If Deloitte
had a client who had a £30 million investment in some new
building, do you think that they would advise the client to lend
on it if they did not have a project manager?
Mr McKechnie: Probably not.
Chairman: That concludes our hearing.
This is clearly a very serious issue. In 2006 over £180 million
was spent on making changes to existing PFI contracts. This was
a point we made on benchmarking last year, Mr Kingman, you will
remember. Clearly these projects do need better resources to manage
these value for money changes and I hope you feel that, as a result
of this hearing, we are going to get more action from the Treasury
and Partnerships UK. Thank you very much.
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