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Lord Jenkin of Roding: My Lords, I took over as Secretary of State in 1979 following years when investment in the National Health Service had fallen by over 30 per cent. Since then it has increased in real terms by 60 per cent.

Lord Monkswell: My Lords, my time is short. We have had 18 years of Conservative government. If they had invested prudently and used some of the labour that was available among the 1 million people who were unemployed over and above the figure who were unemployed at the time of the previous Labour Government, the National Health Service infrastructure might not be in such a poor state. However, I have been diverted from the remarks I was hoping to make.

I am glad that my noble friend Lady Jay is now our deputy leader in the Lords. It is worth pointing out that the new Labour Government have committed themselves to abolish the internal market in the National Health Service. In doing that the risks associated with new hospital building programmes are much reduced. One of the unfortunate effects of the internal market that the previous Government developed was that it put at risk the activity of hospitals and health authorities. If GPs and other referring units decided to use the internal market to make savings and diverted their patients to other hospitals there was a risk that a hospital could go

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bankrupt. Getting rid of the internal market removes that risk. I hope that as a result the costs of the PFI capital schemes will decrease. We need to recognise that this is very much in the way of a bridging loan operation. It will take some years to turn the ship of state round to arrive at a situation where public activities are carried out for the benefit of every citizen of this country rather than for the benefit of a few. It is within that context that I am glad to confirm that I support the Government and I support the Bill.

5.12 p.m.

Lord Ezra: My Lords, like a number of other noble Lords who have spoken I declare an interest as I am chairman of a company which supplies energy management services. We are providing such services under PFI arrangements to a number of hospital trusts on schemes which are much smaller than those we are talking about. I am glad to say that those arrangements are working well to mutual advantage.

The purpose of the Bill before us is limited. That was made clear by the noble Baroness, Lady Jay, in introducing the debate, and by the comments of other noble Lords who have spoken. It was inevitable that in the course of our discussion wider comments would be made on the PFI arrangements, particularly with regard to the NHS trust hospitals.

I am glad that the Government have moved fast in setting up the inquiry led by Mr. Malcolm Bates which will report on 13th June. Therefore we shall have time to take note of some of the recommendations he makes before this Bill has gone through all its stages. I hope, however, that we shall have a full and early opportunity--once that report has appeared and the Government have commented on it--to debate the wider issues, many of which have been touched on today.

I wish to comment on some of those wider issues. Many of the issues touched on were raised in the excellent report of the Treasury Committee of another place in the middle of last year. That was a basic report which no doubt the Government--as did the previous Government--will take serious note of. I wish to mention a number of the issues which other noble Lords have referred to and to highlight them for our future debate and discussion.

First, there is the question of whether PFI schemes are a substitute for or additional to public expenditure. There is no doubt that when they were initially introduced by the previous Government--as my noble friend Lady Robson remarked--it was made clear that they were intended to be additional to public expenditure. However, it has now emerged that there is a major element of substitution--as the last Red Book issued by the previous Government has shown--and a progressive planned diminution of public sector investment in the health service. Therefore we must recognise--presumably the noble Baroness will confirm this, unless there has been any change of

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policy on the part of the present Government--that this is the policy. That makes the PFI all the more important.

Another issue that arose, and was referred to by the noble Baroness in her introductory speech, was the question of prioritisation. There is a fear--this was mentioned in the Treasury report--that the way in which these schemes are being negotiated in a rather ad hoc way could lead to projects which are not necessarily the most desirable projects at a particular time. That is an important issue which needs to be looked at. It raises the whole question of a strategic approach to the provision of additional health services, which in turn raises the question of whether this should be done on a national or a regional basis.

My noble friend Lord Addington referred to the real problems which have arisen as a result of the long delay and the many changes introduced in the Norfolk hospital project, which is one of the projects that is meant to be going ahead as a result of this Bill. That touches on the question of how these projects are planned, what sort of strategic review is undertaken before they are launched and what sort of public consultation is engaged in. There is much more to be done in that area.

The noble Earl, Lord Home, made some important remarks from the point of view of the financial sector. He pointed out that the costs of financing smaller schemes are almost as much as the costs of financing larger ones. I agree with him. As regards the projects my company is involved in, we have had to find the money ourselves. It was too difficult, too costly and too time consuming to go to the marketplace. The noble Earl made a valid point which I hope will be taken up; namely, that a number of the smaller schemes could be grouped together and that a consortium of financial institutions could be persuaded to provide the money for these grouped schemes. However, in order that the schemes can be grouped together there has to be a strategic appraisal. They have to be identified and there needs to be much more co-ordination than presently exists.

There is also the question of the procedural delays under the present arrangements. These are considerable. I have talked to friends in the financial sector. They are of the opinion that these are possibly initial delays and that as we get into the swing of things and as things are sorted out projects may go through faster. Nonetheless--I refer again to the remarks of the noble Earl--the concept of templates to abbreviate the time taken in the negotiations would be particularly helpful. Time costs money in these negotiations. Here I wish to dwell upon a point raised by the noble Baroness, Lady Jay, when she mentioned the vast amount of money that has been spent purely on consultancy fees. I in no way run down the consultants. They have probably provided all that they were asked for. However, I do not believe that the way in which the schemes are being negotiated now by the trust hospitals is the most effective. I consider it most unlikely that the normal financial staff in NHS hospitals would be capable of undertaking the kind of

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negotiations about which we speak. Inevitably they would have to undertake it through consultancies and financial advisers.

If we had some form of strategic approach, and if we had on a regional basis a common pool of personnel skilled in these negotiations, then the problem could be reduced in its cost and made more effective in its practice.

Associated with procedural delays are the large tendering costs. I know of firms which have decided that so long as those costs are incurred with no certainty of business at the end, they would not wish to engage in any more of those processes. We need to find ways to reduce the cost and delay.

My noble friend Lady Robson, and the noble Lords, Lord Winston and Lord Rea, made the important point regarding the speed with which medical health developments are moving on the one hand, and the fact that a number of major projects have to be entered into by their very nature for a period of 15, 20 or 25 years. As a result of changes not only in medical technology and skills but also shifts in population and demand, what happens if part way through the costly enterprise launched into in good faith turns out to be no longer as relevant as it had been? That again comes back to greater flexibility and a more strategic approach, perhaps lumping together larger schemes, and not only smaller ones, to mitigate the problem.

Finally, assessment of benefits as between public and private funding took up a lot of the time of the Treasury Committee. I remember a time when the Treasury was adamant that there could be no replacement for public funding because it was so low cost. The fashion has now changed. It has demonstrated, certainly to its satisfaction, that the reverse is true and that although public funds cost less, nonetheless the efficiencies of the private sector more than compensate for that cost. I find it difficult to believe that the Treasury was either absolutely right the first time round and/or the second. The whole issue requires much more consideration, as the Treasury Committee recommended.

In summary, I was much struck by one of the remarks made by the noble Baroness, Lady Jay. She said that the Government were intent on exploring various ways in which the public and private sector could come together. Whether the solution is simply to adjust the existing PFI, or to think of some alternative which could operate in parallel, remains to be seen. I strongly recommend that consideration be given to some regionalisation of the planning of the investments. That is in line with the proposals put forward by the King's Fund with which a number of noble Lords may be familiar. Such an approach can produce different ways in which public and private finance can be brought together. It would make for greater flexibility. It should enable speedier processes and reduce costs in negotiation. I very much hope that as a result of our consideration of this short Bill, which certainly deserves our support, the Government

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will take note of these wider considerations and that when we have the longer debate we can air those issues at greater length.

5.25 p.m.

Baroness Anelay of St. Johns: My Lords, this has been an interesting and somewhat lively debate. I note that the noble Lord, Lord Winston, is no longer in his place. When he managed in one story to combine an isotope, fishing rods, a bicycle and nets, I wondered whether he was discussing PFI or introducing a new game of consequences in your Lordships' House.

Earlier, my noble friend Lady Cumberlege welcomed the objectives of the Bill and gave it her wholehearted support. Other speakers from these Benches have echoed that sentiment. The Bill comes from a "must do" pile of our recent Conservative Government. Like my noble friends, I can also welcome the objectives of the Bill. So is this afternoon one of unrestrained joy for me? Not quite, my Lords. I cannot help wondering whether this Bill is the first but not the last example of the Labour Government implementing our policies without really believing in them. I suspect it is.

The problem is that if you do not believe in the principles upon which a policy is based you cannot be trusted to sustain those policies. That always matters, but especially so in this case. Those who enter into PFI agreements need to be confident of long-term government support for the principle underlying PFI. Otherwise they simply will not become involved. And the ability of the National Health Service to continue to develop healthcare provision will be damaged.

So far, under the encouraging but watchful eye of a Conservative Government, PFI has been a success story overall for the NHS. Indeed, despite some of the stories cited on the Benches opposite, I shall quote local examples of how it has been a success. As my noble friend Lord Ullswater made clear, before PFI was introduced many deserving NHS projects had to queue up at the Treasury for scarce public sector capital funds. Despite the massive hospital building programme undertaken by Conservative Governments since 1979, many towns had to wait years for new developments. PFI has started to change that.

My noble friends Lady Seccombe and Lord Jenkin of Roding referred to the rather steep learning curve faced by the National Health Service as it grappled with the opportunities offered by PFI. That process is mainly behind it now, so it can begin to develop in strength on PFI projects. And there are indeed success stories to be told. In my area, St. Peter's Hospital, Chertsey, owned housing which had been condemned. I use the word "housing" loosely. It was 50 year-old hutted accommodation. The hospital made an arrangement with a housing association whereby the properties were renovated and 180 new units created which are held on a 125-year lease. Nursing staff and doctors now have excellent new accommodation, and St. Peter's has obtained a £5 million property build at no cost to the NHS. We may talk about large or small sums. That may sound a small sum to a financier but it was an important advantage for my local NHS.

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We can see that PFI should certainly not in itself threaten the public service nature of the National Health Service because it should apply only to buildings in which National Health Service professionals work and to non-core clinical services. The NHS retains the freehold of the buildings but the private sector applies its expertise in the design, construction, maintenance and provision of building support services in order to deliver better quality and better value for money--the kind of provision so well described by my noble friend Lord Home.

However, despite all the advantages which PFI contracts can bring, the Labour Party in opposition failed to recognise them. Indeed, it is on record as rejecting on more than one occasion PFI funding on ideological grounds. At the Labour Party conference on 1st October 1996, Chris Smith said:

    "Labour is totally opposed to the use of the Private Finance Initiative".
And in 1995 Labour's final pre-election NHS policy statement, Renewing the NHS, stated on page 26:

    "We will ... do our utmost to discourage the signing of such [private finance] contracts".
Yet in May the Labour Government announced a speedy review of the PFI across government in order to recommend how the whole process could be streamlined. Today they introduce this Bill.

Labour really has to make up its mind once and for all about PFI contracts. If the Government do not support the PFI wholeheartedly in the future they are committing themselves to making up the £300 million capital shortfall from extra taxation. Will the Minister tell us where the Government stand now on PFI? Can she guarantee that they will take the same view in two years' time, given their change of mind over the past two years? And do the Government now accept that PFI does not lead inexorably to the privatisation of the NHS? Patients and professionals deserve to know that there will be a degree of stability in the Government's policy on this issue--a stability that Labour has failed to show in recent years.

As the Minister pointed out earlier, the Bill is intended to clarify the powers of a National Health Service trust to enter into private finance initiative contracts, setting out that PFI contracts will be certified by the Department of Health in writing, and identifying the criteria a contract should meet.

Naturally I appreciate the value of Clause 1(3), which prescribes the circumstances in which the Secretary of State may give a certificate. But the Minister will have to forgive me for introducing another note of cynicism. I remember all too well the Labour Government's love of bureaucracy in the 1960s and 1970s. Too often it acted as a dead hand on innovative development. It was used as a tool to give national direction to levelling down standards instead of providing a quality guideline which still nourished and encouraged the spread of good practice. Will the Minister reassure me today that this Labour Government will act any differently when tackling the question of whether or not to give a certificate under the Bill?

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While in government we always took seriously the views expressed by the BMA. I am sure the Minister will do the same. When the Secretary of State grants a certificate, will he take account of the resolution passed by the BMA at its annual meeting last year that proposals for a PFI scheme should not extend into the privatisation of clinical services? I note the statement made by the Secretary of State to the Royal College of Nursing congress on 19th May. But can the Minister assure us that this will be the Secretary of State's position on the subject in the foreseeable future, or at least beyond the results of the PFI review?

In a brief circulated to noble Lords before the debate, the BMA voiced its concern that the willingness of the private sector to become involved in a new building project could increasingly influence whether or not that project goes ahead. Our Conservative Government were keenly aware that the likely future impact of PFI agreements on the future shape of hospital provision in the UK should never be ignored. What is the Minister's assessment now of the likely impact of PFI contracts on the future shape of hospital provision in the UK? Indeed, what is the planned nature and size of hospital provision in five years' time? Above all, I should like to be convinced that the Minister intends to do more than merely implement our policies just for the time being and that she is prepared to espouse the principles which underlie them. I look forward to hearing what I hope will be her convincing arguments.

In the meantime, like noble friends on these Benches and other Members of the House I welcome the Bill and hope that it will soon be on the statute book.

5.34 p.m.

Baroness Jay of Paddington: My Lords, I am grateful to all noble Lords who took part in the debate for their thoughtful examination of the many issues raised by this short Bill. I am also extremely grateful for the personal welcome extended to me by many speakers, and particularly for the generous remarks of the noble Baroness, Lady Cumberlege. I, too, welcome the noble Baroness, Lady Anelay of St Johns, to her new role on the Front Bench. Although I do not want to begin our relationship across the Dispatch Box by quoting in a rather negative way from previous debates on this subject, because she drew attention to quotations from others previously perhaps I may draw her attention to my most recent comment on the subject in this House, namely, in the previous Bill on the private finance initiative, when I said categorically:

    "We on these Benches support the principle of joint public/private partnerships and the potential for spreading risk on major capital ventures".--[Official Report, 21/5/96; col. 740.]
That was my position then; it is my position now; it will be my position in the future.

Today's debate has given a clear signal that concern for the fabric of the NHS is shared on all sides of this House. As always, it was informed by the great personal knowledge and experience that noble Lords regularly bring to this kind of topic--although I was a little concerned that some noble Lords had perhaps not read New Labour's business manifesto. That would not of

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course apply to my noble friend Lord Monkswell, who made a helpful intervention in response to the noble Lord, Lord Marsh.

I therefore re-emphasise that the Government are determined to sort out the problems that have afflicted the PFI in the area of health, and the private finance Bill that we are considering today is tangible proof of that commitment. It confirms that NHS trusts have power to enter into PFI type contracts and therefore opens the door to major hospital building programmes. Bricks and mortar will result, and a particular result will be the two principal PFI schemes that are ready to go, in the Norfolk and Norwich hospital mentioned by noble Lords and another major project at Dartford and Gravesham. Banks have confirmed that enactment of this legislation will enable them to lend so that these hospitals can reach early financial closure and building can go ahead.

The noble Baroness, Lady Robson, raised various substantial general points about PFI. She also raised the specific issue as to whether there was a need for this additional legislation following the earlier concerns we had about the residual liabilities Bill and other matters. I was grateful for the intervention of the noble Earl, Lord Home, on this subject. I can confirm to the noble Baroness that the banks concerned had genuine worries about the nature of the ultra vires of NHS trusts and, although it may seem a rather heavy-handed way of proceeding, primary legislation was needed to make sure that those particular financial agreements were made.

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