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Lord Stoddart of Swindon: My Lords, before the noble Baroness sits down, perhaps I may state that I am an Independent Labour Peer, not a Labour Peer.

5.17 p.m.

Lord McIntosh of Haringey: My Lords, I, too, was impressed by the experience and quality of the speeches in the debate—so much so that I did a few sums. I looked at the senior government experience of those who have taken part. The five former senior Ministers—almost all of them Cabinet Ministers—who have spoken have a total of at least 45 years of senior government experience behind them. I find that enormously impressive. In addition, we have heard from two big businessmen, the noble Lords, Lord Stevens and Lord Saatchi, from one medium-sized businesswoman, the noble Baroness, Lady Wilcox, and from one small businessman—me. So perhaps I am out on the end of the acceptable range of experience. Nevertheless, I very much enjoyed the debate.

Unusually for me, I shall attempt to deal with the points made in turn, speaker by speaker, rather than by subject. There has been so little overlap that it is possibly easier to do it that way.

I begin with the noble Lord, Lord Saatchi. I have heard the argument that he put before, but I have not had an opportunity to reply to it in detail and I am grateful for that. To summarise, the noble Lord is saying, first, that we are using the PFI and the PPP in order to disguise our liabilities and keep figures off a balance sheet, rather than because there is value for money in the PFI/PPP schemes themselves. He went on to say that this disguising of liabilities is damaging to the public accounting, indeed to the economy as a whole. Let me take those points virtually in turn.

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First, let me reiterate that the decision to use the private finance initiative is entirely on value-for-money grounds and not because of the accounting procedures that are used. The value-for-money assessment includes a qualitative assessment and a quantitative assessment. The quantitative component—the public sector comparator—has been reviewed to increase its transparency. All of these reviews are carried out by independent bodies.

Under PFI, the private sector puts its own money on the line—that is risk transfer. It gets paid only if it delivers the service it promised for the length of the contract. It is particularly important when we move from construction contracts to extended contracts, which, to give him credit, the noble Lord, Lord MacGregor, sought to start when he was Secretary of State for Transport.

There is a real incentive to deliver on time and to budget. Jeremy Coleman, the Assistant Auditor General of the NAO, who has been quoted as being critical in the past, said:

    "The evidence is that, on the whole, PFI deals deliver to time and to budget. You get what you want, you get it when you want it, and it costs you what you thought it was going to cost. Conventional public projects have a very bad record in that respect".

That is the reason why we do it. The reason why we do more of it than the previous government is that they made a mistake. They thought that the right thing was to examine all public contracts under the system of so-called universal testing, even when it was obvious that there was not much choice for private finance. That gummed up the works so thoroughly that, as has been said, there was little effective private finance initiative under the preceding government.

The second allegation is that the obligations are concealed. I shall respond by describing how they are not concealed. First, I shall discuss PFI liabilities. Annual service charge payments—they are called depreciation in the private sector—under PFI contracts are included in departmental budgets and accounts. In the Budget, we publish a table of expected payments under PFI contracts for the next 25 years—I say that in terms of the inter-generational equity referred to by the noble Lord, Lord Higgins. The payments are counted on our fiscal plans in public expenditure, current expenditure and public sector net borrowing to fund that expenditure for the relevant year. That is done in the public sector and it will be done in the private sector.

Where a PFI deal is found to be on the balance sheet—that is to say, the asset remains in the ownership of the private sector—it is included in the public sector net investment and public sector net borrowing. It is not for the Government to decide whether a deal is on or off the balance sheet. It is for the auditors concerned. When we undertake a deal, we do not know whether or not the auditors will decide that it is on the balance sheet. But it does not matter, because we are not concerned whether it is on balance sheet or off it. We are well within our limits under any circumstances. There has been a tendency—it is not a bad thing—for more to be included on the balance

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sheet than in the past. That is the case for all PFI prisons in England, for example, and the London Underground PPP.

In addition to PFI liabilities, there are other liabilities. We have introduced resource accounting and budgeting. Departments must now recognise in their accounts, which all add up to the national accounts, future liabilities that are more likely than not to result in payment in their budget as provisions. Payments against these provisions score in the national accounts. They are not concealed. Contingent liabilities are those that are less likely to result in payment because they are dependent on other factors. They do not score in national or departmental accounts but are reported in most accounts.

The supplementary statement to the Consolidated Fund and National Loan Fund Accounts, which is published every year, lists all the statutory liabilities and all non-statutory, reportable liabilities. Some of those are unquantifiable. B14 of the supplementary statement shows why so many of them would be unquantifiable. The point is that many are unquantifiable because they are based on remote possibilities. For example, in the past seven days, the Secretary of State for Transport stated that he would indemnify the contractors for the London Underground contracts not against all their liabilities but against a specific one: a contingent liability that the Mayor of London might appeal against the decision of the European Commission that state aid was not involved. First, there is the judgment of whether he will go to appeal. If he does, contrary to his wishes, he will not get control of London transport for a long time. Secondly, there must be the assumption that he will win. He has lost twice, and there is no new evidence to suggest that he is doing anything other than delay.

The chance of that 1.9 million contingent liability being called in is very minimal. I give an example. A children's charity goes to the scene of an earthquake and brings home 10 orphans, planning to place them for adoption. It knows that the cost of bringing those orphans up to adulthood would be 100,000 each. Are we saying seriously that the children's charity should have 1 million in its reserves to provide for that contingent liability? Of course not. You cannot just add together in one lump liabilities that we know about and can time, those that we know about but cannot time, and contingent liabilities. But that is what the noble Lord, Lord Saatchi, has been doing. It is the entirely false basis on which he claims that there is 100 billion black hole in the accounts of the Government.

Since we introduced government accounting in this country—I do not claim credit for this Government; it was started by the previous one—we have the most transparent accounts of any developed country in the world. All our obligations and liabilities that should be declared in those accounts and taken on the balance sheet are done so. Only yesterday, the IMF confirmed that, as in the past, the Pre-Budget Report provides a transparent and comprehensive account of the Government's economic policy. I believe that to be the case. The charges of the noble Lord, Lord Saatchi, are wholly unfounded.

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The noble and learned Lord, Lord Howe, made a very interesting speech. Psychologically, I am enormously sympathetic to what he says. Of course the danger is that if you have pursued what are perceived and acknowledged as successful microeconomic policies for more than five years, there is a great risk of "hubris", as he put it. But our forecasts and those of independent forecasts have been extraordinarily close. Our forecasting period is not what he calls the indefinite future. It is the specific forecasting period required for the assessment of any economic cycle. We can, and do, defend it in detail. I shall do so in response to later speakers.

Incidentally, the chapter headings that the noble and learned Lord so objects to are those laid down in Article 2 of the European Treaty. Therefore it is right that we should respond to them. The risk that we should be claiming that all is for the best in the worst of all possible worlds is one of which we are profoundly aware and profoundly wary. We know, and he knows very well, that such overconfidence is the worst crime that a Chancellor could commit.

The noble Lord, Lord Higgins, then asserted that our forecasts are wrong and that we are blaming it on the National Audit Office. Both those points are untrue. We do not blame it on the National Audit Office. Since 1997, on the whole, outturn has been under prediction—in other words, we have been under-forecasting. Our average error in forecasting growth has been of the order of 0.6 percentage points, compared with 1 percentage point between 1979 and 1996, under the previous government. Even the revision down since the Budget figures earlier this year is of only 0.4 percentage points, compared with a revision of a full 2 percentage points—from plus 1 per cent to minus 1 per cent—following the 1992 Budget. I am sorry that the noble Lord, Lord Lamont, was not available to join in the chorus today.

The noble Lord, Lord Higgins, asked about spending on tax credits and the uptake compared with the forecast. It is not easy to get statistical data on that, but we have survey data that indicate that the uptake for working families' tax credit was 62 per cent of people but 76 per cent of money. In other words, there was a shortfall in uptake, but on the whole the money was going to those most in need. Working families' tax credit is benefiting 1.3 million people, which is more than half a million more than family credit at its peak.

As to what the cycle is, the information is all in the PBR. It does not very much matter whether we take the beginning of the cycle as 1999-2000, as we do, or 1997, as some argue. Taking from either 1997 or 1999–2000 to the end of any conceivable cycle period, all the statements that we make about the golden rule and sustainable investment are still true.

Of course, the noble Lord was right to raise the point about inter-generational equity. He says that it should be an additional objective, which is an interesting thought. These implications are certainly shown on the

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balance sheet. That is clear from what I have said about the Budget showing obligations for the next 25 years.

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