HC Deb 01 May 1996 vol 276 cc1168-82

'.—(1) In exercising his duty under section 1 and section 2 the Secretary of State shall seek, so far as is practicable, so to manage the transfer of any residual liabilities as to secure that the total of any resulting charges on the Consolidated Fund or on moneys provided by Parliament does not in any one financial year exceed such sum as the Treasury shall by order specify.

(2) The Treasury may from time to time by order vary the sum contained in any order for the time being in force under subsection (1) above.

(3) The power to make an order under subsection (1) or (2) above shall be exercisable by statutory instrument, but no such order shall be made unless a draft thereof has been approved by the Commons House of Parliament.'—[Mr. Galbraith.]

Brought up, and read the First time.

4.51 pm
Mr. Sam Galbraith (Strathkelvin and Bearsden)

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Michael Morris)

With this, it will be convenient to discuss new clause 3—

Annual report on effects on public expenditure— 'The Secretary of State shall prepare and lay before the House of Commons a report, in respect of each financial year or part thereof, on the exercise of his duty under section 1 and section 2, with particular reference to any resulting charges on the Consolidated Fund or on moneys provided by Parliament.'.

Mr. Galbraith

The more I consider the Bill, the more I am worried, not only about its operation but about its consequences. My new clause would involve the Treasury right from the start of the process. Important consequences for the national finances are hidden in the Bill. The private finance initiative is basically all about Government bodies borrowing money, but not having it set against the public sector borrowing requirement. That position is untenable and my new clause would reverse it.

When the Bill was first proposed, the Secretary of State for Health tried to maintain that it was merely a technical measure, which he would never have to use. That is a slightly odd position to adopt, because he was in part forced to introduce the Bill. Those who wanted to become involved in the PFI thought that there was a possibility of failure in hospital trusts and other health service facilities, so they wanted a guarantee.

Although the Secretary of State felt that the power might never be used, that was not the view of the financial institutions, construction companies and other private firms involved. Indeed, the more I considered the matter, the more I realised that there were risks of failure in NHS-run projects. It may not be a large district hospital that is affected, although that could happen. It is more likely to be a smaller institution, a facility for caring for the elderly, a laboratory or a piece of capital equipment. The question then is: on whom does that liability fall? That is not yet clear in my mind.

Part of the reason for the difficulty is that the PFI involves a large number of differing projects with different relationships. We have trouble sorting them out, because the initiatives and contracts involved are secret. None of us knows what they are or who is liable. For that reason, the Treasury must be consulted and must consider laying the liability against the national finances.

If the PFI—which was first developed by the National Economic Development Council in the early 1980s—was about anything, it was to ensure that the private sector adopted all the risk. The cheapest option had to be chosen, and the private sector alone accepted the full risk. That clearly was not acceptable, and the Ryrie rules were changed and were eventually dropped completely. In 1992, the then Chancellor of the Exchequer, the right hon. Member for Kingston upon Thames (Mr. Lamont), reintroduced the concept of the PFI which, under the Ryrie rules, originally dealt with nationalised industry. The right hon. Gentleman reintroduced the concept for other Departments, but again on the basis of some risk being accepted by the private companies.

The right hon. Member for Kingston upon Thames said at the time that the PFI would remove the unnecessary obstacles to private sector investment in Britain's infrastructure. But he reiterated that the private sector must generally assume some risk. That again proved to be unworkable, and the position was gradually changed. Today, the private sector will get involved in the PFI within the health service only if it carries no real risk. If it carries no real risk, the NHS will carry the risk and any capital involved should therefore be set against the public sector borrowing requirement. The basis for my new clause is to ensure that that becomes part of the process.

There are some risks involved for the private sector. For example, those involved claim that they must deliver on time. I must say that anyone in business who does not accept the necessity of delivering on time probably should not be in business in the first place. There is the risk of obsolescence, and that is a real problem. As an example, I shall refer to Takare, the company involved through the PFI in Greater Glasgow health board. The company looks after the care of the elderly, and we are locked into a 15-year lease. Some of that model is now obsolete, but we are stuck with it. We can either break the contract—with the risk then falling on us—or persist. Although there is a risk, once again the health service is carrying it.

There is a risk in terms of volume. In other words, the amount of work contracted for might not be available later. Again, the health service will be faced with the risk, not the private sector. If the hospital that has been built does not have enough work to sustain it, we can either close it down and accept the risk or continue with an obsolescent institution.

There are risks also to the public sector. How great are the capital costs? We do not know the risks, the capital costs involved or who has accepted them, simply because we do not know about the contracts. I shall refer to a case that the Minister of State, Scottish Office, who is in the Chamber, will appreciate—Stonehaven hospital. The building of the hospital, the running of its services and the employment of staff are covered by the private finance initiative. Three bids have been put in for that, yet we are not allowed to see them. The local trust, which also put in a bid, initially intended to make its tender public knowledge, but it has been stopped from doing so by the Scottish Office. All that we as the taxpayers will be allowed from a publicly accountable body is a press release, which we have had, and a little picture of the proposed hospital. That is all the scrutiny that is available to us and to the House.

5 pm

What other financial arrangements are involved in that hospital? What liabilities do we carry? If the companies that are proposing to build it borrow money in order to do so and the companies fall, will we carry the financial liabilities? If we do, we face a serious problem. If such liabilities are not declared in the public sector borrowing requirement, they are being hidden and the PSBR does not reflect the position. We have a financial sleight of hand, a massaging of the figures, as a result of which the increase in the PSBR is not shown and is thus a matter of deceit.

I am more and more of the view that not only will that happen under the private finance initiative, but the Government are already coming round to accepting it. The consultancy for building firms, Beard Dove, in a paper on the prospects of the Scottish construction industry and the Government's private finance initiative of October 1995, says that the Scottish Office should reduce private sector risk in NHS projects. I remind the House that the basis of the private finance initiative is that private financiers accept the risk. But here the consultants are suggesting that the Scottish Office should reduce that risk by developing some formula whereby the capital cost of replacement of material and service elements is reimbursed to the consortia on the actual cost basis.

The consultants, Beard Dove, say: it is almost impossible to assess the replacement costs of major elements of mechanical and electrical services in a hospital building some 15 years from now. I agree with that. That is the difficulty. We do not know what the NHS will be like 15 years down the line. Events in the NHS move quickly; that is one of the problems of financing it. That is part of the challenge of the NHS. Businesses will not want to go into it because of that, but that is the risk that they should have to take. That is one of the risks of obsolescence. In other words, they want us to take on the real risk. They want to have it both ways. They want to make a profit, but if anything goes wrong, the public sector will have to pick up the tab. That cannot be right.

But leaving aside that moral-political argument, it is clear from what the consultants are saying that, within such contracts, we shall take on considerable on-going capital costs about which we do not know and which will not be declared in the annual accounts. For that reason, therefore, this matter, and every private finance initiative, must be considered by the Treasury. The sums involved must be set against the PSBR or, at least, each year a certain amount should be set beyond which one cannot go. I know that the Minister will tell us about the external financing limits, but such sums are not part of the external financing limits. They will not be considered. They will be outside the EFL. We have a new capital borrowing requirement. That being so, it must be set against the PSBR. This is a sleight of hand to massage the Government's books. We must not tolerate it. We must have transparency.

Mr. Hugh Bayley (York)

New clause 2 seeks, rightly, to limit the residual liability that may fall on the Treasury in any one year. Hon. Members on both sides of the House are well used to the existence of cash limits in the NHS. If there is a cash limit on the resources available for surgeons to provide operations for NHS patients, surely we should have a cash limit on the services that financiers provide to the NHS in terms of capital investment.

New clause 2 is necessary because there is an overall cash limit on the money available in the NHS. Every pound that is spent out of the NHS budget on meeting and underwriting the costs associated with residual liabilities, should a trust close or no longer be able to service its obligations to a private sector investor, is no longer available for treating patients. It is a straight trade-off. Each pound can be spent only once. Therefore, the larger the potential residual liability that the NHS has to meet in one year, the greater will be the effect on the availability of cash for NHS patients.

That is not a theoretical concern. The Minister might come to the Dispatch Box and say that, theoretically, that could happen, but that, of course, more than one trust will not go under in a long period. However, I ask him to think carefully about two considerations. First, at the moment we are in the early days of the private finance initiative, and individual trusts, if they have a PFI scheme, will have only one. But over the years, they could develop so that the liabilities, should a trust fail, could be substantial.

Secondly, the financial health of some NHS trusts is—let me put it this way—far from perfect. In the NHS annual accounts, published a month or so ago, the auditor qualifies his audit in a number of ways. One of the notes of qualification is that 36 NHS trusts in England failed to meet their statutory duty to break even. In some cases, their deficit in the year in question, 1994–95, was relatively minor—in one case it was as low as £25,000—but at the other extreme was a trust with a deficit of £8.4 million.

We face the possibility of trusts in effect going into liquidation and the residual liability obligations put forward by the Government in the Bill being put into practice. The trust with the £8.4 million deficit would probably go under with greater liabilities if it had a number of PFI schemes, but if it went under with its retained deficit for the year as liabilities, £8.4 million would be taken away from other parts of the NHS budget; taken away from patients. That is what the House will have voted for if the Bill is enacted without new clause 2. It will be gambling with the cash available for treating NHS patients.

Mr. Malcolm Chisholm (Edinburgh, Leith)

I support new clause 2, perhaps slightly nervously after the contributions of the previous two distinguished speakers, my hon. Friends the Members for Strathkelvin and Bearsden (Mr. Galbraith) and for York (Mr. Bayley), a brain surgeon and a health economist respectively. They obviously spoke with great authority and I want to back up what they said.

I can understand why the PFI has immediately been considered attractive in some ways in the health service, as elsewhere. It appears to get round an immediate borrowing problem. The PFI is very attractive if it can make money available for hospital buildings without running up immediate borrowing. But problems are being stored up for the future, and the new clause addresses one of those problems.

It is perhaps no accident that I am the second Scottish Member to speak in the debate. We seem to be at the cutting edge of the PFI—in Edinburgh, where I come from, and most notably, of course, in Stonehaven, which has been part of an experiment in contracting out all the services in a new hospital to the private sector. There are very serious anxieties about that experiment in Scotland.

The first drawback of operating the PFI in health is, of course, that, to make it attractive to the private sector, there is a temptation to give out as many services as possible, because the private sector can then make more money. Opposition Members find it totally unacceptable that clinical services, such as doctors and nurses—in fact, all the clinical services—at Stonehaven are being put out to the private sector.

Our second worry about the PFI is its long-term consequences. The Treasury Select Committee report on this subject raised concerns that were felt by Conservative Members as much as by Labour Members, because, while the PFI solves long-term borrowing problems, it piles up enormous pressure on future revenue budgets.

I recently had a meeting with a chief executive of a trust that is involved in a major PFI deal, and he explained to me how those contracts are working. He said that there is an increasing amount of revenue payments over the period of the contracts, and that if health expenditure remains flat in real terms, as it has done, there will be a very serious problem in meeting payments on those contracts. So problems are being stored up for future revenue budgets, which may of course translate into problems for services. If the revenue budget is under pressure, there may well have to be a higher patient turnover, and money may have to be saved in other unacceptable ways.

The third anxiety is specifically referred to in the new clause. A greater amount of public expenditure might be involved if the contract fails—for example, if the trust cannot meet its expenses because the referral pattern to the trust has changed or for any of a number of other reasons that we cannot foresee, because we are talking about contracts that may be for 25 years or longer.

The Bill's purpose is to ensure that, basically, the Government meet liabilities if a trust cannot meet them as part of its contract. So a series of potential problems with future expenditure arise through operating the PFI in the health service.

My hon. Friend the Member for Strathkelvin and Bearsden mentioned another anxiety that we have in Scotland. All the bids that have been submitted for Stonehaven, and no doubt for other hospitals subsequently, have been secret, so we cannot scrutinise the small print to discover what is involved. That is another serious concern.

We do not think that a blank cheque should be given by the Government to any trust, to enter into any deal or to borrow on its own to any extent that it likes—up to £5 billion for the country overall. We are very concerned about that, and we are surprised that a Government who pride themselves on sound finance should be so keen to enter into such an arrangement. I suppose the reason is that they are so determined to go down that route that they are prepared to pay any price.

The new clause represents at least a certain small element of check on the process, and the Government would be well advised to accept it.

Mr. Kevin Barron (Rother Valley)

My hon. Friend the Member for Edinburgh, Leith (Mr. Chisholm) is absolutely right to talk about the issue of the private finance initiative and clinical services. I shall return to that matter on the Bill's Third Reading later today, if we get that far. We thought that we would get to Third Reading in the early hours of last Thursday, but the Government's Whips, unfortunately—for some inexplicable reason—decided to withdraw the Bill's remaining stages on that day. Nevertheless, we have come along today hoping to finish the Bill's Report stage and Third Reading.

5.15 pm

Hon. Members will know that my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Galbraith) is not only a well respected Member of Parliament, but a very well respected member of the medical profession. Many of us therefore believe that not only it is right for the House to listen carefully to what he says, that we should also give due recognition to what he thinks should be contained in health service legislation passing through the House. On that basis, I hope that the Minister will respond fully to the points that he made.

I should like to examine in turn each of the new clauses tabled by my hon. Friend the Member for Strathkelvin and Bearsden. New clause 2 is straightforward and logical. My reading of it is that it attempts to consider the Bill's real effects on public finances, which is something that Ministers should have considered and acted on during the Bill's passage. The Government have sprung on Parliament this Bill as a reaction to the need to get the PFI moving somewhere—whether in the city, the Treasury or wherever—or to promises of new hospitals. The Bill has, more or less, been an attempt to liven up the Government's PFI, and is not an attempt to find the best way in which to look after the interests of the public purse.

New clause 2 has two effects. First, it requires that the Secretary of State absorbs as few residual liabilities as practicable. Secondly, it states that the total that the Secretary of State transfers to himself, rather than to other health service bodies, should be limited to a maximum amount, specified by the Treasury. Those provisions are entirely sensible. I must say that I am still unconvinced, as are other Labour Members, that we would have proper scrutiny and statutory control of public expenditure in this sphere only if the amount reaches £5 billion. We find that that is unacceptable. The provisions of clause 2 alone are sufficient. I think that the Minister should seriously consider accepting it.

The clause makes a further provision that enhances its importance, requiring that Parliament approves the limit set by the Treasury on total allowable liabilities absorbed by the Secretary of State in any one year.

We have consistently argued that the PFI process is far too secretive. We have also argued that the Secretary of State is assuming so-called "powers" under this Bill that are not powers at all. He is merely gold-plating risk in the private sector—a risk which, he has told us on numerous occasions in different speeches, is a risk that the private and not the public sector should take. His "power" is merely the power effectively to write blank and undated cheques. Even if he is knowledgeable about the sum involved, Parliament is not so knowledgeable. The power is effectively to write out cheques on behalf of the public purse and to hand them to private sector companies through the PFI.

This new clause will limit the extent to which the public purse will be exposed to such blatant rigging of the PFI process, and Parliament will consider what should be the right amount of risk for the Secretary of State to guarantee. It is important that someone does so, because the Secretary of State is not required under this Bill to consider the amount of risk to which he may be exposing the taxpayer.

New clause 3, which was tabled by my hon. Friend the Member for Strathkelvin and Bearsden, further requires that the Secretary of State prepares a report to lay before Parliament detailing how much his gold-plating exercise will cost us. Currently, no one may ever find out how much has been spent on risk transfers to the public sector. No one may ever know how much public money is being siphoned off into the private sector at the expense of the NHS. My hon. Friend's new clause corrects that situation and brings back a degree of openness that is entirely lacking in the Secretary of State's dealings with the House on this Bill.

I believe that these clauses should be considered because, importantly, they bring some semblance of balance and responsibility back into the Bill. It is of some concern that Ministers did not consider the need of the House and the country to ensure that proposed legislation is fair and balanced and that we, as Members of Parliament and the protectors of taxpayers' money, have a say in how that money is spent.

Without these clauses, the Bill is diminished. Parliament will have no say in the way in which possibly billions of pounds may be expended. That expenditure, which ultimately taxpayers will have to pay for, may be virtually unlimited.

The Minister must be concerned about the possibilities raised by the Bill. What will happen when the £5 billion ceiling has been reached—the only statutory protection that exists currently? Will the Government be back for more, asking us to increase the target with as little consultation as we had in setting it in the first place? What will the Secretary of State say when Parliament asks what measures he took to limit public expenditure? What will he say when he is asked why he made no effort to monitor effectively the liabilities being incurred? These clauses would give Parliament such responsibilities. Since they appear to be too much for the Minister and his colleagues to handle, why not let Parliament assist in the process?

We believe that the unwarranted extension to the PFI system in the health service, which the Bill proposes, is flawed. There is no effective scrutiny or monitoring. There is no real accountability and there is certainly no openness. The clauses repair some of the damage that the Bill will inflict. Perhaps the Minister will recognise that the Bill is unbalanced and irresponsible and that without provisions such as this it will remain so. I hope that the Minister will look favourably on the new clauses.

The Parliamentary Under-Secretary of State for Health (Mr. John Horam)

As the hon. Member for Rother Valley (Mr. Barron) reminded us, his hon. Friend the Member for Strathkelvin and Bearsden (Mr. Galbraith) has a distinguished medical career. In view of the nature of the new clause and some of the helpful suggestions that he made in Committee, he might think of a second career in finance should he ever lose his seat in the House.

Mr. Galbraith

Too boring.

Mr. Horam

I agree with the hon. Gentleman. I would rather be a doctor than be involved in finance.

The hon. Member for Strathkelvin and Bearsden wanted to ensure that the Treasury was involved at the start. I can assure him, without fear of rebuttal, that the Treasury is involved throughout all the PFI schemes and I would not have it otherwise, because it looks at these things in a firm financial way. That is right and proper.

Mr. Galbraith

My memory of this debate last week is that the Minister maintained that the Treasury could not possibly be involved in all the issues because there were far too many. Is the Minister saying that the position has changed since last week? Has the Treasury scrutinised the Stonehaven project? I believe that there was a suggestion that the Treasury might be involved above a certain limit. Is it involved in all the schemes, some of them, or none of them?

Mr. Horam

The hon. Gentleman is right. There is a de minimis limit whereby the Treasury is not involved in some of the smaller schemes. For the major schemes, which are the purport of the Bill, it is involved. I remind the hon. Gentleman that about 22 smaller schemes have already gone ahead with the benefit of PFI and that some buildings are already being constructed and equipment is being installed. Clearly, for such small schemes, Treasury investigation is not necessary and the problem of liability on a large scale does not occur. It is only with the larger schemes where there is a possibility of the liabilities in some sense not being transferred that the Treasury is involved.

Mr. John Spellar (Warley, West)

For clarification, can the Minister tell us where the limit lies?

Mr. Horam

Last Wednesday I told the House that the figure starts at £10 million, but it can be less than that on a sample basis, perhaps down to £4 million. I believe that, roughly, those are the figures. So the Treasury is involved in the bigger and medium schemes.

The hon. Member for Strathkelvin and Bearsden argued that the private sector was carrying no risk. On the contrary, it is carrying a great deal of risk. If a new hospital is being built and it is not completed on time or there are cost overruns, the private sector will bear the risk under the PFI. With a publicly funded hospital such as, for example, the Chelsea and Westminster, the taxpayer bears the cost. There were large overruns running into tens of millions of pounds when that hospital was not completed to the budgeted cost.

If maintenance costs are exceeded after the construction of a building, that will be down to the private sector. If there is a facilities management contract, it will have to be performed properly and, if that is not done, the private sector will carry the risk. It is for that reason that these schemes need not be counted against public sector finance. The private sector is taking the burden of the risk just as the public sector takes other risks, such as political risks. It is right to apportion risk in that way. It would be necessary to canvas against private sector finance if there were no risk for the private sector. I accept the logic of the hon. Gentleman's argument, but there is risk for the private sector.

Mr. Simon Hughes (Southwark and Bermondsey)

This is a continuation of the debate that we had in Committee. I believe that the argument is flawed when the risk can be limited by contract and the liability under the contract can fall entirely on the contractor. The Minister needs to explain to the House why, in public sector contracts, the NHS cannot enter into a contract that stipulates that the building company takes the risk. That would contract away the risk that the Minister said would fall on the public sector under the present non-PFI system. That can be dealt with in a normal legal and contractual way.

Mr. Horam

To be honest, I do not fully understand the hon. Gentleman's point. The distinction that I am making is clear. We are saying that private sector finance must bear certain risks. If it does not bear those risks, or if the Treasury deems that the amount of risk is unsatisfactory, it will not agree to the scheme, and it will count as public sector finance.

Mr. Hughes

If we take as an example the Chelsea and Westminster or any other old-style contract, of course there is a risk that costs might expand. However, there is no reason why the trust cannot do a deal with the builder saying, "We will pay an all-in figure of, say, £50 million, and anything above that will be your responsibility and liability." That is normal. There are all sorts of building contracts. It happens to be the job that I did before coming here, so I know a little about it. It is perfectly proper to agree an all-in facilities contract or an all-in construction contract. All the risk of any additional cost can be contracted away. Why is it not possible for that to continue in the NHS in the future as it has legally been possible in the past?

Mr. Horam

The fact is that it has not been done in the past. We are taking a road that should perhaps have been obvious to previous Governments. It is a sensible road to take, because it means that we can take the burden off public sector finance.

The nature of the scheme is rather different. The hon. Member for Southwark and Bermondsey (Mr. Hughes), remembering the arguments that we had in Committee, is thinking of a construction scheme. We are not talking about "build and forget", which has been the typical method in the past. We are talking about a continuing commitment. The constructor owns the building and provides the facilities to support the clinicians. That is the difference between this sort of scheme and the scheme that the hon. Gentleman has in mind.

Mr. Hughes

There are two types of contracts: there are building contracts and there are management, running or facilities contracts—or whatever the Minister would like to call them. I accept that in the past the NHS has not said, "This is the fixed price, you take the responsibility". I am arguing that it is possible to do that without it being done in the private finance initiative way, which says, "You build it, you run it; we are simply an agent, a tenant or a lessee." That would be possible. There is an advantage if the NHS moves into an agreement for the services as opposed to an agreement for the building. However, it is entirely possible to keep that under a traditional contract. That does not make a strong argument for PFI as opposed to any other form of finance.

Mr. Horam

I cannot agree with the hon. Gentleman because it seems to me that what he is proposing is radically different from what has been the traditional pattern of public sector building. We are taking into account not only the construction of the building but also the ownership of the building, the supply of maintenance facilities, et cetera. To some extent, we are comparing apples and pears. The financial arrangements that we are putting forward are consistent with the sorts of risks involved for the private sector.

The hon. Member for Strathkelvin and Bearsden referred to the name of a consultant—I think it was Beard Dove—and he said that private contractors will suggest that the risk be reduced. Indeed, they will say, "We are being asked to bear too much risk in this case"—that is a natural negotiating posture for contractors. The fact is that they have to bear some risk and the amount of risk that they bear cannot go below a certain amount, or it will not be agreed to by the hospital trust or by the Treasury. They may put forward their point of view, but the Government will not necessarily agree to it.

5.30 pm

The hon. Member for Strathkelvin and Beardsden also talked about the Stonehaven example in Scotland and how much information was made available to the public. The bidders can decide how much knowledge of their bid is made available to the public. The health board has conducted a full public consultation about the types of facilities that should be provided and the facilities, in essence, determine the nature of the contract. Beyond that, the details of the negotiations are a matter for commercial confidentiality and the Government do not want to disadvantage the public sector or private bidders in this situation.

Mr. Spellar


Mr. Horam

It is a matter for discussion and negotiation, and it is not sensible to go into questions of commercial confidentiality when important issues are at stake. I refer to the comments by the hon. Member for York (Mr. Bayley). I am sure that he appreciates that the Bill translates what is at present a discretion into a duty. As we have always honoured the liabilities that we are talking about in the Bill, there will be no increase in the use of public funds. The practice has been to honour liabilities in the health service and that will not change. The final sentence of the financial memorandum attached to the Bill states: Given that no NHS trust has so far been dissolved without its liabilities being transferred elsewhere, any additional expenditure occasioned by this Bill is likely to be negligible.

Mr. Spellar

How will this affect the concept of risk? When the Minister replied to the hon. Member for Southwark and Bermondsey (Mr. Hughes), he implied that risk was the danger that the provider of the building and services might fall down on the contract. That is a normal problem; that is not the question of risk that someone may fail to do the job for which they have been contracted. Risk is the danger that the market might collapse or that clients might go bust. By taking away the concept of risk even further, is not the Minister changing this from a PFI contract to an ordinary service contract, which, as the hon. Member for Southwark and Bermondsey pointed out, has always been capable of being operated—whether the NHS has chosen to do so is another matter. Therefore, this is changing the nature of risk in the contracts.

Mr. Horam

As the hon. Gentleman has pointed out, real risk not only involves going over budget on the contract, but involves taking into account market risks or the ownership of a building in which clinical services are taking place. A contractor or a provider of facilities may commit themselves to a contract that lasts a number of years. What the hon. Gentleman has said is absolutely true: there are many kinds of risk in the market. In this case, the private contractor will be bearing all the normal commercial risks.

Mr. Spellar

As the Bill underwrites and acts as the client of last resort, the Secretary of State has removed that major sector of risk in this project. Someone not doing the job is an entirely different issue. Risk is the danger that clients may not be able to pay their bills. That element of risk has disappeared.

Mr. Horam

That is not so—market risk is still there. For example, in five years' time there may not be the same demand for the clinical services that are provided today by the trust or by contractor. That risk will be borne by the facilities provider. He may find that his revenue is less than he expected it to be because the clinical services are not in as much demand as was originally thought. Market risk is still there. Therefore, we are not removing any risk that is normal.

Mr. Spellar

The Government are underwriting it.

Mr. Horam

No, we are not underwriting it. What we are talking about in the Bill is the normal commercial liability. [Interruption.] No, the hon. Member for Stockport (Ms Coffey) is quite wrong. Obviously, any organisation honours the liabilities that it properly enters into—that is, it fulfils the contracts that it makes. That is what the NHS has always done. However, it has been discretionary and it is right that we make what is de facto de jure to reassure the people who are involved commercially that there is no political risk. The Bill removes that element of political risk—it does not remove the normal commercial risk. I hope that the hon. Gentleman understands that.

Mr. Spellar

I understand the answer, but I am not entirely satisfied by it. There will be long-term contracts between the hospital trusts and the providers of the services. If, for example, the contract changes between the area health authority and the trust it may lead to the trust experiencing severe difficulties, which may lead the Minister to take action to do something about the trust—to dissolve it or whatever.

Therefore, the Minister is standing behind the contract and saying that the Secretary of State will act as the guarantor of the contract. Because of the size of the contracts—the Minister says more than £10 million—they will be long-term. Therefore, the Secretary of State will be acting as the final guarantor and removing that element of market risk.

Mr. Horam

No, that is not the case—we are not removing the market risk in any way. The Bill says that a contract properly entered into will be honoured by the NHS trust or by the Secretary of State in the final analysis. That is a perfectly normal practice and it means that the NHS will not welsh on its debts. However, the market risk will still remain. I cannot continue repeating this—it is absolutely clear to me.

Mr. Barron

Will the Minister further explain what political risk he is underwriting? Is it the possibility that there may be a change of Government in the not too distant future?

Mr. Horam

The hon. Gentleman is not rising to the level of the occasion. Political risk is perfectly plain: under the previous situation, the Secretary of State could walk away from his debts—that is, when a trust ceased to exist or was merged, he could decide not to honour its liabilities. He is simply saying that, in future, he will not be able to do that. That is an honourable and straightforward position. It has always been the case; it would always be the case. We are simply putting it into law.

I described that as political risk. It would be wrong for a commercial organisation to accept that political risk, because a commercial organisation is not the right body to accept that type of risk.

Mr. Galbraith

I am becoming more confused as the debate progresses.

Let us suppose that, 25 years ago, a PFI had been entered into with a health authority or trust to build a tuberculosis hospital, but that the disease was not as prevalent as it used to be and the hospital was no longer needed. Is the Minister saying that, if the hospital had been built—perhaps managed—under a PFI initiative but the trust did not want it, or if it had been agreed with the health authority but the authority did not want it, the Government would be liable to pay the necessary capital and running costs for that hospital for 25 years, even if, after five years, it was no longer needed? If so, we are building lack of flexibility and obsolescence into the system.

Mr. Horam

No, that is not the case. All the Bill does is to make what is de facto de jure, by saying that contracts properly entered into will be honoured by the Secretary of State. It is as simple as that. That is a very simple point, which I am sure that the House agrees with. I do not think that any Opposition Members—

Ms Ann Coffey (Stockport)

He cannot want us to agree.

Mr. Horam

The hon. Lady served on the Committee and sat through three or four sittings. If she does not understand the simple point of the Bill now, I am afraid that I cannot begin to explain further.

Mr. Barron

Let us get away from the issue of political need. It is unprecedented for any Secretary of State not to meet a public sector debt, and contractors and suppliers of the national health service have been content in that knowledge for decades, so why do we have the Bill? Who insisted on it—the Secretary of State for Health or the private sector?

Mr. Horam

The hon. Gentleman knows the answer, because my right hon. Friend gave it to him on Second Reading. The hon. Gentleman has had it once; he does not need to have it repeated. In this specific case, it was unreasonable to expect the private sector to take on risk that it was not equipped to adopt. That is the simple position, and this is an extremely simple Bill, which does precisely that.

Mr. Simon Hughes

I want to clarify two last things. The Minister says that the simple and single purpose of the Bill is to prevent an agency—a part of the Department of Health—from walking away from its financial liability by dissolving itself, and that therefore the Bill will provide a guarantee that the Department of Health will pick up the tab.

How many times in the past has the Department of Health or an area health authority, regional health authority or NHS trust not paid its bills? Has it ever happened in the history of the Department of Health, since the creation of the NHS?

Mr. Horam

I am afraid that my memory does not go back quite as far as that, but, off the cuff, subject to the usual reservations, the answer is no—there has never been a case where properly entered into liabilities have not been honoured.

The hon. Member for Edinburgh, Leith (Mr. Chisholm) was worried about the Stonehaven example, but he should recall that, at the moment, that is still only a proposal. There are three bidders for the contract, one of which is the NHS trust. Indeed, in a sense there is no likelihood that clinical services will be privatised, because all the medical services—the core services and the wider group—will be provided in the usual NHS way. That is not yet an example of privatisation, and it may never be an example of privatisation in the way the hon. Gentleman means.

Finally, I shall reply to the points made by the hon. Member for Rother Valley and make some comments about the new clauses tabled by the hon. Member for Strathkelvin and Bearsden.

On scrutiny and control by Parliament of the private finance initiative and the public sector, I emphasise that there are already mechanisms for giving regular information on expenditure and liabilities to the public and Parliament. The annual estimates and appropriation accounts procedures set out clearly the way in which moneys provided by Parliament are used. The annual departmental report gives more detail to Parliament about that. Among other things, it specifies contingent liabilities, as defined in the terms of the agreements between the Government and the Public Accounts Committee.

5.45 pm

Auditors of trusts are required to confirm that the accounts give a true and fair view of the state of the trust. All borrowing within a year and loans outstanding at the end of the year are disclosed in accounts.

The Comptroller and Auditor General scrutinises and summarises the accounts of the trust sector as a whole, and lays them, with his report on them, before both Houses of Parliament. That is the conventional accounting system between Parliament and Government.

The Treasury Select Committee recently recommended, in the context of the PFI especially, that an annual report shall be prepared by the private finance panel, reporting on projects undertaken. The Committee also asked for details of the process that the Treasury plans to set up to monitor the revenue commitments of the PFI. Those two things came out of the Treasury Select Committee. I am glad to say that the Treasury has already said that it will set up a monitoring system; no doubt it will cover that in its formal response to the Treasury Select Committee.

The National Audit Office plans to conduct value for money investigations into PFI schemes. As I was a member of the Public Accounts Committee for three years, I know how searching such investigations can be; if there are any problems with the PFI, they will certainly be thrown up by those investigations.

I agree with the hon. Member for Strathkelvin and Bearsden that this is a proper matter for Parliament. It is appropriate that he, as a Back Bencher, should make that proposal, because the scrutiny and control of expenditure in this way is a matter that it is certainly legitimate for Parliament to consider.

As I have shown by citing those examples, the hon. Gentleman is pushing at an open door. In future, not only will there be the traditional methods of considering Government expenditure but, as a result of the Treasury Select Committee's recommendations and what was said by the National Audit Office, new methods will be used to add to that stringent scrutiny. In those circumstances, I hope that he will agree that Parliament is moving sensibly to scrutinise and control that expenditure. I therefore believe that the hon. Gentleman's new clauses, although well-meaning, are unnecessary.

Mr. Galbraith

Having heard the Minister, I am convinced that the public finance initiative is a shambles. The more I hear about it, the more confused I become and the more I realise that I am not the only one who is confused. The Government will regret the monster that they have set running, especially in the national health service.

I return to my example of the privately funded tuberculosis hospital. I only take that as an example—obviously it is obsolete nowadays.

If a private finance initiative were to set up a hospital, in my view it would provide that hospital—the Minister also envisages that it must run the services and manage it as well because that is how it makes its money. In my view, the private company should set up the hospital and run it and say, "There you are, we will run this for you and the cost will be so much per year"—the normal yearly contracts.

However, because that would involve an element of risk for the company, it requires us to remove that risk absolutely and locks us into a contract for 25 years, to which we are committed and for which the Government will now pick up the tab irrespective of what happens. We are now locked into a contract that ensures that the private company has no risk. The wee bit of risk associated with it—never mind the delivery risk, which I did discuss—should be a usual part of business anyway. Instead, it will lock us into a contract involving no private risk.

If the company were to have risk, it would be a year-on-year contract, because that is the nature of medicine. That would be the correct thing for the health service to determine. Medicine moves swiftly. Diseases become obsolete; diseases move off. For a long time, cardiac surgery fell away because rheumatic heart disease had fallen; the complications of valvular disease were no longer around. We did not need cardiac surgery, and a number of units were closed, but then the incidence of coronary heart disease increased again—variations occur. Through the PFI, the Government have prevented us from being able to move with the variations; we are locked into a contract for a hospital that we have guaranteed and we have removed all the risks from the private sector. The Government have also shifted capital moneys into revenue account—that is how it will appear. With finesse, they have massaged the figures once again.

The Government will come to regret the provision and the comments that they have made today; their persistence will return to haunt them in future years. However, having said that, I have no wish to pursue the matter further or to divide the House. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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