Private Finance Initiative (Hansard, 18 October 1994)

§ The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley)
My Lords, good progress has been made. In the last three months several steps have been taken covering a range of projects with a total capital expenditure of £3.75 billion.

§ Lord Ezra
My Lords, is the noble Lord aware that, while the Government's pronouncements on the issue of the private finance initiative are very clear, serious administrative delays are being encountered in particular projects, even relatively small ones? Is he also aware that there is a real problem in the apportionment of risk on these projects because some of the risks are not quantifiable in commercial terms when they verge on the political? Therefore, does he not agree that until those two issues of administrative delays and the proper apportionment of risk are overcome further progress could be impeded?

§ Lord Henley
My Lords, I am sorry to hear the noble Lord's allegations of delays owing to administrative procedures. Certainly, I shall take that on board and look into the matter. As regards risk, I ought to make it clear to the noble Lord that obviously there has to be a genuine transfer of risk before any private finance initiatives can go ahead. I accept that there has to be a proper apportionment of risk. The Government are looking to share risks, but obviously not all risks can be transferred to the private sector. I must make clear to the noble Lord that there must be a genuine transfer of risk to those involved in the private sector.

§ Lord Clark of Kempston
My Lords, does my noble friend agree that, as a result of the economic policy of this Government, overseas investment in the UK has been far greater than it has been in any of our European partners? Does he further agree that if Her Majesty's 123 Government were to adopt the Social Chapter, our competitive position would be impaired and inward investment would dry up?

§ Lord Henley
My Lords, with all respect to my noble friend that is not, strictly speaking, relevant to the Question on the Order Paper. However, I can assure my noble friend that of the order of 40 per cent. of all inward investment from both Japan and the United States to the European Community comes to this country.

§ Lord Kingsdown
My Lords, does the noble Lord accept that, if the private finance initiative is to cut the burden of capital expenditure on the public sector borrowing requirement, PFI financing must be as attractive to public sector bodies as other forms of finance? Does he agree that that will not be so if those bodies can obtain non-repayable grants on which there is no capital charging, and perhaps not even notional capital charging?

§ Lord Henley
My Lords, I think I understand the point made by the noble Lord. Certainly I accept that it has some validity. Obviously we want to see a level playing field between the public and private sector here. As I made clear to the noble Lord, Lord Ezra, we want to see a degree of shared risk between both the public and private sectors.

§ Lord Williams of Elvel
My Lords, can the Minister explain what he means by the expression "level playing field" between private and public sector investors? What is the meaning of "transfer of risk"? How is "apportionment of risk", to use the noble Lord's phrase, to be determined? Is it not all determined by the Treasury in the end? What are the rules which the Treasury applies to this particular procedure?

§ Lord Henley
My Lords, I think that the noble Lord will find that the expression "apportionment of risk" was used by the noble Lord, Lord Ezra. I tried to make clear that we want to see a degree of transfer of risk to the private sector. If people are going to put money in, there must be risk involved. If there is no transfer of risk to them, there is little point in seeking private sector finance.

§ Lord Williams of Elvel
My Lords, I am sorry to press the noble Lord, but I cannot understand the expression "transfer of risk". Either there is risk in the sense of an equity risk, or there is no risk because the Government are standing behind the project. How does the noble Lord apportion or transfer—whatever expression he uses—risk in one sense against certainty in another sense?

§ Lord Henley
My Lords, there is never absolute certainty. Those who put money in risk that money. They may not receive the return they expect. In the case of, let us say, the Channel Tunnel railway, will investors receive the return they expect on the money they have put in? That is what I mean by a transfer of risk. There will be a degree of risk. Those people putting in money might lose that money.