National Health Service (Private Finance) Bill [H.L.]

HL Deb 03 June 1997 vol 580 cc575-615

3.13 p.m.

Baroness Jay of Paddington

My Lords, I beg to move that this Bill be now read a second time. The purpose of this short Bill is clear and specific. It is to break the gridlock in the NHS building programme which we have inherited. This Government want to see new hospitals built and the Bill before your Lordships today ensures that NHS trusts have powers to enter into PFI contracts. If enacted, the leading banks will have the confidence they need to provide funding for the most advanced hospital development projects. Building work can then begin as part of this Government's commitment to renew the National Health Service.

The Bill should also be seen as a first important step in our programme to develop new forms of public/private partnership—of which PFI is one model. These proposals were set out in a 12-point plan in our business manifesto which was so resoundingly endorsed at the general election.

Clearly, the NHS needs high quality facilities in order to deliver world class services. The private finance initiative has the potential to provide some of these facilities hut, regrettably, not a single major PFI hospital deal has reached financial close since the initiative was introduced in 1992.

The Government have always accepted that the principle of PFI is a useful one. In theory, under PFI the public sector does not pay to build a hospital; it pays for the delivery of a specified building to agreed quality standards. No payment is made until the building is provided. This is a concept whose benefits the public and private sectors have been quick to recognise.

But in practice PFI has manifestly failed to deliver the goods. A number of small schemes have been brought to fruition—for car parks, accommodation blocks, and so on—but the urgently needed major hospital building programme has been stopped dead in its tracks. Time and money have been spent wrestling with what seem to be apparently insurmountable problems.

The new Government draw no pleasure from the fact that the previous Administration were unable to make PFI work in the NHS. The people who suffered most were the patients in need of treatment, and the doctors, nurses and other health professionals who tried to work in inadequate facilities. In the past I have described in your Lordships' House attempts to make PFI work as "unproductive chaos".

But PFI need not be unproductive or chaotic; it can, if properly used, offer the NHS an important way of building hospitals. That is why the Government gave their manifesto commitment to overcome the problems that have plagued PFI in health at a national level. However, to achieve this we need to make changes. For this reason, we have said that we will set priorities between projects, saving time and expense; we will seek a realistic allocation of risk between the partners to a project; and we will ensure that best practice is spread widely. My honourable friend in another place, the Paymaster General, has announced a rapid review of the present arrangements across the whole of government, taking as his starting point our 12-point plan for partnership which was in our business manifesto. The review, which is being carried out by Mr. Malcom Bates, chairman of the Pearl Group and a former member of the Treasury's PFI panel, has been widely welcomed by people active in the private finance world.

To complement this work, my honourable friend in another place the Minister of State, Mr. Alan Milburn, has announced an overall review of the workings of PFI in health. In the Department of Health we are committed to end the delays, sort out the confusion and develop new forms of public/private partnership that will work and protect the interests of the NHS. Noble Lords will be extremely concerned to learn that Mr. Milburn has discovered that to date £30 million has been spent by individual NHS trusts on legal and financial advice and other consultancy fees—without a single major contract being secured. In future much of the necessary expert advice will come from within the NHS. This should be quicker and save the money which has previously been spent on expensive consultants' fees.

Naturally, my honourable friend will be listening to the views of those closely involved with the PFI from both the public and the private sectors. The objective will be to identify how to make the best use of skills and expertise from both sectors.

The legislation before your Lordships today will remove the most significant obstacle in the way of the major pathfinding schemes. There is no lack of general support or interest from the financial community for PFI in health. Leading financiers who met the Secretary of State soon after his appointment expressed their willingness to provide the backing for PFI contracts in the NHS. But the banks are concerned that there may be some doubt about whether NHS trusts can legally enter into PFI contracts. The Department of Health's own legal advice is clear: the National Health Service and Community Care Act 1990, which sets out trust powers, gives those trusts the power to enter into PFI contracts. However, it is true that PFI is not explicitly named on the face of the Act, and the banks remain concerned that they may not be able to recover their money if, at some point in the future, PFI contracts are found to be ultra vires the trust.

The banks have been chastened by their problems in other sectors and are unwilling to take what they perceive to be an excessive and unnecessary risk without further legislative cover. The possibility of a statutory instrument has already been explored with them, but it is clear that this would not resolve their concerns.

In the circumstances, primary legislation is necessary, and the Bill before your Lordships removes any doubt about the power of an NHS trust to enter into contracts under the private finance initiative. The banks concerned have seen and agreed the wording of the Bill and have made clear that it satisfies all their outstanding concerns. As a result, they will be prepared to lend into the leading schemes once the Bill is enacted.

In retrospect it might have been much more sensible—and probably much more productive—if this issue had been resolved at the same time as the National Health Service (Residual Liabilities) Bill which was considered in your Lordships' House about a year ago. However, the new Ministers at the Department of Health have been assured by officials there that this particular stumbling block was only recently identified as a serious issue. Perhaps the expensive consultants missed an obvious trick. However, we are where we are, and this short Bill is now necessary to get things moving on hospital building.

Clause 1 of the Bill provides that the powers of an NHS trust include power to enter into agreements which are certified by the Secretary of State as externally financed development agreements, and specifies the circumstances in which the Secretary of State may give a certificate to that effect.

Clause 2 allows any corresponding provision made by Order in Council in respect of Northern Ireland to be subject to the negative resolution procedure.

It will be apparent from the brevity of the Bill we are considering today that this is a straightforward and uncomplicated piece of legislation. It fulfils a manifesto commitment and its purpose is transparent: to remove any doubt about the power of an NHS trust to enter into contracts under the private finance initiative.

This Government are determined to get hospitals built rather than simply to talk about getting them built. I remind your Lordships that no hospitals planned under existing PFI schemes have yet reached financial close, let alone been built. By enacting this legislation we will then be able to start constructing the new facilities which the NHS so badly needs, and make clear our commitment to nurture and strengthen the health service.

This is a practical and essential measure. It will bring reality to what has sometimes seemed fantasy. I commend it to the House.

Moved, That the Bill be now read a second time.— (Baroness Jay of Paddington.)

3.21 p.m.

Baroness Cumberlege

My Lords, although the Minister and I had a short skirmish at Question Time, this is my first formal opportunity to welcome her to the Dispatch Box. I do so with great pleasure—not only as one of the Government's Ministers for Health but also as the Deputy Leader of this House.

I know that the Minister and her colleagues do not have a great deal of patience with the hereditary principle, and this is certainly not the moment to enter that debate. However, I cannot help thinking that her most distinguished father must have passed on some very useful and relevant genes. That was evident when the noble Baroness, as deputy leader, with great mastery, summed up the fifth day of the debate on the Queen's Speech.

I congratulate the noble Baroness and her colleagues on choosing as their first piece of legislation this Bill—which I am informed is word for word the Bill drafted by the previous government, in fact lifted straight from the "must do" pile of our administration.

It is none the worse for that, but it does place me in a dilemma, for although I am well aware that the role of the Opposition is to oppose, with this particular Bill I am in wholehearted support. However, it is the support of members of the Government that concerns me, since in the past they vigorously opposed the private finance initiative.

My noble friends and I, particularly my noble friend Lady Anelay of St Johns who will sum up for these Benches—and I take the opportunity of also welcoming her to the Front Bench—will wish to probe the intentions of the Government. And we have good reason, for only on 2nd April, two months ago, Mr. Chris Smith, in his statement following publication of the Conservative manifesto, said: further promotion of the PFI can only lead to the privatisation of clinical services in the NHS". Does the noble Baroness agree with her Cabinet colleague? If so, as she is promoting the Bill, where does she believe that the measure leaves the issue of clinical services within the NHS? Or perhaps the Minister applauds the perspicacity of the Prime Minister in appointing Mr. Smith to the Department of National Heritage, a department which is not so much concerned with the future but has responsibility for the preservation of old, redundant buildings.

When I became chairman of the Brighton health authority, 80 per cent. of the floor area of our 16 hospitals had been built in the last century. It was an issue I was determined to tackle. I failed. My successor failed; as did the one after that, and the one after that. The task is now in the capable hands of the noble Baroness, Lady Emerton, who as an advocate of the PFI has the very real possibility of achieving at the Royal Sussex County Hospital buildings suitable for modern medicine and fit for the next century. I wish her every success in her endeavours.

Brighton's history is not unique. All over the land promising young consultants were appointed in the knowledge that a new hospital was about to be built and yet have been lucky to see the foundation stone laid before their retirement party. The frustration has been considerable, and has often soured local relationships as people felt betrayed or did not understand the internecine intricacies of the Treasury mind. Fifteen years ago rigidity and red tape were the rule book.

The private finance initiative—our initiative—allows the NHS to by-pass these Treasury constraints and to harness the expertise of the private sector in the design, construction, maintenance and provision of buildings in order to deliver better quality patient care and better value for money.

As a result, 71 NHS PFI schemes have been approved since the launch of the scheme, bringing in private sector capital amounting to £626 million. Of those, 43, with a capital value of £317 million, have reached contract signature stage—32 have been completed and 11 are still under way.

Larger schemes are now starting to reach contract signature: the Norfolk and Norwich new hospital project, with a capital value of £194 million, was signed in November 1996, although it has yet to reach financial close.

A further 150 schemes with a total capital value of about £2.1 billion are testing private finance options. They include 22 schemes worth over £10 million each that have got as far as appointing a preferred bidder. Their combined capital value has been some £1.7 billion.

But despite these considerable successes, it would be disingenuous of me to admit that there have not been some complications. On 21st May last year, when I introduced the Second Reading of the NHS (Residual Liabilities) Bill, I stated that any residual liabilities would be transferred to the Secretary of State. Although that has been the custom and practice throughout the life of the NHS, contractors were still unsure and wanted the Government, through legislation, to remove any element of doubt.

This we sought to do, albeit both we (the Government of the day) and the then Opposition thought it to be unnecessary—a point very forcefully put by the noble Baroness, Lady Jay, during the debate. But that was before the banks became concerned. Their concern was generated by the activities of some councils. It will not surprise the House to know that these were Labour councils such as Hammersmith and Fulham. Those councils sought, with public money, to gamble on the money markets. The banks caught a cold and were justifiably wary that they should not catch another. Hence the necessity for this further piece of legislation. Bearing in mind that we now have a new Labour Government, I have some sympathy for the banks' concerns.

Anthony Hilton, the City editor of the Evening Standard, on 14th May drew our attention to the fact that here is a new Government on their best behaviour, yet willing to invent spurious reasons to impose a retrospective windfall tax on companies which have acted in good faith and within the law. It hardly bodes well for a committed and reliable partnership between the Government and the private sector; and this before the rigours of governing have been felt, and before the trade unions, always strong in the NHS, have reasserted their power. In three or five years' time things could look very different. So what guarantees can the Minister give to PFI partners that there will be no dawn raids on their assets, and no retrospective legislation or confiscation of their investment—for I am sure the experience of the past three weeks will not provide much comfort?

Currently the Government are reviewing the private finance partnership schemes. One Minister is quoted in the Financial Times of 14th May as saying: We want to see which are the priorities, region by region, for major capital projects and then test them to see whether they are susceptible to PFI". Nicholas Timmins, the much respected public policy editor of the newspaper, goes on to report that Ministers stood by their, absolute cast-iron manifesto guarantee that clinical services will not be handed over to the private sector in any of these deals". However, Mr. Timmins then goes on to say that the review has yet to decide whether radiology and pathology are to be included in the definition of clinical services which the private sector will not be allowed to take over. "We will have to wait and see", one Minister said; it remained "a grey area" which was still to be resolved in spite of a vigorous attack during the election campaign by Mr. Blair, then Leader of the Opposition, on plans by Sheffield's Hallamshire Hospital to include such services in its private finance project.

Perhaps the Minister could tell us who is right: a health Minister tackling the day-to-day realities of trying to run the NHS or the Prime Minister trying to win an election campaign. Bearing in mind this contradiction among Ministers, it is imperative that the Bill should clarify matters, but it does not. Clause 1(5) states: 'facilities' includes—

1. (a) works, buildings, plant, equipment or other property; and
2. (b) services".

But, my Lords, which services? Can the Minister list them for us? For with the new Labour Government in power, we need to know.

Another area subject to procrastination and delay is the future of London's healthcare, for the Labour Government are undertaking yet another review. London's history is littered with countless reviews of its hospital services. The policy document, Making London Better, set out clearly the future healthcare needs of Londoners, the specialty services required, the issues surrounding world-class research and the paucity of primary care. In her speech on 13th December 1993 the noble Baroness introduced an Unstarred Question debate. She said: My Question is simply a plea for an end to uncertainty".— [Official Report, 13/12/93; col. 1221.] I agree. Is it not time to get on with the job and ensure that those who seek to build their careers in London's centres of excellence get some security and certainty and to let Londoners know where they stand? Will the Minister tell us what the effect of a review upon a review will mean, both in years of delay and additional costs? How patient are patients expected to be before they see their services enhanced? How patient are private sector partners expected to be? Has the Minister in charge of the review met them and given assurances that the London review will not put back schemes in progress or about to start? What impact will further delay have on the costs of schemes, both for the private sector and for the taxpayer? The noble Baroness will know better than most the numbers of inquiries that have taken place into the health needs of Londoners. She will know the urgency of putting the existing plans in place. In 1993 she was impatient for progress. Where is this new dynamic Labour, about which so much is written? Are they simply a government of reviews?

Finally, we heard the Prime Minister say during the visit of the President of the United States that this Government are practical, not ideological. That is to be the new way. But to be practical, people who are ill are not really concerned about who built the hospital, who washes the sheets or even who pays the clinical staff, so long as doctors, nurses and all other staff are efficient, skilled and caring.

We were harassed, when in government, by the totally untrue assertion that we were privatising the NHS—which we were not. The new Secretary of State for Social Security, when she was health spokesman, said that the PFI was an initiative for privatising the health service. It is not. It is a means of improving the NHS, which was and still is our sole aim.

But if the Government (as the Labour Opposition) thought that the PFI was a means to privatise and that they were and are the only defenders of the NHS, we are right to ask: "What is this Government's purpose for the PFI'? What is their philosophy?". There seems to have been no thought put into the direction of policies. The Minister owes us an explanation. Surely the NHS is founded on a great ideal. Its philosophy is an ideology. It is absurd to think that the NHS can be wholly pragmatic. At its core is a belief that the health service should be free at the time of need and that its sole criterion should be need. These principles cannot be abandoned—dismissed as mere practicalities. The NHS is motivated by idealism. Without it, it will surely perish. Perhaps in her summing up the noble Baroness could address this most important of all issues, because it is a fundamental matter, relevant not just to today's debate but to the long-term future of the NHS—for we all know that without a vision, the people perish. Pragmatism is simply not enough.

3.35 p.m.

Baroness Robson of Kiddington

My Lords, I join in the congratulations to the noble Baroness, Lady Jay, on her arrival at the Dispatch Box. I have known her for a number of years and I am aware of the amount of time she has devoted to the health service. We could not have a better representative in her place. It is also a quite unusual experience for me to hear the Minister's immediate predecessor and the new Minister in this House in such perfect agreement about two Bills. I realise that the Bill before us today was produced and ready to go on the statute book had not the election interrupted the procedure.

However, I wish to question why it has been necessary, within the period of one year, to have two Bills. I understand why the first was introduced. It was because there was no assurance to any contractor about the residual liabilities that would arise if a trust collapsed. The reason for the present Bill is largely that one could envisage a position where a trust became no longer financially viable. If the Secretary of State closed it down, he would have to pay back the liabilities to the constructing company or the consortium running the hospital. So one could envisage that the bankers would be worried that the Secretary of State would not close the trust down and therefore would not become liable for the trust's debts. We can understand why the Bill has come about.

The first Bill went part of the way. But the need for the two Bills in such a short time gives rise to a certain amount of scepticism about the viability of the PFI as it relates to the provision of hospital buildings. The question arises of whether the scheme was properly thought out before it was introduced.

When the private finance initiative was first introduced in 1992, it was publicised as a source of additional finance for the NHS over and above publicly financed projects. However, in the 1995 Budget the previous Chancellor announced a planned reduction in NHS capital spending of 16.9 per cent. in 1996–97, 5.4 per cent. in 1997–98 and 6.9 per cent. in 1998–99. That made it clear that the PFI is no longer additional finance for the NHS; it is now a substitute for Treasury funding.

So far as I know, no one in this country has subscribed in a democratic way to the proposal that the PFI should replace Treasury funding in the NHS. There may be a case to be made that the PFI would be cheaper and more efficient for the NHS, but, in my view, the case has not as yet been proved.

What worries us is that it is clear that the PFI saves the Treasury money on capital projects in the first instance. But it saddles the NHS with revenue expenditure over a period of 25 to 30 years. That is a long time in the life of a hospital and in the health service. In the end, the burden falls on the taxpayer. It may reduce the PSBR but it will certainly increase taxes in the long run. I ask the Government whether they will increase the revenue allocation to the trusts by the amount that they will have to pay, year in year out, as a rent for the building they occupy. There is also the danger that the length of the contract is likely to create rigidity in a service that we all know to be in need of flexibility as further advances are made in the delivery of health care. We therefore look forward with great interest to the publication of the Malcolm Bates report on 13th June.

I turn now to the Bill itself. Clause 1(3)(a) states that, in his opinion the purpose or main purpose of the agreement is the provision of facilities in connection with the discharge by the trust of any of its functions". Subsection (5) says that "facilities" include,

1. "(a) works, buildings, plant, equipment or other property"; and
2. (b) services".

The word "services" gives cause for concern as it could include clinical services. I am aware that the Secretary of State made a promise in his address to the Royal College of Nursing annual conference that clinical services would always be the responsibility of the NHS. But the Bill does not make that clear. I do not doubt the word of the Secretary of State, but he will not always be there and once this Bill is on the statute book it is there. It should make perfectly clear what is included in the word "services" provided by an outside consortium. Probably at Committee stage we shall return to the matter in order to clarify that the word "services" does not include clinical services.

Another concern under the Bill is the question of accountability, when most services, including cleaning and catering, are run by the developer and the clinical services are provided by nurses and doctors. For many years now the NHS has employed outside contractors to provide some of those services but there was never any doubt that ultimate responsibility rested with the trust or the district hospital which were accountable for all the services they provided, whether contracted for or provided by themselves. Where does accountability rest under the PFI scheme? Is the housekeeper accountable to the consortium and the clinical staff accountable to the NHS trust? It does not take a lot of imagination to see that such a system could be open to great friction. We should like an assurance from the Government that the ultimate responsibility and accountability still rests with the hospital trust.

For those reasons we suggest that the Bill should be time limited while further research is undertaken and some experience gained in the working of the new system. The title preferably should be changed to the National Health Service (Private Finance) (Temporary Provisions) Bill.

3.44 p.m.

Lord Marsh

My Lords, the noble Baroness, Lady Cumberlege, expressed surprise that this Bill should come from the Labour Party. I suspect that it will be a bigger surprise to some members of the Labour Party. Some of the more hysterical comments heard recently—in the past 24 hours those on Camelot, for example—do not help in terms of getting confidence when trying to deal with the private sector. All I can hope is that the conversion to entrepreneurial capitalism—that is basically what it is—will spread. I am sure that it will. I look forward to hearing the speech of the noble Lord, Lord Monkswell, supporting it.

The noble Baroness, Lady Robson, unfortunately voiced doubt about the principles of the Bill. I certainly hope that it will not be a temporary Bill. I hope that it will grow wider in its application, because I believe that the principle is a very important one.

The NHS problem is part of one of the biggest and least publicised problems facing this country. There has been massively inadequate investment in public sector infrastructure, both in terms of capital and maintenance, over a century. One of the problems of parliamentary democracy is that the pressures of the "Today" programme and the inexorable approach of the next election are not conducive to systematic long-term investment programmes. All the pressure on government is to deal with matters of the moment, and in a democracy it is foolish to believe that a government can take a long-term view or stick to it if they do. Some of our most famous and prestigious hospitals are a classic example of the effects of that.

I remember when I first became chairman of the special trustees of Guy's Hospital and walked round that hospital. Parts of it were a slum; yet it was one of the great hospitals of the world. I remember visiting my mother in the Brook Hospital in Woolwich with a wife who had grown up in the Middle East and had never before been inside a National Health Service hospital. She gibbered at the sight of patients on stretchers with nurses walking beside them holding blood bottles in the air and going down open corridors between the buildings. That was during the period when we not only had a private health service insurance but we had two.

This is a very good Bill indeed. I have heard it described by some people who are worried about the cost as "mortgaging the future". In my view that misses the whole point. There is nothing wrong with borrowing and repaying over a long period. There is an international market in sovereign debt using interesting financial instruments called Brady bonds which has already done more for the third world in terms of direct support than have all the resolutions of the UN put together. Over the years I have bought eight different houses. The first five of them were all financed by 25-year mortgages. Most people in this building would have done the same. It is a perfectly sensible thing to do. I believe that the Bill can make a significant contribution to more efficient and cost-effective investment within the National Health Service.

In support of that claim I should like to advance two main arguments. It is the result of a system (which has very good factors—I am totally in favour of parliamentary democracy for most of the time), not the result of lack of keenness on the part of Ministers, or that one political party wants a lousy national health service and one wants a very good national health service. No matter which party is in power, the government of the day inevitably will face problems with the public sector borrowing requirement every few years. Every time that happens, a Cabinet committee is formed and the Cabinet begins to discuss cutbacks. Prior to privatisation, under both governments—I served in the public sector under both governments—the first target was always the nationalised industry investment programmes. That was not because it was a sensible place to start but because it has the minimum short-term impact on the voters. It is politically much easier to cut investment and maintenance than to undertake almost any other fiscal measure in the hands of the government. In the longer term, the effect is always higher maintenance costs and in due course massively increased replacement costs. That is the problem in the National Health Service: the sheer scale of the investment required in bricks and mortar and the cost of maintaining it afterwards.

The involvement of private sector finance in a joint venture will not end that practice. All Chancellors will continue to look at the public sector to see where they can cut the investment programme because the punters will not notice it as they do other things. It will, however, make it much more difficult for governments to come in and take short-term measures. It was easy when there was a chairman of a nationalised industry—I speak from personal experience of this—to introduce what used to be known in the trade as the "lunch table directive". The Minister invited one to lunch and for the first time there was a decent bottle of wine available. He explained that it was all the chairman's responsibility, but then he would press enormous problems when he came to deal with the next thing you needed in the running of the business. It will make cutting investment more difficult and less frequent, and will therefore provide a degree of stability in the programme, which is as important as the actual amount of money involved.

My second argument is that civil servants and public executives are not the best people to run what are essentially large and complex commercial projects. I do not want to be misunderstood on this point. I have the highest regard for the intellectual ability of the vast bulk of civil servants. I was lucky enough to learn a great deal from a small number of extremely eminent and able civil servants. But the public and private sectors have different cultures; they attract different people. There is no regular movement between the public and private sectors either way because they call for different skills and experience.

I spent five years heading up a nationalised industry which consistently lost £0.5 billion per year, as it had done under virtually all my predecessors. I enjoyed the job immensely; slept soundly each night, and in due course received a knighthood for my achievements. When I moved into the private sector I found myself heading up two very different start-up situations—companies whose capital involved other people's money and all of it at risk. Fortunately, both of them eventually made it and became profitable. However, for the first two years I spent a lot of time in the wee small hours wondering whether we were in danger of trading while insolvent and whether we should pull the rug. That is the sort of pressure that concentrates the mind and which is absent from the public sector. That is not a criticism; it is just a big difference.

A year ago I resigned from the chairmanship of Guy's Special Trustees—not to be confused with the trust. I had a group of extremely able colleagues, professionally qualified, effectively managing a portfolio of about £150 million which Guy's had inherited over the years. We were asked if we would provide pump-priming finance for phase three of the rebuilding of Guy's. After much discussion we agreed to provide £25 million for a project with an agreed end price of £60 million.

I shall not go into all the details except to say that some of the professionals who were working for nothing for Guy's Special Trustees were far more frequently right than were the people who were managing the project. But what happened? I do not know what the figure is today; the noble Baroness may be able to tell us. But the last I heard was that it was not £60 million; it was £150 million, and still going north. That is a sad and complex story which, frankly, can only be described as a near total shambles.

I do not believe that the Bill will produce perfect project management in the National Health Service; there is imperfect project management in the private sector as well. But I have no doubt that the principles which underlie the Bill—the direct involvement of private sector management and private sector capital sharing the financial risk—would have made the Guy's phase three saga far less likely and probably would have prevented it because those financing the project would have moved in much faster. This Bill is important in principle. I hope that that principle spreads, and I wish it well.

3.55 p.m.

Lord Winston

My Lords, first, I apologise for the second time in two weeks for having to leave early. I shall not be able to hear the Minister's summing-up at the end. Some time ago I agreed to give a lecture in Boston and must catch a plane from the airport tonight. Secondly, I must declare an interest in that I am a practising clinician at a London teaching hospital and have some limited personal knowledge of the PFI in that we are trying, and have been for some two years, to arrange a PFI for the transfer of Queen Charlotte's Hospital to a new building on the Hammersmith Hospital site. In a way that is a small project which is covered financially and will clearly give significant savings to the health service and improve delivery of services. Yet that PFI has so far taken two years to reach the present stage and is not yet agreed. Hopefully it will be.

Clearly one must support the Bill. It is an important initiative of the Government to push the PFI forward in this limited way. However, like a number of your Lordships I have always had strong reservations about the private finance initiative. While I totally respect the knowledge of the noble Baroness, Lady Cumberlege, in relation to genetics and agree with her comments on father and daughter, I remind her that in the debate on 21st May last year when the PFI was raised, she did not address any of the issues that I and a number of other noble Lords raised indicating anxieties about the PFI, which still stand.

Of course, our buildings are often in disarray. Perhaps I may distract your Lordships for a few seconds. I am reminded of the first time I went to the Hammersmith Hospital, which was then making its own radioisotopes for research. One of my colleagues was a senior consultant who was in the business of injecting a short-life isotope—it had a life of seven minutes—into a patient to image the parathyroid glands. That had to be done on the medical ward two floors up.

The isotope was made in the cyclotron building, dropped out of the window into a waiting fishing net below and handed to a cyclist who cycled across a courtyard, handed it to a PhD student who climbed a stepladder over a wall and dropped it into another net. It was then wound up by a fishing rod to the second floor where it was injected into the patient with at least four minutes to spare. I understand that the isotope worked very well and the patient survived, obviously with a little less radioactivity because of the time it took to deliver the drug. Hospital buildings are higgledy-piggledy, and that will always be in the nature of health service buildings.

The fundamental problem with the PFI is that it is a form of hire purchase agreement. Whether or not we like it, it is a way of avoiding the public sector borrowing requirement. Who can borrow cheaper than a government? Clearly, when a private financier is involved there must be some form of profit. The anxiety of many noble Lords, which I share, is that here we have an example of where we might be hocking the family silver over a long period of time. It is clear also that it is an expensive process. In Hammersmith we have seen £30 million spent already on legal costs and so forth. It creates considerable delay, often with much needed projects. Thank goodness the Government have decided to press ahead with this limited measure this afternoon.

I agree with the noble Lord, Lord Marsh, that there is nothing wrong with a mortgage. However, one must shop around to make sure that one obtains the cheapest possible terms for the mortgage. That encourages delay once one enters the private sector and that is a problem.

I agree with the noble Baroness, Lady Robson, who made some important points. One of the issues I should like to pick up is the length of contracts. We must recognise that health service needs change increasingly rapidly because of the nature of technology. It is important that contracts are not put in place which, over a period of 20 to 30 years, become obsolete and end up being a millstone around the neck of a hospital, a trust or a health authority.

There is also a clear risk of fragmentation because of the financiers' need for profitability. Although that issue does not need to be directly addressed in the Bill, nonetheless I hope we look at it when we consider the issue of the provision of services—that they are maintained on the basis of need—when we come to the Committee stage of the Bill. With the PFI it is important that there should be careful planning to ensure evenness of distribution of health service resources.

I was amused by the remark of the noble Baroness, Lady Cumberlege, about the heritage. It seems to me that the heritage is not about the past but about the future. It is about planning for Britain's future. If there were ever a case for the PFI it would surely be more appropriate in some ways for the national heritage than for the National Health Service.

There is great concern among many academics about academic medicine. As your Lordships will know, and as has been pointed out repeatedly, the universities are in very cruel straits indeed because of the difficulty of raising money for important capital projects such as laboratories. Those services are hand-in-hand with the health service. They provide 10 per cent. of our medicine in hospitals. It is vital that in the future that aspect is protected within the PFI. I agree with the noble Baroness, Lady Robson, about lines 20 to 25 of the Bill with regard to the provision of services. What is meant by a "clinical service"? Are pathology services clinical? Of course they must be because they look after patients. So are radiology services and operating theatres. However, there is a risk that unless we look at this point very carefully they could be privatised in the wrong kind of way. That has to be taken account of at the Committee stage of the Bill.

It is sensible of the Government to move forward in this limited way. I am grateful to hear that they are to make progress because at the present time it is urgent that we get on with outstanding projects as this issue is causing a great deal of concern among clinicians and all support services throughout the country.

4.2 p.m.

Lord Jenkin of Roding

My Lords, I am left in some doubt as to the degree of support of the noble Lord, Lord Winston, for the Bill. He has declared himself enthusiastic that the Minister and the Government have brought it forward but most of his speech seemed to damn it with less than faint praise. We shall watch with interest the amendments which he and his noble friends move at the Committee stage.

The noble Baroness, Lady Jay, gave an altogether too down-beat account of the progress of the PFI to date. I hope to be able to offer some comment as to why I think it would have been totally unrealistic to imagine that in the course of two or three years a large number of fully fledged schemes would have come on stream. It is not that kind of operation. Like the noble Lord, Lord Winston, I must declare an interest as the chairman of a National Health Service trust. It has undertaken one or two very limited PFI schemes but was frustrated in one rather larger scheme because it was impossible to get both sides to agree the terms.

I can deal with the Bill very briefly. It has a very limited purpose which was outlined to the House by the noble Baroness. If one takes Clauses 1(1) and 1(2) together, one has the whole purpose of the Bill, which is to ensure that the Government can certify an externally financed development agreement. Indeed, an externally financed development agreement becomes one only when it has been certified by the Government. It is rather like that splendid little clerihew quoted by Sir Robert Megarry in his wonderful book Miscellany-at-Law, in which he lampooned modern legislation:

If anything shall seem Then the Minister may deem; A Certificate of Demption Shall provide complete exemption". It may be necessary, but the Bill is a wonderful example of that. I would have said the same had it been my noble friend on the Front Bench introducing it.

I wish to make three short points about the PFI and its relevance to the Bill. The noble Lord, Lord Marsh, referred to the cultural difference between the public and private sector. I should like to develop that argument a little further. My second point is that the Government have a need, having regard to almost everything that has been said by the Labour Party about the PFI over the past four years, to set out to build the confidence of the private sector that they now mean what they say. Thirdly, I wish to refer briefly to the problems which my noble friend mentioned arising from the London NHS review.

First, on the clash of cultures, I do not think it is even now appreciated how profound are the differences in the cultures of the National Health Service and of the private sector. That became apparent to me many years ago when I was Secretary of State and led delegations of health industry businessmen to foreign markets in order to try to boost the sales of British products in those markets. I found that many of the industrialists who were selling abroad did almost no business with the National Health Service and that, correspondingly, many of the firms which had got themselves well dug in to sell through the various purchasing arms of the National Health Service found themselves quite incapable of doing any business in any other market. One had a complete division. It made a profound impression on me as to just how unique is the NHS in the culture it adopts towards buying. The procedures are totally different, the processes are different and the requirements and standards are different. This meant that some firms which were big in the UK were unable to do any business overseas.

I have seen exactly the same phenomenon in the field of urban regeneration. Over the years a succession of initiatives by governments to try to build partnerships, often with considerable success, have had to overcome these huge cultural differences between the public and the private sector. If one looks at the considerable successes of City Challenge, one had different financial regimes between local authorities and private developers, different decision-making processes within the two different organisations and different timescales within which they operated. One saw the steep learning curves that were necessary. That is the point about PFI here. The noble Baroness, Lady Jay, totally ignored that in her opening remarks apropos the criticisms of the lack of progress with PFI.

People have had this steep learning curve. That has nowhere been better stated than in a paper that was read to the Royal Society of Arts last January by John Owens, a very distinguished chief executive of the Royal Infirmary of Edinburgh NHS Trust. Referring to the clash of cultures—I am happy to adopt the phrase of the noble Lord, Lord Marsh—he said: PFI forces the NHS and the private sector to recognise that there is a lack of understanding of one another's accounting procedures. Within the NHS, Trusts have been slow to recognise that it is no longer a bureaucratic process involving Health Authorities, the NHS Executive and Treasury before being given Public Sector funding. The Trust now has to persuade the private sector that their project is a viable long term case. In a number of projects, the private sector has withdrawn, not convinced that the business case assumptions and health authority support are viable in the long term". If the noble Baroness has not already done so, I recommend that she reads Mr. Owens' paper because I believe that it is an extremely valuable critique and comment on the way that PFI has been working. However, there is a more recent article by a private sector lawyer seconded to the Government's PFI initiative, Mr. David Anderson, who is with Nabarro Nathanson. This article has only just been published. He said, I believe that the extensive work carried out to date, which can properly be described as both groundbreaking and pathfinding, has firmly established a position where the issues are not only understood, but are capable of practical solution in the light of direct experience". Therefore, I believe that the Government have taken over PFI at a very fortunate stage. The learning curve is now largely behind the NHS and the private sector. I shall be bitterly disappointed if projects do not now come forward a good deal faster than they have done in the past. I apologise for the lengthy quotes, but they seem to express admirably an enormously important point about building understanding.

I can deal with my second point much more briefly. Labour's recognition of the merits of PFI, like so much else in the policy of New Labour, is a very recent and a very abrupt change of stance. Nonetheless, I suppose that it is welcome for all that. My noble friend mentioned one recent criticism. Two years ago the party opposite wrote, We will …do our utmost to discourage the signing of such contracts". That was in a document called Reviewing the NHS which was published two years ago, in June 1995. I welcome the fact that the Labour Party has now been persuaded of the merits of PFI. But I say this to them. It will need to work hard to convince hard-headed businessmen of that. The Labour Party will need to show that it understands the process of transferring risk from the public to the private sector because in the last resort that is what PFI is about. The private sector comes in, accepts the risk of designing, building and operating under a contract and if things go wrong it is the private sector which will carry the can. The NHS itself has found this process quite difficult to grasp. I ask the Government to give a firm commitment that they will be prepared to help and encourage that learning process so that it can go forward.

Finally, perhaps I may say a word about the London review. As of today, we know astonishingly little about what is in the Government's mind on this matter. Trusts and health authorities in London are being led to believe that it is not going to be another Tomlinson; that it will need to be a fairly speedy review; that the review will be a selective process, although it is totally unclear as to what is going to be selected. Many aspects of the NHS in London will not be covered by the review. I understand that the noble Baroness's honourable friend, Mr. Alan Milburn, is going to be in charge and that he is going to be advised by an advisory panel, but who are they to be? We simply do not know.

The relevance of that to this Bill is that the Government face a special challenge in London. It will be difficult both to conduct a review, presumably of decisions which have already been made or which are in the pipeline, and at the same time to keep the private sector PFI parties to the various negotiations going on all over London on board during the review process. I beg the Government to understand that that will be quite a difficult thing to do. If they are committed to a review, I suppose they must have one. But it could result in some very valuable potential PFI projects being abandoned as the private sector looks to less uncertain corners of the country in which to make its contributions.

All that is in addition to the more general obstacles to which I have already referred—the cultural change and so on—and I urge the Government to recognise the need for some solid assurances. Perhaps I may not inappropriately point out that every time Ministers are criticised from behind about a matter such as PFI, that undermines the credibility of what is being said from the Front Bench. No doubt the party opposite is well aware of that.

Over the years the NHS has survived only at the cost of under-investing both in new facilities and in maintenance. There can be few trusts—certainly mine would not be one of them—which do not face a huge backlog of maintenance. Though new investment in recent years has risen sharply—and this is a point which it is fair to make because it is now running at over 60 per cent. higher in real terms than when I first became Secretary of State for Health 18 years ago—there is still a long way to go before we have a properly housed and equipped National Health Service.

That the PFI is now seen by all parties as the best way forward is solid gain, and in its small way this Bill is a welcome reflection of that fact. But recognising and enthusiastically embracing this new culture will be an essential ingredient if PFI is to yield the level of new investment which is needed. I hope that we shall see in future a little more of that than we have seen today.

4.16 p.m.

Lord Addington

My Lords, I speak on this Bill on the grounds that one of the projects concerned is the removal of the Norfolk and Norwich Hospital from its current site in the middle of Norwich to a greenfield site at Colney. That goes against what was said by the Minister of State in the Minister's department in another place when he referred to a project in Swindon. In referring to the health service and the project in general he used these words: It is clearly important that such a major proposal secures the confidence of the local people. As far as possible, open details should be made available to people in the area about the nature of the proposal. It is not the consortium's national health service; it is not even the trust's national health service; and it is not mine. It is the people's national health service, and we should never forget that—[Official Report, Commons, 15/5/97; col. 272.] The people of Norwich are beginning to think that somebody had forgotten. This point is not aimed generally at the current government, but at all those who have been involved in the process.

Tonight, at 7.30 p.m., at a meeting of Norwich City Council a motion will be tabled which condemns the siting of the new hospital. It will be backed by the controlling Labour group on the council, with the full backing of the Liberal Democrat opposition. There are no Tory members on the council. The motion is: To request an urgent review by the new Government of all decisions made with regard to new hospital provision in the Norwich area. This review to be held in public and 'transparent' in all details, including finance. The review to consider environmental impact, sustainability and access issues as well as economic impact". At one point a petition containing 18,000 names was raised in a few days. That is approximately 10 per cent. of the population of Norwich. That petition was presented to the local health authority. In those circumstances something must have gone very seriously wrong. Going back over 10 years, the conclusion in effect—and it has been mentioned by many people in this debate already—is that it takes a long time to get new capital projects built. Indeed, the noble Lord, Lord Marsh, struck that nail squarely on the head by saying that no one liked shelling out for such projects. Over 10 years reviews have been carried out, and a split site was favoured, moving from the one city-centre site to the new site just outside Norwich.

After a series of changes, in 1992 it was agreed that everything should be moved without public debate and a public review process. It was agreed that there should be a new, extremely large hospital on a greenfield site outside the city centre. However, the site and the hospital have now "shrunk", and dramatically so. Not only are we to lose two hospitals in Norwich—the West Norwich and the Norfolk & Norwich—but they are to be replaced by a hospital with about 200 fewer beds.

There has not been any public consultation. Whenever changes have been made, it has been on the authority of a public inquiry which said that there should be a split site. The current site of the Norfolk & Norwich is slap in the centre of the city. Indeed, it is just under half a mile from the main bus station in Norwich. Anyone who looks at a map of Norfolk will see that Norwich appears to be at the centre of a spider's web of roads. Norwich has very good public access and very good public transport. It is said that one of the reasons for siting the hospital outside the city is that that will allow far better car parking facilities.

Salt has been rubbed into the wound of public disquiet in the area because it has recently been proposed that a new centre on the existing site could be developed at considerably lower cost—at anything up to £100 million less—and that underground parking could be provided. The Member of Parliament for Norwich, South (Charles Clark), pursued the issue throughout the election campaign and was finally told that the compensation that would be required (given the existing legal commitments with regard to the site) would be so great that it might outweigh even those savings. I have been confirmed in my original opinion that this Bill merely removes the last legal objection to acquiring the finance and the vires.

People are very bitter. I have run through the argument to try to amplify the fact that the people of the area do not feel that they have been consulted. There is tremendous resentment in the area. It has been estimated that about one-third of the population of the county lives within a 10-mile radius of the city centre. It has been estimated that nine out of 10 people now have a hospital within easy reach. However, the proposal is for a greenfield site that will require new roads and new building. That will take economic activity away from the city centre, which at the moment is scarred by unused potential building plots.

Surely the Government should take advantage of this opportunity to state whether they intend to establish a process whereby any major change to a PFI project must be subject to at least some form of public debate. Without that, there will be a series of disgruntled people, feeling that they have been badly treated and who are often ignorant of the decisions that were taken. Regardless of the medical benefits, what has happened in this case has left a very bad taste in the mouths of the people of the city of Norwich. They feel that local opinion and local democracy have been totally ignored.

4.23 p.m.

Viscount Ullswater

My Lords, I understand from the major contractors who are involved in leading PFI health projects that the Bill is to be welcomed. It sets out to achieve the objective of clarifying the power of NHS trusts to enter into contracts for major projects which are externally financed by the banks or other funding institutions which will not be providing services themselves. The power to enter into PFI contracts was missing from the legislation setting up the NHS trusts and has been of concern both to them and to the providers of the finance for some time.

Perhaps I may refer to the contract which has already been brought to your Lordships' attention and which is perhaps one of the biggest. My noble friend Lady Cumberlege mentioned the building of the £194 million Norfolk & Norwich hospital in the county in which I live. That project has not reached financial close and has not been started. The noble Lord, Lord Addington, clearly demonstrated some of the problems that arise when one is unable to go ahead with such capital projects when they are first agreed. When such projects do not proceed, local people often decide that the location is not right and we then encounter all the problems that the noble Lord outlined.

Public sector capital funds are always scarce and have to be rationed across the whole range of government departments—so much so that long-awaited and long-promised new developments, despite the massive hospital building programmes of the 1980s and 1990s to date, are still in the Treasury queue. The noble Lord, Lord Marsh, correctly commented on the length of the queue of public sector projects in the generality and on the size of the problem for the NHS in particular. However, the PFI allows the NHS to bypass or to jump the Treasury queue as long as the project is financially viable and has a private sector partner.

The Government have announced that they intend to conduct a speedy review of all PFI across government, to be conducted by the Paymaster General. I am pleased that they are prepared to put this sensible piece of legislation before Parliament even before the review has been completed. The speed with which this Bill has arrived makes me believe that it was unfinished business from the previous Administration. Indeed, we have had confirmation of that from my noble friend Lady Cumberlege. There is no harm in that. The new Administration have made favourable noises about public/private sector partnerships, and if the review is to identify obstacles in the way of the PFI and ways in which the process might be streamlined, I welcome it.

The Bill will cover major projects which are externally financed. However, I am advised that it will not cover a deal where the private sector contractor is financing the project from its own resources. Many of the smaller PFI projects which have already been let involve the building contractor or service provider funding the project on the strength of its own balance sheet. The Secretary of State would not be able to grant a certificate under Clause 1 for such projects because they would not satisfy the requirement under Clause 1(3)(b) that, a person proposes to make a loan to, or provide any other form of finance for, another party in connection with the agreement". If there is no "other party"—just the trust and the service provider which is funding the project from its own resources—the certificate could not be granted. Perhaps the Minister can assist me and tell me whether my interpretation is correct. If it is, is that the approach on which the Government are now set? If the public/private partnership approach is to be used for the full range of projects within the health service, I believe that it must be capable of applying to small as well as to larger projects.

Having said that, I welcome the Bill. I hope that it will be given a warmer welcome than the somewhat dour comments that have been made about it today and I hope soon to see it on the statute book.

4.28 p.m.

Lord Dean of Beswick

My Lords, I rise to support the Bill. Other noble Lords have already explained it and what it entails. I thought the Opposition spokesman, as we must now call the noble Baroness, Lady Cumberlege, a little uncharitable in going wide of the Bill and attacking people who are not in the Chamber to defend themselves. She said that one of the main reasons why the Bill had had to be brought forward was the behaviour of some Labour local authorities. That would be the case—wouldn't it?—because there are not many Conservative local authorities left to misbehave although some have done so in the past. I believe that the noble Baroness actually used the word "confiscation"—she certainly implied it—with regard to what local authorities might do with their money.

To put the record straight, the biggest act of financial brigandage this century was perpetrated by the Conservative Government under the leadership of the noble Baroness, Lady Thatcher, and her Chancellor of the Exchequer, the noble Lord, Lord Lawson. Quite cheekily, they purloined £3 to £4 billion of water assets from local authorities without any compensation. I did not hear any shouts from noble Lords opposite in defence of local taxpayers to whom that money belonged. I believe it is on record that one Member of this House on the other side who said that the money ought to go back to the local authorities was the former Secretary of State for the Environment whose memorial service is sadly being held tomorrow. I refer to Lord Rippon who at the time was Geoffrey Rippon. In the other place the action of the Thatcher Government was deplored by the former Prime Minister, Mr. Edward Heath. He also said that the money should be returned. It was only £3 to £4 billion. I believe that the noble Baroness should be careful in speaking about financial probity. That was a disgraceful act on the part of any democratic government.

I also worry about cost. It is well known that a delayed start in building costs an enormous amount of money. I believe that the noble Baroness, Lady Cumberlege, quoted the figure of £2.1 billion.

The figure that I have before me is £2.7 billion. That covers 146 schemes in the pipeline, including 23 that are worth over £25 million each. I believe that the Opposition spokesman teased my noble friend Lady Jay about the fact that action should have been taken before now. Who stopped it? The noble Baroness, Lady Robson, nailed that when she asked why these clauses were not in the Bill of last year. That was a Conservative Government Bill. Why were they not put into the Bill? It was apparent then what was emerging. The cost of delay in starting £2.1 or £2.7 billion of building contracts must be enormous.

An enormous sum of money has been squandered because this Bill has been delayed for 12 months. However, I welcome it because of what it will do for the building industry as well as the health service. Members from all sides of the House have asked why more money is not spent on the infrastructure and why capital receipts from council housing have not been released. The new Government will do it. I hope that no Member on the Benches opposite will ask why it was not done when the previous Government were in power. The implication is that when noble Lords on these Benches were in opposition they held up schemes. That is absolute nonsense.

I differ from those who say that any new hospital that is built, including services, should be totally privatised. I put this view as a layman. I do not believe that it is my party's view. I do not want to see a situation where treatment following clinical diagnosis is withheld on the basis of a view put forward by a financial adviser to a trust who sits in an office. One often came across this in local government. I believe that in Manchester I gained some distinction for running a good ship. If one had let the city treasurer run Manchester there would not have been much advancement because, like most economists and accountants, he always found a case for not spending extra money. If one wants to progress one must spend a lot of money. There is need for enormous sums of money—I do not know where they will come from—to put right the infrastructure of the health service. I believe that we are starting on the right track.

When one talks of wasted money or money that has gone west one thinks of what has been lost in computer scandals, what has been lost in the West Midlands as a result of something similar and the final report issued only a few weeks ago on overspending in the former Yorkshire Regional Health Authority which went quite beyond the needs of the National Health Service. Quite a chunk of that money was paid over by officers of the regional health authority to take account of the negative equity in the sales of their houses when they moved. They were taking money from the health service in Yorkshire to pay for more expensive houses elsewhere. That was being done for consultants. The sum involved was three quarters of a million pounds. I raised the matter in this Chamber some time ago. I asked why all this money had gone west in the health service. As far as I am aware, no appointed members responsible for that policy—I am not referring to officers—ever appeared in court. I had more than a shred of suspicion that successive Secretaries of State for Health might well have been indemnifying individuals in the health service against the due process of law. Certainly, there were some very strange dealings in the incorrect spending of money in the National Health Service. It may well be that that will be looked into in a different context. I put forward a one-clause Bill that would have allowed for people in quangos who were found guilty of spending money to which they were not entitled to be surcharged like local authority members. However, on the appointment of the noble and learned Lord, Lord Nolan, naturally I withheld that Bill. However, I hope that matters of that kind can be looked into. I am convinced that the three cases that I have mentioned in Wessex, the West Midlands and Yorkshire are the tip of the iceberg. That is three instances out of 14. What happened in the other 11? They were never tested and no one ever inquired into them.

I understand that £2.1 billion of work will be put in hand. I hope that that occurs as quickly as possible without the building industry overheating for the reasons that I have given. The buildings are needed for patients and the buildings will provide work. I hope that because of the sums of money involved strict financial control over these contracts will be maintained. One knows that in very high value contracts the figures to be paid on completion are out of all proportion to those envisaged when the contracts are let. I hope that that facet will be looked at carefully. Having said that, like other noble Lords I welcome the Bill and look forward to the Committee stage when Members of your Lordships' House may agree variations, but the sooner the measure goes through the better.

4.38 p.m.

The Earl of Home

My Lords, I first declare an interest. I work in Deutsche Morgan Grenfell, a bank that advises various consortia involved in projects that may go ahead as a result of this proposed legislation. It was one of the banks that expressed the gravest reservations about the vires of the National Health Service trusts to enter into these contracts.

Like my noble friend Lady Cumberlege I am grateful to the noble Baroness, Lady Jay of Paddington, for introducing this Bill so early in the Session. It will enable several highly desirable projects to proceed through the PFI. Likewise, I am pleased that there is an all-party approach to the principles of the Bill which I hope will lead to its speedy enactment.

I was interested to hear the Minister say that she had supported PFI for some time. When the noble Lord, Lord Eatwell, was Front Bench spokesman for the party opposite he referred to the PFI as "probably fictitious investment". I trust that, so far as the Government are concerned, that somewhat flippant attitude to what is a serious topic is now firmly buried and consigned to the pages of Hansard and of history. Without being over dramatic, the projects which will benefit from the enactment of the Bill will considerably increase the efficiency of healthcare in this country and thus reduce suffering sooner than would have been the case had the project been financed purely through public funds.

Although PFI is thought to be a complicated subject, its basic principles are perfectly straightforward. They are all about who should take what risk and, having established that, who is empowered to take that risk. It is perfectly fair for investors, banks and financial institutions to seek clarification on who is empowered to sign what. Indeed, it should be helpful for the Government to know who is responsible for what element of each project. In the same way as government must safeguard public funds, we in the private sector and in the bank must safeguard our depositors' funds and not put them and shareholders' money at undue risk. I am very pleased that the principles of the Bill provide a needed clarification to enable the trusts to sign these contracts.

The Bill is a good start. It will enable a significant sum of money to be raised. But I believe that a lot more could be done. It is not appropriate today to debate the wider aspects of PFI when the vires of local authorities to enter into transactions will have to be addressed. That must be the topic of further legislation, for their powers have already been challenged in the courts. However, I hope that that problem will be addressed by Mr. Malcolm Bates in his study and we all look forward to its results.

I further hope that it will recognise that many factors are common to all these projects. In the past, there has been a tendency to reinvent the wheel with each new set of advisers, investors, lawyers, bankers and government officials. As has been pointed out, that has been an expensive exercise, but each new project creates new case history. As my noble friend Lord Jenkin of Roding pointed out, it has enabled practitioners to move further up the learning curve. Nevertheless, large amounts of money have been set aside and there is impatience among sponsors and investors, as well as within government, to get on with it.

It should be possible to work out which problems are common to which projects, be they roads, prisons or hospitals—and I have been involved in all of them—and then to develop an umbrella template which would cover most of the answers to those problems which are currently addressed on an individual basis. Under that umbrella template, a further template could then be added to cover hospital schemes, for there are many similar characteristics to any new build hospitals. I am well aware that good work has already been done on that by the Private Finance Unit in the NHS. It has identified possible standard terms for certain commercial and financial agreements.

However, under my proposal, a second template could then be developed to include parts of hospital schemes. There is, for a financier, almost as much work in bringing to fruition a £1 million scheme as in undertaking one worth £100 million. It is simply not economic for many institutions to become involved in the smaller schemes. But many of these smaller schemes—for instance, specialised eye units and chemotherapy units—in the £1 million to £5 million range are highly desirably and could possibly be ring fenced as regards financing. That will, however, happen only if they can be made to be not too time consuming and therefore the maximum conceivable number of common elements must be identified and standardised.

There is another way. One could find a sufficient number of common factors for the smaller schemes, which could then be lumped together to make a large package in a manner similar to the general purpose lines of credit, which are made available under the Export Credit Guarantee Department. They could still adhere to the European rules on competitive procurement. Likewise, a more detailed template to cover the smaller schemes could be formulated. Healthcare is not just about building shiny new large hospitals. Small facilities are particularly important, especially in rural areas. While each individual small scheme may not seem particularly large in terms of money, the totality adds up to a great deal. In order to allay any fears that the British Medical Association may have on this topic, I emphasise that I am not here talking about the privatisation of clinical services, nor indeed the extension of PFI into clinical services. I am here simply talking about the capital cost of bricks and mortar related to the smaller schemes.

While a general review of PFI is desirable, a short time has been given to Mr. Bates to conclude it. It cannot cover the common ingredients of the schemes to which I refer. If PFI is to be used to good effect for healthcare, more detailed discussion is needed between government and the practitioners if we are to turn theory into good practice. I know that the banking and the legal industries are keen to make PFI work and, as practitioners, we are more than willing to sit with those from the Treasury and whomever the noble Baroness, Lady Jay, wishes to nominate from the Department of Health to work out the details of the templates to which I have referred. I believe that it would be time well spent now and that it would save a lot more time and frustration in the future.

4.46 p.m.

Baroness Seccombe

My Lords, I wish to begin by declaring, an interest, though not a financial one. I am deputy chairman of Nuffield Hospitals. We have 34 acute hospitals countrywide caring for people in the private sector. Recently we completed agreement with the Royal Surrey Hospital Trust for the construction of a new Nuffield Hospital in Guildford. The contract contains initiatives for a new and exciting co-operation between the trust and Nuffield Hospitals.

Looking back on my childhood, I remember hospitals as dark, miserable and rather frightening buildings. Of course, once inside, the devotion, dedication and loving care shone through, even though I must admit that there was a stricter regime in those days. Tidiness of bed-making seemed to be high on the list of priorities. Most of the buildings were relics of the Victorian age. Even though upgrading has taken place, one can never get away from the fact that they remain harsh, grim and dark.

Those were the hospitals which the NHS inherited. During the past 50 years, enormous sums have been spent on rebuilding and refurbishing. Indeed, the past 10 years have seen the completion of more than 750 schemes, each costing more than £1 million. But there has to be a balance as regards how funds are spent. Money put into buildings cannot be used for other worthy causes and priorities have to be set out. However, I believe that for patients it must be so much more agreeable to enter a hospital which is light and welcoming. It must also be of great benefit to all those who work in hospitals to have better amenities. I am sure that, for example, they will welcome not having draughty corridors or having to take patients into the open air on the way to and from surgery.

It is even more important that hospitals become centres of excellence, with the latest hi-tech equipment necessary for today's treatments. We all know of towns where the debate on the longed-for new hospital has ranged from excited expectation to mere despair, as the project queued for Treasury agreement. The private finance initiative was begun by the previous government to alleviate the problem. It applies only to buildings and non-core services, with the NHS retaining the freehold of the building. Of course, it provides an opportunity for the private sector to apply flair and expertise in the design and construction of the buildings required by a trust for its particular needs. Many schemes are in the pipeline—71 have been approved, bringing in private capital of more than £600 million, including last year an injection of capital for major schemes at Leeds, Amersham and, indeed, the hospital in Norwich about which we have heard this afternoon.

However, the whole initiative has not progressed as quickly as was envisaged. It is a new process which brings together private capital and NHS trusts. But doubts were raised as to the underlying powers of the trusts to enter into those financial arrangements. I believe that no one expected such doubts to emerge and I am sure that they were not intended. Therefore, it was natural that action should be taken and the previous Government promised legislation to ease the situation. Therefore, I am delighted to welcome this Bill and also, of course, the Government's conversion to the principle of PFI.

The Bill recognises the contribution that can be made by the private sector to the development of facilities for the NHS. I was interested to note from the briefing that I received from the BMA that it has withdrawn its main reservation, as it accepts, that the PFI may be important in attracting additional financial resources into the Health Service". I hope that this important, short Bill will have a speedy passage on to the statute book. It will enable and encourage the conclusion of many projects. That can only be of benefit to local communities and, indeed, the economy of the country as a whole. I look forward to hearing from my noble friend Lady Anelay of St. Johns as she takes up her new place on the Front Bench. I congratulate the noble Baroness, Lady Jay of Paddington, as she embarks on her first Bill as a Minister. I wish her and the Bill all success as the Bill proceeds through this House.

4.52 p.m.

Lord Rea

My Lords, I thank my noble friend for explaining so clearly the purpose of this short Bill. I hope that she is right to predict that the log-jam or gridlock as regards some PFI projects will now break up and that some of them will start to get going.

In some parts of the country, there will be great relief if that occurs. However, some projects will not receive the whole-hearted support which perhaps the Minister would wish from the populations concerned. In that regard, I refer to the remarks made by the noble Lord, Lord Addington, about Norwich and I am thinking also of the next phase of development at Barnet General Hospital. That will allow the further dismantling of Edgware General Hospital, which is a hospital well situated in the midst of a population which contains many under-privileged people. If the development goes ahead, those people will have to travel much further for their acute and emergency services. Similarly in Norwich, as the noble Lord, Lord Addington, said, by moving out of the city the hospital will be more difficult to reach for the 40 per cent. of the citizens of Norwich who have no car. The new car park will be of little use to those people.

However, it seems that both projects are so far along the road of planning that it will be very difficult to reverse them now. Nevertheless, I feel that the anxieties of the populations concerned, who will be deprived of their local hospitals, must be addressed. I know that Norwich City Council and the citizens of Edgware would certainly be grateful for this.

As most noble Lords have said, this debate allows us to consider whether the whole PFI initiative is necessary or wise. The Government are in favour, as am I, of good forms of public/private partnership in the financing of a variety of enterprises, not only in the NHS but in many other fields—universities, roads and rail schemes, although that is not so much the case now that the railways are privatised—but there is still some call for public finance in that area.

The main reason for the need for those public/private partnerships is to avoid increasing the public sector borrowing requirement. But as several noble Lords said in the debate which took place about a year ago on the residual liabilities private finance initiative legislation, it may not always be the most appropriate method of private finance for the NHS. That is not only because the support services provided by the consortium or firm concerned will then be out of National Health Service control but there is also that grey area which the noble Baroness, Lady Cumberlege, mentioned where those support services impinge on clinical services so that one is not quite sure where the divide comes.

There is also a worry because it is a costly way to obtain capital for building solid assets. I realise that such talk is probably anathema to the Treasury, which lumps into the public sector borrowing requirement both capital and revenue or recurrent expenditure. But I suggest that it may be time now for a rethink to consider that and to consider whether we should not require public sector borrowing to have separate capital and revenue elements. I know that that has often been discussed before. It would allow greater leeway in the field of capital expenditure. If a water-tight business project could be drawn up for capital expenditure, that would seem to be a perfectly sensible reason to increase capital expenditure under the PSBR.

It has been said that the PFI is mortgaging our future. The noble Lord, Lord Marsh, and other noble Lords have justified that and have said that that is not a bad thing. Like many of us, the noble Lord, Lord Marsh, has bought several houses on a mortgage. In this House there may be some who are lucky enough to have a tied cottage or a stately home. I wish that I was one of those because I certainly have bought more than one house on a mortgage. But it is a perfectly acceptable way to raise money, provided that the asset will be realisable at the end.

It has been said by a number of people, and in particular by my noble friend Lord Winston, that in the provision of health services things change very rapidly. It may be that a hospital which is built now will be redundant in 10 years' time. However, I suggest that architects may wish to think very seriously about that. They have thought a lot about making hospitals flexible according to their different kinds of clinical use. I suggest that they may have to think about building hospitals in such a way that they could be converted easily into something totally different—for residential or commercial use or as community centres and so on. But it seems to me that, regarding solid bricks and mortar investments, we could borrow money more cheaply on the international market as a government than can be raised through the private sector.

As for the costs of servicing the hospital and the facilities, they will still have to be met every year whether the enterprise is publicly or privately financed. If the project is privately run, then a profit must be made out of taxpayers' money. I just wonder whether that is what the Government really want to see. In many cases, where services have been contracted out by existing hospital trusts, the result has not always been a happy one. The use of a "flexible", often part-time, low-paid workforce has often led to a lowering of standards. I suggest that when a minimum wage is introduced the charges for such services will probably rise, so that the competitive advantage of commercially contracted out support services may well become less.

I agree that the Bill is necessary for the current projects that are waiting impatiently for the starting gun. However, I hope that the operation of the PFI in these projects will be carefully evaluated and that in future the PFI will only be used where a clear advantage to taxpayers can be demonstrated over the whole period of the contract, and not simply because the immediate cost appears to be less.

5 p.m.

Baroness Eccles of Moulton

My Lords, I should like to start by adding my congratulations to those already offered to the noble Baroness, Lady Jay. Our paths have crossed, shall I say, in the health service on a number of occasions and I have the greatest admiration for her knowledge and ability. I should first add my name to the list of those speakers who have also declared an interest, in that I am chairman of a west London health authority. A number of PFI schemes are under way or already completed in that part of the city.

It might be helpful if I say a few words about some of the background to capital investment in the health service. Within the public sector, the NHS has historically had a narrow and restricted approach to capital investment. Local government and the university sector have had greater freedoms to use private sector money and have had the associated powers to borrow. The approach of the health service has been more cautious. This can be extended to its overall financial management where over the years it has had a good record of living within its allocated funding without accumulating debt.

However, as a result of that traditional, rather unimaginative approach to capital investment, neither the costs of capital nor the potential to create funds for new buildings through the sale of surplus land holdings were sufficiently taken into account. A notable exception to this approach has been in general practice. Traditionally, GPs, as independent contractors, have had a well-established pattern of using private sector funds for capital investment in GP premises development. Further, over the past 20 years or so, the closure of the large, long-stay institutions for elderly people and people with learning disabilities, as well as for psychiatric patients. has depended heavily on non-NHS funding to provide capital for high quality, small residential units, offering standards of privacy and a quality of life which are often far better than those previously offered in the NHS. Moreover, for frail elderly people the enormous growth in the independent nursing home sector is another example of the NHS utilising third-party capital funds. There are also numerous partnerships with housing associations and other non-profit-making groups where their ability to access capital has enabled them to work in partnership with the health service, thus providing truly excellent facilities for some of the most vulnerable groups in our society.

We are all aware that the purpose of the PFI when applied to the health service is to inject additional capital money into the NHS to tackle the considerable backlog of out-of-date unsuitable buildings and equipment. However, experience gained while working up the schemes—in other words, the learning curve, which has already been referred to by my noble friend Lord Jenkin—has inevitably revealed some problems which it would have been difficult to anticipate but which nevertheless need to be taken into account if the initiative is to be effective and enduring.

One of the obstacles that has emerged has been dealt with by this Bill; another is the matter of risk, which was mentioned by my noble friend Lord Home in the context of banking. In order for the capital sums involved to be excluded from the public sector borrowing requirement calculations, the private sector was required to assume a substantial proportion of the risk involved. If the private sector funders were to take such large risks they would have had to charge premiums so high that any potential benefit would have been negated.

The residual liabilities Act, to which reference has already been made, was passed last summer and goes some way to reduce the commercial risk as it allows the Secretary of State to deal with insolvent trusts. However, if reasonable rates of return on the capital employed are to be achieved, the sharing of risk between the health service and the consortium providing the project must be sensibly applied.

Another problem, but one which, if properly organised, could also be a virtue, is the management of facilities. The issue has already been extensively dealt with by the noble Baroness, Lady Robson, but I have a slightly different slant to put on the subject.

The large PFI schemes tend to be bid for by consortia. These can be made up of a number of companies supplying different services. Part of the deal is that members of the consortium take over the provision of some or most of the non-clinical support services such as catering, domestic services, estate management, car parking, and many others, on a long-term basis. It is important to note that this provides part of the return on the investment and is part of the process of transferring risk.

The virtue can be in services more effectively and efficiently provided. However, the problem can be that the management of the trust concerned has lost direct control of those services and has closely and continually to monitor their quality. It means that there is a different management role, with managers becoming performance approvers rather than service managers—a skill that needs to be learnt.

When the PFI was first introduced into the NHS—and this is another aspect of the learning curve—there were doubts about whether people at local level would have the maturity to balance the risks and benefits of large capital projects in both financial and non-financial terms, and so a complicated, highly centralised and lengthy process had to be embarked upon. That has contributed to the length of time it is taking to sign off the contracts for the big schemes. It would be a help if some of the preliminary procedures could be streamlined. That would save both time and some of the excessive costs which fall both on the lead parties in the consortia and the trusts. That point has already been made, but I should like to emphasise that a great deal of learning has had to be done as the PFI has taken a grip in the health service.

The health service cannot operate efficiently without adequate sources of capital funding. One source is recycling—for example, through the sale of land no longer needed by the health service—but this will never provide enough and sources of new capital will always be needed. The PFI is becoming established as one of those sources and through the benefit of experience it must be made to work properly.

The very short Bill before us—indeed, I do not believe that I have ever seen a shorter one—will remove an obstacle which has emerged as work on large PFI schemes has continued. I hope that the Bill will progress through all its stages as speedily as possible and be on the statute book very soon.

5.8 p.m.

Lord Monkswell

My Lords, I rise to speak in the gap but I do so in response to the noble Lord, Lord Marsh, who referred to me as speaking later in the debate and as obviously being in support of the Government. Therefore, I felt that if I did not speak it would be seen as an indication that I do not support the Government. Perhaps I may confirm to the House that I do support the Government. I congratulate my noble friend the Minister on the very effective way that she explained the purpose of the legislation which is aimed at clearing up a mess left by the previous Government. In saying that I must point out that the reason we are so desperately in need of infrastructure investment in the National Health Service is because of the paucity of that investment during the past 18 years of the previous Administration.

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 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 he 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 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

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 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.

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?

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 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.

Baroness Robson of Kiddington

My Lords, perhaps I may intervene. I do not believe I ever said that I had doubts about the Bill being necessary. I said it was a pity that we had to have two Bills and that they could not have been taken at the same time. The legislation could have been thought out a little more carefully.

Baroness Jay of Paddington

My Lords, in that case the noble Baroness and I are entirely at one. As I am sure she will recall, in my opening remarks I said that I, too, thought it might have been more sensible for the Bills to have proceeded together. I was a little concerned that she felt this was too heavy-handed a way to approach the problem. I understand now that that was not her concern. However, I am nonetheless grateful to the noble Earl, Lord Home, for making the points he did from a specifically banking perspective. I am particularly grateful that he offered further help in regard to working with the Department of Health to bring these projects to fruition more quickly. I am sure that is an approach which my honourable friends who are concerned with some of the individual projects will want to take up.

The noble Lord, Lord Addington, raised specific points about the development in Norwich. I understand his concerns about local public consultation. I will raise those points with my ministerial colleagues. I can only say to him, and indeed to my noble friend Lord Rea, who raised similar concerns, that I am genuinely surprised if their suggestion is that the general response to any new hospital development in any community would be unenthusiastic. However, I know that there have been particular problems in Norwich—although I also understand that the local community health councils have endorsed the proposals as they stand. As I say, I will take up the specific concerns of the noble Lord, Lord Addington.

Lord Addington

My Lords, I understand that there may be some areas of agreement; however, there is certainly great public concern about the way this matter was handled and the way in which, in this particular case, account was not taken of the wider issues involved and not merely the site. That is the main point of concern.

Baroness Jay of Paddington

My Lords, I am grateful to the noble Lord for making the point even clearer, and I shall take it up again with my colleagues at the Department of Health.

Another point was raised by the noble Viscount, Lord Ullswater, who feared that the Bill would not cover the situation where private contractors found themselves paying from their own resources rather than receiving a loan. I am advised that, although that is the correct reading of Clause 1(3), Clause 1(6) provides that nothing in the Bill affects the validity of an agreement between a trust and a private contractor which does not have a certificate. The validity of the small scheme which does not qualify for a certificate is therefore unaffected. Apparently there is clear legal advice that trusts are able to enter into contracts without a certificate and the certificate process provides concrete reassurance to the banks which are funding the larger schemes. If there is anything further on the point which the noble Viscount would like to raise I shall be delighted to write to him.

Other more general points raised concerned the general scepticism—as I think I can call it—of noble Lords opposite about the overall confidence of the financial community in the new Government's determination to develop public/private partnership schemes and our real conversion to and interest in that as a profitable way forward for the National Health Service. The points were raised by several speakers, including the noble Baronesses, Lady Cumberlege, Lady Robson and Lady Anelay, as well as the noble Lord, Lord Jenkin of Roding. I can only remind your Lordships of the commitments that were given in the Government's business manifesto in the election to which I referred. I remind the House of the 12-point plan on the PFI and the specific understandings between the new Secretary of State and the banks about the schemes that we have discussed and the general enthusiasm of the private sector for the reappraisal by my noble friend the Paymaster General of the whole area of policy which has been widely considered. As I told your Lordships, it will be readily available and, as the noble Lord, Lord Ezra, suggested, it will be the subject of a more general debate at that time.

The whole question of clinical services is very tricky. It was raised by the noble Baroness, Lady Cumberlege, and others. I wish to take this opportunity to reaffirm the Government's clear commitment that we shall not allow clinical services to be included in the private finance initiative or in the public/private partnerships as they develop. Under the previous administration, there was some discretion as to whether core clinical services could be included in PFI. Under this administration, there is none. Core clinical services are excluded. However, we acknowledge that there is an on-going debate about some of the definitions of clinical support services. It is undoubtedly a grey area, and several noble Lords raised the question of pathology and radiology, as well as other so-called support services. We have given a clear undertaking to look at the detail. It is part of the investigation by my honourable friend Mr. Milburn into the issue of PFI and health services, but we have never been in any doubt about the principle.

I say with the greatest respect to the noble Baroness, Lady Cumberlege, that I was intrigued by the number of questions on the issue which she raised with me this afternoon. I thought she raised appropriate questions about the definitions of clinical support services and I was intrigued because they were familiar to me. I asked many of the same questions myself a year ago when we debated the National Health Service (Residual Liabilities) Bill. The difference is that we are now determined to sort the problem out. My honourable friend Mr. Milburn is urgently considering those questions in his general review and I am confident that he will throw constructive light on the problematic area. We shall then be able to reach workable and acceptable clarity on the issue.

Baroness Cumberlege

My Lords, perhaps the Minister would give way. I am grateful to her for being so clear in describing some of the issues raised this afternoon and for giving clear answers. However, when we were tackling them, as the noble Baroness said, when it came to radiology, pathology and some of the support services we were clear that if the local people wanted them to be part of the scheme we would seriously consider it and probably accede to it. From what the noble Baroness said this afternoon, I understand that her Government are far more ambivalent about it. I am still not sure whether radiology and pathology are part of the PFI schemes. She described them as "a grey area". When shall we know the results? People who work in the services find the uncertainty hard to cope with. With us, there was a clear line; but from what the noble Baroness said this afternoon, I think it is a fudge.

Baroness Jay of Paddington

My Lords, I have genuinely described it as a grey area because that is what I see it as being at the moment. I understand the noble Baroness's concern about a speedy resolution of the question; but without being disrespectful I can only say that it is somewhat surprising that the same questions should be asked by her this afternoon as I myself asked from her position last year. Very little conclusive work seems to have been done by the experts in the field to guide the new Government. That is precisely why my honourable friend Mr. Milburn is conducting his urgent review. I can be sure that it will throw a constructive light on the matter and we shall then be able to reach workable solutions. That is taking place within the first month of the Government taking office, and to press us at this point for clarity on something which has been confused for such a long time is perhaps a little inappropriate.

Baroness Cumberlege

My Lords, I am sorry to come back again. I agree that the position is confused, but when we were in power it was clear what our line was. It depended on the will of the local people working in the service. I understand that that is not the case now with the new administration and that the matter has been thrown back into the pot. As I said, it is a fudge.

Baroness Jay of Paddington

My Lords, this is the third time that I say it but obviously with no great clarity: for us it is still a grey area. If the noble Baroness suggests that under the past government there was great clarity, all I can say is what I said in response to the noble Baroness, Lady Anelay of St. Johns. I do not wish to quote extensively from debates we had on the subject almost a year ago, but with precisely the same questions—and that is why I raised the point then with the noble Baroness, Lady Cumberlege—the same answers were given as I have given this afternoon. The clarity may have been in her mind, but it was not clear in the policy laid down. If the noble Baroness disagrees, perhaps we may return to the point later. I apologise if she feels that mine is a wrong interpretation, I do not wish to use extensive quotations from the Official Report.

Perhaps I may return to another issue raised by the noble Baroness, Lady Cumberlege, and the noble Lord, Lord Jenkin of Roding. Both were concerned about the equally difficult issue of health services in London, which is just as problematic as the area of clinical support services. With respect to both speakers, although the PFI clearly has implications for the future of services everywhere in the country, questions on London are not the subject of the Bill today. When the details of the review process for the London situation are announced by the Government I look forward to discussing the points raised by the noble Lord, Lord Jenkin, about membership of the review body and so on.

The noble Lord, Lord Ezra, rightly drew attention to the authoritative report of the Treasury committee in another place last year. He was right to be concerned about the prioritisation of projects under the PFI. The Government are concerned to pursue the issue on the basis of a strategic approach. We agree that that is necessary, particularly as a way of avoiding the types of consultancy costs to which the noble Lord referred, as I did in my opening remarks. My honourable friend Mr. Milburn wishes to deal with much of the work in the NHS now and we shall want to look at the useful suggestion of the noble Lord, Lord Ezra, of placing some of the issues within the context of the regional structure of the NHS.

Overall, I wish to reassure him that the NHS projects which are considered within the PFI will go ahead only if they demonstrate value for money, are affordable by the NHS and are explicitly supported by the relevant health authorities because they meet identified health needs. The private sector will not dictate the capital programme of the NHS, although I hope that it will be a partner in our strategic approach.

In conclusion, I apologise if I have not dealt with all the points that noble Lords raised. If there are substantive points, I shall write to them. I am confident that the co-operative spirit which greeted the Bill in your Lordships' House will be matched by practical support from the financial community. I hope and expect that what the noble Lords, Lord Marsh and Lord Jenkin of Roding, described as "a clash of cultures" will be replaced by productive joint enterprise. The NHS then can become a signpost toward successful public/private partnerships in the future. I believe that the Bill will begin that process.

On Question, Bill read a second time, and committed to a Committee of the Whole House.