HL Deb 26 November 2002 vol 641 cc627-30

2.44 p.m.

Lord Barnett

asked Her Majesty's Government:

Whether they will clarify further the use to which the private finance initiative can be put.

Lord McIntosh of Haringey

My Lords, the Government use the private finance initiative where there is a clear value for money case to do so. The Government will continue to encourage partnerships to modernise public services and to ensure that the private sector is properly accountable in order to provide a real incentive to deliver services on time and to budget and a clear level of service locked in for the life of the contract at a fixed price. Specific procurement decisions are a matter for individual departments concerned.

Lord Barnett

My Lords, I thank my noble friend for that Answer. I also thank him for his apology in a Written Answer on the final day of the previous Session in which he stated that on the previous occasion he responded to me on the matter he was slightly wrong when he said that the cost of PFI was an extra 0.25 per cent rather than between 1 and 3 per cent. I take it from his Answer today that his apology did not cover the rest of his response in which he indicated that the sole criterion for the policy was not to take liabilities off balance sheet but rather to obtain value for money. But, surely, it is not possible to say that. Is it not more sensible for my noble friend to accept that the Government select PFI projects primarily to increase public services and public expenditure? That is not an unreasonable thing to do.

Lord McIntosh of Haringey

My Lords, my Answer made clear that value for money is the primary consideration, not whether a matter is off or on balance sheet. I have said that before and I repeat it now. But in one respect my noble friend Lord Barnett is right. The private finance initiatives that we are undertaking are additional to an increased programme of public sector investment. As my noble friend suggests, the total of PFI and public sector investment constitutes an enormous increase in investment in the public sector.

Lord Peston

My Lords, will my noble friend clarify one aspect of this matter that I have always found difficult to follow? Who bears the risk in the case of a typical PFI project? In particular, is there any implicit or explicit financial liability to the Government involved in a typical PFI project? Will my noble friend assure us that the Government bear no risk at all?

Lord McIntosh of Haringey

My Lords, there is a great deal of misunderstanding about the private finance initiative. If that is my fault, I apologise. The impression appears to be getting around that we are making a change as between entirely public sector activity and privatisation. Neither of those is the case. Even without the private finance initiative, public sector investment is carried out by the private sector. We do not have public sector building firms building hospitals or schools. That is done by the private sector. The difference we are discussing is that the private sector contractors who build the schools or hospitals, or whatever it may be, are responsible for the maintenance of what they build over the life of the asset. That is the risk transfer that justifies the private finance initiative.

Lord Tebbit

My Lords, does the Minister agree that the closest parallel to PFI is one of those old-fashioned hire purchase agreements by which people used to buy cars? The only real difference is that in this case the purchaser has also agreed to have the car serviced, polished and cleaned by the hire purchase company at rates that are not necessarily the most competitive.

Lord McIntosh of Haringey

My Lords, I do not think that that is a good analogy. As I said to my noble friend Lord Peston, if a private sector firm designs, builds and hands over a hospital to the public sector but there is no redress against that private sector contractor if anything goes wrong afterwards, the risk is held by the public sector. That is what happened with the Jubilee Line extension and with the modernisation of the Central Line on the London Underground. That was a very poor deal for the taxpayer. But if a private sector contractor is locked into maintenance over the life of an asset, there is indeed a transfer of risk. That is worth a considerable amount to the taxpayer.

Lord Newby

My Lords, will the Minister acknowledge that a relatively small number of companies are bidding for many PFI projects and that that is the result of a relatively small number of companies winning them? Will he also acknowledge that that runs the serious risk of overstretch in terms of management and the balance sheet? Further, if one of the companies goes bust, who picks up the pieces?

Lord McIntosh of Haringey

My Lords, the position about whether any contractor goes bust is no different whether that occurs under the private finance initiative or previous arrangements; someone has to pick up the pieces. That is true whether or not there is a continuing contract with the company. On the risk of private sector contractors going bust because they are doing too much, accounting officers and departments will have to take that consideration into account.

Lord Saatchi

My Lords, the Minister has just apologised to the noble Lord, Lord Barnett, for the errors contained in a Written Answer. Is that a result of the fact that, as he himself said, there is much misunderstanding about PFI? Does he agree that, given the extreme sensitivity about the level of government borrowing—we shall hear more about that tomorrow—the Government should accept an independent audit of the Government's borrowing forecast?

Lord McIntosh of Haringey

My Lords, even the question of whether there is extreme sensitivity about government borrowing I shall leave for the Chancellor of the Exchequer to elaborate on tomorrow. I shall not anticipate even by implication anything he might say.

Baroness Sharp of Guildford

My Lords, am I right in thinking that the PFI is off the balance sheet and does not enter into the public sector borrowing requirement?

Lord McIntosh of Haringey

No, my Lords. A very large number of PFI projects are on balance sheet. For example, all of the PFIs for English prisons are on balance sheet. Whether the result is on balance sheet or off balance sheet is not a consideration for us or accounting officers when deciding whether a particular contract should be let under PFI There is no risk to public accounts with any PFI project being on balance sheet.

Baroness Hooper

My Lords, will the Minister tell us whether any government research into, or evaluation of, the effectiveness of PFI schemes is being undertaken? Is it the Government's intention to issue good practice guidance in relation to PFI schemes, given the wide variety of schemes that exist?

Lord McIntosh of Haringey

My Lords, the primary evaluation of PFI schemes has been carried out by the National Audit Office, which does not report to government. We do not control what it does. However, the matter has been debated in the House previously. The NAO has reported on a substantial number of schemes. The assistant auditor general, Mr Jeremy Colman, is on record as saying that, the evidence is that on the whole PFI deals deliver to time and to …budget. You get what you want, you get it when you want it and it costs you what you thought it was going to cost. Conventional public projects have a very bad record in that respect". We have no fear of any evaluation of public finance initiatives.