Private Finance Initiatives (Hansard, 12 February 2003)

§ Lord McIntosh of Haringey
My Lords, the Government meet routinely and regularly with the Audit Commission to ensure value for money in public procurement.

§ Lord Dormand of Easington
My Lords, does my noble friend not agree that there have been some spectacular failures in the early workings of PFI in public sector works? There has been some improvement. But does he accept the recommendation in the recently published National Audit Office report on PFI construction performance that statistics should be regularly updated to show whether PFI projects have been delivered on time and at the expected cost?

§ Lord McIntosh of Haringey
My Lords, I am glad that the noble Lord, Lord Dormand, used the word "early" in his question. Publicity in recent weeks and today about the Audit Commission report on PFI in schools is very much about the early experience. To be fair to the Audit Commission, it says so on the front page, although one could not tell that from the press comments. The PFI report covers eight PFI and 10 traditional projects from 1996 to 1998. Since then, there have been 550 school projects with PFI. That does not tell us a great deal that can usefully be learnt about PFI in schools at the moment. But the noble Lord is right that the Audit Commission recommends that we undertake retrospective evaluation of PFI. We have been doing that—in particular, the National Audit Office has been doing that.

§ Lord Newby
My Lords, the Minister is right in saying that the report deals with the first tranche of PFIs for schools. But it is a damning report. Among other things, it says that it is time to rethink how value for money is assessed by putting in place a more transparent, wider test of likely value for money. Do the Government intend to conduct such a review?

§ Lord McIntosh of Haringey
My Lords, that is exactly why I referred to the much more recent report by the National Audit Office, which was published on 5th February this year. It relates to all the completed studies by July 2002 and concludes that 81 per cent of 664 them were thought to be satisfactory, or better, value for money. Of course we must continue and extend evaluation of the private finance initiative.

§ Lord Saatchi
My Lords, will the Minister be offended if I suggest to him that the private finance initiative is being expanded because it provides a very useful device by which the Government can hide the true extent of government debt? Is not the Government's motive for doing that that public borrowing is out of control, and, as a result, the budget deficit is too high? Does he accept that, if the Government do not stop this elaborate cover-up of the true extent of national debt, the result will be a report such as this one, which I shall read: The Government's programme for the repayment of hidden debts has been postponed. The hidden debts arose from clever Government manoeuvres in previous years to borrow money through special off-balance-sheet accounts. The Government's aim was to conceal the effects of sharply rising budget deficits, stemming from slumping tax revenues and ballooning social expenditures". That was a report following an announcement made on Friday afternoon in Tokyo by the Government of Japan.

§ Lord McIntosh of Haringey
My Lords, I am never offended by anything that the noble Lord, Lord Saatchi, says. He is just wrong. It is simply not the case that the motivation for the private finance initiative is to take anything off the balance sheet. We have no incentive to do so; we have no desire to do so; we would not be able to do so even if we wanted to, because when departments decide whether to put something on the balance sheet or off it, they use Accounting Standards Board rules. The National Audit Office can qualify the accounts if it thinks that that is misleading. As far as I know—I have not gone back to all departments—there have been no occasions on which the National Audit Office has qualified departmental accounts on that basis.

§ Lord Marsh
My Lords, does the Minister not agree that, whatever the Government's intention, the effect of PFI agreements is to take them off the Treasury balance sheet? All governments take advantage of that. But, on the good side, if that were not possible, given how treasuries always behave, many good projects would not take place.

§ Lord McIntosh of Haringey
My Lords, I certainly agree with the noble Lord's last remarks. When he was in government we had cash accounting. When you added one pound of capital to one pound of revenue to make two pounds, the incentive to under-spend on capital or to under-invest in capital was great. With resource accounting, there is no longer that incentive or an incentive to take anything off the balance sheet. It is no skin off our nose if the proper accounting authorities decide that something should be taken off the balance sheet. We gain no advantage from it.

§ Lord Barnett
My Lords, does my noble friend accept that, when he talks about the early clays of the 665 PFI, he means the early 1990s? If all the money borrowed through PFI were borrowed by the Treasury directly, which can usually borrow more cheaply than most of us, would not the total borrowing, instead of being off the balance sheet, still be inside the Chancellor's golden rule?

§ Lord McIntosh of Haringey
My Lords, I am nervous about contradicting the noble Lord, Lord Barnett, of all people, but no, the borrowing under PFI is undertaken by the people who are contracted to carry out the PFI. It has been reported recently that the Croydon Tramlink PFI project is in trouble. In fact, it is covering its operating costs and is in no danger, but the shareholders are taking the risk and have suffered from taking the risk. That is what risk transfer means.

§ Viscount Falkland
My Lords, does the Minister have anything to tell the House about the PFI as it has been applied to the acquisition and maintenance of vehicles for the Metropolitan Police?

§ Lord McIntosh of Haringey
No, my Lords. I know a lot about individual PFIs, but not about every single one. I apologise. I shall write to the noble Viscount, Lord Falkland. There is always somebody who can come up with something of that sort.