Private Finance Initiative

Prayers – in the House of Commons am 10:53 am ar 26 Mehefin 1996.

Danfonwch hysbysiad imi am ddadleuon fel hyn

[Relevant documents: Sixth Report from the Treasury Committee of Session 1995–96 on The Private Finance Initiative (House of Commons Paper No. 146), and Fourth Special Report from the Committee containing the Government's Reply thereto (House of Commons Paper No. 513).]

11 am

Photo of Mr Tom Arnold Mr Tom Arnold , Hazel Grove

I am grateful for the opportunity to debate the sixth report of the Treasury Committee on the private finance initiative. Let me begin by thanking my hon. Friend the Financial Secretary to the Treasury for his recently published response. I welcome the fact that he has taken a number of the points that we raised very much to heart.

It may be for the convenience of the House if I briefly explain the background to our report. The private finance initiative was launched in 1992. Its early progress was slow and in our report on the 1994 Budget we noted that it had failed to encourage significant private investment and expressed concern that it was unclear whether it was intended to supplement or to replace public expenditure. When conducting our inquiry into the 1995 Budget we recognised that our concerns had not altered, which led us to decide to undertake a short inquiry into the PFI.

The Committee identified six issues: additionality, the control of public spending, obtaining value for money, the bidding process, the transfer of risk and accountability. I shall deal with each in turn.

It is clear that at the start of the PFI spending was regarded as additional not substitutional, but its substitutional character has increasingly come to the fore. That has raised a number of important questions. For example, if a scheme expected to be funded under the PFI failed to attract sufficient funds, would the deficit be met from the public purse? How would the priority of the projects be determined—by an assessment of need or by the availability of funding?

A key feature of the PFI is that the public sector contracts to buy services rather than assets. That reduces capital expenditure in the short term, but increases current spending available to purchase services in the longer term. It raises a considerable worry over the control and monitoring of public expenditure in current and future years. There is no central control over the PFI commitments being entered into by a diversity of public bodies. That was a matter of considerable concern to the Committee.

The Government's response shows that our concern has been taken seriously and I welcome that. As I understand it—the Minister may wish to comment further on this—the Treasury will publish in the Red Book the aggregate level of public expenditure implicit in PFI deals and will monitor and control commitments under the PFI as they develop.

The Committee identified the need for greater clarity in exactly how perceived value for money benefits accrue. For instance, it identified the relative importance of different cost savings. The Government's response identifies particular areas where value for money benefits accrue.

The process of competitive bidding is fundamental to the success of the PFI. There was, however, a series of criticisms—at times conflicting—from private sector firms about the nature and cost of the process. Some contractors felt that the specifications for projects were insufficiently defined—although broad specifications were intended to encourage innovative bids—while others were concerned that the rigid definition of specifications prevented the scheme from operating effectively. A common concern was that tendering should be encouraged only for projects that had a high probability of materialising and should not be undertaken as a mechanical exercise, even when a PFI option is unlikely to be suitable. I am pleased to report that the Treasury has already acted to address these concerns.

According to the Treasury, an important feature of the PFI is that it allows the proper allocation of risk so that those most able to manage the risk are responsible for it. Evidence presented to the Committee suggested that, in the past at least, that has not always been so. I invite my hon. Friend the Minister to comment on that.

The House takes accountability very seriously. Although the PFI aims to encourage private investment in sectors previously funded by the public sector, the PFI does not eliminate public spending. On the contrary, the vast majority of PFI projects will involve some form of public expenditure. It is one of the important jobs of Parliament, through a range of mechanisms, to scrutinise that expenditure. During our inquiry, we were informed that details of PFI projects might be suitable to the constraints of commercial confidentiality. The Committee found that unacceptable, and commented: We do not think that the House would or should sacrifice its rights to see any details of Government spending it sees fit. I conclude by referring in particular to the final paragraph of the report, where we make a series of proposals and recommendations, including the following: that a breakdown between PFI projects funded via user charges and those funded by leasing charges and future public expenditure should be published, and whether it remains appropriate for private finance options to be tested in all projects or whether some might be excluded from the outset. The Government's response outlines a series of circumstances in which the PFI might prove inappropriate.

We propose that a demonstration of cost savings on specific projects should be provided to show how the higher cost of capital in the private sector was offset. The Government's response shows that, typically, operating savings of 14 per cent. and construction savings of 7 per cent. can be achieved compared with a publicly funded alternative.

We recommend that full and transparent accounting be maintained, with a full statement of expenditure commitments implicit under PFI contracts, and that details of PFI projects should be published at departmental level.

I should make it clear that, in principle, the Treasury Select Committee welcomes the private finance initiative and recognises that a huge amount of complicated detail will need to be mastered if the policy is to progress successfully. The Minister's response is a welcome start to the next stage of that process.

Photo of Clive Betts Clive Betts Opposition Whip (Commons) 11:08, 26 Mehefin 1996

I welcome the comments of the Chairman of the Treasury Select Committee, the hon. Member for Hazel Grove (Sir T. Arnold), who fairly reflected the areas of consensus in the Committee's report and members' collective concerns about the PFI. I should like to express some more critical views of the issue, to which I hope the Minister will respond.

I was previously a member of a local authority that was engaged in many partnerships with the private sector, so I have no philosophical or principled objection to them. I believe that partnership is appropriate where the private sector can work with the public sector to bring additional value to a project. Therefore, although my approach to the PFI is slightly sceptical, I am prepared to accept that it may have benefits if it attracts additional resources to important projects from which the public will benefit.

Having considered the evidence and having further read the Government's response to the Committee's report, I am now cynical rather than sceptical. It is obvious mat what we have now is not additional expenditure on projects, but a replacement for what was initially planned public expenditure. There is now a substitution of funding to allow the Government to cut their public sector borrowing requirement commitments, perhaps to provide some leeway before the next election. In some respects, we are embarking on potentially the biggest deferred purchase scheme in British financial history, and it is being proposed by a Government who criticised local authorities—such as the one of which I was a member—for previous deferred purchase schemes.

There has been an interesting shift in the Government's position in another respect. The manual on the way in which schemes are compared, which the Committee considered, states that the Government are neutral on whether the private or public sector route would be the most appropriate. In their latest response, the Government have made it clear that they believe the private finance route to be better, and that it will generally provide savings. That is a distinct shift in emphasis.

The Government's main claim about the possibility of efficiency savings is that the private sector will produce, design, build and operate schemes and will carefully incorporate in them low maintenance costs for the future, as it will be responsible for operating those projects. If the Government are saying that the public sector is incapable of designing low-maintenance schemes, that says a lot for their procurement policies in the past 17 years. If that is the Government's complaint, it must be possible to improve the way in which they purchase in the public sector.

One of the main reasons why maintenance problems emerge is that sufficient capital is not spent on designing better projects. All too often, that is a product of Britain's financial systems, which concentrate so much on controlling initial costs and not enough on downstream revenue implications. In that respect, the PFI is a step forward, as it enables us to look at the life costs of a project rather than its initial costs. My criticism is a reflection on the Government's financing policies of the past 17 years as much as on anything else.

Photo of Mr Nick Hawkins Mr Nick Hawkins , Blackpool South

Is the hon. Gentleman suggesting that the way in which the Treasury has dealt with the accounting of these matters in the past 17 years has differed from the method that it used under previous Labour Governments?

Photo of Clive Betts Clive Betts Opposition Whip (Commons)

I am suggesting that many people in local government will know that the regime has become an awful lot tighter and more rigid in the past 17 years, which has often forced the making of wrong judgments at the beginning of projects. I welcome the Government's decision to look at resource accounting, which the Committee is considering in a separate report, and I hope that they will look further in that direction. That will be an interesting debate for the future; resource accounting may resolve some of the difficulties.

The Government claim that savings will always be made, but the PFI is hardly cost free. The Committee heard a lot of evidence about the bureaucracy and delays in the procedure, including evidence on the Stonegrove annexe to the Royal Hallamshire hospital in Sheffield, which has been a committed priority for three years and has been in the PFI pipeline for approximately 12 months. Examples of delays were repeated in evidence given by representatives of the construction industry.

The other day, I was reading The Mail on Sunday—a newspaper that is not normally sympathetic to the Labour party—which carried a report on the Walsgrave hospital in Coventry. The contract for the PFI scheme at that hospital ran to 17,000 pages and a cost of £500,000—just for the beginning of the project's documentation. Someone will presumably have to account for that cost, which probably will be borne by the public purse. Similar examples are repeated around the country.

The report referred to difficulties with cost control in PFI schemes, and the Chairman of the Committee also referred to this matter. In a recent debate on the health service, we criticised the Minister for saying that the external financing limit was to be the control because it covers only the forthcoming three years. Many of the costs of PFI schemes, however, do not become apparent until at least three years after a project has been initiated. I am pleased that the Government are now setting up a proper monitoring system and that they will publish figures on the downstream commitments of PFI schemes. That is a step forward, although I would have been happier if more details had been provided.

There is great difficulty in making accurate comparisons between PFI and publicly funded schemes. There is no up-front cost in a PFI scheme, the costs of which can be considered only on a year-by-year basis once it gets off the ground. Under current rules, a public sector scheme will always have that cost—it is a hurdle to get over. The chairman of the PFI panel, who was appointed by the Government, said in evidence to the Committee that this gave an in-built bias to PFI schemes, rather than to traditionally funded schemes. If they want to make fair comparisons, the Government must look at their approach to the control mechanisms of publicly funded schemes. I hope that resource accounting will increasingly be viewed as a better way of dealing with those issues.

The Government responded to our concerns that we are handing decision-making powers over to private sector funding consortiums by saying that decisions on which projects go ahead remain with the Government. However, this year's Budget cut public capital expenditure by £2 billion. If a project has been identified as a priority—such as the annexe at the Royal Hallamshire hospital—but no PFI scheme is available to complete it, are the Government guaranteeing that public funding will be available to enable it to go ahead? The Royal Hallamshire hospital has already worked with three firms for nearly a year, two of which pulled out at the last minute. If the Government are not prepared to give that guarantee, they are saying that schemes will go ahead only if a PFI funder is willing to complete the project. In other words, the responsibility for deciding which projects are completed will have passed to the private sector, and that is worrying. It is one of the fundamental criticisms of the scheme and the Government must reply to it.

There are real problems with risk transfer, which is at the heart of the Government's message. They believe that as they are transferring the risk from the public to the private sector, they can stand back and any mistakes will be picked up by the private sector. Arthur Andersen's experience with the national insurance computer—and the Government's triumphant lauding of the fact that the £10 million losses will be borne by a private sector firm—will not encourage private firms to participate in similar projects. The Government should be worried about that.

It is relatively easy to transfer risk where a private customer pays for goods or a service produced under a PFI scheme. I draw the attention of the House to the combined heat and power project in Sheffield, which is not a PFI scheme as such but a partnership scheme. Sheffield university, local shops and other private sector institutions can purchase a heat source from a partnership company. That is clear—the risk lies with a company selling its product in the marketplace. It is a lot more difficult to transfer risk when the Government are paying for that service, and they must make sure that a clear mechanism is established so that risk is really transferred to the private sector. If risk transfer takes place, there is a further problem with many such projects.

Photo of Clive Betts Clive Betts Opposition Whip (Commons)

If the hon. Gentleman will excuse me, I will not give way because my time is limited and other hon. Members want to speak.

If risk is transferred, control is often transferred as well. That is a great worry and it has been raised in respect of hospital projects. It was clear from the evidence to the Committee that it is not possible to transfer non-clinical and clinical services as part of such schemes. The chief executive of Royal Hallamshire hospital at the Central Sheffield University Hospitals trust made that clear in his evidence. Further information has come from a hospital in Carlisle, where doctors have described a planned building as "more like a doss-house". That is because, to make the sums add up and ensure that, with the transfer of risk, the private sector can make its profit, more patients are being squeezed into wards. The hospital is trying to double up to make the project pay. That is a clear example of the PFI mechanism affecting the delivery of clinical services.

Photo of Clive Betts Clive Betts Opposition Whip (Commons)

I must continue because others want to speak.

It is clear from the evidence that it is especially difficult to transfer risk at the end of a project, whether it be Northern line tube trains or hospital or school buildings. There is not a free market in which to have real risk transfer. At the end of the 20 or 30-year—or even longer—contract all that exists is a school, hospital or tube train for which there is no other use. On the other hand, the public sector needs the hospital, school or tube trains. In such circumstances, it is almost impossible to transfer risk in any real way.

If risk is transferred, we risk transferring control. If we start building schools through PFI schemes, and therefore transfer risk, and the operators are to be paid according to the number of pupils who attend the school, there will be a market in schoolchildren. The Government may be considering that scenario. The operators of the schools will advertise to get more children to get a bigger revenue stream. The next step would be that the operators would want to control curriculums so that they can have real control of the number of children whom they can attract. That is how elements of public policy, for which public representatives should be accountable, will pass to the control of the private sector. I am worried about that and want a response from the Government.

I am worried about accountability, to which the hon. Member for Hazel Grove rightly drew attention. I am worried that we will be able to audit schemes only after they have happened and that we will not get proper information about them beforehand because of commercial confidentiality. I fear corruption, because of the difficult problem of intellectual property rights and the fact that the schemes that will be compared will not involve comparing like with like. I am concerned that savings will come not from efficiency but, as with compulsory competitive tendering in local government, from cuts in the pay and conditions of low-paid workers.

The PFI and the Select Committee report raise many questions that have not been answered. If the schemes were progressing wholesale, I would be worried that the unanswered questions would cause difficulties in future. However, I am also worried because the evidence suggests that they are not progressing but are bogged down in bureaucracy and administration. The private sector is not rushing forward to put in bids for such projects. If that continues, because the PFI involves substitution not additionality, there will be many projects that the Government admit are priorities that will not go ahead. Public services will be the poorer for that. A complete rethink is needed.

I believe in the principle of partnership: in the public and private sector working together, where appropriate and where the private sector can bring additional benefit to bear on projects. However, I fear that the PFI goes back to a problem that has existed throughout the Government's life: the belief that the private sector is good and the public sector is bad. That principle is wrong and will not deliver better public services. I hope that the Government will rethink it, and quickly, before fewer and worse public services result from their scheme.

Photo of Mr Jacques Arnold Mr Jacques Arnold , Gravesham 11:23, 26 Mehefin 1996

The speech of the hon. Member for Sheffield, Attercliffe (Mr. Betts) is a good example of how the Labour party, observing new Government policies, wants to criticise them bitterly but leaves the back door open so that when they succeed it can claim to have supported them all along and, no doubt, in a few years can tell us that they were its idea in the first place. I read the Treasury Select Committee report with interest and noticed its endorsement of the PFI as an imaginative and laudable initiative. It is the latest of several detailed Government policies that the public have not generally noted amid the lurid headlines that we get in the press these days.

The hon. Member for Attercliffe tried to make great play of projects not making progress. In the short time available, I shall draw attention to a massive project that is making remarkable progress: the £100 million Darenth Park hospital, which is proposed by the Dartford and Gravesham NHS trust. I have been the Member for Gravesham for nine years. Over that time, and for many years before, the people of Dartford and Gravesham have relied on three elderly hospitals—the Joyce Green, the West Hill in Dartford and the Gravesend and North Kent in my constituency. I became fed up with being told by the powers that be in the health service that my health district had the worst capital stock in the region while nothing was done to replace it with the modern district general hospital that we all wanted. The reason for that was simple.

We have an excellent site at Darenth Park, cleared and ready for a hospital and owned by the NHS. The problem arose because of the old system, which is beloved of the Labour party. We had to go to my right hon. and learned Friend the Chancellor of the Exchequer with a project and say, "Please can we have a cheque for £100 million?" Inevitably, we were told time and again, "£100 million? Are you sure that you really need it? Have you done a thorough review?" Time and again, we had thorough reviews to ensure that the project was designed to use the latest medical technology and so on. The years passed by.

We proved that we needed the hospital. We proved that the proposed technology was ideal for the future of the hospital service in north-west Kent. Then we were told that £100 million was too large a part of the capital allocation to be given in one go and were asked whether it could be done in phases. We said that we did not want three old hospitals but one new one. They were proposing three old ones and a bit of a new one. That would have involved four sites, which is impractical. We were asked why we could not build the phased project on the site of one of the old sites. Someone who suggested to one of my constituents that we should build a phased hospital over 30 years at Joyce Green, would be in physical danger of needing to go to hospital.

The PFI is a magnificent opportunity to get the new district general hospital for north-west Kent. The Government have asked the basic question: do we need to own the hospital or do we merely need the use of a hospital with the latest state-of-the-art technology to provide hospital services to the people of the district? Clearly, the latter is the case. The NHS is not a property company, but, quite properly, is in the business of providing excellent health care to the population.

The capital costs for hospital trusts such as that which serves my area amount to about a quarter of their running costs. If those costs could be put into the PFI, it could well provide the solution to the problem. In the middle of a major construction recession, we, quite properly, went to the market and asked it whether it could put together a proposal for a private finance initiative to build a hospital for north-west Kent, all in one, on a cleared site at Darenth Park including the disposal of the old Joyce Green and West Hill hospitals and the release of the Gravesend and North Kent for other uses in the health service.

Surprise, surprise, in the middle of a recession in the construction industry, we found five consortia which wanted to bid. Four of them were up to it and went on to bid. Two were excellent and they have now been invited to tender by early next month. Those two tenders will be considered carefully by the Dartford and Gravesham NHS trust, by the commissioners, the West Kent health authority, the Department of Health and the Treasury. We are looking to my hon. Friend the Financial Secretary to the Treasury and to Ministers in the Department of Health to analyse that thoroughly and rapidly in order to keep up with the programme.

It will be of interest to the House to consider the consortia that bid for the Dartford and Gravesham hospital. They typically included a construction company, a catering and housekeeping company, an administration and co-ordination company and a financial company, working together within their consortium to put together management expertise and the critical mass to take forward such a hospital project.

If all goes well, we hope, through the trust, the commissioning authority, the Department of Health and the Treasury, that a contract will be signed with one of the bidders by this autumn and that construction of the hospital will begin early next year. That is cracking good progress, but listening to Opposition Members one would think that nothing was going ahead. One might almost say that they hope that nothing is going ahead.

The hon. Member for Peckham (Ms Harman), who is conspicuous by her absence in this debate, scoffed with great amusement and derision in the House at the fact that the Dartford and Gravesham proposal was in a list B, which she claimed some sneak from the Treasury had leaked to her. If a project making such good progress is in list B, the Labour party had better make its traditional conversion to Conservative policy even quicker in this case.

I said earlier that the site of the third hospital, the Gravesend and North Kent hospital which is currently serving the local population, would be released. For my constituents, that would be icing on the cake of the brand new district general hospital at Darenth Park, because the Gravesend and North Kent site, which has been a hospital site ever since it was endowed by the Earls of Darnley in the last century, would become available for what we have long wanted in Gravesend, a community hospital, which would provide, through the Thameslink Healthcare Services NHS trust, a wide range of perhaps lower-tech services, but, above all, local services for the community. For instance, it would provide general practitioners' beds, beds for care of the elderly needing lower-tech hospital care, respite care and a wider range of out-patient departments, paramedical and diagnostic and other day care. The refurbishment and structuring for the 21st century of the community hospital in Gravesend at that site is costed at about £8 million, which the trust also hopes to advance in a PFI at that time.

I welcome the Government's innovative PFI policy. Projects such as my own are rapidly coming to fruition. Notably, the Treasury Committee has positively and enthusiastically reviewed the details. It is encouraging that 16 or 17 years into a Conservative Government, massive new reforms and new ideas are coming forward with such enthusiasm, which in this case will give reality to the dreams of my constituents—a brand new district general hospital, high tech, equipped for the 21st century to serve the people of north-west Kent.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury) 11:33, 26 Mehefin 1996

I do not think that anyone is against the use of the PFI to bring forward projects in partnership with the private sector and add to the provision of public services. I do not know the circumstances of the project described by the hon. Member for Gravesham (Mr. Arnold). It may be as he describes it, but I am a little concerned that he does not believe that there are any questions about the need to ensure that we obtain the best value for money for the taxpayer, and that we are not driving the scheme simply as a means of substituting public money with private, but are trying to obtain a sum gain in terms of quality of service.

Those should be the fundamental objective criteria by which the PFI is judged. By promoting the partnership between the private and public sectors there should be perceptible added value, either in terms of clear value for money or in terms of up-to-date technology and innovation, or, preferably, a combination of the two. Where those criteria are delivered, the PFI will have achieved its desirable objective and should be supported and endorsed. Those are the criteria that we should pursue.

The Select Committee, of which I, too, am a member, has rightly said that it agrees with that. It believes that the PFI is innovative and that there are benefits to be accrued from it, but it has some concerns and reservations which need to be addressed. Some of us are not entirely convinced that the Government's reply is, in some cases, satisfactory, and, in one particular case, begins to address the point.

One of the Committee's particular concerns was that the PFI was being driven by the financial constraints of the Treasury and the need to substitute committed public expenditure with PFI projects, and that that was what was driving it. As a consequence, projects might go ahead, or be forced to go ahead, for those reasons only, so not meeting the two criteria that I set out as desirable at the beginning. The Committee had some evidence that that was the case.

It was a matter of concern to me that, in the first evidence that we took from Treasury officials only a few months ago, it was acknowledged that the criteria or the monitoring process on which the PFI was to be judged had not been worked out. That gave me the impression that it was being driven by financial considerations rather than innovation and value for money.

I was disappointed, as was the Committee, which is why it instigated the inquiry, that the claims for the PFI, in terms of the number of projects and the value that could be delivered, were not being fulfilled, and clear problems were arising which had not been anticipated. Despite the fact that those problems were obviously arising, which is why the Treasury could not prove the schemes at the rate that the Government had forecast, the Government did not revise their forecast, or if they did they revised it upwards. Basically, 100 per cent. of the Government's new committed expenditure is to be found from a PFI scheme that has not been fully tested, evaluated or proved capable of delivering that volume.

I want to mention one or two projects of particular concern to me. Either we will stumble into projects which will subsequently prove to be bad value for money or, worse, may even lead to the project failing and public money being written off, or we will not achieve the committed public expenditure that the Government are claiming. The Government say that they want to build more hospitals and roads and, during the general election, they will tell everyone that that is what they will do. However, they will not be able to find the money within the normal budgetary procedure, so they will pluck it all out of the air as being delivered by the PFI, despite the fact that they know that there are not enough projects and not enough companies coming together to deliver that. Therefore, the Government know that what they are saying is essentially a lie and that they are putting a forecast that they know they cannot deliver. The Select Committee has some reason to suggest that that has some substance because the Government have to date failed to deliver their forecast promises.

We all expect the PFI to accelerate and, if they are the right kind of projects, I shall certainly welcome them, and I believe that those of our constituents who can see benefit in them will also welcome them. But let me put from my own knowledge the sort of concerns that arise which I believe are legitimate. The hon. Member for Gravesham said that projects were going ahead out of the glare of the tabloid headlines. Perhaps they are, but yesterday, in The Heralda broadsheet, there was the headline A tender moment of truth", referring to the announcement of the successful bids relating to Stonehaven hospital in Kincardine and Deeside. The Stonehaven hospital project is a small one, but in other ways it is similar to the project that the hon. Member for Gravesham has described—with one fundamental difference. There are two outdated community hospitals in Stonehaven, and there is wide agreement that they need replacing by one up-to-date community hospital. The difference between this project and all others is that, under pressure from the Scottish Office, the health board has been required to invite bids for the whole hospital, including the provision of clinical services. It will be the first hospital in Britain where the clinical services will be operated and managed by a private concern.

People are right to say that this marks a significant development in the national health service. For many, it marks the beginning of the end of the NHS as we have known it. The Government have said—as a matter of agreed public policy—that when a hospital is to close and a new one is to be built there will be public consultation. The local authorities, trade unions and others with an interest have asked about the procedure for consulting on the closure of the hospital. The ministerial reply was that the Government had widely consulted among local GPs and the community about what will actually go into the hospital, so they considered the matter closed. That means that they are avoiding their statutory obligation; if they go ahead in this way they may find themselves subject to judicial review.

In effect, the public were told that they could have the hospital on the terms proposed—with the clinical services put out to tender—or they could have no hospital. No other option was given. Indeed, the health board explored a different route with one of the local health trusts, to its satisfaction, but was overruled by the health service administration in Scotland and told to issue a competitive tender.

The private sector faces certain problems too. There were seven bidders for the hospital, three of which have progressed to the final stage. As the PFI gathers momentum, private bidders express concern at the cost of preparing bids many of which, by definition, will be unsuccessful. Companies of all sizes have expressed a clear reluctance to prepare endless numbers of tenders that will result only in lost money.

This is not an argument against tendering: it is an argument for recognising that unless there are enough objective and competitive tenders around, companies may not be prepared to bid, as they find that costs are so high that they have no serious prospects of getting their money back.

We shall know in a week or two who has successfully bid for the hospital. There is a widespread suspicion that the contract will go to the local NHS trust. I do not say "suspicion" to suggest that that is not what people want—it is exactly what they want—but there is a real suspicion that the whole tendering process has been a charade, with the result that the local trust finally gets the contract that it was awarded in the first place anyway; but with the waste of a year, at considerable cost, and following a diversion of a great deal of trust management time from other possible projects. They include a community hospital at Ellon in my constituency. The trust management simply did not have the resources to deal with both processes at once. When the management says that it has had to divert all resources to winning the tender for one project, it is clear that it has had to abandon work on the other. That is not accelerating such projects; it retards them.

The Committee has also expressed its concern about the Skye bridge PFI project, which continues to cause considerable controversy in Scotland. The people of Skye believe that they are entitled to modern transportation links, of which the bridge is one part. But they were effectively told that, as a small and remote community, they had no chance of being given as much priority as a community closer to the centre would get. That is somewhat ironic; it is precisely because Skye is so far away that its people need improved transport links. The Committee report states: Our specialist adviser drew attention to the fact that the Skye Bridge received the blessing of the Highland Regional Council only after the Scottish Affairs minister, Lord James Douglas-Hamilton, said that there was no possibility of a toll-free bridge for at least 20 years. This not only calls into question whether 'best value for money' was obtained but also highlights the concern that the decision to proceed with projects is determined by the funding mechanism rather than an evaluation of desirability. I contend that the same applies to Stonehaven, the decision on which will be announced shortly.

My final example shows, as the hon. Member for Sheffield, Attercliffe (Mr. Betts) pointed out, that local authorities in my area are not at all averse to exploring private finance initiatives when they think that they will give rise to good projects offering value for money. They are in the early stages of exploring the possibility of building a new academy—the Garioch academy—in the heart of my constituency. In preliminary discussions, private companies are being asked whether they would be interested in bidding. They are also being asked what is in it for them, what is in it for the local authority and what is in it for the people who would use the school. The only answer so far has been that the janitors would be paid less. A school does not employ a great many janitors, so the savings will not be huge. We are looking at the possibility of dual use—giving the community a recreational and sporting interest in the academy. If the local authority can use the PFI to get the school built, I have no doubt that it will do so.

The problem is that this will take a good deal of time and there is no guarantee that the right kind of package will ultimately be found—or that anyone will want to bid. The fact remains that we desperately need the school, but we are told by the Government that there is no chance of the money being provided for it. Nor have we been given any guidance on how to find it.

The PFI does offer innovation potential for unlocking funds and giving added value for taxpayers, and that is commendable. Our concern, however, is that the PFI may be driven by other motives—that it may be a substitute for public spending commitments that will serve only to delay projects. That will put public money at risk; or it may convert public capital projects into expensive hire purchase agreements, costing taxpayers more in the long run. The Government have responded to the Committee by saying that they intend to monitor the PFI so as to avoid this problem. I should like the Minister to spell out how the Government intend to publish evaluations of projects so that we can see where there has been success, or a lack of it. That in turn will inform those working on PFI projects, ensuring that the good ones go ahead and preventing too much waste of time and money in the case of projects that are bound to collapse.

If we can achieve what I have outlined, in a few years' time the PFI will be seen to have made a large additional contribution to public services in this country.

Photo of Mr Nick Hawkins Mr Nick Hawkins , Blackpool South 11:47, 26 Mehefin 1996

I am delighted to have the chance to speak in this short debate. I want to touch on one or two matters mentioned by the hon. Member for Gordon (Mr. Bruce)—and on some of the points raised by the hon. Member for Sheffield, Attercliffe (Mr. Betts).

As the Minister knows, I have strongly supported the private finance initiative. I have had a number of meetings with him recently to try to help the Government's development of the PFI. I believe that using the private sector in such projects will provide the public services with better assets for the future.

I should declare my background and my interest in this regard at the outset. For some time before coming here I was a corporate lawyer, spending some of my career in the construction sector. More recently I became the parliamentary adviser to the Building Employers Confederation.

The construction industry, along with Her Majesty's Treasury, has played a big part in the development and the improvement of the PFI process. I shall refer to the points that the Construction Industry Employers Council—a big umbrella body—put to the Committee. The Committee's report is positive about the private finance initiative—it does not share the concerns of the hon. Member for Attercliffe about the transfer of risk. He put forward his points in rather lurid terms, and I shall refer to them later.

I hope that my hon. Friend the Minister—in addition to the Government's formal reply to the Committee—will be able to give hon. Members further reassurance today. People from the construction industry and from the legal profession who submitted evidence to the Committee believe that the bidding process should be more straightforward and simple. In particular, they believe that there should be much more use of standard clauses—not just on peripheral issues, but on major issues—to cut down the amount of documentation.

The Committee heard evidence that the Government should, in future, seek to ensure that only those projects that are genuinely viable for the private finance initiative are put out to competition and ensure that the recently issued Treasury guidance that no more than three or four bidders be invited to produce a full tender is strictly adhered to by the public sector bodies.

I draw the attention of hon. Members to the evidence given to the Committee by Sir Christopher Bland, the then chairman of the private finance panel. He talked about the importance of improving training for those in the public sector and about the intensive training that was provided. In answer to questions from the hon. Member for Attercliffe in the evidence session, Sir Christopher made the point that there is a need to train people in the public sector so that they understand how the private sector works—this will enable PFI projects to go forward. Throughout my career—both before and since becoming a Member of Parliament—I have always believed that it is important for the public sector to understand how the private sector works.

A single preferred tenderer must be identified as early as possible. Everyone understands that the gestation period for most private finance deals is extremely long and involves considerable expense. Bidders are generally willing to make a significant investment if they have a reasonable chance of securing the project, but as the costs escalate they will be reluctant to continue to spend if they are still in a competitive situation—all the money may go to waste.

Those on the public sector side, the Government side, of a possible PFI project must, at the outset, take a realistic attitude to those risks that can be transferred to the private sector. Contracts that contain unacceptably onerous conditions should not be offered—perhaps, as a corporate lawyer, I am arguing for less work for lawyers. It is important that these deals do not get snarled up in vast amounts of contract documentation and negotiations.

Wherever possible, standard contract documents should be produced for PFI projects. This was stressed in evidence to the Committee by S. J. Berwin and Co. and by Beachcroft Stanleys, two leading firms of solicitors that have extensive experience of projects such as this.

The hon. Member for Attercliffe mentioned two hospitals—and, as it happens, I know quite a bit about both of them. Both of my sons were born at Walsgrave, Coventry, and my father-in-law trained as a doctor and subsequently worked as a consultant at the Royal Hallamshire, which is in the hon. Gentleman's constituency. I am well aware of what is going on in those hospitals, and I understand some of the things that he talked about. In particular, I share his concern about hugely complex contractual documentation.

The hon. Gentleman talked about the transfer of risk and the need to try to keep things in the public sector. I refer to the unsuccessful world student games, the cost of which the hon. Gentleman—as the then leader of Sheffield city council—and his colleagues cast on to the council tax payers of Sheffield. I would have thought that he would understand that it is better if risk is transferred to the private sector and that the projects that need to be in the private sector benefit from the transfer of risk so that burdens are not cast on the taxpayer.

I have emphasised some of the ways in which construction projects, in particular, can go forward with further help from the Government. This morning, for about an hour I met the director of a company that has been involved in PFI bids—in a totally different field, but one in which PFI projects are being considered. The one point that he emphasised was the importance of training public sector people who are involved in PFI negotiations to think like private sector people so that there can be a genuine meeting of minds. Only when that happens in every possible PFI project will we have more successes, such as the one in the constituency of my hon. Friend the Member for Gravesham (Mr. Arnold), which he highlighted this morning.

Photo of Stephen Timms Stephen Timms , Newham North East 11:55, 26 Mehefin 1996

Two months ago, the Financial Secretary to the Treasury addressed a conference on the private finance initiative in the health service. Apparently, without a hint of irony, he stood before the delegates and said: Many of the hospital managers here today can testify that PFI has meant that their own local scheme has finally been able to get off the ground. There were looks of blank incomprehension around the conference hall because the PFI has delivered precious little so far in the health service—in fact, it is in trouble. The big contracts that the Secretary of State for Health keeps announcing—he has been making announcements for more than a year—are a long way from being agreed. In March, the Treasury Select Committee established that not one of the contracts for the major schemes had been signed—and they still have not been signed at the end of June.

Special legislation was rushed into law in an attempt to facilitate the contracts, but still nothing has happened. Only a fraction of the capital projected in the Budget last November to be spent in the health service through the PFI—as has been said, it was a justification for the substantial drop in the national health service budget—has been committed.

The major investment projects for which the NHS is crying out are in limbo. The banks and institutions, whose money is needed, are deeply unhappy with the way in which the initiative is being handled. The handful of big projects that are said to have got off the ground are still firmly on the ground.

I hope that the optimism expressed by the hon. Member for Gravesham (Mr. Arnold) proves to be well founded. At the moment, the bankers are not putting up the money. I caution the hon. Gentleman against putting the bunting out about the success of the project before the money is in place—the banks are currently saying no.

I hope that the Financial Secretary will be able to explain to us exactly what the problem is with the banks. I hope that he will be able to explain why none of the major health service projects has got to the contract signing stage. What steps are the Government taking to sort out the problems?

Photo of Mr Jacques Arnold Mr Jacques Arnold , Gravesham

I believe that the Opposition's tactics in trying to oppose the National Health Service (Residual Liabilities) Bill had something to do with it. The passing of the Bill only emphasises to the lenders that the security for their lending will be protected, in terms of both the capital lending and the flow of repayment.

Photo of Stephen Timms Stephen Timms , Newham North East

I understand that that is not the reason. Perhaps the Minister will be able to give us more: information. I am interested to know why that is the case. At the moment, none of the projects is going forward.

Before saying a little more about the PFI in the health service, I wish to make some general comments. The PFI is in trouble, and not only in the health service. It seems that no Sunday business section is complete these days without its PFI bad news story. Recently, The Mail on Sunday carried such a story, and there have been plenty of other such stories. The initiative is in trouble.

We all welcome the use of private capital to improve public services, but the central problem is that the PFI is; being much too widely applied. It is being pressed into service when it is not appropriate and before the necessary procedures have been adopted. The PFI should be a way to lever in additional resources for public services, but it is being used to achieve short-term cost savings this side of the election. That is wrong. It is also depressing because, when the bills come in, the PFI will probably cost us more than procurement by the traditional route.

I am pleased that the Government's response to the Select Committee report promises that data will be published on the long-term revenue commitments from PFI deals. That is progress, but the reason given for pressing the PFI into action is that private stewardship is more effective than public. Certainly, the cost of the finance is greater, because private borrowing costs more than public, so we have to believe that private management is more effective than public by a margin that exceeds the excess financing cost. To make sense of the Government's insistence that PFI should be used everywhere, one has to believe that private management of an asset is always more cost-effective than public management by a margin greater than the financing costs. The Government plainly believe that, but nobody offered any evidence to the Select Committee. The Government's response to the Select Committee contains assertions to that effect, but they are not substantiated. I am keen to see some evidence that would substantiate those claims, because they are at the heart of the case for the current version of the PFI.

The Government have made the point that the PFI always contains a public sector, value-for-money comparator, but a false comparison has been made. The comparison is between a public sector solution and a different private sector solution. The latter may be the better solution, but nobody asks whether that solution would be more effectively procured with public sector finance and management. That is the real comparison that should be drawn, but it is not.

Private finance can genuinely help when the creation of an asset generates a new, tangible stream of revenue which can be used to lever private capital into the project. For example, the construction of a bridge, as we have heard, might bring a revenue stream in toll income and construction of a hospital may lead to revenue from car-parking charges. Those revenue streams may be used to lever an element of private sector capital into building the bridge or the hospital car park. If there is no such revenue stream, the case for private finance is much weaker. As one of the written submissions to the Select Committee suggested, there is no benefit to the economy in building a hospital with private finance rather than public if, in the end, the whole cost will be met from taxation.

The problem is that we have lurched from one extreme to the other. Under the rules drawn up by Sir William Ryrie—who, I notice, re-emerged as a director of Barings bank, at the time of its crash, after his retirement from the Treasury—no private capital was involved at all. Under the present arrangements, private capital must be used except in what has been called the relatively rare set of circumstances set out in the Government's response to the Select Committee report. We need a middle course so that private finance can be used to supplement public, when appropriate.

When the Treasury Select Committee took evidence on the use of PFI in the health service, it became clear that the initiative had run into more trouble in the health service than anywhere else. We found five major areas for concern. First, the initiative has so far had only a marginal effect on resources in the health service and capital spending has been cut in the false expectation that PFI money would replace it. Secondly, many witnesses spoke of the failure of Departments to provide clear objectives for bidders and of the excessively high cost of putting in bids that have little chance of success. Thirdly, there is clear evidence that in some cases PFI has delayed rather than encouraged investment, by creating a need for testing and uncertainty over the level of public funding". It has also introduced huge additional bureaucracy to project initiation. Fourthly, the provision of services under a PFI contract may be liable to be dictated, not by need, but by the level of return available on a private investment lead, so leading to a health service without strategy or priorities. Finally, it is difficult to make a clear distinction between clinical and non-clinical services, but health managers have been forced to make it by the Government's express requirement that PFI should not be used for clinical operations. The omission of clinical services from the PFI is telling, because if the Government's dogma—that private sector management is always more effective—were true, clinical services should be included. They have been excluded because the Secretary of State for Health has recognised that the dogma is wrong in this case. It is wrong elsewhere, too.

The most striking aspect of what has happened to PFI in past months is the extraordinary degree of disillusionment felt by the contracting companies about the scheme. Small companies felt excluded when the Select Committee took evidence, but one by one the big companies have now joined the attack. Mr. Martin Laing, the chairman of Laing and of the Building Employers Confederation, has said that it was frustrating how little work had emerged from the private finance initiative. In March, Mr. Laing said that the existing regime was farcical … leading to growing frustration among contract bidders about the appallingly slow rate of progress". In May, Bovis said that it would not tender for any more PFI road projects and refused to budge even when its representatives were summoned to 10 Downing street to explain. Taylor Woodrow said in May: everything is slow, the bidding costs are high and we haven't had any tangible results yet. We are still to put a spade in the ground on a PFI project. This month, it has been revealed that W. S. Atkins is to stop bidding for PFI health care projects. With Trafalgar House, it has pulled out from the Central Sheffield University Hospitals NHS trust, leaving only one bidder in the frame.

I am disappointed by the Government's flip and superficial response to our report. It is a good report, which the hon. Member for Hazel Grove (Sir T. Arnold) summarised well earlier in the debate, and it deserves a more considered response from the Government. Without one, the bad news from the PFI will continue.

Photo of Diane Abbott Diane Abbott Member, Labour Party National Executive Committee 12:06, 26 Mehefin 1996

I welcome the opportunity to speak in the debate. I wish to apologise because I was not here to hear the distinguished Chairman of the Treasury Select Committee introduce the debate, but I am sure that he did so with his normal distinction and aplomb.

Everybody on the Treasury Select Committee, regardless of party, welcomes the use of private sector finance for public sector projects in principle, but we wish to flag up the problems. I shall deal with three issues this morning: first, whether PFI represents additional money or is simply a substitute for public expenditure; secondly, whether PFI is suitable for the full range of public sector projects; and, thirdly, the challenge PFI poses for the public's ability to monitor public finances and expenditure.

On the first point, the Select Committee has noticed conflicting positions from Ministers. In his 1994 Budget speech, the Chancellor said: The growing importance of private finance has helped us to find significant savings for the taxpayer in the transport programme."—[Official Report, 29 November 1994; Vol. 250, c. 1085.] But the Chief Secretary, in his evidence to the Select Committee, said: Private finance is genuinely additional. Which is correct? Is PFI about savings for the taxpayer or is it about additional money?

My second point is whether PFI is suitable for the full range of public sector projects. When the Select Committee began its inquiry, the standing instructions from the Treasury were that every public sector project had to be examined for its suitability for PFI. People in the public sector complained about that and the bidders and contractors said those rules were ridiculous because time was wasted considering unsuitable projects. It is clear from the Select Committee's inquiries that PFI is probably most suited to projects with a natural revenue stream and it is least suited to publicly sensitive projects such as the health service.

We want private sector money to be used to solve existing public sector infrastructure problems. Decisions about the way in which we spend money and what is built must not be distorted by the PFI. The House of Commons must take decisions about our public sector infrastructure priorities and then look to the PFI—the PFI should not drive our public sector building and infrastructure programme.

It is clear to the Committee that future PFI commitments are being entered into across a range of Ministries without any central monitoring. In a sense, PFI embraces the "buy today, pay later" approach—it is a form of hire purchase. We are concerned about public finances and we believe that the Government are not paying enough attention to central monitoring and to keeping control of the taxpayers' long-term financial commitments.

The Committee members support PFI in principle, but we believe that its applicability is much narrower than the Government claim. In fact, the PFI's applicability is probably restricted to those areas that my right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott)—who introduced the forerunner of the PFI—set out in his original ground-breaking speeches on the subject.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire 12:10, 26 Mehefin 1996

I congratulate the hon. Member for Hazel Grove (Sir T. Arnold) and the members of the Treasury Select Committee on a very good report about an issue of enormous importance. I assure my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) that the Chairman explained the report with his usual distinction and aplomb.

The report contains many forceful criticisms of the private finance initiative that the Government must address. The Chairman set out the main concerns succinctly: additionality or substitution, the transfer of risk, accountability, the bidding process, value for money and public expenditure control. The Committee decided to undertake the inquiry after I ceased to be a member of it. However, I was a member of it for 18 months, and in our report on the November 1994 Budget we noted that the PFI had failed to attract significant private interest. We expressed concern about whether it was supposed to provide substitute or additional funding.

In the present report, Committee members—apparently without controversy—say: We continue to see PFI as an imaginative and very laudable initiative to attract private capital into areas into which it has not before previously been drawn. Labour shares the Committee's welcome for the PFI in principle, as did the hon. Member for Gordon (Mr. Bruce) on behalf of the Liberal Democrats. Indeed, that principle enjoys broad support. However, we share some of the Committee's concerns about the way in which PFI is operating and we agree that a number of important issues must be resolved.

Before I respond directly to the report, I shall set out Labour's general view about public-private partnerships and the PFI. In politics, new ideas tend to meet with the same pattern of response: at first they are dismissed, then they are embraced with a zealotry that is out of all proportion to their worth and then they settle down to the recognition that they are much less valuable than the zealots thought but, none the less, are of considerable worth. In the 1980s, the old Ryrie rules introduced phase 1. They restricted the ability to apply PFI and the whole idea was greeted with suspicion. The Government have now entered phase 2, with the Financial Secretary perhaps the zealot incarnate of PFI—a description that I suspect he would not deny. He has abandoned the reality of public finance and believes that the PFI is the answer to all the Tories' financial problems.

It is partly ideology and partly desperation that drives the Treasury to reduce public spending. It thinks that the PFI is an all-purpose Tory life raft for public capital spending. When the Government sink, the Financial Secretary will realise that he was wrong. As befits the party of the future, Labour has already reached phase 3, but we appreciate that the PFI is not the answer for all public capital projects. It is an alternative, useful and often attractive source of finance in particular circumstances. It should be used where appropriate, but it cannot be a substitute for public spending on all capital projects.

We support the principle of joint public and private sector investment; indeed, many Labour-controlled local authorities have pioneered such investment. Joint provision will become increasingly common in the future. It will be an important part of our policy and the driving forward of such ideas will be a key aim of a Labour Treasury. A partnership between the public and private sectors can enhance public provision by introducing new sources of finance and expertise. However, there are key distinctions between the way in which the Labour party and the Conservatives approach PFI.

The Conservatives seem to be dawdling in the same old ideological rut—the mindset that private is always best. Labour has set aside the old ideological battle lines between the private and public sectors. We recognise that those sectors can complement each other: there are things that the private sector does best and areas where public sector finance is more appropriate. In some cases, a combination of public and private sector provision is necessary. Joint provision is often appropriate in areas such as savings provision, training and investment in infrastructure.

Labour will adopt a practical approach to those issues. Our primary concern is to ensure that the public get the best possible provision of services and the best value for money. In many ways, we are moving beyond the old concept of the mixed economy. Public and private provision are increasingly interlinked. Under the classic mixed economy, a certain percentage of ownership was in public hands while another percentage was in private hands. We are developing beyond that point. In some cases, it is possible to harness the best of both worlds—the two sectors are being fused.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

No, I am afraid that I am short of time.

Public-private partnerships can play a key role in that context. For years, Britain has suffered from under-investment in its economic and social infrastructure. The poor physical condition of the nation's public buildings, transport facilities and communications bear testimony to the need for investment. Jobs need to be done and there are people ready to do them. Businesses are keen to have new opportunities to ensure that the work will be completed and the profits gained. The Government must set out their clear priorities and establish a framework within which that investment can be made. Only the Government can put that framework in place and set strategic priorities. The public and private sectors could work together in that way, but unfortunately the Government are failing in that task.

Labour shares the concerns expressed by the Treasury Select Committee about the Government's general approach to the PFI. We are worried that the Government's projections regarding the value of PFI projects may be over-optimistic. The Government predict that the PFI will increase from £600 million in 1995–96 to £1.9 billion in 1996–97 and to £2.6 billion in 1997–98. We also agree with the Committee—and with my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts), who set out his concerns in an excellent speech this morning—that the Government are treating the PFI as primarily substitute funding. In paragraph 7 of its report, the Committee states: It is enabling the Government to cut capital budgets in future plans. That may be valid in some circumstances, but it was hoped that the PFI would provide private capital that could be added to public money to widen and improve public sector services. In paragraph 6, the Committee correctly says: If there is a serious shortfall in the PFI projections it will be difficult to provide money from public capital budgets to fill the gap. It remains to be seen whether the Government are being over-optimistic and whether there will be serious shortfalls. If that occurs, the Committee's warning will have been timely and it will serve as a useful reference point for assessing the Government's performance on PFI.

The Government's attitude to the PFI has been criticised by Adair Turner, the director-general of the Confederation of British Industry, who said: The pressure to achieve public expenditure cuts is ferocious, the capital expenditure budget looks an attractive target and the PFI is seen as a justification for major cuts. Last September, the Building Employers Confederation claimed in its Budget submission that the Government's decision not to approve capital projects until private finance options had been explored had led to a serious hiatus in the placing of public sector construction orders. Those concerns have been reinforced in a number of sectors. The Government's "buy now, pay later" approach to the PFI raises serious concerns for Parliament. The Treasury Select Committee report presents an alarming array of evidence regarding the Government's cavalier approach to the PFI.

Photo of Mr Jacques Arnold Mr Jacques Arnold , Gravesham

But you are in favour of it.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

Yes, we are in favour of the principle, but we dispute the Government's cavalier approach. That is a serious problem. [Interruption.]

Photo of Miss Janet Fookes Miss Janet Fookes , Plymouth Drake

Order. There is an unattractive chorus emanating from the Back Benches. I ask hon. Members on both sides of the House to keep quiet.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

I am grateful to you, Madam Deputy Speaker.

To some extent, the Treasury's response to the Select Committee must be welcomed, because it acknowledged the nature of the problem of monitoring and promised that it would seek to monitor commitments to safeguard against an imprudent build up of liabilities in the future which might impair a future government's ability to change spending priorities, reduce spending in a given area or to deliver the relevant services in another way". Yes, and about time, too. The Treasury should have realised that an awful long time ago. However, it then goes on to say: The precise details of the control regime would be individually negotiated between departments and the Treasury". It is unclear precisely what that means. It seems that the Treasury has changed its hands-off approach evidenced in earlier documents to the Committee, but it does not appear that it has any effective controls in place to ensure that the PFI is delivered within reasonable public expenditure controls. That is clearly inadequate, and the Financial Secretary's apparent response to the Committee—"It is better to travel in hope than not to travel at all"—borders on a bizarre approach to public finances.

When the Committee's report considered value for money, the Treasury's position became a matter of even greater concern. Labour will adopt an entirely different approach. We believe that it is the Government's job to set out a policy framework, against which companies can be expected to plan. Having determined our priorities, the private sector can then make its proposals. The models that we shall adopt will be flexible and appropriate to the circumstances.

We propose to set up a unit to ensure that projects get off the ground. We shall ensure that public bodies are equipped to deal with the projects. The primary duty of Government is to ensure that services are delivered for the benefit of the public. That means using the expertise and innovation that is available to this country, while keeping a rigorous control over the cost of the liabilities being entered into. Control of public spending is essential if we are to maintain economic stability.

This partnership has tremendous potential. The tragedy of it is that the Government see the PFI as an opportunity to privatise policy making and decision taking and have abdicated their responsibility. That is one of the reasons why the PFI is in its current state. Labour has a new approach, which I believe will increasingly command the support and confidence of the public and the private sectors.

Photo of Michael Jack Michael Jack , Fylde 12:21, 26 Mehefin 1996

In the few minutes remaining, I shall do my best to reply to the debate, which was so ably opened by my hon. Friend the Member for Hazel Grove (Sir T. Arnold), who, in balanced, careful and exacting terms, dealt with the Committee's extremely good report and the Government's response to it.

Time may prevent me from replying in detail to every comment that was made by Opposition Members, but one thing that came shining through was the fundamental discomfort of many Opposition Members—on both the Front Bench and the Back Benches—about what the private sector can deliver; a fundamental distrust lingered beneath their comments.

The hon. Member for North Warwickshire (Mr. O'Brien) said, in effect, "Labour will take back control. We don't really want the private sector to make progress in these particular areas."

Compare and contrast that entirely negative view with that of my hon. Friend the Member for Gravesham (Mr. Arnold), who eloquently pointed out the benefits of the PFI in rapidly making much needed health improvements for his constituents. My hon. Friend asked whether we could pour oil on the wheels that do the deals. The private finance panel executive plays a major part in helping these projects to come to fruition. I can assure him that I shall draw his remarks to its attention and ask it, where appropriate, to give every assistance.

My hon. Friend the Member for Hazel Grove mentioned additionality, as did other hon. Members. He will recall that I gave evidence to the Committee. When the Government decide the amount that they will spend, the services that they purchase under the PFI fall within that financial envelope, so projects that are not straightforwardly financed from public moneys must by definition be additional.

More important, when one compares and contrasts the benefits from private finance—value for money and risk transfer, and one has only to look at projects such as the British Library and the Limehouse link, referred to in our reply to the Select Committee's report, to realise the benefit of those—one sees that a great deal of public money was wasted in the past because there was no proper procurement and because risk factors had not been properly considered. Under the PFI, those risks are now borne by the private sector, not the public purse, so each pound that the public sector spends can be made to work harder to provide high-quality public services.

My hon. Friend the Member for Hazel Grove mentioned control and monitoring, as did other hon. Members. I have never made a secret of the fact that, with an initiative that is only three years old, there will always be much to learn and that there will be an opportunity for constructive criticism and a chance to refine and improve. I very much welcome what the Select Committee said as a contribution to that debate.

My hon. Friend mentioned the bidding process. We have, subsequent to the Select Committee's report, published a new set of procurement guidelines, which have been widely welcomed by many of the people who were quoted by Opposition Members as being critical or in some way against aspects of the PFI. [Interruption.] It is important that we continue to refine the bidding process to take cost out and continue our work on, for example, producing standard clauses for contracts, all of which will help to deal with some of the reasons why private sector companies have reprioritised.

Some of the companies have said that they already have so many bids on their plate that they will not make any more because their resources or their manpower are limited. It is not, though—to answer the criticism of the hon. Member for Hackney, North and Stoke Newington (Ms Abbott)—because they have issued a vote of no confidence in the PFI. Far from it. When I saw the number of companies that attended the roadshows that I visited around the country; the number of companies that continue to bid for projects— [Interruption.] If the hon. Lady had listened, she would have heard that I answered her a moment ago. [Interruption.]

Photo of Miss Janet Fookes Miss Janet Fookes , Plymouth Drake

Order. I wish that the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) would refrain from making what is becoming a running commentary.

Photo of Michael Jack Michael Jack , Fylde

Those companies maintain their interest in the PFI and certainly in the health service. To date, 34 PFI contracts, worth £82 million, have already been signed. Six major hospital schemes, with a capital value of some £386 million, have been improved in the past few months. Our new private finance panel chairman, Alastair Ross Goobey, and I share one thing in common: our top priority is to ensure that those deals are signed. They are complex deals. They are difficult to execute, and they are not helped by the noises from the hon. Member for Peckham (Ms Harman), who runs around saying, "This is all about privatising the health service," when nothing could be further from the truth.

Photo of Michael Jack Michael Jack , Fylde

The hon. Gentleman shakes his head. He obviously has not read the relevant section of "Private Opportunity, Public Benefit", which shows quite clearly how the private sector's expertise in the provision of certain medical services under the direction of the NHS can be a tremendous boon and a blessing to patients.

I listened with incredulity to the outburst of the British Medical Association. The PFI attracts resources that improve the delivery of health care. All we hear from the Opposition are noises questioning whether this is a good idea. My hon. Friend the Member for Gravesham clearly and positively proved that the way forward is to back the PFI. It brings new, innovative solutions, better value for money and, most important, NHS health care delivered under the current terms of the NHS in better facilities for patients. Surely that is something on which we can all agree.

The hon. Member for Gordon (Mr. Bruce), who, sadly, is not in his place but who kindly wrote to me, made a thoughtful and helpful speech. He drew our attention to two fundamentals of the PFI: perceptible added value and the use of up-to-date technology and innovation. That is precisely how we achieve the better value for money that lies at the heart of the private finance initiative.

Interestingly, perhaps the most knocking copy came from the hon. Member for Sheffield, Attercliffe (Mr. Betts), who led a council into near-financial disaster over the arrangements for the Sheffield games. He smiles, but he illustrates as no one else can how the lack of any business acumen among Opposition Members undermines their understanding of what the PFI is all about.

The Government will monitor carefully the forward commitments entered into by Departments, but that is part of a controlled whole. At least this Government have a grip on public expenditure, unlike the hon. Member for North Warwickshire, who gave us no figures. That is typical of Labour's menu without prices. Whatever it has to say, on a menu without prices its diet will be utterly unaffordable.

Photo of Miss Janet Fookes Miss Janet Fookes , Plymouth Drake

Order. We must move to the next topic.