Private Finance Projects (EAC Report)

Lord Lipsey Excerpts

Wednesday 3rd November 2010 Lords Chamber

[Lord Lipsey]

My Lords, I was not on the Economic Affairs Committee for the whole of the period of this inquiry, but I was there long enough to appreciate greatly the qualities which the then chairman, the noble Lord, Lord Vallance, brought to its proceedings and which he again demonstrated in his admirably concise speech this afternoon. Our report is clear and I do not want to attempt another summary. Rather, I want to draw the attention of the House briefly to two things that it does not conclude—the two dogs, as it were, that did not bark in the night.

The first concerns the view put to us by a minority of witnesses that PFI and PFPs are taxpayer-unfriendly rip-offs. This was put to us—not, of course, quite in those terms—by, for example, the trade union UNISON and by Professor Allyson Pollock of Edinburgh University who writes a column to this effect in the Guardian every month or two which I always look forward to. As the chairman of the committee said, it is too early to be sure on a lot of these matters, but the gap between those who advance these arguments and the majority of our witnesses is a Grand Canyon. It would be to go too far to say that we refuted the arguments of the opponents and it is fair to note that many of the witnesses who gave evidence as to what a wonderful thing PFP was were at the same time lining their pockets from the proceeds of it. However, the evidence we received from the NAO, which I think can be taken as objective in this matter, seems to get it about right. The NAO said:

“Having examined many PPPs, we have concluded that private finance can deliver benefits, but is not suitable at any price or in every circumstance. It is one of many routes of delivery, which, when used for the right reasons and managed effectively, can work well. When it is used for the wrong reasons or is managed badly, it does not deliver projects well”.

That seems good judgment and it contains the view as to why the critics, in my view, are getting it wrong. What they tend to do is take the odd project that has gone wrong and present that as if it were typical. As every speaker has mentioned so far, the project that most obviously went wrong was the ludicrous London Underground project, which was far too complex to be done through this kind of contractual obligation. I do not expect to say this very often in my life, but Ken Livingstone was right and Gordon Brown was wrong. We need to balance those failures against the many successes and the general feeling that our public infrastructure is a great deal better at less expense and to greater benefit to the public as a result of these schemes.

The second dog that did not bark—the noble Lord, Lord MacGregor, just referred to it—is the case for a national infrastructure bank, often referred to as a national investment bank. Fortunately, they have the same initials so it does not matter—NIB. I noted that the noble Lord, Lord Myners, called for such an institution when he spoke in the debate on the comprehensive spending review on Monday. On this matter, the committee sat firmly on the fence. We resoundingly concluded that the pros and cons should be kept under review and, the nature of that recommendation being what it was, the Government cheerfully agreed with us. I do not think, however, that the recommendation quite captured the general tone of the group’s discussion. Some of us, at any rate, find it hard to see what it is, precisely, that such a bank would do. Is it going to lend at rates keener than private sector banks? If so, that distorts the market. If the rates are the same, why bother? Despite the failings of the banking sector over the past three years, not all of us are convinced that more publicly owned banking is the long-term answer to Britain’s economic problems. After all, the crash itself, to a great extent, owed its origins to the misdoings of two American public institutions—Fannie Mae and Freddie Mac.

The committee believes that this report represents a reasonable and balanced contribution to the ongoing debate about an evolution of a public finance initiative and so we commend it to the House.