Private Finance Initiative

Anne Marie Morris Excerpts

Thursday 23rd June 2011 Westminster Hall

[Anne Marie Morris (Newton Abbot) (Con)]

I will endeavour to make my contribution brief. This has been a very valuable and worthwhile debate on a number of issues. We need to consider the PFI as quite a complex challenge. Although my hon. Friend the Minister is here to help us with some of the financial issues, it is a challenge not just for her but for her Cabinet colleagues, because it is not just the finances that need to be reviewed. There are issues of complexity that we need to deal with in trying to find a way forward. Those issues are not just about the way in which the contracts are currently structured. There is also an issue about cultural change, because much of what has happened has changed the way in which decisions are made and outcomes are delivered for patients in hospitals and children in schools. That is why, although I support the argument for a rebate, it is only part of the solution. It deals with the existing, financial challenge, but it does not deal with other issues. It is right that we should be looking for a different way to do things, but it is a very complicated challenge.

The PFI was always well intentioned as a concept. It was to deliver quality and it was to deliver projects on time and on budget. In many ways, it achieved that. We have 700 schools, hospitals, prisons and other infrastructure projects that would not exist or would not be in the pipeline but for this initiative. We have £67 billion-worth of expenditure signed off.

The problems fall into at least four categories. First, the risk was overestimated, in part because of the public sector’s inability to deal with a very complex negotiation, as has been said. The consequence was that the taxpayer was lumbered with a very large part of the bill. As has been said, the amount of £210 billion is outstanding. By contrast, the investor is doing extraordinarily well. A number of figures have been cited, and I will add to that list. An EU think-tank tells me that 154 schemes are delivering a 50% return. That is huge. Clearly, therefore, one matter that we must consider is how we simplify not only future contracts, but the existing ones. I believe that we must consider renegotiating not just a chunk of money, but some of the terms.

[Mark Pawsey]

Does my hon. Friend agree that a justification for a rebate arises from the effect of the spending review on those Departments whose budgets have been reduced? If the PFI element remains fixed within the budget, by definition the non-PFI element has to reduce by a greater proportion, so budgets that may have been reduced by 2% could end up being reduced by 4%. It is entirely appropriate that those who are making the sums of money that we have heard about should bear their share of the burden of getting our country’s finances into order.

[Anne Marie Morris]

I agree. My argument is that that is part of the problem, rather than the totality of the problem. My second request is that we find a way of delivering transparency and better management of the contracts. One hospital was charged £333 to change a light bulb. I dare say that that changes the hospital’s decision about whether it will change many light bulbs. One school was charged £300 just to install an electrical socket. How many times will the school install a socket on that basis? One Army official was charged £103 for a 1-inch Land Rover screw that actually cost just over £2. That is not the right way of doing things.

[David Mowat]

The three examples that my hon. Friend has cited are powerful, but they represent procurement failures by the public sector procurement people involved and structural failures in the nature of the contract, because the contract did not have to specify, for example, exactly how light bulbs would be maintained. We have examples of multiple procurement failures. PFI is being used as a proxy for that. Those procurement failures can happen with any technique or contract.

[Anne Marie Morris]

My hon. Friend makes a valid point, which is why the issue is far more complicated than a rebate.

The risk is overestimated. Projects are not monitored, partly because there is no transparency. As has been said, the size of the debt has been hidden because it is off balance sheet. If we looked at the real national debt figure, then rather than £910 billion, we would probably be looking at £1.12 trillion.

I can perhaps best illustrate the distortion in the way in which public services are used by explaining what is happening in my constituency. There is a wonderful new build hospital in Newton Abbot. It was the winner of the 2007 HealthInvestor PFI deal of the year award. But what has happened? In that hospital, we are finding considerable underuse of facilities. Beds and consulting rooms are not being used as they might be. Why? The reason, as I understand it from individuals who have come to me to raise this concern, is that it is just too expensive to use those facilities rather than the cheaper facilities in neighbouring hospitals. I am pleased to say that the primary care trust has taken the matter up and is considering how better use of the facilities at Newton Abbot hospital can be made. However, it is an example of how behaviour can be changed.

The challenge, therefore, is not only to get the cost down. Reference has been made to what the Government are already doing. I am pleased that we have a PFI hit squad, which has already taken £4 billion out of the project list. I am minded to look very favourably on the concept of a rebate, but as I said, a rebate will not be enough. There are two aspects to trying to sort out the financial mess. One is the issue of maintenance. Clearly, there are ways of reducing maintenance costs under the contracts, and whatever saving comes out of any renegotiation needs to be shared with the taxpayer and the local community. The second aspect is the payback rates. We have heard many examples of the payback rates in this context being well above the payback rates for similar risks in the market. Those two issues need to be considered.

To return to where I started, one issue that we need to consider is the impact on what happens in other parts of Government. We need to consider our health care reforms, because many of the PFI contracts are currently held by the primary care trusts. Those PCTs will cease to exist in the not-too-distant future. As and when we see their demise, what will happen to those contracts? Is that an opportunity or a threat? That is a serious issue, which my right hon. Friend the Secretary of State for Health will need to consider in conjunction with the Treasury. We have heard about the examples of schools and the challenges for some of negotiating academy status because of existing PFI contracts. To conclude, this is a complex issue. It is not something that the Treasury can deal with alone. Some joined-up thinking needs to be applied to it across a number of Departments.

--- Later in debate ---

[Neil Carmichael]

I thank my hon. Friend for making a good point; I shall answer it later in some detail.

I turn next to the history of the PFI. It goes back much further than 1992. The United States has been using PFI schemes for decades because it wanted private money to be used to provide public utilities, roads and so on. The PFI has a history in the US, in many parts of Europe and in most regions of the world. We have plenty of experience of it. There is much activity in that sector that we can draw upon in order to improve the way in which it works. That is the key point.

PFI schemes have recently become far too complicated. As was pointed out earlier, in many of the original schemes things were simply designed, built and then maintained. More recently, however, we have been throwing in services and all sorts of extras. As a result, the process has become complicated; indeed, many of us have used that word today. That is largely because we have confused the original concept of the PFI by adding on services and so on. There is nothing wrong with that, but it brings me to the fact that we must get the procurement systems right. To do that, we must specify much more clearly what is wanted. Local authorities have to learn to do that, as must the health service; it is a question of commissioning. My hon. Friend, who represents a beautiful Cornish seat—it is in Cornwall, is it not?

[Anne Marie Morris]

It is in Devon.

[Neil Carmichael]

Devon: it gets better! My hon. Friend made that point rather well. It certainly needs to be considered, as specifying and procurement are critical.

We also need to understand value for money. Most PFI schemes under the previous Government did not seem to do so. The next big task is to define value for money. That will be helped if we get the data right and if we understand the systems in each project. Many people talk about the difficulties of PFI schemes in hospitals. I am not surprised, given that many hospitals cannot even tell you the cost of an operation. We need more data. If we have much more information about what is happening, it will inform the debate about value for money.

Another big problem is the lack of accountability in the decision-making process. I said that it is important to specify and procure properly, but if we do not hold those who do the specifying or procuring properly to account we will have only ourselves to blame. We need systems to ensure that specifications are clear and all-inclusive and produce the right procurement. We then need to ensure the right attitude to procurement, a point made by my hon. Friend the Member for Warrington South (David Mowat).