Alignment (Clear Line of Sight) Project

John Hemming Excerpts

Monday 5th July 2010 Commons Chamber

[John Hemming (Birmingham, Yardley) (LD)]

May I start by apologising to the House for my mobile phone ringing just now? It was definitely switched off a while ago. When I was on Birmingham city council, we used to have a policy where, if that happened, we had to give money to the lord mayor’s charity. Perhaps the Speaker’s charity should receive a small payment in this instance.

My experience on Birmingham city council gave me a good understanding of how to control public spending. In moving towards a system with a clear line of sight, all our budgets are set out so that what has been agreed matches what is being recorded. If Parliament decides that that is in fact slightly misaligned, and that we are not spending what we expected to spend, we will need to be aware of the effect that that will have at the other end of the cycle.

We had that experience with the neighbourhood renewal fund in Birmingham. The Government had strict rules on how much money should be spent in each financial year. It was a new system, and if we had not found enough useful projects to spend the money on as we got close to the end of the financial year, there would be a “dash for trash” as we tried to find something to spend it on, so that the Government would not take it away in the next year. It is right to improve the way in which we record these things, but we must ensure that we do it in a way that does not cause those people who are managing the budgets to go for a “dash for trash” at the end of the financial year, just to ensure they fulfil their budgets. Obviously, if we are recording depreciation properly, that will not vary; only the cash issues will be affected.

There are two aspects to accountability. The first involves the authority to spend public money. The second involves finding out whether the expenditure represents value for money. We need to look beyond the system of departmental accounting. Colleagues will know that I am greatly concerned about the child protection system, which is horrendously complex from a financial perspective. When a child is taken into care, the foster carer can cost about £40,000 a year. Further costs can include the parent’s lawyer, which can cost about £25,000 in legal aid. The other parent’s lawyer could cost a further £25,000 in legal aid, and expert fees might have to be paid by the Children and Family Court Advisory and Support Service, a separate non-departmental public body.

All those different charges might apply, but, when an assessment of the cost effectiveness of the process is carried out, they might not all be taken into account. When it comes to parliamentary scrutiny here, the Justice Committee will look into the legal aid costs, the Education Committee will look into the foster care costs, and so on. They might not all be put together in a way that leads us to make the right decisions, however. I have encountered many situations, for instance, in which access to a mother and baby unit has been refused on the ground of cost, although such access would have kept mother and baby together for life. The lifetime cost of that not happening is about £250,000 per child, and it could well have been a false economy to save the £6,000 cost of the mother and baby unit in the first place.

When we are considering value for money as part of the accountability programme, we need to find mechanisms to look at project costs on a value-for-money basis. Similar situations occur with capital projects. We are very pleased that the work on New Street station is going ahead, for example, but that is funded out of a number of different pots, and we are not sure what is coming from which pot. Some might be coming from the city council, some from the regional development association, and some from the Department for Transport. That uncertainty makes it difficult, from the perspective of parliamentary scrutiny, to find out what is happening. Trying to compare figures from project to project is also very difficult, because these things are so complex.

We have a similar problem with the funding costs of private finance initiatives. The great difficulty is comparing all the figures involved in what is called optimism bias. I asked the Government what the optimism bias figures were for a number of different PFI projects, and they came back with a wide range of figures. Let me explain a bit about optimism bias, for those hon. Members who are not aware of it. When a PFI project is put together, there is an assumption that, if it could be done through the public sector, it would be done through the public sector, so it must therefore be done in the most cost-effective way. A calculation is made of what the public sector project would have cost, but an optimism bias is then added to it, on the assumption that the public sector calculation is optimistic and therefore too low. That is then compared to a PFI cost without an optimism bias.

The interesting thing is that people are told to pick their own optimism bias, and if the optimism bias is such that undertaking the project through the public sector is cheaper, they must do it through the public sector, but there is no money for that so it will not go ahead. Inevitably, people pick an optimism bias figure that means that the PFI looks cheaper, when it is not. Such things have been going on substantially around the country. Although the clear line of sight project is a positive move, we need to go further.

Other hon. Members wish to speak. I could go on at great length about financial control, having dealt with it at the city council level and in various private sector businesses, as well as in this place, but to be fair to others, I shall conclude.