Private Finance Initiative

Robin Walker Excerpts

Thursday 23rd June 2011 Westminster Hall

[Mr Robin Walker (Worcester) (Con)]

I congratulate my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) on securing this debate. Herford and Worcester have a long history of fruitful co-operation, and I hope that the debate will show that we can work together to deliver better value for our constituents and our country.

As we have heard, PFI has become a dirty word—almost a term of abuse—but it was not always so. Both Conservative and Labour Governments saw the benefits of working with private finance and, from the 1990s onwards, the opportunity to deliver better public service by using it. Rightly, many hon. Members have challenged the essence of the scheme, and I accept that it should be reviewed and that we should look at competition, as my hon. Friend the Member for South Norfolk (Mr Bacon) has suggested. However, Members should remember that some PFIs allowed valuable new public buildings to be delivered, which would not otherwise have been possible. That was often used to justify the scheme, even after some of the initial value-for-money problems became clear. That was certainly the case with the Worcestershire Royal hospital in my constituency, and I want to focus on matters close to home, in the same way that my hon. Friend the Member for Nuneaton (Mr Jones) did. Most of my comments today will be about that particular PFI.

Over time, it has become clear that value for money was not sufficiently protected, particularly in early PFIs, such as our hospital in Worcester. When the Labour Government came to power in 1997, they were determined to embark on a massive programme of public building, but with a commitment to remain within the spending plans of the previous Conservative Chancellor. The PFI provided a valuable get-out from that Catch-22 situation, because it allowed the Labour Government to borrow against the future—build today and pay tomorrow. That was not in itself a problem, as long as future costs were taken into account and rigorously controlled. Sadly, the political imperative overrode financial good sense, and projects were signed off without the rigorous checks that should have been made.

In the case of Worcestershire Royal hospital, I can state categorically that the decision to approve the structure of the PFI was political, that it was taken by a Labour Government and that it would not have been approved by a Conservative Government. The reason why I know that is peculiar. I happened to be working as a volunteer driver for my right hon. Friend the Member for Charnwood (Mr Dorrell), who was then Secretary of State for Health, during the 1997 general election campaign. We were both from Worcestershire originally, and we were both well aware of the clamour in the city for a new hospital, so the topic came up naturally during our travels around the country. I asked my right hon. Friend why he would not sign off the hospital that everyone wanted. He explained that, although it was absolutely right that the city should have a new hospital, the contract that had been put forward for it was too expensive and inflexible, and did not build in the extra capacity that the hospital would need over the next 30 years. He said that when the Conservatives were re-elected he would renegotiate that contract and ensure that we had a hospital to be proud of. Alas, that was not to be.

With the advent of a new Government impatient to get spending, the contract was signed off unchanged and the Worcestershire Royal hospital, a fine building in many ways, where a lot of fantastic work is done, lived up to the concerns of my right hon. Friend. The reply to my recent parliamentary question to the Department of Health in February on the costs of the PFI confirmed that over the life of its 30-year contract the Worcestershire Royal hospital will cost approximately 10 times the capital cost of the project—£852 million over 30 years, compared with its £82 million capital cost.

Hon. Members may point out that it is not reasonable to compare directly the capital figure of a project with the total cost of the PFI contract, because account must be taken of the cost of capital, the service elements, and the fact that a PFI project is maintained as new throughout its lifetime. However, it is reasonable to benchmark such figures against other, and especially more recent, hospital PFIs. In recent hospital PFIs, the lifetime costs have been more like four times the capital cost, which shows the vast gulf in value between early hospital deals, such as that at Worcestershire Royal hospital, and more recent PFIs.

Hon. Members do not have to accept my word for the poor value of that PFI. In 2006, Patricia Hewitt, who was then the right hon. Member for Leicester, West and Secretary of State for Health in the Labour Government, told the Select Committee on Health that the financing of the Worcestershire Royal had been “a disaster”, and that it had been much more expensive than other PFIs.

We have a problem not with cost alone but with capacity, and they are similar to those raised by my hon. Friend the Member for Nuneaton. The hospital in Worcester has to serve as both the acute hospital for the county and the community hospital for Worcester. It is now, and has been for some time operating at close to full capacity, and as more services have been centred there, it has become a headache for the management of our acute trust. With the opportunity to have more cancer services centred on the Royal, which my constituents warmly welcome and support, comes the challenge of deciding which services must go elsewhere in the county as a result of the capacity limits.

As my hon. Friend the Member for Hereford and South Herefordshire has pointed out so eloquently in this debate and others, one of the knock-on effects of poorly negotiated PFIs has been to raise the price of hospital parking, which is certainly true in Worcester. In fact, in the early life of the PFI, land that had originally been set aside for parking had to be sold to help the trust to meet the costs of paying for it. That has added to the difficulties of parking. The costs are of understandable concern to patients and visitors, and there is a knock-on effect of people parking in nearby residential estates to avoid those costs.

[Jesse Norman]

My hon. Friend’s powerful speech suggests that his hospital, the total cost of which is 10 times its capital cost versus an average of four times, leaves six times £80 million, or just under £500 million of excess cost, in that contract. Is that an appropriate calculation?

[Mr Walker]

That is an appropriate point to raise, and a strong argument for the sort of rebate that my hon. Friend has been advocating.

It is regrettable for all those who are affected by high charges for parking or by cars cluttering their streets as a result that the previous Government did not take more time to negotiate, to think more about the long-term consequences of their hurried decisions and to get a better deal for taxpayers before signing off that PFI.

However, we are here not simply to point the finger of blame but to deliver solutions. I believe that there are solutions to these problems, which is why I have passionately supported my hon. Friend’s campaign for a significant PFI rebate. We need not let past mistakes for ever damn the idea of the PFI, but we should learn from them and ensure that we deliver better value for money, better planning and a stronger position for taxpayers in future.

I support my hon. Friend’s contention that a 0.5% rebate nationally would deliver enormous benefits for taxpayers and, in the case of the Worcestershire Royal hospital, it would deliver millions of pounds that are desperately needed in our local health economy. I also support the urgent measures that our Government are already taking to bring PFI companies to the table and to ensure that better value is delivered for taxpayers. I am delighted for that reason that the Worcestershire Royal hospital is one of those being reviewed by McKinsey, and I urge it to examine closely the details of the current agreements and to search for areas where value can be unlocked. In Worcestershire, as elsewhere, many of us believe that the long-term costs of the PFI are placing serious strain on the finances of our acute trust. Consequentially, they are a significant barrier to the vital short-term goal of achieving foundation trust status, not to mention the essential long-term aim of delivering the best possible care for everyone in Worcestershire, free at the point of need.

There is good news on that front, which shows that the light that my hon. Friend has shone on the PFI, and the determination of this coalition Government to deliver value for money, are already bearing fruit. I understand that the Worcestershire Acute NHS Trust is already finding significant savings that can be delivered from the soft services parts of their contract. As part of the trust’s strategy to deliver greater efficiency from its PFI provider, commercial discussions are currently under way with ISS to benchmark the provision of soft services every five years. ISS provides services such as cleaning, catering, portering, security and laundry to the Worcestershire Royal hospital site, and it has indicated that it is prepared to work with the trust to deliver savings over the next five years in line with national efficiency assumptions of 4% a year. That would be delivered while offering a guarantee that there will be no impact on quality. I understand that the trust’s board is due to consider a formal offer within the next month, and I welcome that.

The trust is also due to commence negotiations with Siemens on the managed medical equipment deal, which is due to have a benchmarking review in 2012, in line with its 10-year anniversary. Those negotiations are entirely welcome and show that some private companies are already engaged in seeing how better value for money can be achieved for taxpayers. However, I am worried that, as yet, there has been no indication of similar negotiations with the main PFI contractor, Catalyst, a special-purpose vehicle. I take this opportunity to urge it to come to the table and, recognising the exceptionally good deal that it has had at the Worcestershire Royal hospital, to begin talking about how some of the value from that deal could be rebated to taxpayers and the local NHS.

The main shareholders in Catalyst when it was set up were Bovis Lend Lease and the British Linen bank. The latter, via HBOS and the ill-conceived merger that the previous Government forced through, has become part of the Lloyds banking group, in which UK taxpayers now have a significant stake. Surely such banks, publicly bailed out as they have been, should be doing everything in their power to ensure that they are giving good value to the public and the NHS? That should be the case whether or not they hope to win more business from the Government, but I have recently discovered that that same consortium has hopes of winning the contract to deliver a new radiotherapy unit for the Worcestershire Royal hospital.

That radiotherapy unit will be a vital addition to the suite of services that Worcester is able to offer to cancer patients, and I have been campaigning for that for many years. I welcomed the decision of our trust first to approve it and then to locate it in Worcester at the heart of our county. I have been asked whether I am worried that Catalyst is in the running to deliver it. I do not see it as a matter for concern so much as a golden opportunity. I hope that Catalyst can show in its bid for the radiotherapy unit that it is determined to offer taxpayers value for money and to share the benefits of the original PFI contract for the Worcestershire Royal hospital. It must have many advantages in terms of cost and synergies with its existing contracts, so I am sure that it will be as determined as I am that those advantages are shared fairly with taxpayers. I will be only too happy to support my acute trust in its negotiations with Catalyst to make sure the bid offers the excellent value for money that it should.

In particular, I am hopeful that the benefits of this project will be not only financial but will provide the opportunity to address the long-term parking problems at the hospital. I urge it to consider the need for a multi-storey car park at the Worcestershire Royal, and the golden opportunity to deliver that alongside the provision of a new radiotherapy unit. Indeed, more broadly, the Government should recognise that, as we strive to deliver value for money in all our public services, we must take a more aggressive approach in our purchasing and commissioning, negotiating hard to ensure that taxpayers receive good value. I was happy to hear of the hundreds of millions already saved by the Cabinet Office through negotiation with major suppliers, and I hope that the Minister can assure us that that approach will in future be taken to the PFI.

I congratulate my hon. Friend the Member for Hereford and South Herefordshire again on his campaign and exhort the Minister to take on board the many excellent points that have been made in this debate. Not only do we have a responsibility not to repeat the mistakes of the past but we have an opportunity to put things right for the future.