Private Finance Initiative

Debate between Stella Creasy and Justine Greening

Thursday 23rd June 2011 Westminster Hall

[The Economic Secretary to the Treasury (Justine Greening)]

I pay tribute to my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) for securing this debate. The topic is incredibly important, and he has done a brilliant job of raising it high up the agenda and rightly so.

We have heard from many Members today, but not from as many Opposition Members as we might have expected. Many Members feel that the PFI has, in their experience and their constituencies, let them down. Nevertheless, one of the qualities of today’s debate was the balance demonstrated by hon. Members. Not all PFI contracts have been bad. Many have delivered good contracts. There have been bad ones for the taxpayer and bad ones for the private sector. The one that is particularly close to my heart, as my hon. Friend the Member for South Norfolk (Mr Bacon) has mentioned, is the public-private partnership for the London underground. Investment in my stretch of the underground was significantly delayed, because of its bad structure and the ultimate failure of both of the private companies that participated in it due to the losses that they were making as a result of their poor contracting. The topic is important.

My observation as an incoming Treasury Minister was that the background to the issue was all part and parcel of a much broader lack of financial management shown by the previous Government across government. I might address that later, if I have time, but I intend to leave a couple of minutes at the end to my hon. Friend the Member for Hereford and South Herefordshire to have a final say.

As my hon. Friend the Member for Wycombe (Steve Baker) and a number of other colleagues have pointed out, the main attraction for the previous Government in turbo-charging the PFI process was the fact that they were able to spend not only taxpayers’ money that was being earned at the time, but taxpayers’ money that had not even been earned and that would be earned at some point in the future. The main appeal of PFI for them was that it was off balance sheet. It was also unfortunate that it came at a time when that Government thought that they had abolished boom and bust and were saying that we all lived in the land of milk and honey. The general ethos that was applied to the public sector was to spend, spend, spend, get on with things, and be less worried about whether it was good value and just get on with the job at hand. My hon. Friend the Member for Worcester (Mr Walker) pointed out how that impacted upon his local hospital.

We have some problems. I will discuss what the Treasury is doing to try to sort some of them out, but we seem to have three main issues. One is a lack of accountability, which is an inherent risk in these contracts, mainly because of their longevity and the fact that the people who set them up will not be there to manage them or be accountable for them throughout their duration. There is also an issue of transparency, and I will talk later about what we are doing in that regard. Underpinning all that is the need for value for money and for having contracts in place that deliver on behalf of taxpayers in the way in which they are meant to. My hon. Friend the Member for Warrington South (David Mowat) put it very well: PFI can work, but the challenge is making sure that, in structuring our contracts, we end up with a win-win situation for the private sector contractor, for the public sector and for taxpayers. We can do that, but the challenge that we saw over the past decade is that it just did not happen often enough.

The shadow Minister asked about the number of contracts that we have signed off. No PFI contracts have been approved yet by the new Government, and we have put in place much more stringent processes to ensure that any contracts that go ahead have a much better prospect of being good value for money.

My hon. Friend the Member for Nuneaton (Mr Jones) asked whether the Government are looking closely to see how we can ensure that we get value for money. We are doing that—he is absolutely right to say that we should do it—and we are doing it across the board.

Many hon. Members discussed transparency, which I will discuss shortly. My observation is that one of the reasons why we are debating the PFI is that, ironically, there is perhaps more transparency in the PFI in some respects than there is across the rest of Government spend. One of the projects that I am leading on behalf of the Treasury is to introduce common chartered accounts. Any hon. Member who has been in business will find it fantastical to learn that the Government do not have common chartered accounts, but that is indeed the case. Once that system is in place, once we are able to upgrade the combined online information system database and once we can drive central Government further in terms of the transparency agenda, we will go through a similar process of lifting up the stone on central Government spend as we have done in relation to PFI contracts. Transparency is absolutely critical in that regard.

I want to outline where there is room for improvement. We are all aware that we face tough economic conditions and that we must ensure that we get value for money. The Government have already taken a number of steps to address many of the concerns about the use of PFI in funding public infrastructure, concerns that have been expressed in this important debate. I will go on to talk briefly about what we are doing in relation to existing contracts, but first I will talk about what we are doing to ensure that we can achieve good value for the taxpayer for new projects.

With new projects, value for money is, of course, the primary driver for the choice of procurement route. We are very clear that private finance should be used only when it can be demonstrated that it offers better value for money than a publicly financed alternative. As I have said, my hon. Friend the Member for Worcester made a powerful case in relation to that. We have already taken measures to strengthen the value for money assessment of new projects.

As the hon. Member for Solihull (Lorely Burt) pointed out, we abolished PFI credits in the 2010 spending review. Previously, funding for local government projects was ring-fenced. That had become a genuine cause for concern, because what it actually meant was that Government Departments and local authorities could use the PFI as a means to increase their budgets, with the potential for diverting funds away from more beneficial areas—areas that could have offered taxpayers better value for money. Now, the economic case for PFI projects must be compared by Departments and local authorities on a like-for-like basis with the other calls that they have on their budgets.

I have huge respect for my hon. Friend the Member for South Norfolk. His experience on the Public Accounts Committee goes back many, many years. As he pointed out, too often there has been insufficient competition and an insufficient ability for firms to compete. I actually felt that he was violently agreeing with my hon. Friend the Member for Stroud (Neil Carmichael) on the point about specifying contracts. The key is to specify contracts smartly, in other words tying down the details that need to be tied down in areas where we have certainty, as my hon. Friend the Member for Warrington South pointed out, but leaving flexibility in other areas—the right areas.

I remember that that issue arose when I was serving on the Work and Pensions Committee when I first came into this House, which I very much enjoyed. We looked at the EDS contract in relation to the Department for Work and Pensions. That point—the importance of flexibility—was one of the key things that came out of that process. I am sure that EDS will not mind my putting this on the record, but one of the challenges that it faced was that it was dealing with a Government who wanted to specify absolutely everything and therefore the cost of the contract absolutely ballooned. In fact, what was needed for that system was to retain an element of flexibility for future demands as they evolved. The key to success in all these contracts is people understanding not only what needs to be tied down in terms of the contract but, critically, where flexibility must be left.

We have issued new guidance, which the shadow Minister, the hon. Member for Bristol East (Kerry McCarthy), asked about, to strengthen the approvals for PFI projects. As of 1 April this year, any centrally funded projects that are outside a Department’s delegated authority have to go through a rigorous three-stage scrutiny and approval process with the Treasury. To put that in context, previously the Treasury only reviewed PFI projects when they were at the outline business case stage. After that, it was only the risky ones that were further reviewed. We now have a three-stage scrutiny process, which means that projects are subject to far more scrutiny as they are being developed. In addition, the largest and most risky projects in Government will be subject to a review by the Major Projects Authority, which has just been established by the Minister for the Cabinet Office.

We have also published guidance to help public sector bodies identify savings in their PFI contracts. I will come on to the Romford case study in a second and provide hon. Members with an update. All the measures that I have outlined should mean that we are better placed to ensure that only those projects that offer the best value for money to taxpayers can go ahead, which is absolutely right.

As for operational savings, clearly we have a number of PFI projects that are in place and operating right now. Therefore, it is about looking at not only new projects but the existing stock of PFI projects. As many hon. Members are aware, we have taken a strong interest in the pilot savings project that is currently under way at the Queen’s hospital in Romford. As my hon. Friend the Member for Hereford and South Herefordshire said in a recent newspaper article, we have taken a deep dive to get under the skin of the project to see where we can save money. He raised the idea of a rebate. Although we want to drive savings, it is a challenge to do that with contracts that are already in place, as the hon. Member for Walthamstow (Stella Creasy) pointed out. Nevertheless, we want to try to save money.

The pilot is nearing its conclusion, and we will be passing on the lessons that we have learned to the wider PFI portfolio—of course, there will some lessons that are not applicable. Given the commercial sensitivity of the pilot, it is probably inappropriate for me to comment in more detail before it is completed. However, I assure hon. Members that the pilot has made good progress and that there will be lessons that we can take from it to help to achieve better value for money from existing contracts.

My hon. Friends the Members for Wycombe and for North East Cambridgeshire (Stephen Barclay) asked about guidance. We have been seeking industry agreement to a new voluntary code of conduct to support the idea of achieving operational savings from other PFI projects. That is important not only for getting better value for money but for driving better standards of transparency, so it is clearer to the outside world what contracts are delivering for the general public. We also issued some draft operational savings guidance in January 2011. Therefore, although the pilot in Romford is still ongoing, we have already issued some guidance on where further savings can be made.

As for the PFI rebate, the Chancellor and the Commercial Secretary have both met my hon. Friend the Member for Hereford and South Herefordshire. We fully support the principle of making savings in PFI contracts and we will look carefully at how we can do that over the coming weeks, months and years.

The Government want to improve the financial transparency of PFI projects. We currently collect and publish data on each PFI project twice a year. That includes information on the capital value, the equity owners and the full stream of payments over a project’s life. The Cabinet Office is now publishing tender documents and contracts for all future central Government projects over £25,000, and that will capture privately financed projects.

My hon. Friend the Member for Wyre Forest (Mark Garnier) mentioned the PFI equity issue and the trading in secondary markets. We agree that more can be done in that area and that there is not sufficient transparency around investor returns, particularly with regard to secondary market sales. The Treasury is now collaborating with the National Audit Office to look at PFI equity issues, including not only transparency, but equity risk issues and equity returns. We are currently working with it to ensure that we scope that work stream effectively to obtain output that will be of use to the Government. We are also engaging with PFI investors and contractors to reach agreement on the voluntary code of conduct, as I have said, and transparency will form a critical part of that.

Value for money, not the accounting treatment, should be the key determinant of whether a PFI scheme goes ahead. We have talked briefly about the fact that public-private partnerships have been left off Government balance sheets. The whole of Government accounts project, which will be completed in the coming months, is basically, in a nutshell, the Government’s first set of consolidated accounts. They will be done under international financial reporting standards—in other words, proper accounting standards—and they will put that liability on the balance sheet, so giving us a sense of what it is for the first time. That will show the massive liabilities that were run up by the previous Government not only for our generation but for future generations.

The Green Book covers offshore tax. I understand the point made by the hon. Member for Walthamstow. From my experience of having worked in business, of course we want to look at the bottom bottom line, but we also need to be pragmatic in understanding that companies will always look at their tax position. If they think that they are having to move onshore and are disadvantaged by doing so, there is always a sneaky suspicion that they will recoup that lost cost elsewhere. It is not quite as straightforward as simply saying that we should not use any company based offshore.

The key challenge for us all is to ensure that we have a more competitive tax system in the first place that does not drive companies offshore, which is why we are reducing corporation tax year on year. I very much hope that the hon. Lady will find time to support and vote for that when the Finance (No. 3) Bill finally goes through. The best way to tackle offshore tax is to have a competitive tax regime that makes companies want to stay in the UK and be based here for tax in the first place.

[Stella Creasy]

I am interested in what the Minister has said. Does that mean that the Treasury will rewrite the Green Book, so that it does not take account of the potential tax take under a PFI, if she is saying that offshore tax avoidance is unavoidable in some circumstances, given that it is part of the value-for-money decision on a PFI? There is a specific point about PFI and tax, so will the Green Book be rewritten, so that it is not part of the decision in future?

[Justine Greening]

We are not going to rewrite the Green Book. My point is that there are a number of variables in any PFI contract. There are several variables in the overall propensity for it to be profitable for the taxpayer in relation to value for money or for the private sector firms considering engaging in it. Tax is one of those variables. Obviously, it can change, as can the costs, which the parties to the public-private partnership for the tube discovered once they became engaged in it. We need to tackle the underlying issue that, under the previous Government, Britain became uncompetitive in the corporation tax world. We have got to get back to being more competitive over the coming years, which is exactly what we plan to do.

We are working on the skills agenda across Government. I do not have time to go into that now, because I want to give a minute to my hon. Friend the Member for Hereford and South Herefordshire. I assure hon. Members that we recognise that, as does the civil service. There is currently a huge review of skills going on across government to ensure that we have the right skills in place. We have therefore taken a number of steps. I know that my hon. Friend wants to come in, so I will conclude my remarks.

Savings Accounts and Health in Pregnancy Grant Bill

Debate between Stella Creasy and Justine Greening

Tuesday 26th October 2010 Commons Chamber

[Stella Creasy]

I shall make progress, as Mr Speaker has pointed out how many Members want to contribute.

I want to put on record my concern that children who will have the child trust fund removed—those 30% who are getting the extra payment—are kids from the families most likely to be hit by the cuts in public spending, as the housing benefit, tax credits, jobs and services that their parents rely on are also slashed by the Government. These are the kids of families who already struggle to make ends meet and for whom the scheme represents a lifeline of opportunity for their children in later life.

Members need not take my word for it. Let them look at the reports from the Treasury and the Institute for Fiscal Studies. They make it clear that the poorest will bear the brunt of the cuts. The Bill ensures that the burden will carry on to their children as well. This is not fantasy or wishful thinking, as some on the Government Benches may wish to claim. Since the scheme has been running, there has been clear evidence that it works in encouraging saving and supporting aspiration.

It is not fantasy to think that that money would be spent on the future of those young people. The research commissioned by the Treasury shows that families of all incomes see the money as the key to their kids getting on in life, whether it is used for higher education, setting up home or even having driving lessons. The research reflects the ample evidence and common-sense proposition that possession of even a small pot of money in early adulthood improves one’s life chances later on. It shows the strength of the economic argument for retaining the child trust fund, and that a savings culture can be ingrained in people from the early years of their lives. It shows also how counter-productive it is to cut the fund now, because the funding that would have been available to our economy in later years will also be absent from the choices that children are able to make.

The strength of the scheme, and what I want to concentrate my final remarks on, is the evidence that a small amount of capital at the beginning of life had a significant advantage for children 10 years on in life, even when accounting for employment, higher earnings and better health. At the heart of the scheme, and the reason why the previous Government introduced it, is a concern for social mobility, something that Government Members say that they too care about. If they do care about it, however, they will understand that assets are the key to social mobility.

Labour Members understand that if a child is born with a silver spoon in their mouth, it means not just nice baby clothes or a wonderful pram but the money, resources, confidence and networks that help to turn potential into reality. If a child does not have those assets, at every stage in their life their choices will be limited, and the decisions they make will be that much harder, whether they are about where to live or the lifestyle their family can afford, or whether they can even take the chance to go on to further and higher education. That is why Labour Members fought for the scheme and had planned to extend it if Labour won the election. It encourages not just savings, but aspiration.

We might look at our debates, and those that the UK Youth Parliament will have on Friday, about the right to vote and citizenship, but surely a truly progressive society is one in which we ensure that people have access to the capital endowment that gives them the same social power and responsibility of all their peers. I know that some Government Members agree. Only one day has been allotted to this debate, and attendance is low, but I hope that the country takes note of the fact that this Bill reflects the real impact of the Liberal Democrats on the coalition.

I urge those Government Members who consider themselves to be compassionate Conservatives to hold true to their own manifesto and to protect against this onslaught of Liberal callousness. The Conservatives’ manifesto at least pledged to protect the child trust fund for some children, so I urge them not to listen to the siren voices of the Liberal Democrats who, by abolishing the child trust fund, want to see the poorest families decimated.

The Liberals cannot even decide why they do not want the fund. Their claims run from “We can’t afford it,” to “It’s not the best way to secure asset-based mobility.” But as the former Chief Secretary to the Treasury said—

[The Economic Secretary to the Treasury (Justine Greening)]

“There’s no money left”.

[Stella Creasy]

I accept that the hon. Lady may be confused, but let me be clear that I am talking about the former Chief Secretary to the Treasury who claimed that the Government could not afford to continue with the child trust fund because it would burden future generations with a bigger debt. Some Opposition Members think that burdening future generations with no opportunity in life at all is not a price worth paying.

If we are to continue looking at what Chief Secretaries to the Treasury have said, we will find it worth considering what the current one said back in 2008, when he agreed that asset-based welfare was the true path to social mobility. He argued that there needed to be an alternative to the child trust fund, but tonight we have not heard about any measures to replace the asset that people would have had. We have heard nothing from Government Members; the silence has been deafening. Opposition Members have clearly explained why an ISA is not the same as a child trust fund.

My private Member’s Bill next week will call for a levy on financial institutions to help to support debt counselling and advice services. That is why I welcome the Financial Secretary’s remarks that the Government would back a consumer financial education body to begin that process of supporting financial advice services. However, it is no good on the one hand offering help and support for families who get themselves into debt, and on the other taking away the savings vehicles that keep such families going.

Given my proposal, I hope that the Minister will agree to meet me and other campaigners to discuss what more can be done to address the causes of poverty and ensure that families have access to affordable credit. Whether we are talking about the child trust fund, the health in pregnancy grant or the saving gateway account, I urge the Government to rethink the Bill and recognise that it is not in the long-term interests of families throughout Britain to support such measures.

A nation which ensures that every young person and their family has financial assets at key stages in their lifetimes is one in which potential stands a much greater chance of being realised. If the Bill is overturned and the scheme kept, a world of possibility will open up to many of our young constituents. I urge the House to reject the Bill and to sustain these vital instruments of social progress.