Private Finance Initiative

Thérèse Coffey Excerpts

Thursday 23rd June 2011 Westminster Hall

[Stella Creasy]

One of the genuine delights about serving on the Public Accounts Committee with the hon. Gentleman is that he has such a wealth of knowledge and anecdotes that clearly illustrate the challenges that we are dealing with. He took part in the Committee’s session, so he will know that I have grave concerns that moving assets overseas to offshore tax havens has substantial consequences for our assessment of the value for money of PFIs. When the decision to go for a PFI project is taken, an assessment is made of the tax that we will get in return, but there is widespread evidence that many companies then move their assets overseas to offshore tax havens. In fact, the Treasury Committee took evidence showing that 91 PFI projects were owned by secondary market infrastructure funds, so we are losing money. One of the best examples of that problem is a body set up by HSBC. The HSBC Infrastructure Company Ltd, which manages a number of hospitals in this country, has made £38 million in profit from 33 PFI schemes, but it has paid just £100,000 in tax in the UK in the past six months.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

Just to clarify, is the hon. Lady suggesting that, as part of the negotiation of a PFI contract for, say, an NHS hospital, a calculation is done on the basis of what corporation tax would be paid? Were NHS trusts doing that? I am a bit surprised to hear that.

[Stella Creasy]

No, let me be clear. The Treasury uses the Green Book to assess whether a PFI is an appropriate model. An assessment is made specifically of the Exchequer’s tax take over the life of the contract. It is precisely because that is part of the value-for-money assessment that I have great concerns about the fact that we are not getting the tax we expected, which would make the PFI a reasonable model to use.

It is therefore fair to ask what we can do. If the Government are proceeding with the PFI—that is an interesting issue for Government Back Benchers who are concerned about this issue—what action are they taking to learn from the way in which previous contracts were negotiated? One thing that is clear to those of us on the PAC is that there is a better understanding of the skills needed to negotiate these contracts. The hon. Member for South Norfolk was clear about the skills needed in the public sector to negotiate with the private sector and to improve the way in which contracts are negotiated. We must also appreciate that we in the public sector have tried to renegotiate contracts after the fact by asking for increased provision in our hospitals, for example, or by looking at different services. That, of course, has consequences for the response from the private sector.

The fundamental question as regards continuing with the PFI—the Government certainly seem content to do so—is what action Ministers are taking on tax and tax havens. The hon. Member for Hereford and South Herefordshire is right that we need better data on tax assessments, and those of us on the PAC were certainly unable to get information about assessments of the tax that various PFI projects were expected to generate when they were commissioned and about what would happen next. What concerned us was that, although Treasury officials accepted that an initial assessment would be made, they were clear that no assessment would be made further down the line of whether that initial assessment had been reasonable.

Indeed, there has been no learning about the way in which tax is assessed in decisions to go for the PFI, even though that could be used in future contracts. Specifically, officials were clear that there is no commitment from the Government to look at the tax status of funds or even to explore what action might be taken, for example, to require a company bidding for a PFI contract to show in its books that it has been operating in the UK for the past five years, so that we can be confident that the bulk of its work is done in this country and therefore that we would get the tax back. We would then have a reasonable expectation that the Treasury would recoup the general sum that was part of the calculation. This is not a new concern or a new idea; in fact, a previous Labour Member tabled a private Member’s Bill on precisely this point, but it did not receive support from the then Opposition, and I hope that that will change if we can all agree that we want to improve the way in which the PFI operates, if it continues to be taken forward.

The hon. Member for Hereford and South Herefordshire has said that the PFI might be a better model for some types of infrastructure projects than others, but the list of the 61 projects that the Treasury is developing includes a wide range of projects, including hospitals, schools, fire buildings, roads and police stations, so this is a live issue. We could be making progress on challenging the costs to the Exchequer and the value for money of projects, but there is no commitment from the Treasury to look at these issues.

Those are the main concerns that I wanted to put on the record about the hon. Gentleman’s campaign. First, were we to push for a rebate, it would be difficult to get the private sector to renegotiate, although I wish him well in looking for haircuts from people such as David Metter. Secondly, there might be very real consequences for the renegotiation of the cost of the services that are delivered, although I am sure that they would be unintended consequences as far as the hon. Gentleman is concerned.

Thirdly, it is a real concern that we may leave untouched the tax status of these companies and the money that the Exchequer might lose, but which was part of the original decision to go for a PFI project. In putting as much pressure as possible on the Government to talk to companies—the briefing says Ministers have, but the reality revealed in the PAC is that they have not—I hope the hon. Gentleman will also put pressure on them to look at companies’ tax status. I hope he will put pressure on them to look at how we can close the present loophole, so that we can be sure that where an assessment is made of the money that will be returned to the Exchequer over 30 years or whatever term is chosen for the 61 projects, the Exchequer will actually recoup that money. We all agree that value for money should be at the top of the agenda, and we should be thinking about the best way to get the infrastructure buildings that our country will need in the future. If so, how do we make sure, not only when the contract is committed to but in the years ahead, that we are securing that value for money?

I congratulate the hon. Member for Hereford and South Herefordshire on securing the debate, and I urge him to think about his target. I look forward to hearing what he has to say later.

--- Later in debate ---

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

Thank you, Mrs Main. I appreciate your candour in admitting that you have had very little to do with PFI.

I thank my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) for securing the debate. I commend his initiative and his ongoing campaign. I am not sure whether he has been nominated, but he is certainly my Back Bencher of the year for the work that he has done on PFI. It is a great scandal, Mrs Main, that this debate is being held in Westminster Hall. It is always good to debate PFI, but I feel that something of such importance—an emerging scandal that people are only just waking up to—should have been debated in the Chamber, with the full prominence that would be given there.

I was also concerned to hear earlier that evaluation of PFI projects is not being undertaken by the Treasury. Will the Minister tell us whether that can be reversed? Before I talk about some of the challenges of PFI, I want to assure people that I am not fundamentally opposed to PFI in principle; my concern is the legacy. We have heard many stories about that. The legacy has been a disaster and has tarnished the name of PFI, which could have been a force for good. It is a classic case of off-balance sheet financing. Not only will our generation pay for it, but future generations will continue to pay for that, as well as all the other debt accumulated by the previous, profligate Government.

On early memories and anecdotes that hon. Members were relating, I will not go on about light bulbs costing God knows what. However, I remember the first meeting of the all-party group on rural services when we heard from the deputy chief fire officer of a particular authority. His very last comment was, “For God’s sake, never allow me to sign another PFI contract again, because I didn’t have a clue what I was doing. In hindsight, I recognise that I made a huge problem for my fire authority. Because of that, I shouldn’t be here.” But he then went on to use the usual defence: “I didn’t know what I was doing. My accountant said it was fine, so I just signed the contract.” He was embarrassed, and it was good of him to say that, but that story is not unique. I am sure other hon. Members have heard such stories.

Indeed, we all received a briefing from the NHS Confederation: a wringing-their-hands exercise about “It was early in the ’90s; we didn’t know what we were doing; we’ve learned the practices now.” I wonder whether they have. I sent a message back to the confederation to ask what advice it gave to its member hospitals and trusts. It said, “It wasn’t our role to do so. It was the role of the Treasury and the Department of Health.” So I feel that a lot of buck-passing is going on. I know that that is in the past, but we are living with the costs today and will do so in future.

I logged on to the Partnerships UK database to see what PFI projects were awarded to Suffolk. There were only four listed, which surprised me, because I know of at least two others. The most recent PFI contract is a 30-year contract to be shared with Norfolk, and it is for six new police investigation centres, as they are called. Basically, they will be the new police cells. This contract dwarfs all the others: the East Anglia courts; the Wattisham married quarters; the hospital trust’s Garrett Anderson treatment and critical care centre in Ipswich; and indeed the fire and rescue service serviced accommodation PFI project.

We are spending £61.3 million on six centres that will be the new places where people are detained. I challenged that before I was elected. I was told that we had to have the new centres because of the recommendations of the National Policing Improvement Agency. The cost over 30 years for the contract, including the servicing, is £294 million. The budget goes from about £6.7 million spread across the two authorities to more than £11 million. My hon. Friend the Member for Rugby (Mark Pawsey) alluded to that. In the days of decreasing budgets, when we are trying to tighten our belts, we face the enormous cost of a brand-new building, which, frankly, is going to be used by prisoners. I am sure many people in Suffolk will be disappointed to hear that we will probably be losing front-line police officers to pay for what I see as a rather gold-plated building.

I genuinely hope that other savings will be found. I hope that we will improve our detection rates so extraordinarily that we will make the savings. I hope that people will not feel that they have got the bobby in the car driving people hundreds of miles back and forth between the detention centres, homes and courts instead of having the bobby on the beat. I hope that we will not be regretting this in the next few years.

Other projects have caught my eye. Apparently, the M1-A1 link road is a shadow toll road. As part of the PFI contract, the Government pay a fee—a toll—to the company. The numbers of journeys are more than double what was originally estimated, so the Government are happily paying through the nose for that. To be fair, as has already been suggested, I do not believe that we should condemn the private sector for how it has made significant amounts of money. Much of the fault lies with us as clients. People should look themselves in the mirror when they recognise the profits that they make from PFI. I have a wealthy constituent who stopped speaking to his brother because he was so ashamed of how much money he was knowingly making out of some of the contracts. He recognised that he did not have a sophisticated client.

Just a few weeks ago, the Government released their construction strategy in which they recognised that 80% of the challenges have been within internal processes. Change orders, which were mentioned earlier, classically add so much to the cost of a project, as does the lack of sophisticated negotiating. The Government are trying to change that, which is to be welcomed. The last piece will be for the construction team, along with financing, to come together and ensure that we have a simpler, focused contract that is flexible and appropriate for future needs.

As for the way ahead, I wish my hon. Friend the Member for Hereford and South Herefordshire would name and shame those institutions that have thus far not consented to voluntary repayments. I would also like to hear the results of Lord Sassoon’s review on the renegotiation of contracts, which was initiated in February.

I am delighted to hear that PFI is no longer the default place in which to look for capital; there are other sources available. Unlike under the previous Administration, it is not the only game in town. I am glad to see that we have a more balanced potential source of capital funding for the future. I shall conclude, because I recognise that others wish to speak. PFI will be one of the greatest scandals, so I congratulate my hon. Friend on bringing it to the attention of the House. Let us keep up the volume to ensure that this scandal is not repeated.

[Mrs Anne Main (in the Chair)]

We have four hon. Members still hoping to catch my eye and there are 30 minutes left before the wind-ups. I will now call Mr Mark Garnier, who I hope will be mindful of his colleagues.