Private Finance Initiative

I thank my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) for shortening his speech to let me in—I hope it was worth it. Along with other hon. Members, I commend the hon. Member for Hereford and South Herefordshire (Jesse Norman) for his important initiative. It seems to me that the PFI is a procurement technique that has been used over the past decade or so—perhaps for longer. Like any technique, it can be used wisely or poorly. There are certain instances, when a project has certain characteristics, when it is probably a good technique to use, for example when there is a significant construction phase that is difficult. The private sector is able to do that, and we want to transfer the risk. I heard about the Edinburgh tram system on the radio this morning. That system is an appalling failure, and I do not think that it is a PFI project. PFI is a technique that also works when trying to minimise life-cycle costs, because there are some advantages in looking at the overall operability of a scheme as well as its construction. The technique works best when the procurement contract is written in such a way that, over its period, it properly aligns the profits of the contractor with the interests of the client, and that is where contracts have gone wrong so frequently. It is a technique that also works best when the market is reasonably deep, so that value for money is achievable, and some of the points about how weak the market is are right. The PFI technique also works when there is a reasonable degree of certainty as to the nature of the contract that is needed, which is to say that multiple changes will not be made over a 20 or 30-year period. Again, one issue is that, in certain instances, we have been locked into hospital contracts, which, as health care changes come through, we are unable to alter. Those reasons are why the PFI technique may be valid. There are instances, however, where we should not use PFI, and the overall reason why it has been a bad thing is because it has the characteristic of off-balance-sheet finance. It is a way of constructing a load of activity and projects without putting it on the public debt. I am sorry to say that—without being overly political—the previous Government built many schools and hospitals in that way, and, frankly, those schools and hospitals will be paid for over a long time. That is a poor thing. PFI also does not work if there are asymmetric negotiating skills, and we have heard much about that this afternoon. Unfortunately, that is the case in the example that my hon. Friend the Member for Wyre Forest (Mark Garnier) gave about the contractor's interest and expertise. All that is true. It strikes me that the issue is also one of accountability. In an earlier intervention, I made the point that I see no accountability in public sector procurement, which is disappointing. The consequence of all that is that we get the multiple messes that have been mentioned. I was interested in the example that was given by my hon. Friend the Member for Nuneaton (Mr Jones) of a hospital that is under pressure because work has had to be transferred to a PFI hospital, because exactly the same thing is happening to Warrington hospital due to a large PFI hospital being built just up the road and needing patients to satisfy the contract. That is an example of terrible failure. I am delighted that the review of contracts is going on, but I want to raise several points that I do not fully understand. We have to be careful about opening up contracts that have been entered into in good faith, and we must be careful about bandying about profit figures. In my previous life, I had some contracts where I made a lot of profit, and I had some where I made so much loss that it could not be counted. It is only reasonable that all such activity is looked at in the round, so we must be careful. Regarding the list of organisations that was read out earlier, I reiterate that, as far as I am aware, none of those companies are making excessive profits in terms of return on capital employed or share price. We need to think through what is happening between the extraordinary profits that everyone is talking about and the fact that those publicly quoted organisations do not seem to making them. It is worth trying to get some of the money back in the same way that the Cabinet Office has been doing for large consultancy and IT projects. However, what carrot are we giving to such people, who in many instances entered into contracts in good faith? From their point of view, they have carried out the contracts to the best of their ability. In the case of the Cabinet Office initiative, the bribe being used is the threat of not getting further contracts unless they play this game. That is a valid thing, and the directors, who have a fiduciary responsibility to their shareholders, can go back to their boards and say that they have a choice to make: they can either knock some money off or do no more work for the Government. That is their choice. In our discussions in this area, we must enable ourselves to create that choice for such organisations. I am not sure that characterising them all as money-grabbing private sector rogues is necessarily the way forward. I have heard a bit of that this afternoon. I shall sit down now but, before I do, I again congratulate my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) on initiating the debate. The issue is very important and could have significant impacts on all our communities.