Select Committee on Treasury Appendices to the Minutes of Evidence


APPENDIX 5

Memorandum by Prospect

INTRODUCTION

  Prospect (formerly IPMS and EMA) is a trade union which represents over 104,000 scientific, technical and specialist staff in the Civil Service, research councils, other public bodies and an increasing number of private companies. Our membership profile has provided us with wide-ranging and significant experience of the commercialisation of government.

  We have confined our comments to OGC's PFI/PPP policy role, and in particular to the advice and guidance it provides to departments on the application of PFI/PPP principles.

  We make reference to our experience in the Defence Evaluation and Research Agency (DERA) and the National Air Traffic Services (NATS), and whilst we acknowledge that the OGC may have had only limited involvement in the DERA and NATS PFI/PPP projects, nonetheless, we believe our views on the mechanics of PFI/PPP are worth your consideration as the OGC develops its PFI/PPP role.

  Our unions' attitude towards the use of public sector finance in the form of PFI/PPPs is a pragmatic one. Where it is clearly established that the involvement of the private sector offers the best way of achieving the long term future of the organisation and value for money has been clearly demonstrated then, with current safeguards in place, we will support the proposals.

CASE FOR PURSUING PFI/PPP NOT BEING CLEARLY MADE

  However, our real concern is that with many of the projects, and we refer in particular to DERA and NATS, the case for pursuing the private finance route has not been clearly made. In our view this is partly as a result of:

    —  confusion over the objectives to be achieved;

    —  a lack of transparency;

    —  concerns over the long term costs of PFI deals;

    —  the failure to follow the guidelines already set out;

    —  failure to make information available;

    —  lack of clarity over value for money issues including risk transfer; and

    —  no opportunity to allow for innovation in the delivery of the service in the public.

FACTORS CONTRIBUTING TO THE UNCERTAINTY

  We feel that a number of factors contribute to the atmosphere of uncertainty. Some of these are outlined below:

    —  There has been a lack of clarity in the terminology being applied to PFI and PPPs. Guidance issued by the Treasury Task Force and others appear to use the terms interchangeably without any attempt to draw distinction and offer clear definitions.

    —  The objectives of large PPPs are often not clear. Justification varies between either (a) the argument that investment in public corporations cannot be achieved without impacting on public finances to the (b) vague, value for money will be achieved through private sector innovation, better management and the benefits of risk transfer.

    —  Neither of these arguments meet the value for money criteria clearly set out in a number of Government documents. They also do not stand up to detailed scrutiny. For example:

      (a)  it is now widely accepted that the state of the public finances are not longer the rationale for pursuing a PPP route. Net debt is well within the Government's objective of 40 per cent of GDP. Public borrowing is also now recorded on an accruals basis which means that borrowing can, at least then be spread over the lifetime of the project;

      (b)  if there is no longer a macro economic argument then the focus must be on whether the proposals offer value for money including the correct allocation of risk transfer;

      (c)  guidance from the NAO set out very clear guidelines for establishing value for money. These include:

—  the need to prepare an outline business case;

—  a requirement to use a public sector comparator to help establish value for money;

—  establishing procedures for identifying the areas of risk that will be transferred prior to making a decision;

—  the need to set out the scope for innovation; and

—  detailed plans for allocating and assessing risk;

      (d)  it is clear though that the NAO guidelines are not being followed in many cases. The Outline Business Cases, the Final Business Case or even the use of a public sector comparator are not being made available or even undertaken in some Public Private Partnership proposals.

CHANGES THAT SHOULD BE INTRODUCED

  It is important that if the involvement of private capital and expertise in the public sector is to achieve any credibility then greater clarity, cohesion and openness in the process is essential.

  It should, for example, be clearly spelt out that rules as to whether public corporations can borrow are not written in tablets of stone. Flexibilities have been given to BNFL, the Post Office and Regional Airports. The Government has also introduced the Golden rule which allows public borrowing for investments. The public finance rationalisation is no longer therefore an adequate explanation for the decision to pursue the PPP option.

  We also note the NHS Executive's good practice guidance. This specifies when key documents should be released to ensure that a full and final record is in the public domain. There is a detailed checklist that sets out the requirements for consultation.

  Projects with a capital value of £25 million or over have to make the Strategic Outline Case publicly available in the same manner as the other key project documents.

  We feel strongly that this information should be provided with coherent justifications as to how the PPP offers improved value for money in comparison with retaining the organisation in the public sector.

  An essential element of this analysis should include:

    —  an understandable outline of the level of risk being transferred;

    —  a clear definition of the superior private sector management and innovation on offer;

    —  allowing opportunities to provide innovative public sector comparisons; and

    —  procedures should be in place to ensure that this information is available in the public domain.

THE TRUST MODEL

  Specifically in relation to the future of National Air Traffic Services (NATS) but also more widely, Prospect believes that not-for-profit Trusts have a role to play in combining some of the benefits of public service orientation with the commercial freedom of the private sector.

  In relation to PPP we wholeheartedly endorse the views of the cross-party Select Committee in its Report on the PPP proposals. They stated:

    "the current proposal for a public-private partnership for NATS is, in our view, the worst of all possible options for the future structure of the Company". (Paragraph 79. Environment, Transport and Regional Affairs Committee. Third Report. The proposed Public-Private Partnerships for National Air Traffic Services Limited. 1 February 2000.)

  Our preferred alternative is a not-for-profit Trust, legally constituted as a Company Registered by Guarantee without share capital. This was also the preferred option of the Committee, which believed that the Trust model would meet the main objectives of the Public-Private Partnership, freeing NATS to borrow on the private market and separating the company more clearly from its regulator. There is a working example of the Trust model in the form of the Canadian air traffic body, NavCanada.

QINETIQ LTD

  DERA (an ex-MoD Agency) is now in part called QinetiQ Ltd. QinetiQ Ltd is still in public ownership but it is soon to be sold/floated. A number of issues have come to the fore since QinetiQ was launched on 1 July 2001, and which were originally predicted as problems in the Trade Union response to the relevant MoD consultation document.

  They are:

    —  the costs of separating DERA into two separate organisations namely DSTL (which remains an agency of the MoD) and QinetiQ Ltd has been, at the latest estimate, some £97 million. This cost is very much higher than that originally estimated and it has fallen to QinetiQ to pick up these costs;

    —  the running costs of the two organisations are collectively higher than before their separation, since electronic communications, finance system and management roles have had to be duplicated;

    —  DSTL, which was formed to handle inter-Government information transfers still needs to define its future role and state how it will deliver the "intelligent customer role". The staffing levels were predetermined and do not reflect the actual needs of the organisation;

    —  AT&E Boscombe Down (part of the old MoD trials and ranges organisation), still seems to be the "too difficult" category. It has high fixed costs and does not sit well in a "private company". MoD is the principal customer and has retained the Boscombe Down airfield, but will not guarantee QinetiQ the long term work necessary to enable the investment it needs;

    —  the US (as predicted) will not allow QinetiQ once privatised to receive the information it needs for staff to work on certain collaborative programmes. MoD has yet to find a way forward on this;

    —  DSTL, though separate from QinetiQ, sits on a number of QinetiQ sites. At the Farnborough site for example, DSTL seems unable to define its future; and

    —  since the events of 11 September the investment climate necessary for the sale/flotation of QinetiQ has deteriorated significantly.

9 November 2001



 
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