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8.16 p.m.

Lord Eden of Winton: My Lords, recently we were all delicately reminded that it was not necessary for every speaker in the debate to make reference to the maiden speeches. But after two maiden speeches of such

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quality I cannot let this opportunity pass without saying how privileged I feel to be taking part in a debate to which they have brought such distinction.

Like my noble friend Lord Nickson and others, I was greatly heartened by the opening speech of my noble friend Lord Ferrers. He catalogued the good news, for which the Government deserve full credit and which in all fairness should be widely reported by the media.

My noble friend was right also to warn against standing still. We must continue efforts to strengthen our industrial base and to build on current success. A pointer as to how to achieve some of that has been given by the Chancellor of the Exchequer and others.

Earlier this month the Chancellor of the Exchequer, at the CBI conference, made an important speech, at least half of which was devoted to the need for investment and to the role of private finance in achieving that. He spoke eloquently about the prospect of encouraging private finance in investment projects in the public sector--what has come to be called the private finance initiative (PFI). He said:


    "I am determined to push the PFI right across the public sector ... private finance is increasingly going to become the main source of growth in investment projects in the public service".

He went on to give examples of hundreds of millions of pounds' worth of projects already approved and under way in transport, housing, prisons, hospitals, urban development, information technology and elsewhere. He also made reference to the £42 million Royal Armouries project in Leeds. The new Royal Armoury Museum complex now under construction at Clarence Dock close to the centre of Leeds is the first major PFI arts project under the auspices of the Department of National Heritage. As I was chairman of the Royal Armouries for eight years until 1st October, when I handed over to my noble friend Lord Younger of Prestwick, I hope that I may share some of the experiences and reflections relating to an example of PFI in practice. I hope noble Lords will not feel that it is too narrow a point because in my view some of the lessons learned have wider application.

At the start of the process, the Royal Armouries Board of Trustees and full time armouries staff, most ably led by the Master of the Armouries, Guy Wilson, felt like pioneers seeking out new territory--a feeling, I suspect, at that time shared by officials in the department. Fortunately we were soon able to enlist the assistance of Schroders, financial advisers. Their understanding and creative flair helped us to devise a credible financial structure for the venture.

Leeds, of course, was enthusiastic. Both the development corporation and the city had perceived the extent to which the establishment of a major national museum and leisure attraction close to the city centre would be a catalyst for economic growth and for the regeneration of the whole Clarence Dock area. The development corporation offered £5 million towards the capital cost of the project. The city came forward with £3.5 million. The Government, with the support of the then chief Secretary--he is now happily the Secretary of State for National Heritage--committed £20 million to be spread over a number of years.

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That public sector finance, firmly capped as it is, was authorised only after an exhausting analysis had confirmed the financial and social benefits to the public sector that would flow from the development. It was a condition that private sector investment should be secured in the form of a joint venture with the Government.

The benefits of that are real and substantial. The new museum will become an important contributor to the economy of Leeds and beyond. The estimated £35 million input into the construction industry will support up to 300 jobs. The employment of 150 to 200 staff will contribute about £5 million to the Leed's economy. There will ultimately be at least 850 to 1,000 new permanent jobs in the area. There will be the annual spend of the anticipated 1 million visitors to the museum injecting about £10 million to £15 million into the local economy, with hundreds more jobs arising from that.

Already a number of improvements have been taking place: the adjacent road network has been enhanced; the facilities of the Aire and Calder Canal have been substantially upgraded; and soon, I hope, urgent action will be taken to end the pollution in that river. The rates and taxes will be payable by the new company and the museum. Education is to be a prime feature of the museum--a key objective. Displays will bring history to life through the medium of the artefacts and will form an integral part of the national curriculum. There will be an information centre interpreting current events.

This will be the first time that a major national museum, will have moved its world renowned collection to establish a unique cultural focus in the north of England. Through the joint management and shared skills of the private sector and the Royal Armouries, a much higher proportion of the collection than ever before will be made available to the public, international as well as national, for its enjoyment, information and education. The extensive and continuous promotion--PR and travelling exhibitions--will trumpet the name of Leeds. Altogether it is a good investment for Leeds and for its business community.

By making that move, space is being released within the Tower of London to allow for further improvements in the way in which the display is presented. It has already resulted in an imaginative and visitor-sensitive new display of Crown Jewels. The Royal Armouries will be able to show to better advantage prime items from its collection, in new presentations in the White Tower. There will be proper restaurant and refreshment facilities in the Tower which are long overdue. All those factors will bring in more paying visitors, many from overseas, giving them better value for money.

Therefore the benefits for the public sector are substantial. Yet, rightly, the responsibility for the construction of the museum and its commercial operation, with all the attendant risks, rests with the newly created private sector company, Royal Armouries (International) plc (RAI). It required all the considerable powers of persuasion and the perseverance of Sir James Glover, the chairman of RAI, to secure the required private sector investment. The consortium of private sector investors, led by 3i and the Bank of Scotland are

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together contributing £14 million. It was not easy to find the lead investor. It was not a case of making a selection between competing claimants. The Government are, of course, right to stress the importance of competition in public procurement. That is underlined in their guidance note to departments. Competition is right in principle. But in practice it needs to be sensibly applied, taking special circumstances into account. There are instances where it might not be appropriate, and where its employment will be unnecessarily burdensome and counter productive. The PFI has to operate in two directions. At times it will be selecting among competing bids for participation; but at other times it must seek and invite participants.

In the case of any PFI initiative, in particular one originating with the public sector, where competition is most crucial is at the very beginning in the selection of a merchant bank or other financial adviser. Once that expertise is available, a preliminary financing structure can be prepared from which to seek the involvement of a lead investor. When the lead investor has been identified, agreement can be reached on an outline financial framework appropriate to the project and acceptable to both the public and private sector.

I wish to make it clear that private sector influence must not become simply an add-on extra to an elaborate structure devised and conceived wholly within a government department. Top quality private sector management needs to be involved from the outset.

It is important that government departments do not underestimate the degree to which the private sector will need to have allayed its suspicions of the public sector. Potential private sector investors have to be convinced that the public sector's financial commitment to the project is irrevocable and unconditional. The private sector focus will rightly be on the viability of the subsequent revenue stream which will have to be robust enough to cover the financing and start-up costs and to deliver a fully commercial rate of return to the investors. Only then will investors accept the responsibility and the risks inherent in the project.

However, it then becomes the responsibility of the public sector to help ensure that the project comes to fruition. Admittedly, control will have passed to the private sector, a condition which in itself will require a change of attitude and approach on the part of departmental officials. Some simply cannot resist the temptation to intervene on an almost daily basis. The requirement for reports, submissions and explanations can add enormously and unproductively to management's workload. That applies as much in the case of museums as to any other enterprise. Of course, the public sector will continue to be identified with the project and will have a job to do. For example, without the very substantial efforts of departmental officials, the new Royal Armouries would never have emerged off the drawing board. Perhaps I may refer, too, to the stalwart support which came from Ministers, most notably and magnificently from my noble friend Lady Blatch.

However, in the public eye and in reality it is not one sponsoring department that is involved in the issues; the commitment to the project is made in the name of the

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Government as a whole. It is the Government as a whole who rightly take credit for helping it to come about. In the case of the Royal Armouries project at Leeds, during long hours of critical negotiations we had the extraordinary spectacle of one part of the public sector fighting tooth and claw for its own particular narrowly perceived interest, with near fatal consequences for the major investment project which the Government as a whole wanted. Yet the Government were apparently unable or unwilling to do anything about it.

So there must be a single central source of direction. All arms of the Government should somehow discover ways of working effectively together. Since the private sector is being encouraged to come into partnership with the public sector, it has the right to expect that the public sector will co-ordinate its efforts and deploy all its resources to promote the venture and help it to succeed. They should bring the same enthusiasm for investment of that kind as they invariably do for inward investment from abroad.

I have one further point to make. It is important to recognise that it takes time to put together a big and complex financing project. In the first place, careful and detailed project analysis and feasibility studies are essential; independent reports have to be commissioned; specialist agencies have to be engaged and each step has to allow for open competitive tendering. This is all necessary even to arrive at the position where prospective financial advisers can be adequately briefed.

Where, then, the project is initiated within the public sector, the government division responsible must recognise that time, manpower and extra skills are all needed at the very beginning. That means money. Departments, including the Treasury, must be prepared to prime the pump. If spending controls are too rigidly applied, there is the danger that the project will either be inadequately researched or be stillborn.

The volume of work involved can be enormous, especially in a major start-up scheme, which is what in effect the Royal Armouries project in Leeds can be said to be. At the final countdown, after four years of study, research, gestation and preparation, there were six weeks of intensive marathon negotiations involving 14 sets of lawyers representing some 20 organisations. At completion, there were more than 100 legal documents to be signed, every word of which had been subjected to the closest analysis and debate. Those were all necessary to achieve, among other essentials, proper security of tenure for the private sector, to identify the separate responsibilities of both partners in the enterprise and to preserve the statutory position of the Royal Armouries and the independence of its board of trustees.

As the PFI is now becoming more widespread and more accepted as a means of achieving new investment in public sector projects, government departments will need to develop their own core of expertise. With the support of the Private Finance Panel Executive and with the backing of the Treasury's private finance unit they should be ready to move quickly and imaginatively. Their role should not be that of the passive monitor, nor that of the policeman scrutinising public expenditure--necessary though that latter function undoubtedly is.

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In relation to the PFI, they need to be more positive. They should be prepared to promote, guide and influence the development of schemes suitable for partnership between public and private finance. That will bring immense benefit to this country. I think that my noble friend and the Government are to be congratulated on introducing and supporting the concept of the PFI.


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