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House of Lords

Tuesday, 31st January 1995.

The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.

Prayers—Read by the Lord Bishop of Chester.

Private Finance Initiative: Scope

Lord Barnett asked Her Majesty's Government:

    What is their policy on the Private Finance Initiative.

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley): My Lords, the aim of the Private Finance Initiative is to ensure that, where appropriate, private finance is the first choice for investment in government infrastructure and services.

Lord Barnett: My Lords, is the Minister aware that I would agree with those sentiments in principle provided always that the transaction offers value for money? I am sure that the Minister is aware of the Chancellor of the Exchequer saying last week—he also issued a press release—that one of the first projects to be undertaken under the Private Finance Initiative would be redevelopment of the Treasury building itself, so I assume that nothing is sacred any more. I am sure that the Minister is aware too that the Chancellor said that the idea is to go right across the public sector with the Private Finance Initiative. Can the Minister confirm whether that applies also to local government? If so, will local authorities be able to build homes through the Private Finance Initiative, using private builders, and lease them back, thus providing much needed homes as well as jobs that are greatly needed in the building industry?

Lord Henley: My Lords, I can confirm that my right honourable friend addressed a packed audience last week at the very successful private finance panel conference. As the noble Lord so clearly said, my right honourable friend announced plans for the work at the Treasury to be undertaken under one of the initiatives. That shows that the Treasury puts its money where its mouth is. I hope that that will be a highly successful initiative along with the other £5 billion-worth of private finance contracts due to be signed in 1995, with another £1 billion-worth in the pipeline. As regards local government and whether it can partake in the initiative, I should prefer to take advice because that question goes slightly beyond central government. However, I can confirm that although the Private Finance Initiative is focused predominantly on transport initiatives, we should like it to be focused across all government departments.

Viscount Caldecote: My Lords, will the Government be prepared to put public sector finance into private sector enterprises where there is a long payback period to ensure that the Government share the risk of important developments in strategic industries?

Lord Henley: My Lords, obviously there will be occasions when the Government put money into such

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things. What we want to do is to ensure that the risk is shared between the private sector and the public sector. We are certainly not looking to transfer all risk onto the private sector.

Lord Wyatt of Weeford: My Lords, can the Minister say whether the Treasury is a listed building and, if so, to what extent can it be hacked about?

Lord Henley: My Lords, the Treasury is a listed building, and the degree to which it can be hacked about, as the noble Lord puts it, would be a matter for the appropriate authorities on advice from English Heritage.

Lord Ezra: My Lords, is the Minister aware of general agreement that this is a desirable initiative, especially if it means that there can be additional investment in essential public services? However, is the Minister also aware that the definition of what is "appropriate" is still somewhat restrictive? The Minister referred particularly to risk. Is he aware that those to whom I have spoken believe that there is a tendency to ask them to shoulder more of the risk than the profits will bear?

Lord Henley: My Lords, I am grateful for support from the Liberal Benches and I hope in due course to receive support from the Benches opposite. It is important to get the share of the risk exactly in the right place. I was trying to stress in reply to an earlier question that we believe that the risk should be shared. It should not all be placed on the private sector; nor for that matter should we be removing all risk from the private sector. There must be a degree of risk.

Lord Dean of Beswick: My Lords, my noble friend Lord Barnett asked the Minister an important question about whether private money is now available, or can be made available by agreement, to local authorities so that they can build much needed housing for those who are poorly housed and, in many cases, homeless. As the Minister must be aware, that would provide extra work for the building industry which is once again in decline. If a local authority and a private finance company were able to do a deal to build houses, would that, in the interests of everybody, have the blessing of the Government?

Lord Henley: My Lords, as I made clear in reply to the noble Lord's noble friend, I answered purely in terms of central government and undertook to take advice on that issue. In so doing, I shall write to the noble Lord as well as to the noble Lord, Lord Barnett.

Lord Marsh: My Lords, will the arrangements that are envisaged for the Treasury involve a purchase and lease-back arrangement? Would that apply to the entire building and could it be applied to government buildings generally?

Lord Henley: My Lords, it could be applied to all other government buildings. The exact details of the Treasury's proposals still have to be worked out. All my right honourable friend the Chancellor of the Exchequer

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announced was that there was a prospect of making use of the Private Finance Initiative to bring much needed money into redevelopment of the Treasury building.

Lord Eatwell: My Lords, will the Minister confirm that the Private Finance Initiative was announced three years ago? Will he also confirm that of the nearly 700 projects so far proposed by the Government a mere 26 have passed the tender stage? Is that not a clear indication that, despite Sir Alastair Morton's best efforts, the project is being seriously mismanaged and indeed obstructed within the Treasury? Is not the reason for the Government's failure in that respect that they are trying to hive off the public sector rather than to build constructive private/public partnerships?

Lord Henley: My Lords, I do not agree with the noble Lord. I should have thought that the fact that my right honourable friend the Chancellor of the Exchequer took so seriously the conference to which I referred stresses the importance that he attaches to it. That is why he announced in the Budget that some £5 billion of private finance contracts were due to be signed this year, with a further £1 billion in the pipeline. That does not show that we are going slow on the matter. The project relating to the Treasury building shows, as I said earlier, that the Treasury puts its money where its mouth is.

Lord Monkswell: My Lords, the House will be glad to know that the Government have learned the creative accounting techniques pioneered by both Tory and Labour local authorities in the 1980s which enabled their capital budgets to go ahead. Are the Government aware that now they are using those techniques to get around their own Treasury rules, local government might find it useful to have the same freedom of manoeuvre?

Lord Henley: My Lords, I totally reject the noble Lord's suggestion, as I imagine will most of the House, that this is merely creative accounting. The key point is to introduce private sector management and expertise so as to deliver better project management and value for money for the taxpayer.

Lord Barnett: My Lords, I would not want to see the Government doing any creative accounting, as I am sure the Minister is aware. I am surprised by his reply that he needs to take advice about the local government sector as last week the Chancellor of the Exchequer said:

    "We are seeking to push the Private Finance Initiative right across the public sector".

The Chancellor also said that there would need to be value for money before he agreed a project. How will he do that?

Lord Henley: My Lords, as we all know, the noble Lord is an accountant and he is creative, but I should be the last to say that he was ever a creative accountant. I said earlier that I would prefer to take advice on that point. I shall do so and write to him.

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Motorail Service: Future

2.47 p.m.

Lord Renton asked Her Majesty's Government:

    What steps they will take to ensure that the service currently provided by Motorail will continue to be provided after privatisation of the rail network.

The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen): My Lords, the franchising director has announced that he will not be requiring a future franchise operator to provide the Motorail service through the passenger service requirement. However, franchisees will be free to use their commercial judgment on whether to operate the Motorail service in addition to the PSR.

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