Clause 4 - Public-private partnerships
Health and Social Care Bill
6:15 pm
Mr Desmond Swayne (New Forest West, Conservative)
As the hon. Member says, no such contracts were entered into under the previous Conservative Government, precisely because of the terms and conditions that applied. Only as a result of those conditions being changed do we now have private finance initiative contracts.
The difficulty is that the cost of purchasing and developing the site cannot be amortised at a market rent set by the district valuer. The commercial developer of such sites therefore seeks to make the enterprise profitable. Consequently, if the NHS does not wish to renew the lease, the residual value of the site falls to him.
That is no problem in a constituency such as my own, where developers are queueing up to build on redundant primary, secondary, and—regrettably—intermediate care sites, which are largely privately owned. Recognising the residual value of a site after a development's natural life has expired is not a problem. There is, however, a problem in inner cities and rundown areas in other parts of the country, where initiatives such as this are most required so that modern and desirable premises for the NHS may be provided. Market rents are often too low to justify such a development in the first place, although since 1999 the district valuer has had some scope to deal with that problem. The difficulty arises because there may be no alternative use for the site if the NHS decides not to renew the lease. Therefore, the developer attempts to obtain a longer lease, or seek some guarantee with respect to the residual value of the site. The alternative is to seek agreement with a non-commercial NHS partner to purchase the land, or pay in part for the development itself, which would change the economics of the entire enterprise.
The economic reality is that in areas where the Department of Health wants new premises, but where there is no real demand for modern commercial property, the only way to develop the site is by underwriting some of the developer's costs. The advantage of that over the health authority simply commissioning and owning the project in the traditional way is not immediately clear. The private sector is able to accept the risk of managing a project. However, it is not good at or even willing to accept risks such as those that will be incurred as a consequence of developing new general practice premises in areas that are largely represented by Labour Members. To return to our previous discussion, Labour Members might justifiably say that they represent all areas, but I am sure that that imbalance will shortly be corrected in the months, if not weeks, to come.
If public borrowing is to be avoided, the Government will have to be prepared to enter into deals with the private sector that will have a significant potential cost, or contingent liability, in 15 or 20 years' time. When the leases expire and the residual value of the sites is not realised by the developer, the contingent liability, which the Secretary of State will have had to have underwritten in order to initiate the project, will fall due. It is only prudent to measure those liabilities as they are acquired and report on them every year to find out precisely what the Secretary of State is entering into as the years progress. That strikes me as entirely proper.
I have one or two other anxieties about the clause, largely as a consequence of an excellent document furnished by my right hon. Friend the Member for North-West Hampshire (Sir G. Young). However, as I would not want to divert the Committee's attention from these focused amendments, I shall leave those remarks to an even more focused debate on, if you are willing, Mr. Maxton, clause stand part.