Clause 7 - Credit arrangements
Local Government Bill
10:00 am
Mr Edward Davey (Kingston and Surbiton, Liberal Democrat)
Amendment No. 50 would ensure that, when the Government set the rules for credit arrangements for local authorities, PFIs and PPPs are on a level playing field with other credit arrangements. Having re-read the amendment, I can see that it may have one or two technical defects, which I am sure that the Minister will bring to the
Committee's attention and for which I apologise. If there are technical defects, perhaps he will explain how we can get the amendment right. The intention behind it was certainly to try to ensure a level playing field for local authorities as they consider the different options.
In the past, there has not been a level playing field. Many local authorities have been forced down the PFI route, in two main ways. First, PFI credits have been given special revenue support. The Government have encouraged local authorities to go down the PFI route by making extra money available on the revenue grant side. In addition, before the regime that is being put in place by the Bill, PFI borrowing was the only game in town for many authorities. They had no other option. In the past, therefore, PFI has been given special treatment.
As I have implied and the Minister will say, the Bill goes some way towards levelling the playing field. The prudential capital regime will give local authorities an alternative, but we do not yet know whether there will be a real level playing field. As far as we know, even under the Bill there may well still be some special treatment for PFI borrowing. Let me explain exactly what I mean.
First, as the hon. Member for New Forest, West said earlier, repeating a point made during our first sitting, we do not yet know what the revenue support regime for capital borrowings will be. The Minister said that we would know later this year, but my guess is that, when we receive that information, we will see that PFI borrowing will still receive special revenue support. He may want to take this opportunity to say that that will not be the case and that there will be a level playing field in respect of revenue support for all types of capital borrowing. If so, that will be news indeed, but I suspect that the discrimination in favour of PFI borrowing as opposed to other routes will remain.
Unless we make some reference to PFI and PPP in clause 7, there is a clear danger that PFI will benefit, because its arrangements apply not only to the purchase of capital assets, but to the related management services. There is a danger that PFI will again receive beneficial treatment.
The Liberal Democrats are not the only people suggesting that that is the wrong way to do things. The Government, in talking about capital investment and PPPs in chapter 4 of the White Paper, say:
''The capital finance system itself should be neutral as to the form of procurement adopted and should ensure that authorities' purchasing strategies are based solely on considerations of best value.''
Of course, the next paragraph contains a ''however''. It says that the Government still want to give special treatment to PFI, although they set out the principle that, in theory, there should be no difference in the way that capital and revenue regimes treat different forms of capital finance in respect of procurement.
The Audit Commission backed that up in a report that was published only last week. It considered the history of PFI in local authorities, particularly in respect of schools, and showed that PFI did not merit the special treatment that it was being given. Indeed,
the report recommended that we should move away from that system. It is particularly relevant to the debate because PFI in schools represents the largest proportion of PFI in local authorities. The report states:
''In England, schools account by value for one-third of the total local government PFI commitment and are the single biggest component.''
We should take the experience of PFI in schools and local authorities extremely seriously. Having looked at the history of PFI in schools and local authorities, the Audit Commission suggests that the PFI approach should be changed. It does not say that PFI should be abandoned. That is not the position of the Liberal Democrats either. The report says, however, that all procurement options should be treated in the same way by the financial regime.
Paragraph 66 of the report says:
''Although all procurement options are technically open to LEAs, the practical barrier is the lack of an even financial playing field. It is time to review this lack of parity, particularly in light of the imminent introduction of prudential borrowing guidelines for local authorities and the concerted efforts being made to introduce new forms of PPP.''
The report talks about opening up the option so that there is no discrimination. There we have it. The prime audit body for local authorities, as the Minister reminded us earlier, recommends that we should level up the playing field. While amendment No. 50 may not do that exactly, that is its intention.
This is an important debate, coming so soon after the Audit Commission's report, which referred directly to the clause. We have the chance to implement what it recommends for local authorities. I hope that the Under-Secretary will take the debate seriously. If he is not willing to accept the amendment because of its technical weaknesses, I hope that he can give us an assurance that, having considered the report and the debate, the Government will table amendments to ensure that the discrimination in the system in favour of the PFI is removed. Local authorities could then have the whole range of procurement options open to them in an even way and would not be forced down a particular route, which, as the report says, often may not be the best value for money.