Private Finance Initiative

Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 25th January 2001.

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Photo of Lynne Jones Lynne Jones Labour, Birmingham, Selly Oak 12:00 am, 25th January 2001

When he expects to announce his proposals to improve the clarity of the treatment of risks and benefits in the construction of the public sector comparator and assessment of value for money for private finance initiative proposals. [145802]

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

We expect the full capital appraisals review, announced in the 2000 spending review, to be completed by the end of March. That will pave the way for any subsequent changes to the way in which public sector comparators are constructed to make the handling of costs and benefits clearer.

Photo of Lynne Jones Lynne Jones Labour, Birmingham, Selly Oak

I thank my hon. Friend for his answer, which seems to indicate progress with honouring a commitment given to the Treasury Committee last June. As my hon. Friend will be aware, both the Treasury Committee and the Public Accounts Committee have expressed doubts about the reliability of the construction of the public sector comparator, as those responsible do not see public finance as a serious alternative. Does he agree that the best way of dealing with that problem is for the Government to announce that public finance will be available for worthwhile capital projects, such as the new hospital in south Birmingham, if it can be shown that that is a better way than private finance of giving value for money to the taxpayer?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

I can reassure my hon. Friend that value for money is the key consideration in choosing between private finance and conventional public procurement. Under the arrangements that currently apply, the Arthur Andersen/London School of Economics study showed that private finance initiative solutions are beating their public sector by 17 per cent. on average. For example, six of the 38 hospital projects currently under way in the biggest hospital building programme that the NHS has ever had are conventionally funded. In each case, the choice is made on precisely the basis of value for money that my hon. Friend advocates. That is the right approach, and we have taken it.

Photo of David Heath David Heath Shadow Spokesperson (Environment, Food and Rural Affairs)

Is the hon. Member for Birmingham, Selly Oak (Dr. Jones) not absolutely right? Is there not plentiful evidence from audit studies over many years showing that the public sector is very poor at commissioning and managing capital projects, whether for central Government, the NHS or local government? Are there not plenty of studies, which the hon. Gentleman has chosen not to quote, questioning the cost-effectiveness of those PFI schemes that have proceeded? Is it not time that we had a clear comparator that showed us whether we are getting value for money in the expenditure of public funds?

Photo of Stephen Timms Stephen Timms The Financial Secretary to the Treasury

I think that the hon. Gentleman's point argues against the conclusion that he draws from it. There are indeed considerable benefits to be gained from bringing in the skills of the private sector in planning and managing construction projects in the public sector—for example in the health service. We are realising those benefits through the approach that we have taken.