Private Finance Initiative

Oral Answers to Questions — Treasury – in the House of Commons at 11:30 am on 13th November 2003.

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Photo of Chris Grayling Chris Grayling Shadow Minister (Education) 11:30 am, 13th November 2003

To ask the Chancellor of the Exchequer what his policy is on the use of the private finance initiative.

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

Since 1997, total investment in public services has grown from £23 billion to £40 billion, with private finance initiatives contributing £4.6 billion of that this year—around 10 per cent. to 15 per cent. in any one year. We now propose to extend by pilots the PFI into provision for prisons, urban regeneration, social housing and waste services. I can also announce to the House that I will present my pre-Budget report on Wednesday 10 December.

Photo of Chris Grayling Chris Grayling Shadow Minister (Education)

Virtually all major capital expenditure is now being funded by PFI schemes through off-balance-sheet debt. In my constituency, a proposed hospital scheme would mean increased repayment costs of £20 million a year—more than the local health economy can afford. When I asked the Treasury in a written question what the repayment costs are for existing schemes, it could not answer the question. Does the Chancellor know the true cost of the debt that he is building up for the nation through these off-balance-sheet schemes?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

The figures are published at table C20 of the Budget report, and I refer the hon. Gentleman to that. First, I congratulate him on his reappointment to the Conservative Front Bench, and all 88 Conservative Members who are now joining the slimmed-down Opposition Front Bench. We look forward to debating with the 20 Conservative Front-Bench Members who are now responsible for economic affairs. The Conservatives cannot complain any longer about public sector job creation.

On the future of PFI, the hon. Gentleman and his colleagues are completely wrong about the unfunded liabilities. We follow exactly the same rules as were followed by the previous Government, except for one thing—we tightened up the accounting standards. We follow exactly the same rule for disclosure, except that we give every aspect, including maintenance, in the disclosure of figures in table C20. The Conservative party is now in the amazing situation in which it is against public investment and now appears to be against PFI. It will spend nothing on hospitals and schools—how many hospitals and schools would close under the Conservatives?

Photo of Mr George Stevenson Mr George Stevenson Labour, Stoke-on-Trent South

Can I refer my right hon. Friend to the private finance initiative in Stoke-on-Trent, which after decades of Tory deprivation has resulted in nine new primary schools being built and every school in Stoke-on-Trent being refurbished? One of the strengths of this successful private finance initiative has been that not a school building or a single member of staff was transferred to the private sector. Will he revisit this successful scheme to see what lessons can be learned for the future?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

On the question of employment, we are discussing with the various parties concerned how we can secure the proper employment conditions for people who move from the public sector into PFI projects, as well as new recruits for PFI projects, just as we are doing for best value in local government. My hon. Friend is absolutely right—the Conservatives said that we would never increase the PFI when we came into government. We are now spending in total £35 billion on PFI projects. It is costing £4 billion to £5 billion a year on the balance sheet, which is exactly how it should be. It is 2 per cent. of annually managed expenditure, and perfectly affordable. I find it amazing that the people who urged us to support PFI in the first place have now walked away from it entirely.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury

May I first congratulate the Chancellor and Mrs. Brown on the birth of their son? I hope that it will lead to benign views towards those of us who have many children to look after.

The Chancellor will be aware that many large businesses have off-balance-sheet liabilities—I assume that that is, in part, where he spotted the opportunity for the Government. He will also know that auditors are quite rightly urging businesses to take those liabilities into account in the prudent management of their overall finances. What account has he taken of £100 billion of off-balance-sheet Government liabilities, which represent the present value of total PFI payments for the next 30 years and the guarantees given on behalf of Network Rail and London and Continental? What account will he take of them in his plans to address the rapidly deteriorating public finances?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

I thank the shadow Chief Secretary to the Treasury for his good wishes. If I am to have sleepless nights, I fully intend that the Opposition should have some as well. As for the figure of £100 billion that he cited in a speech yesterday, it is totally bogus and completely wrong. Fifty-seven per cent. of PFI projects are on balance sheet, not off balance sheet. He is trying to count every PFI commitment from now to 2030. What is more, most of the PFI commitments are in relation to maintenance and repair rather than construction programmes.

I find it amazing that the Conservative party will not spend money on public investment and now will not spend money on the PFI. The new shadow Chancellor's policy is to cut public spending to 35 per cent. of gross domestic product—a £50 billion cut. How on earth could the Conservatives finance any hospitals or schools? There are 110 hospital developments in this country and 20,000 schools have been upgraded. We have extended PFI to transport so that we can also invest in roads and railways. If the Conservatives are now saying that they oppose public investment and PFI, they are telling the electorate that they would close down hospital projects and schools.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

May I tell my right hon. Friend about the Jews Free school in my constituency, which was completely rebuilt using the PFI process? Some £47 million of investment went into the infrastructure of one of the best schools in the country. That is exactly the sort of thing that such oppositionist policies would stop.

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

Eighty per cent. of all PFI projects are on time and on budget as a result of the controls that have been brought in. We have reviewed PFI projects over the past few months and decided to drop information technology from the project list because of uncertainties about IT funding. We are not doing PFI projects of less than £20 million, but I shall announce today the areas in which we will pilot further work on the private finance initiative. I find it quite amazing that the first announcement from the new Opposition Front Bench is that they no longer believe in PFI and they do not believe in public investment. How could we possibly finance the development of our public services if that policy were pursued by the Opposition?

Several hon. Members:


Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Chair, Speaker's Committee on the Electoral Commission

Order. I am going to move on to Question 2. I think that we have had a good airing of the failings of Her Majesty's Opposition, and we must get answers to the questions.