Eleventh Standing Committee
on Delegated Legislation
Wednesday 19 May 1999
[Mr. Barry Jones in the Chair]
Local Government Finance (England) Special Grant Report (No. 46), Private Finance Initiative (HC 408)
4.30 pm
The Minister for Local Government and Housing (Ms Hilary Armstrong): I beg to move,
That the Committee has considered the Local Government Finance (England) Special Grant Report (No. 46), Private Finance Initiative (HC 408).
As hon. Members will know, the Government are committed to improving the efficiency and effectiveness of public services across the country, and recognise the importance of capital expenditure in meeting that objective. We are determined to ensure that local authorities manage their capital effectively and prudently, and we see public-private partnerships in central and local government as a key way of achieving that.
Local authorities have been able to use the private finance initiative since 1996, when changes were made to the regulations controlling authorities' capital financing arrangements. They had previously stood in the way of PFI deals. In opposition, we recognised that public-private partnerships had great potential and we supported the theory. When we came to power we set about removing the practical obstacles to such partnerships generally and to PFI in particular.
I shall not go over all the changes that we have made, although we have significantly increased the level of investment that can be supported. We have also been involved with the project review group, which meets several times a year to endorse projects that have requested Government money. Those projects cannot enter procurement until they have been endorsed. The PRG is an inter-departmental body chaired by a task force at the Treasury, and includes representatives from local governement and the organisation set up by local government: the four Ps—the public-private partnership programme.
More than £3 billion-worth of PFI credits have been made available for 1997 to 2002, of which nearly £1.8 billion-worth have been allocated. These are significant sums. Central Government support is leading to high-quality schemes, which in turn produce much-needed new investment in local areas and help to make PFI a familiar way in which local authorities may improve services.
The sixth group of local government PFI projects has just been endorsed, bringing the number of schemes approved so far to nearly 100. The schemes differ widely among all types of authority in all parts of the country. They show both the adaptability of the PFI approach and the energy with which local authorities are seizing the opportunity that PFIs present.
What are the reasons for special grants? As hon. Members will know, local authorities obtain most of their financial support from central Government in the form of a block grant called the revenue support grant. As it is such a large amount of money—nearly £20 billion in the current financial year—decisions on what the grant is to include or exclude in any year must be taken some six months before the start of that year. That is too early to allow us to forecast accurately which local authorities would be likely to sign a PFI contract and start making payments under it during that year. We have therefore decided to pay the initial instalments of revenue support for PFI projects through special grant. That will allow us to take decisions much later in the cycle and to target support more accurately.
The special grant report is technical and I shall not burden the Committee with the details, suffice it to say that it is a vital element in our approach to the local authority PFI. It sets out which authorities are eligible to receive special grant, what they get the grant for and how to calculate how much grant each authority will receive. No money can be paid out unless they Committee approves the report.
I will be happy to answer hon. Members' questions, but I suspect that they would not want me to go into further detail. I commend the report to the Committee; it is part of the continuing good news for local government.
4.36 pm
Mr. Richard Ottaway (Croydon, South): I thank the Minister for her explanation. In principle, we have no difficulty with the grants. I am grateful to her for explaining why they are separate from the revenue support grant.
As my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) will say shortly, the measure does not state what the money is for. The Minister is right about the formula; it looks tremendously complicated. I want to press her on a more general point.
The Minister's explanation moved comfortably between references to the PFI—private finance initiative—and public-private partnership, and back again. There is some anxiety about the difference between them. We know what PFI is because the previous Government developed the concept, but the public-private partnership is more vague. I hope that the Minister will explain its meaning so that the expression has more clarity and precision.
4.37 pm
Mr. Adrian Sanders (Torbay): As this is probably the warmest day of the year, it is a pity that we cannot adjourn the Committee and carry on our proceedings on the Terrace.
We considered dividing the Committee on each of the grants, but noticed that several Liberal Democrat authorities—Dorset, the Isle of Wight, Richmond-upon-Thames, North Wiltshire and Sheffield—were mentioned in the report. We agree with the Minister that taking the decision later in the cycle is a good move, but, as she said, the money cannot be paid unless it has the approval of the Committee. Therein lies our philosophical opposition to the way in which local government grants are dealt with: local councils are not free to meet community needs and to find ways of entering agreements locally with the private sector without the approval of the House.
The private finance initiative is not the best way in which to ensure that local authorities can meet community needs or that resources go to local areas. It is an expensive way of borrowing money over a period of time. The amount of money that can be obtained for public projects in the long run will be less through the use of the PFI than under the old grant arrangements. Of course, it will be argued that PFI is more efficient because there is more scrutiny of individual bids, and there may be some merit in that argument. However, it is an extraordinarily expensive way of meeting public needs and people in the private sector profit from it. That is probably where money is wasted.
4.40 pm
Sir Teddy Taylor: I know that many of the newer Members are highly informed and educated and have great knowledge of the world of finance. I, unfortunately, am one of the older Members and do not have a clue about such things. It is a bit ridiculous to put a report such as this before a Committee because it tells us nothing. We are asked to approve it, but I genuinely do not know what I am meant to approve.
First, the report includes a list of councils, some of which may well be run by the Liberal Democrats, although others are also agreeable. I need to be told what type of project the Government have in mind. We do not want all the details of each project but, as we are being asked to approve the document, it would help if I had an idea of their type and what is covered.
Secondly, perhaps the Minister would agree that it would be appropriate to give the Committee an idea of the sum that the Treasury is likely to pay in grant. The sum of £57.198 million is mentioned. Bearing in mind that this is a complicated matter, will the Minister say whether that figure is for Treasury expenditure, and if so, whether it will come from local government resources, which will mean less money being available to other authorities, such as mine, which the report does not mention?
Thirdly, do the Government think that there might be merit in explaining issues in greater detail in legislative documents that they ask Committees to approve? Annex C, paragraph 2, states:
``The Government made arrangements to provide revenue support for the capital element of the costs of a PFI transaction where the credit cover required was nil or was reduced, and at its discretion to give revenue support for other PFI transactions.''
I appreciate that civil servants, like Members of Parliament, are becoming more knowledgeable by the day about everything, but perhaps the Minister will explain what the sentence means and what it is intended to convey.
I am not trying to be difficult, but will the Minister make it clear whether the Government favour private finance initiatives and private-public partnerships without restriction? When I supported a Government to the best of my ability—I did not always support them—and the Labour party was in opposition and trying to help the Government, although it not always did so, this was not a subject that aroused great enthusiasm in the new Labour party. It seems to have had a change of face, so it would be helpful to know whether there is now full support for PFIs.
One thing that silly Members like me who do not understand these matters would like to know is what would happen if the private part of a public-private partnership was a company that was unable to provide resources to complete a transaction. Who would have liability? How would the Government reclaim grants if they thought that they had been paid unfairly? Would such resources come from the revenue support grant or other sources?
My point is a genuine one. Before coming to the Committee, I read the document carefully, as no doubt all hon. Members did. None the less, I do not have a clue about what we are intended to approve, or what the document says. I should be grateful if the Minister would answer my questions, and in particular give me a full explanation of paragraph 2 of annexe C.
4.43 pm
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