Q31 Mr Bacon: Couldn't the taxpayer be having that margin on all those deals? This one deal unblocked this pipeline and the other 49 deals that were at risk have suddenly been found resources. Isn't Mr Swales right that the private sector suddenly got rather scared that the Government was quite capable of doing it itself and at better value for money for the taxpayer?
I think it was Mr Hudson who said that the deals were valued on the basis of just above investment grade, or perhaps it was you, but at the end of the day we all know you have to go through the inconvenience of building the prison, hospital, motorway or whatever it is before you get the payments starting to flow. But once you have done that it is almost like buying a gilt, isn't it?
Chair: Quite.
Mr Bacon: In fact, when Investors Chronicle described the PFI market as the hidden golden egg, it was precisely for that reason, because you were paying only just above investment grade, but you were getting something that was pretty much gilt-edged. Isn't that right?
Ian Swales: Has there ever been a default on a PFI payment?
Charles Lloyd: In my 18 months in the Treasury there were two deals in the operational phase-so the construction had completed and the asset was being managed-that terminated for poor performance. So there are risks to these deals in the operational phase and they do manifest themselves.
Q32 Joseph Johnson: Just continuing on a point that Mr Barclay was making earlier, this was a pre-election period where there were a fair number of politicised lending decisions by the Government, in the view of many commentators. I would like to know, please, what role did the Treasury play in green-lighting the 35 projects that followed the one that was unblocked by the TIFU unit?
Andrew Hudson: Well, the Treasury played our normal role as we do at all times in ensuring value for money with appropriate projects, with projects either being approved by the relevant spending teams or, for a number of projects, particularly local authority ones, going through the Project Review Group, which Mr Lloyd chaired.
Q33 Joseph Johnson: So, chosen out of a universe of how many potential projects?
Andrew Hudson: I think pretty well all of these projects would have Treasury scrutiny at one stage.
Charles Lloyd: All PFI projects would be scrutinised by the Treasury, typically-
Q34 Joseph Johnson: Sorry-the ones that got green-lighted, the 35, were chosen out of a universe of how many potential PFI projects?
Charles Lloyd: I am not sure I know how to answer that question. There were 35 that closed in the period that we are looking at. In that period other transactions were going through the Project Review Group. There were-I think in my time-three deals that were brought to the Project Review Group to commence procurement that we said no to initially, because we thought they were not ready, either on value for money, affordability or some other grounds.
Q35 Joseph Johnson: Right. Of the 35, do you know how many were in what you might call marginal seats, seats where the incumbent had a majority of less than 3,000?
Andrew Hudson: No, because that is not a consideration that we would have needed to know about or wanted to know about.
Q36 Mrs McGuire: Can I ask you a question? Was there any political influence at all brought to bear in deciding which PFI projects? I think we are going down a line of questioning here that I think we need some clarity from you on. Was there any undue political influence that you felt uncomfortable with in green-lighting these projects?
Andrew Hudson: Not that crossed my desk.
Charles Lloyd: None whatsoever from my point of view.
Andy Rose: None from my point of view.
Mrs McGuire: Thank you.
Q37 Nick Smith: Isn't that nice and categorical? Given the further £500 million-plus that was paid for the high cost and use of bank finance during this period-lots of extra money being spent at the time- why did you not get a better mix and use more public money for these investments?
Andrew Hudson: At that time the then Government was actually investing more public money through the capital programme, so that was happening as well. The decision on these projects was whether they were still value for money, within the context of the ministerial statement that they should go ahead where they were value for money. The choice in front of us wasn't whether we could continue these deals at a lower or higher borrowing rate; the choice was do we go ahead, accepting-as we have explained earlier in the hearing-that rates were higher because the banks' cost of finance was higher. Our job was to ensure that these were still value for money and we've talked about some of the steps that we took to ensure that.
Q38 Nick Smith: We understand it was a very difficult time and there were big charges for extra finance, but the world had changed and there was an opportunity here to save between £500 million and £1 billion by providing it through the public sector. Why didn't someone say, "Hmm, let's perhaps jump off this horse and do this differently"?
Andrew Hudson: As I say there has always been a mix of provision of types of funding for infrastructure projects. The Government did increase its own capital spending at the time and we also looked to bring in other sources of finance. So the European Investment Bank, for instance, contributed £1.1 billion across a total of seven projects over the period in question, so this wasn't, to use your metaphor, the only horse we were on. But the judgment was it still had a role to play, albeit accepting that that is at higher cost to the taxpayer, but we took steps to ensure that the projects that went ahead still represented value for money for the taxpayer.
Q39 Austin Mitchell: You answered Anne's question by saying there was no political pressure, but you were presumably under pressure from the top given the fact that everything is stalling and we desperately needed a stimulus to the economy to get this show back on the road. Presumably there was such a pressure?
Andrew Hudson: Well, it's not a question of pressure, but there was a ministerial statement by Yvette Cooper as the then Chief Secretary, who said in March 2009 in a written ministerial statement, "The Government believes it is vital to get these infrastructure projects under way as swiftly as possible to support jobs and the economy this year as well as delivering proper public services."
Q40 Austin Mitchell: So it wasn't a pressure, it was a desperate, sweet plea from a lovely person. Why did it take you nearly a year to get the show on the road? Lehman collapsed-the table is on page 15-in September 2008. You don't issue the guidance note until August 2009; what took so long?
Andrew Hudson: We were working on these projects through the autumn and winter and judging what the best response to the new situation was. In terms of getting this show on the road, the key intervention of TIFU making the loan to Greater Manchester took place in March or April 2009 so we'd taken action at that point and that had begun the process of unblocking the market, which led to the 35 deals being completed in 2009-10.
Austin Mitchell: Okay.
Andrew Hudson: So, far from doing nothing until the application-