Q51 Chair: Let me ask you another question, because looking at the way in which many of these 35 projects were financed, there appears to be no competition over accessing the finance. Indeed, for many of the projects they have to woo a number of banks, and I can't remember the term you used-there are bank clubs. You developed this concept of bank clubs to try and entice a sufficient number of banks in to then fund the deals. Now that seems to me again to offend the principle behind PFI, which is that competition in the banking system will give you a better deal. The projects were grappling around looking for funders.
Charles Lloyd: It was a very difficult market.
Q52 Chair: So there was no competition?
Charles Lloyd: Well, I wouldn't say there was no competition. That depended on the scale of the deal. To take two examples, the M25 transaction-the biggest that closed in the market-required pretty much every bank in the market including the EIB to come in to allow that to close. Smaller schools transactions typically had one, two, sometimes three or four banks in them, and there, although it was very difficult to follow our conventional funding competition guidance in those circumstances, strenuous efforts were made, on a sort of book-building basis, to try and get the best value for money for the financing of those transactions.
Q53 Chair: Strenuous efforts were made. So you would say there was sufficient competition in there to meet the conventional principles of a PFI?
Charles Lloyd: No, I wouldn't. It was a very, very difficult market. So it was difficult to try to persuade banks to come into a conventional funding competition.
Q54 Chair: Yes.
Charles Lloyd: So we had to try, and authorities who were at the front line of this had to try whatever approach they could, but with a competitive tension wherever possible.
Q55 Stephen Barclay: Both Mr Lloyd and Mr Hudson mentioned in the last few minutes the European Investment Bank, which is a not-for-profit investment bank that lends on more favourable terms. Did you make full use of the European Investment Bank?
Charles Lloyd: We made substantially more use than we had done in the period prior to the credit crunch. Treasury collectively put, I would say, quite a lot of pressure on the European Investment Bank to step up and get involved with more transactions, so they brought a lot more funding forward. They became involved in sectors that they had not previously been involved in. I think we did a great deal. Was there anything else we could have done on the margin to get them involved? It is difficult to say. Their main issue is that they're resource constrained. They have a certain number of transactors. Those transactors were in demand all around Europe, as you can imagine, to be involved in deals of this sort. We were trying to get at least our fair share of that resource.
Q56 Stephen Barclay: Sure, but more is better, but is not best, isn't it? So if we look at say Italy and Spain, which have a similar share of ownership of the European Investment Bank as the UK, would we have had a comparable lending approach to those countries?
Charles Lloyd: I don't know the answer to that.
Andrew Hudson: We can research that-
Q57 Stephen Barclay: If you can let us have a note-because it would be odd, would it not if, for the sake of argument, £6 billion was going into Spain and Italy, but £4 billion was going into the UK, as ballpark figures?
Andrew Hudson: Yes.
Q58 Stephen Barclay: Could I just-oh, go on Ian, and then I'll come back.
Ian Swales: Go on, you finish.
Stephen Barclay: To me it looks like we were asking the banks to face both ways. On the one hand we were asking them to build up their capital and on the other hand we were saying to them, "We want you to lend for 25 years." It strikes me that the last thing the banks would want to do is loan for 25 years at a time when they are reluctant to lend to each other, and therefore they are going to be charging a huge premium in order to do so, which goes back to my point about Appendix 4 and the fact that the margins were so big. Just coming on to it, again as to whether we made full use of the European Investment Bank and its favourable terms, which strikes me as a good starting point, the capital ratio of the EIB at the time of the credit crunch would have been around 26%, would it not, that sort of figure? Mid-20s?
Charles Lloyd: Again, I don't know, I'm afraid.
Q59 Stephen Barclay: Okay, let me rephrase it. The capital ratio of the European Investment Bank would be much more favourable than that of commercial banks.
Charles Lloyd: I mean, it is certainly a well-capitalised entity, yes.
Q60 Stephen Barclay: So it's easier to get them to lend than it is to get the commercial banks to lend?
Andrew Hudson: From that point of view yes, but as Charles Lloyd explained a few minutes ago there are constraints on the European Investment Bank as well. I well understand your point about were we getting our "fair share" of its lending, and we will research and let you have a note of that. We did try and there are different constraints on them from those that we've talked about on the commercial banks.