Q121 Jackie Doyle-Price: Perhaps Mr Lloyd might have an observation to make on this particular case.
Charles Lloyd: Yes. The Treasury was heavily involved in the M25 transaction, both through my team and through the spending team, as you would expect given the scale of the transaction. I would say that our principal role was to make sure that DfT and the Highways Agency, which was the authority for it, had done everything it could to create the maximum amount of competition for the funding of that deal, and had applied our value for money and our other PFI guidance appropriately. We were heavily involved in working with them to ensure that they did assess value for money, that their accounting officer was aware of the value for money consequences and the price increases, and considered all of that. It's for the DfT and the Highways Agency accounting officer to come to a view, in the first instance, on value for money, but we wanted to make sure that they were aware of those issues and thought about them properly, and no doubt the NAO will comment on that in due course.
Chair: Austin then Ian, and then I just want to draw it slightly into the future before we come to a close.
Q122 Austin Mitchell: I've just got a couple of requests for information. Mr Hudson, in your answer to Richard Bacon on why you haven't made arrangements to get some return for the taxpayer from these refinancing deals-which have been going on a long time, are clearly profitable, and exposed by Private Eye, my usual source of information, for a long period-you say you are still thinking about how you can get some return for the taxpayer. That's absolutely extraordinary. This is a major racket. Much money has been made out of it, and you haven't decided yet how you can get a return for the taxpayer. Now can you supply us with information-
Mr Bacon: I wasn't talking about refinancing, I was talking about equity sales.
Q123 Austin Mitchell: You were saying refinancing is a cost.
Mr Bacon: They already get a share of the refinancing gains. They don't get a share of the equity sales gains.
Q124 Austin Mitchell: Right. Can you give us an indication of how many deals of this kind there have been, in sales of the equity and refinancing? Not now, but if you can give us a note.
Andrew Hudson: Refinancing, in terms of the financing costs of the projects, we have taken steps over the years to increase the share that goes to the public sector. We don't keep a central track of how much the public sector has recouped from that, not least because the projects are spread over probably hundreds of local authorities.
Q125 Austin Mitchell: Do you not issue any guidance?
Andrew Hudson: It is not just guidance; we have a standard practice agreed with the market as to what the refinancing gain share is. The point I was answering Mr Bacon's question on was a more specific area of equity stakes and so on, and that's more complicated, and that's where work is still going on. I don't know whether Charles Lloyd can answer this point.
Charles Lloyd: Just to comment briefly on it, obviously refinancing is a major source of profit to equity, and we've addressed that in the way that Mr Hudson describes, but equity can make profit in other ways as well, by trading its shares. Until this point in time, the view the Government has taken is that there is a benefit in having a liquid secondary market in equity in private finance transactions. It enables, for example, the contractors, who often invest in this up front, to recycle their capital, to put capital into other new projects in due course, and it's clearly in the Government's interest that there is a liquid market. The more liquidity, the cheaper the price of equity is. So I think-
Q126 Austin Mitchell: Surely it's in the Government's interest also to get a return on this?
Charles Lloyd: I think if the Government were to say, "We will have a slice of the profit that equity makes, absent refinancing," you have to trade off on that the disincentive effect for those sales to take place. That's a judgment , and so far Government have always come down on the view that liquidity in the market is good and outweighs the initial income we might get from clawing back some of that profit.
Q127 Austin Mitchell: There's no indication of the scale?
Charles Lloyd: I'm sorry?
Q128 Austin Mitchell: You've no indication of the scale; the number of cases in which there hasn't been-
Charles Lloyd: There has been a lot of secondary equity trading transaction activity over the past several years, so it is fairly common for equity in these transactions to be sold.
Q129 Austin Mitchell: Okay. Well, the second question, for information: we're looking at projects which were stopped by the credit crunch in this report, but the report says, in paragraph 1.9 on page 17, that "delayed projects were also vulnerable to the credit crisis". It instances the M25, where costs increased by over £600 million because of delays in the contract, which then had to be refinanced. Do we have an indication, or can you give us an indication, of how much extra costs accumulated because of refinancing problems like that?
Charles Lloyd: I suppose the best estimate at the moment is probably the NAO's work, which looks at the cost of finance pre-credit crunch and the cost of finance now, and estimates that in those projects which have closed, costs are now £500 million to £1 billion higher than they would have been at the lows of the financing markets.
Q130 Austin Mitchell: But you don't have a list or information you could give us?
Charles Lloyd: We have a list of all projects that have closed, and I suppose we could look at, hypothetically, what I think the NAO must have done, and hypothetically what they would have cost had they closed in, let's say, 2007 and what they actually cost now.
Amyas Morse: Pardon me, Austin. What we explained before the hearing is that it depends. We looked at around a range between £500 million and £1 billion because that depended where you take the starting point in the marketplace to be. I think going back a bit, the very keen market just before the financial crisis, that would give you £1 billion, and if you went back a bit further, it would be £500 million. So that is why there is a range. Can I just say on equity sales, our understanding, as we sit here and try and estimate, is that we think there have been a very substantial number of equity sales, at least 150 different equity sales that we can pick up, and some of those equity sales were sales of portfolios of equities rather than individual equities. There is a very active trading market in equity stakes in countless instances.