Q31 Lord Eatwell: Rather than through some market mechanism like CDS? Dr Stone: We will separate the institutionally funded deals from the banking deals.
Q32 Lord Eatwell: The banking deals would be-
Dr Stone: Self-contained where there was some move to include a monoline guarantee from those. With the institutions the monoline has stood between them and the market and it has been the monoline that has taken and managed the risk. Indeed, the great skill of the monolines, irrespective of the fact that they are a regulatory arbitrage in the first place, the great skill of the people there was in driving through that due diligence in the initial deal and then monitoring and managing the project.
Q33 Lord Eatwell: This has been one of the areas of the market that has been in real trouble in the last two years.
Dr Stone: Absolutely. It is certainly an artefactual regulation and not a fundamental skill. That was necessary because the institutions themselves did not have the credit skills which they needed. What has been interesting to me is to watch-again, I will use New Zealand as an example-the public sector super funds down there now starting to become much more involved in financing infrastructure where they do have some credit skills. If there is one thing that the UK institutions could do to make a real difference here, and this is infrastructure in general and not just PFI, it is for those institutions to build those credit skills and to become much savvier investors.
Q34 Lord Tugendhat: I apologise for being late. Perhaps this is an appropriate question to end up on. I think there is a general view that the global economy needs more investment in infrastructure. On the other hand, governments are rather ill-positioned to make it. In your evidence you have suggested that private finance has quite a role to play globally and I wonder if you could explain how you think it might help to close that circle.
Dr Stone: If we treat financing and funding as two separate things, funding being who pays for it and financing being the time shifting of those payments, I do not think there is any question that over the next 30 years the infrastructure needs are such that governments alone have not got a hope of footing the bill and, frankly, nor should they because many of these pieces of infrastructure are normal commercial, rational economic activities. I think the challenge is creating the mechanisms through which we can attract the capital in the first place and to make sure that the funding, ie payment mechanisms that go with them, are rational. My personal view given the energy consequences that 2050 implies is that we have a scale and pace of change coming which will be greater than anything we have seen since World War II or the Industrial Revolution. Unless we find ways of harnessing that private capital as part of delivering overall services, and it does not matter where the money comes from, what matters is that the services are delivered. It does not matter who funds National Grid, whether it is in the public or private sector, what matters is that the Grid works; similarly for the roads, the schools and the hospitals. It has been very interesting that the adaptation of PFI globally has been driven in many cases by the equivalent of the Treasury looking at value for taxpayer money, "How can we make the limited taxpayer money go further and how can we bring in better skills to help maintain that quality over time?" Globally it is not going to go away. It is very interesting that some of the huge pension funds in North America are looking very intently at these forms of delivery and these forms of investment. CalPERS, for example, is one of the largest shareholders in Carlisle which created an infrastructure fund almost specifically to look at just how these deals can be made to work. We have to make it work. There is no reason on earth why the financing and the delivery of public services has to be exclusively in the public sector. There should be a debate about the best way to do it and whatever the best way is should win. I hope that the learning that we have had in the UK over the last 10 or 15 years gives us the ability to take a strong role in that debate. I think we have every right to do so and we will be even better placed to do so with a bit more care on understanding just what has happened.
Q35 Chairman: Dr Stone, that brings us to the end of this session. On behalf of the Committee can I thank you very much indeed not just for your written submission but for your answers to our questions which have been very helpful indeed.
Dr Stone: If there is anything else I can do during your work please do not hesitate to ask.
Chairman: Thank you very much indeed.