Q71 Chairman: Is there a difference of approach between different European countries as to whether the liabilities appear on national debt or not?
Mr Brooks: I think there has been convergence in the way that these projects are scored in the various accounts across Europe, so I do not think that is a significant issue.
Q72 Lord Best: How are they scored then usually? Convergence has led us to where?
Mr Brooks: We are now in a position where most of them are on balance sheet, though in terms of the ESA 95 criterion, which is what is used for the National Accounts in the UK and elsewhere throughout the Union, the classification is different, so it is possible to be on balance sheet but off in terms of the ESA 95 accounts. That is the system we have.
Q73 Lord MacGregor of Pulham Market: When you say for the rest there is a convergence for on balance sheet, how is the risk transfer assessed? Are there variations depending on the degree of consideration of risk?
Mr Brooks: I think you are getting beyond my knowledge of this particular issue because it is not one that we have to concern ourselves with.
Chairman: Fair enough. Lord MacGregor?
Q74 Lord MacGregor of Pulham Market: On the one hand the credit crunch may have long-term implications for PPP projects but it also appears that within Europe there is a desire to accelerate infrastructure investment without raising government borrowing and that slightly goes back to the point we have just been discussing. How do you see these two aspects panning out in the future?
Mr Brooks: I think you are right, Lord MacGregor, that there are forces going in opposite directions here. The credit crunch is, on the one hand, making it more difficult to bring projects to a close. On the other hand, the desire to improve the infrastructure, particularly I would say of Eastern European countries, is leading them to investigate ways of drawing in more resources from the private sector and is therefore increasing the demand for PPPs. Again these two things are in opposition. PPPs are still a new technique in most of Eastern Europe. I think they are still "learning by doing". I think we will see more PPPs in Eastern Europe, but they will be difficult to close. Mr Barrett is the expert on this and I would like to ask him if he has anything to add.
Mr Barrett: As you have summarised, Lord MacGregor, the position is clear. Member States in general, including the biggest economies within the Union, have set forward in many different sectors very substantial investment programmes, partially to respond to competitiveness issues, partially to respond to the standards that in fact the public wish to see achieved and partially towards the modernisation of the economy and the development of regional aid, and the development of regional areas, et cetera, so the programmes have been identified as particularly substantial. Against that background the current difficulties, particularly in the banking market, have added an additional, very significant twist. Therefore, if you pick up perhaps some of the thoughts that have been leavened through what we have said this afternoon, Member States have been looking at a series of measures that do not simply come under the category PPP. The measures are far too important to be caught in a single financial instrument. They are looking, for example, at measures that will restore the health of the banking sector and therefore, amongst many other things, facilitate the ability of the banks to re-enter markets such as PPPs. We are looking at the need to develop the utilisation of the capital markets in Europe, the long-term financial institutions, the pension funds and various others, who to date have not participated particularly in investment in public infrastructure throughout the Union. It has been a relative small part of their portfolio investment strategy. This is not the case for example in the United States market where such institutions have played a much more significant role. Indeed, if one looks at the United Kingdom one sees that the use of capital market institutions has been much greater here than it has been elsewhere on the Continent. One of the issues and challenges that the public authorities are facing in general is how to reconcile the different needs. Some of the thoughts that we have reflected here this afternoon, the idea of increasing capacity for example to find that many of the participants in the construction sector in Eastern Europe are not from Eastern Europe, that is perhaps relatively obvious to people, but their ability to bring both financial capacity and managerial capacity to such markets is quite considerable and PPP is one of the vehicles by which it is delivered. Likewise when we see some of the big public transport schemes such as rail we see that even entities-if I can put it that way and I should perhaps rephrase it-including RFF have begun to use PPP approaches in terms of delivering TGV programmes within France, so we are seeing a variety of responses which simply say the need as identified is considered to be strategic and important, therefore existing practices have to be reviewed both in terms of capacity to deliver through industry, the financing mechanisms used, the depth to which we use capital markets for example, so there is a whole series of things that are being done almost simultaneously which should, amongst other things, offer a particular role to PPPs without necessarily making PPP the purpose of such programmes. Corporate financing will be equally important for the transfer of responsibilities. If we want talk about future developments in, for example waste-to-energy, carbon capture and storage, and things like this, we obviously see technology leaders from industry as being a core part, but it will be within the programme or the framework, with or without financial support, defined by different authorities in different countries, so I think it is this general approach of utilising the various proven means that are available by public authorities that is the hallmark of what is being done to try to achieve these broader ambitious programmes. There is very clearly the same attitude in Member States that says if programme instruments like PPPs can deliver a useful result, that is good. If it has to be a different instrument, well that is good. There is no preference for the type of mousetrap other than that it should work.
Q75 Lord Forsyth of Drumlean: On the subject of mousetraps, some people have suggested to us that there is a case, given the current situation, for countries introducing national infrastructure banks. What do you think about that? That is not my idea! Mr Brooks: Of course, Lord Chairman, there is a very simple answer to this question, which is a 'house' answer, which is that nobody in Europe needs to introduce a national infrastructure bank because they have got us! So that is one answer.
Lord Forsyth of Drumlean: I am not advocating it.
Q76 Chairman: Defence, prisons and various bits and pieces.
Mr Brooks: That is one of the points I was going to make. I think in the UK's case-and, in a sense, it is not my place to advise the UK-in these discussions we should talk about the issue for countries in general-it is important to try and work out what such an institution would be designed to fix, what is the problem that it is supposed to be addressing. Are you looking at capital market imperfections and a lack of access to capital? If it is a crisis response you are looking for, it would be a strange thing to set up a new institution to deal with something that one hopes will sort itself out relatively quickly. On the other hand, it could be that (even after the crisis) there would remain a more established capital market imperfection, with projects still struggling to attract large amounts of money and very long maturities, and with PPPs not functioning as well as they have done in the past. After all, there has been a role for institutions like the EIB to do this sort of thing. So I would say the argument here is about what it is you are trying to achieve. I think with these sorts of schemes such as a national infrastructure bank, particularly when we are talking about PPPs, having a separate institution really implies that the institution should be doing something different from what can be done by ordinary central procurement. So what is that different thing that you might want it to do? I think the discussion we have had about PPPs and the sort of three-way discussion between the contractors on the one hand, the public sector procurers on the other hand and the funders on the third hand (if I may be permitted) says that a role for an institution such as a national infrastructure bank is to take on some of the risks, to give an independent view of the underlying usefulness of the project, and also to be, as I have said before, brigaded into the process of monitoring and managing the project. Proponents of this sort of idea need to have a very clear idea about what it is they are trying to fix and whether such an institutional development would really do the job in the context in which it is being proposed.
Chairman: Thank you very much. I think that brings our session to an end. Thank you for answering our questions so clearly and for your written submission.