Q191 Lord Best: My question is about the national accounting treatment for PFIs. I notice that the National Audit Office report says that those most private projects have previously been off-balance sheet and not recorded in government statistics of public sector net debt; and it says that "numerous project and programme managers have told us that keeping debt off- balance sheet was a driver behind their projects' use of private finance". How do you see this?
Ms Anderson: As I am sure you are aware, the government proposed in 2007 to put PFI schemes on the government balance sheet and their proposal was that from April 2008 all PFI contracts would have been subject to the new rules. In May of this year the Treasury announced that for the Treasury's budgeting purposes they would use the European accounting standards. From a business perspective we are used to transparency; we have not reduced operating in a transparent financial environment. We do not think that treatment of debt should become the overriding factor in choosing to use PFI; we think it should be all about delivery, and therefore we do not have a problem with putting the PFI on the balance sheet. But at the end of the day this is a matter for the Treasury and government and it is obviously a hot political debate, but we do not think that the advantage of PFI is that it is off-balance sheet; we think it is all delivery, it is all about the factors we have talked about, such as whole life cost and transferred risk. We do not think it is about the balance sheet.
Q192 Lord Forsyth of Drumlean: It sounds very right and proper but is there much business in the future if in the past that has been the driving force behind people going for PFI contracts?
Ms Anderson: As we have said, we do not think it is the driving force behind PFI contracts; we think that PFI is able to stand on its own two feet and, as we have explained, has delivered real benefits to the users of public services.
Q193 Lord Forsyth of Drumlean: You have to persuade those project programme managers though, who up to now think it is. Ms Anderson: I think that some of those people are taking an ideological position which actually our position is to the private sector involvement rather than saying what is best for delivery of public services.
Q194 Lord MacGregor of Pulham Market: Could I ask you to wear your CBI hat in a different connection in relation to this because it sounded to me as though you were simply passing on the question of whether it was classified as off-balance sheet or not and the reality for you are the benefits of PFI. I understand that the CBI said earlier in the week that the actual national debt at the moment is nearly three times the official estimate established by the ONS, with PFI being a major element of the difference. In terms of overall public sector debt and various economic issues with the management of the economy, I imagine that the CBI was drawing attention to that as a possibly dangerous element. What conclusions do you draw from that and what are your worries?
Ms Anderson: I think there are other elements of public spending that are equally off-balance sheet and I would draw attention to the cost of providing public sector pensions as another area.
Q195 Lord MacGregor of Pulham Market: You are concerned about that.
Ms Anderson: Absolutely.
Q196 Lord MacGregor of Pulham Market: But I took it that you are also concerned about this.
Ms Anderson: We are saying that there needs to be transparency. We are comfortable with transparency but I think this is becoming a matter of politics in this particular issue and therefore we think that it is a political decision.
Q197 Lord MacGregor of Pulham Market: It was the CBI who drew attention to the fact of a major element in the much larger national debt that the official statistics are showing, that it was the CBI who drew attention to this; so presumably you are concerned about this?
Ms Anderson: We do think that transparency is important; we do think that you have to be open about the cost and risk of capital. There are various means by which you can do that; for example, on pension costs you do not need to put it on the balance sheet to be open about the costs. Similarly, you do not need to put it on the balance sheet to be open about the costs of PFI.
Q198 Lord MacGregor of Pulham Market: In terms of patients you are obviously concerned about the debt to the public sector moving ahead and therefore what that tackles. Are you also concerned about the extent to which national debt has arisen so much as a consequence of PFI that has not really been properly identified?
Ms Anderson: I think there is certainly a concern that we need to be fully transparent about the cost of PFI. I do not think it is clear or the government is clear and successive governments have not been clear about how much is off-balance and how much is on. Estimates vary and someone suggested that it could be 60%, so some of it is on and some of it is off. That is not a particularly satisfactory situation and clearly we do need to be open about the costs; but as you have heard from us we are open about the costs. There is no hidden agenda here in terms about the value added of PFI or other procurement models or the traditional procurement models.
Q199 Lord MacGregor of Pulham Market: Can I ask another question in relation to the way in which these calculations are made? Do you feel that the discount rates and optimism bias figures currently used in private finance projects are appropriate?
Mr Rylatt: I think it is probably not for us to judge whether they are or they are not. What we have found over time is that our ability to compete against those discount rates has got all the more challenging as they have been modified over time, and the hurdle that we have to jump over is higher than it was before, as the public sector has said, "You have delivered that quite successfully; we are going to make life a bit harder." So I think as to where the rate is set is not really a judgment call for us; the challenge for us as an industry is wherever it is set can we provide the project which achieves the public sector comparator, because if we cannot there is no project; it will be conventionally procured or something else will happen. So that is the challenge that we face.
Q200 Lord MacGregor of Pulham Market: In that context do you have a view about the optimism bias figure, because I am not conscious of how it is calculated?
Mr Rylatt: I think there is an element to which it is an art as opposed to science and I think that you always have the difficulty of comparing projects where no two projects are ever identical, so I think there is an element of science in the underlying discount rate and there is an element of perhaps art in the optimism bias that you then attach to individual projects, and I think that is a judgment by Treasury or whoever is recommending the rate. It is a very difficult thing because no two projects are the same and so can you accurately compare the two things? It is quite difficult.