Q201 Lord MacGregor of Pulham Market: I certainly remember in my time as Secretary of State for Transport that the figure for the cost overrun of the individual road programmes, taking the road programmes as a whole in any one year, the actual cost compared to the original projection was 28% over. Presumably an optimism bias takes account of calculation figures like that in comparison?
Mr Rylatt: I am not familiar with how the original optimism bias figures are calculated. What we have seen is that since its introduction certain projects have tended to not go PFI. There are far fewer roads going PFI than there would have been seven or eight years ago-only very, very large schemes, like the M25, have actually gone PFI; whereas what we have seen on more complex procurements, so the schools' programmes where you are delivering large, multi-site projects for PFI, that is all to the betterment because in any of this procurement you are looking at which is the most appropriate method because we are largely indifferent-we will happily deliver a conventional procurement, happily deliver a PFI. A PFI analysis to bring some more skills? That is great; that might help us in our competitiveness versus some other companies who perhaps do not have access to those skills, but that is really a judgment for someone else, I think.
Q202 Lord Forsyth of Drumlean: Just following up Ms Anderson's point, surely this off-balance sheet point is not about transparency-that is not the issue; the issue is about affordability and I am not clear what the CBI are saying because the CBI have been making representations about the size of the government's overall borrowing and ability to pay it back. PFI off-balance sheet is buying things on tick. It is the issues about the affordability. Are you not concerned about the overall burden that is being placed on future generations to meet the costs of these projects, which have been funded off-balance sheet and therefore have not been subject to the conventional restrictions which have prevented them from going ahead?
Mr Sutherland: They have gone ahead anyway, in the sense that capital would be funded on the balance sheet and government would have to go out and raise debts and money through national savings anyway to do that. So in a sense I am not sure that ends up being the decision-it would have been on balance sheet anyway, if it had been traditional.
Q203 Chairman: We know that borrowing for the private sector is significantly more expensive than it is for the public sector. Those who are critical of PFIs point that out in a big way because that is a cost that has to be passed across to the end procurer in a PFI contract. We had the European Investment Bank as an earlier witness here and of course they are able to borrow money significantly more cheaply than the private sector could, and we know that in the United States, for example, there is something called a national infrastructure, a bank who again is able to borrow money more cheaply than you could in the private sector. Do you think that there is a case for a national infrastructure here that could borrow money more cheaply and then engage in contracts which are very similar to those that we have with PFIs?
Ms Anderson: If I could take that question in two parts, and Dougie will probably give some views in terms of the first part of your question. Does there seem to be a need for a national infrastructure bank in the UK? I think it is sensible to ask the question; it is sensible to say, "Let us evaluate, let us compare the benefits of different models." I do not think we are pretending in the UK that somehow we are the repository of all wisdom, so I think certainly we can learn from other countries. But I would say that at the moment there does not seem to be an obvious need. There does seem to be sufficient capacity in the private finance markets to meet public sector demand. Certainly the Treasury's infrastructure finance unit has played a welcome and valuable part over the last year or so in terms of bringing liquidity into the market and in terms of when the market was fragile getting projects unstuck. So we cannot see an obvious lead but I think absolutely we say let us see what value other models have brought and what can we learn from experience in other countries.
Q204 Chairman: Let me push it a little bit further because at the moment we know that with the credit crunch the gap between the cost of borrowing for the public sector and that of the private sector is even wider than before and therefore justification in terms of transfer of risk as between the two is going to be more difficult to put across than it has been in the past. In theory at any rate a public infrastructure bank borrowing money cheaply could be a partner in a special purpose just to that of a PFI and could have, presumably, very similar if not almost the same kind of contractual arrangements of bundling as both the infrastructure capital project, services and so on and so forth. There would be the same transparency. You would have a third party looking at the thing. Is there any advantage, or do I have it all wrong?
Mr Rylatt: We welcome any increased competition amongst the debt markets-anything that can reduce the cost of capital is in everybody's interests and all of the PFI players try and use EIB as much as they possibly can. The EIB unfortunately has a limited resource and it cannot support all projects and will earmark certain projects. I think to the extent that there was another institution that was able to lend into projects at a cheaper rate the PFI industry is bound to take advantage of that and we would welcome anything that came, particularly at the moment, to increase competition amongst the banks. Where it sat, how it was structured and that it had the degree of independence needed to not therefore effectively control the PFI project from the back seat being a lender, I think then you would lose again all of the benefits of PFI. I do not enjoy paying banks their margin-I hate to say that-and we work really hard to try and reduce the cost of funding, and anything that came in we would welcome as an industry.
Mr Sutherland: I agree with that as an example but you just have to be careful not taking the risk for a future government. So if by setting up an infrastructure bank it means if something goes wrong the government is bearing the risk of that, you have to be a bit careful. We are actually comparing like with like. So I think that having a bank-you are trying to solve a pricing issue or a liquidity issue, so I think if you are in there with an infrastructure bank to try to bring a bit more liquidity into the market-and I think that was the idea behind it to try and do that-then I think that worked for its time. If it is purely about the cost of finance then, dare I say, with EIB that brings that in there, something goes wrong and the EIB suffers and we are clearly shareholders at a national level and if it is our own national bank as such, which effectively we underwrite, you would have to be careful what it is there to do.
Chairman: Can I thank you very much again for your written submission and the written submission that is going to come and for answering our questions. It has been very illuminating indeed; thank you.