Q401 Lord Lipsey: Reading through the amount of evidence we have had I am very struck by the range of views expressed from those who think that PFIs are the finest thing since sliced bread to one academic witness who could not think of a single thing to be said in its favour. I wonder if you could bring to our attention any particular project or group of projects which appear to you to have delivered significant innovation that would not have come about without the PFI model. Mr Pokora: There is one particular scheme that I have been involved in which was regeneration of an area in the West Midlands for which it was absolutely essential that a regional development agency funding was secured. Without that funding this particular project in this particular area, and therefore this area of the community, could not form the hub of the regeneration effort. It was quite clear that without the private sector involvement in putting together the bid for that and actually the fact that the private sectors are willing to put finance into that scheme itself and take the risk on the development, that money would not have been available to the public sector, to the NHS and the local authority particularly. For us that is one very specific example where we could do that and the value again of the LIFT company being around not just for that one project but for that plus other projects into the future was a key factor in the success of winning that particular funding. Mr Dwan: To pick up on the community point and also James's point about joining up a community project, we have been able as an industry-I can forward you numerous examples of this-to ensure that community assets are developed and allow the parties taking part to run at their own pace, so if their party has not got funding in place and is not able to co-locate we can chaperone the development, host it, make it available and hold it in time. A development of this approach is the total system change which is taking place in the NHS at the moment where ownership of the asset is being detached from the service provider so that we are providing a hosted infrastructure into which service providers can be asked to perform services on an individual episode of care, on a daily or weekly basis. Without an independent party that is able to pull together the range of skills required to achieve this, this kind of system change could not have happened.
Mr Stewart: Can I just tackle it from a slightly different place? I think you see a different form of innovation in these programmes. One of the changes that has taken place in the market in the last five years is that, as we have gone to these smaller projects being parts of programmes, the private sector has reconfigured the way they manage their resources. What you have seen in the private sector is specific sector based teams as opposed to a generic PPP team. You will see a LIFT team or you will see a team focussing on the schools sector, or you will see a team focussing on the waste sector. What that has enabled is research and development-which ultimately will hopefully lead to innovation-being thought about on a long term basis across the programme rather than on the individual deal. When you are in the midst of an individual deal and you are bidding it is very difficult to really create innovation because you are always against the clock, you are always justifying the cost of that R&D on the basis of that single bid, and that is always very difficult. Whereas if you are in a programme people will take a longer term view. It is boring things like going out and researching the best form of door in a school and then bulk buying it for the future and things like that which will reduce the whole life cost. I think in these programmes we are definitely seeing more innovation than on the individual deals.
Q402 Chairman: This question sounds a bit like an exam question but we have had some rather conflicting evidence about the numbers so possibly you, Mr Stewart, can tell us how many private finance projects and their aggregate value are included in the national debt figures and how many are not?
Mr Stewart: Unfortunately you are going to have to ask the Treasury. I sat in a PAC hearing alongside a member of the Treasury who was asked a very similar question and he did provide a note to the Committee. If I gave you an answer I would not give you the proper answer.
Q403 Chairman: Since devising the question we have heard from the Office of National Statistics and I think the figure may be that there are £64 billion worth of schemes, including the London Underground public/private partnership, £51 billion operational or under construction and about £25 billion of this total are designated as on-balance sheet schemes for the purposes of the accounts of the public sector bodies concerned. So it looks as if about half may be the answer.
Mr Stewart: I would say those sums seem a little bit low to me but that is off the top of my head.
Q404 Lord Eatwell: I am intrigued by the development of the secondary market in the financial instruments used to fund PFIs. The development of the secondary market in finance has brought us to the pretty path that we are in now in the sense that what happened, as we know, is that bankers in the mortgage market took insufficient care in to whom they leant money because they could then securitize and sell on the debt, the consequences of which we are living with now. Do you think that similar consequences could arise from a secondary market in financial instruments associated with PFI
so that there would be less care taken over the construction of the project at its initial stage? Mr Stewart: The first thing I would say is that there is not only a secondary market there is a tertiary market and whatever the one beyond tertiary is. Generally these assets tend to change hands once the construction is complete and the reason for that is because contractors are happy to hold their equity stakes for the construction phase and typically one year into operation, but then a number of contractors wish to recycle that equity back into new projects once they get through the construction phase and do not see themselves as the long term holders of those assets. There are some exceptions to that. Balfour Beatty, for example-I think you had someone from Balfour Beatty in front of you-have held onto their PFI investments on their balance sheets but other construction companies would look to recycle their capital and hopefully take some profits. From a public policy point of view recycling is encouraged.