Q561 Lord Forsyth of Drumlean: Does it not still occur?
Dr Porter: You were hearing in the last session about LIFT and quite a lot of primary care investment, indeed I believe the vast majority of primary care investment goes through the LIFT scheme these days as opposed to the sort of long-term mortgages you were mentioning. If you were to ask me what is the biggest difference, it is that the BMA has never been against long-term investments-effectively, healthcare facilities have to be that-what we are against is the way in which that is currently delivered through PFI. PFI is very different to a long-term mortgage for example in that it also incorporates effectively the service contract. It wraps everything up, as I mentioned, into a unitary payment which goes through a special purpose vehicle that is designed to work alongside a trust. In this way, it takes so much out, it goes so much further than simply putting up a building and then working out what we are going to do with it, how it is going to change and evolve over time, how we are going to maintain it, which I entirely agree has been neglected in the past. It goes so far beyond that that it builds in the inflexibility for the future that I was talking about just now and which I will not rehearse again. I think they are very, very different because we have moved from a situation where you are looking to make public sector investment in a building towards a situation where you are working with the private sector to build, operate, maintain and deliver services in a building in a certain way for decades to come. I think the two are really quite different.
Q562 Lord Forsyth of Drumlean: I do not want to prolong the discussion on that but if I think of the health centres that have been built by GPs who are private contractors to the NHS, that I know of, that have been built in the last 25 years, some of them were the most innovative of buildings, bringing in screening and so on, and they had the advantage of not having to conform to the rigid structure that would be decided by the health authority, or the health board in the case of Scotland. What I am trying to tease out is whether you are arguing against-you used the phrase "well, if it was changed it would not be PFI"-the scheme as it operates now or whether you are against the principle, because one of the things that struck me, I am genuinely sceptical of this, and I think we started it when we were in government, about the last session was that the officials did actually seem to be quite enthusiastic about the benefits that came in doing their task. Are you not in danger of throwing out the baby with the bathwater in being so concerned about the operation of the scheme that perhaps you lose sight of the good aspects of it?
Dr Porter: Are we against long-term investment? No. Building of new facilities? No. Innovation? No. Raising money from the private sector? No. We are not against any of these things. It is very specifically the way in which that is being done by the private finance initiative in various sectors, health for myself, and particularly in education for UNISON, and other sectors as well. It is the way in which it is being done via that vehicle that is the problem. I am not saying that any other vehicle would not have problems but that vehicle in itself. I think it has evolved considerably since it was first devised under a Conservative Government15years ago. It is now tied into a large series of operating manuals which govern the contracts. For example, some of the contracts run to over 10,000 pages, which are hugely detailed and very different from the way in which innovative change in the past has happened. We are not at all against any of those, but it is the way PFI is structured and operated by the Department of Health that is building up so many problems for the future.
Chairman: We should probably make it clear, Lord Forsyth, that when we talk about PFI, we are using that as a shorthand and we are talking not just about specific PFIs but PPP and indeed the LIFT programme. These are variations on that theme.
Q563 Lord Forsyth of Drumlean: Could I just ask Ms Jaffe, to what extent do the employees' terms and conditions differ between the private finance and traditionally procured projects? I am not talking so much about the contracting out of cleaning and so on but the projects themselves, large construction projects. To what extent is there a difference?
Ms Jaffe: When services are contracted out we have found that staff terms and conditions do change. We represent members who are at the bottom of the grades and the NAO Report on PPP and employment confirmed that they do much worse under PFI/PPPs than more skilled workers. I mentioned the affordability problems, and this is not coming just from the private sector; it is coming from NHS trusts, too, who do not want to pay for the same terms and conditions as exist in the public sector for workers who are out-sourced. They are under huge pressure to make savings. For example, we have an agreement, a social partnership, between the Department of Health, the private major contractors and the unions that the system Agenda for Change, which in health covers all the non-clinical staff in health, should translate over when they take on contracts so we take pay and conditions out of the equation and then people in theory should only win contracts on efficiency. However, we have come up against a barrier where trusts do not want to do that because it is going to cost them more, so the downward pressure that comes from the affordability in these contracts and the service element, which is a large part of any contract running a hospital or a school, means that there are worse terms and conditions for staff. You have also then got what we call a two-tier workforce, so staff who are transferred from the public sector have transitional protection under TUPE but new starters do not, so you can have people working alongside each other on exactly the same contracts but with totally different annual leave or sick leave or pension arrangements, for example, and that does not mitigate for good services. What we find is that this downward pressure on pay and conditions in itself is linked to the quality of the service. We do not expect you to necessarily care about the terms and conditions of our members, but we do hope that you will care about the quality of service. If you have taken a group of workers and have pushed down their pay and they are already near the bottom of the pay scales, and you give them longer hours and worse holidays, then what happens is they are more stressed, there is more sickness absence, you immediately need to have more managers to manage them and you also get a higher turnover. If you have got a higher turnover there is less training, even if it is available, and less well trained staff. Let me just give you one example of a service where we have seen this happen, and it is partly PFI and partly contracting, and that is hospital cleaning, which has been contracted out since the early 1980s, one of the longest services. The effects on quality were not apparent for a very, very long time but it has been a slow and gradual process, and we have reached a point where, by any measure of economic efficiency, it is a much more efficient service. There are probably half the cleaners now in hospitals that there were in the 1980s and they use fewer resources and they apparently were cleaning to the same standards, but actually we know that at the same time hospital-acquired infections, which could be one measure of cleaning standards, have gone up astronomically. Cleaning is not the only solution to hospital-acquired infections but you cannot manage it without good cleaning services.
Q564 Lord Forsyth of Drumlean: Surely that is not a function of contracting out services; that is a function of specifying the degree of quality of service that should be provided?
Ms Jaffe: The expectation every time the service is retendered is that there will be a saving in costs and if it is a labour-intensive service that can only come from the pay and conditions and the number of jobs for the people providing that service. The Government's reaction to hospital-acquired infections or the deterioration in the school meals service, which is similar, has been to insist on more investment. They have put more money in and they have created more jobs and it is a false economy to cut those services. There is a recent study by a microbiologist, Stephanie Dancer, which shows that if you just added one more cleaner into every ward, the cut in hospital costs due to having to deal with fewer infections far outweighs the extra cost of the cleaner. I use this as an example of how services have deteriorated because it is very slow and very gradual and very difficult to measure. This is to do with contracting out. The in-house services suffer just as much because they are competing with the outside services, so it is a result of the constant tendering that this is so, and it is equally so in PFI hospitals and schools.
Q565 Chairman: Can I bring you back to the point about two-tier employment. Does UNISON represent members of both tiers?
Ms Jaffe: Absolutely and it is very difficult. You can get situations where you have a service-it happens particularly in the voluntary sector-where you have two people on different contracts and maybe one gets paid for night working and the other gets no extra. Then you get the tension of, "Why should I do the night working shift if I am not going to get paid the same as my colleague?" or, "Why don't I get the same leave?" You have some organisations where there are many, many tiers, not just two.
Q566 Baroness Kingsmill: I would not want you to think that everybody here does not care about the terms and conditions of your members, but it has been put to us that public sector staff working in hospitals and schools are more effective than their counterparts-and this is a sort of counter-argument to what you are saying-in traditionally procured and older public sector buildings. For example, they have been talking about in schools that pupils perform better and in hospitals patients are happier than those in traditionally procured estates. Would that be the case, that the staff are more effective in a sense?
Ms Jaffe: I do not know where they got that evidence from. There is evidence from Audit Scotland and from the National Audit Office that services are cheaper in non-PFI where they have managed to do a direct comparison and the quality is just as good if not better, so I do not know where they got that from. When the Treasury looked at operational contracts they said they were surprised that there was no step change in the quality of services and no innovation, so there is not the evidence. Obviously if you have got a new building, you are going to have better-
Q567 Baroness Kingsmill: -A nicer working environment.
Ms Jaffe: The working environment should improve but what evidence there is that we know of applies equally. You talk about being effective, and one of the arguments in favour of PFI is that by getting in contractors to do the cleaning, the so-called non-core services, it frees up the teachers to teach and the doctors to look after patients and so on, but, actually, that is not what is happening. Because of the complexity of the contracts and because they are so inflexible, what is tending to happen is that if you want to make some small change, if there is something you are not happy about, you have to have a meeting. The SPV might have to go back to their insurers and legal experts to find out what the risks of change will be and then what this adds to the cost of change. There was an example just last week where there are two new police headquarters in Kent and what they found is that if they run out of toilet paper or the light bulbs go they have to fill in a form which is then sent to Gloucester and the company then issues whatever it is they need. There was a situation a couple of months ago where there were huge climate change protests in the area and the police were under huge pressure to deal with them and the managers were having to meet with the consortium that was providing the HQs to discuss where the waste bins were going to be placed, so you free up some things but you create a whole new bureaucracy which does not make the staff more effective. What the police said in that situation was, "We should be spending our time policing not talking about where waste bins go."
Dr Porter: From the health sector we are not aware of any robust evidence that there is any difference in the effectiveness between groups of staff working in differently procured and managed hospitals, but I would not be too surprised if some could be presented, and the reason for that is a hospital built in the 21st century is more likely than one built some decades ago (a) to have been designed for function and (b) to have been designed according to modern general standards. One obvious and yet trite example is the way in which the hospital buildings notes have now changed so that the walls have to meet the floors at a curve so that they can be effectively cleaned instead of at a right angle as was traditional, which cannot be effectively cleaned. From that right the way up to what we now know about the way in which units should be designed for efficient through flow of patients, and so forth, all of this knowledge is changing with time. The only hospitals built in the last 10 years, more or less-with a few very small counter-examples-have been built via PFI to relatively modern standards and designed better to function. As such I would not be at all surprised if evidence could be found which would support the assertion that staff can work better and more efficiently in modern hospitals, but that is not a function of the funding vehicle itself; it is a function of the way in which the only hospitals built in the 21st century have been under that vehicle.
Q568 Lord Lipsey: We have been concentrating on health projects in this session and there are some very specific arguments related to health which you have been putting forward which suggest PFI is not necessarily satisfactory, for example radical changes in clinical needs. Are there any sectors you can think of in which you think PFI might be a good thing?
Mr Watson: There have always been parts of the public sector where the private sector has provided services, and sometimes quite substantial services- buying goods, building has always been provided in substantial part by the private sector, legal services, there is a whole range of services that have been provided. I think PFI or some kind of procurement vehicle could be appropriate for that to have those services in. I think they have to be brought in under specific circumstances. If we are looking for example in construction, there has been a report on cartels which came out fairly recently where there was a large cartel in the construction industry and 113 construction companies were fined about £200 million. Many of those were involved in PFI, perhaps not all but many of them were, so there is a tendency when the services are put out to market, that cartels and monopolies may start to arise. If the private sector is being used for these services it has to be quite carefully overseen. Some of the points around public oversight and public scrutiny of how public money is being spent in terms of the application of freedom of information again need to be carefully thought about to make sure that they are applying to the spending of these large amounts of money. Also on equalities, if there is going to be this large amount of public money spent, the public sector equality duties apply directly to the public sector and they are applied more weakly in contracting situations, so, yes, in terms of building physical infrastructure which is going to remain unchanged for a significant period of time, there may be a role there, but it has to be carefully considered.
Q569 Lord Eatwell: One of the consistent themes in the evidence that we have received about PFI is that PFI projects are more likely than traditional procurement to be delivered on time and on budget. Do you agree? Surely that is beneficial to your members?
Ms Jaffe: We do not necessarily agree with the research that produced that statement.
Q570 Lord Eatwell: It has been consistent. A whole variety of different witnesses have said there are lots of things wrong with PFI but the one thing we can say is you tend to get delivery on time and on budget.
Ms Jaffe: The studies that evidence was based on actually said-there is an NAO Report: "It is not possible to judge whether these projects could have achieved these results using a different procurement route." It is not that you say that PFI is on time and traditional procurement is not.
Q571 Lord Eatwell: Is that not always true? Here we need a hospital in this particular area. We are not going to commission two, one by public procurement and one by PFI and let them have a race, are we, so there is never going to be evidence in that sense.
Ms Jaffe: That would be the scientific approach, yes, but one of the things about PFI is that it goes through this preferred bidder stage, which can last about a year, where all the fine details are worked out and the final contracts put together. Mysteriously, the price between the outline business case, which is at the start of that process, and the final business case at the end goes up fantastically, and so for the first wave of PFI hospitals, for example, it was mostly between 20 and 220%. Some of that may be the public sector saying we want you to add all the twiddles and it has got to be gold-plated and so on, but a lot of it is because the consortia are protecting themselves from failing to provide to cost. We would say those figures are inflated. Anecdotally we have long lists of projects that are delayed but unless they hit the headlines and unless they are very big projects, we do not get to hear about them. I think the final point to make is that, as I mentioned before, procurement has moved on apace since the days of the 1960s and 1970s which was the last big construction phase.
Q572 Lord Eatwell: Is it partly because of PFI that public procurement has improved?
Ms Jaffe: Absolutely, PFI has had an influence, absolutely. There is a report from the New Zealand Treasury for example which says that most of the advantage of PPP sector construction and management can also be obtained from conventional procurement methods. We would argue, finally, that you can get time and cost considerations under control just through modern procurement, many of the lessons learned from PFI.
Lord Eatwell: Thank you.
Lord Forsyth of Drumlean: May I just make an observation, as you have quoted the National Audit Office in Scotland, the comments that were made on the procurement process of the Scottish Parliament, which I think was not only delayed but its costs went up from £40 million to £440 million, I think what Lord Eatwell said is correct, almost everyone has said that there is a big difference been made to public procurement but also a huge difference in on time and within budget. You might argue that it is more expensive. If I may say so, you have been making a very strong case, but are you not in danger of undermining it by perhaps closing your eyes to what has happened in the past and is still going on with traditionally procured projects?
Baroness Kingsmill: You could also look at Terminal Five which was on budget and on time and was not a PFI. It is modern procurement possibly.
Q573 Chairman: You have answered the question I was going to ask which was whether it was possible to capture some of the benefits of PFI which you mentioned earlier on like the bundling of provision of infrastructure and the maintenance under a public sector approach. I think you have said yes that is doable. Would you go so far as to support the concept of a national infrastructure bank which would have access to finance more cheaply by its nature than it would do if it were private finance?
Dr Porter: There are many ironies here and one of them is that PFI was touted as the means by which private sector capital could be unlocked and used to build parts of the public sector, and now, some years later, we are discussing setting up a national infrastructure bank to prop up the private sector in order to provide the capital, and it starts to sound like an incredibly circular argument. I should more properly say that since the first we have heard of a national infrastructure bank is in this question, and I do not know what it would involve, so we would really have to reserve judgment on that one.
Q574 Chairman: I think it is being looked at in the United States, for example, and it already operates in at least one other European country at the moment. It could take various forms but if you have not had a chance to think about it then perhaps we will leave it at that. I think it would perhaps be more interesting in terms of the provision of debt than equity, put it that way.
Dr Porter: It should be said that if such a thing were to be set up, an important principle would be that it would have to change the nature of PFI, because of course one of the key principles is the paying of the private sector for their ability to raise such capital. That is one of the sources of drain on the public purse. If they are no longer raising the capital they should not be paid for it.
Chairman: That would be one of the benefits that is claimed of such an approach-that the cost of capital would come down, but let us leave that one at that. Lord Best?
Q575 Lord Best: Would it make a difference to your views on PFI projects if it were pension funds that were at the back of this and if the profits, big or small, accrued to the pensioners, that they were the recipients at the end of the day, would that make any difference to how you view PFI?
Ms Jaffe: I think the short answer is no because the criticisms we have are of the methodology and where the money came from would not change those parameters.
Dr Porter: I would agree with that and only extend it slightly by pointing out that the Health Service pension scheme does not have a fund to invest. It is paid for by the employees in any one year and runs to budget, which is why it is set up on a secure footing for the future. There is no fund to invest.
Lord Best: It was not only your pension that I was thinking about! Thank you.
Q576 Lord Forsyth of Drumlean: What do you see as the appropriate role for the private sector in the delivery of public services?
Dr Porter: I think the private sector has a number of important roles which have been continuing for decades and will continue. I have worked in hospitals which have been constructed under traditional financing vehicles; I have worked in hospitals that have been constructed under PFI. In each case the hospital was built by a private company. In each case private companies brought goods and some small number of services to the hospital for us to use. In each case private pharmaceutical companies developed, innovated and delivered the drugs to us for us to use on patients. All of these things are appropriate uses within the mixed economy that is the United Kingdom. I do not think anybody is arguing for nationalising the commanding heights of the economy. Where I have a problem is when it goes beyond that to saying that the private sector is so privileged that since we could not and should not put public money into this we should actually pay the private sector what turns out to be-and I think will turn out to be even more-excessive amounts for the use of this specific financing vehicle. However, in being opposed to that, the BMA is absolutely not opposed to the use of private industry in delivering a whole range of things which it has always delivered to the NHS.
Mr Watson: Just to add to that, as I said before, the private sector has always had a role in how public services are being delivered. It depends who is in control of that and if it is being used as a tool by the public sector or it is using the public sector as a tool. I would just add that where we have seen downward pressure on jobs and pay and conditions for people working for private contractors in the public service, we have presented a certain amount of evidence regarding that. The Treasury's policy on this is that this should not be happening and it does not provide quality services. What we have not actually seen is that being well-evidenced by the Treasury itself. We have not seen the monitoring and the enforcement of the Treasury's own requirements and policy as part of this. I think that is something that would widen the evidence base around what is happening to the workforce and the quality of services around private sector provision.
Q577 Lord Forsyth of Drumlean: Are you influenced by the fact that the more private sector involvement there is the fewer opportunities there are for you to recruit members?
Mr Watson: I do not see why that would necessarily be the case.
Q578 Lord Forsyth of Drumlean: I would if I were doing your job. I would want to get as many members as possible.
Mr Watson: The expansion of UNISON as a trade union has grown considerably in recent years and the number of people employed overall in the public sector has grown. That number of people has grown overall. Much of that would be in the private sector and some of that would be in the public sector. So whilst there is a large pool of public employees, there is a large pool of people that UNISON would wish to recruit from.
Q579 Lord Forsyth of Drumlean: But the expansion of PFI would reduce the opportunities for you to recruit members.
Mr Watson: UNISON recruits in public services not just in the public sector so the people working in PFI projects we would equally seek to recruit them as we would people working directly for the public sector.
Ms Jaffe: Almost 10% of our members work in the private or voluntary sector providing public services.
Q580 Chairman: Do you find that downward pressure upon pay and conditions is unique to the private sector? Have you never come across it in the public sector?
Ms Jaffe: I believe there may be a downward pressure coming from other directions recently, but the contracting out of services raises the expectation that there will always be savings every time the contract is retendered, and we think that is very destructive to quality in public services.
Chairman: I think that brings this session to a close. Thank you very much for your time and for your helpful answers to our questions.