208. I just want to pursue Mr Davidson's point about risk management for a moment. The accepted wisdom on PFI is obviously that we transfer risk and therefore that risk is taken by the private sector and they pay for it and we pay a higher amount of money and if things go wrong, they pay. This situation is still slightly confusing. Mr Mitchell seemed to be saying that if he were given the money at a cheaper rate he could add the same business value. The issue for the Treasury would be in the PFI situation that we have a situation where we are paying a lot more money because Mr Webber has to borrow at a greater level and in the case where we borrow the money obviously we would be paying less and the difference between those two amounts would be a saving. I am just wondering whether the Treasury could say why it is not the case that we are committed in these PFIs to spend a certain amount of money, say over 20 years, and that is our commitment. We agree to do that and we bank that as the amount of money we are willing to risk and against that we have the smaller amount of money, the residue, as some contingency, would that not be a better way of managing things?
(Mr Glicksman) The difference between those two amounts is the risk that this company will not be able to perform in the way that it is planning to do, that if the costs overrun or the time overruns, the project turns out unsuccessful and it is unable to repay its loan. That is the reason why there is a higher rate being charged to that company for these loans than the market is charging the Government for its loans. For the taxpayer to lend money to the company at a rate which did not take account of that would not be value for money to the taxpayer. It would be risking not getting its money back. The proposal you are suggesting would pass further risks back to the taxpayer.
209. Yes. I suppose it is swings and roundabouts. What we are saying in the current case is that the risk which is judged by the market to be inherent in the company is then factored into the cost of capital, so we pay for all that risk. So we are already paying for all that risk, are we not? In the case where we provided cheaper finance, we would still have in an insurance in the sense of that amount of value to cover that risk, would we not?
(Mr Glicksman) In the long run those two ought to work out the same because that is why the market values it at a certain rate.