Q1 Chairman: Good afternoon. Welcome to the Committee of Public Accounts where today we are looking at PFI: the STEPS deal, and we are joined by witnesses from the Inland Revenue, HM Customs and Excise and a witness from Mapeley. Mr Varney is the executive chairman of the Inland Revenue/Customs and Excise. It is your first visit, I believe. You are very welcome. He is joined by Ms Helen Ghosh, director general, corporate services, and Ms Siobhán McHale, director of estates and, from Mapeley, Mr Jamie Hopkins who is the chief executive officer. Mr Varney, does it give the Inland Revenue any sense of shame that they are now known as a well known tax avoider?
Mr Varney: I do not think they are known as a well known tax avoider. I do recognise that in the agreement there is an unfortunate feature. As you know, the government changed the guidelines so for a forward procurement that would not arise.
Q2 Chairman: Why did you not specify in the bidding documents for this deal that these properties should be held onshore?
Mr Varney: With the benefit of hindsight, one can say it was a mistake.
Q3 Chairman: Will you please look at paragraph 2.24 which you will find on page 21? You will see there that it says: "The Board of the Inland Revenue only became aware of the tax arrangements late in the procurement" and the Customs and Excise were not told until after the deal had been signed. Why is that?
Ms Ghosh: I was not there. It was before my time, but -.
Q4 Chairman: We are not interested in whether you were there or not. You represent this Department and you will answer questions on it.
Ms Ghosh: As you know, Sir Nicholas Montagu and Richard Broadbent explained in some detail the background of these events to the Treasury Select Committee in 2002 and -
Q5 Chairman: We are not interested in what was told to the Treasury Select Committee. We are interested in the evidence you are giving here today.
Ms Ghosh: As you will be aware, what happened was that this point about properties being held offshore was known to members of the project review team and, at the time, they took the view that this was a perfectly normal arrangement where shareholders were offshore and they did not regard it as in any way contentious. When the decision making was rising up to board level, my colleague Dave Hartnett, who was then the director of technical and policy, asked a question about the offshore nature of the shareholders and indeed the proposal to hold the properties offshore. Again, as the TSC discussed, the board at that time took the view that the arrangement was perfectly legal, particularly given that the shareholders were offshore. It established that they did not under EU procurement rules have the right to question that particular aspect of the tax arrangements and they therefore took the view that they had no choice but to go ahead and sign the contract which, as the NAO Report said, represented -
Q6 Chairman: Stop there. I am not going to ask questions on that for the time being. Staying on paragraph 2.24, page 21, please, Mr Varney, it says,
"The Government has responded to the tax issues raised in this deal by suggesting a new clause for future PFI contracts that limits the ability of contractors to go offshore." Has this happened? Is it working?
Mr Varney: As the NAO Report says, it remains to be seen. It was included in the Aspire contract which is a computer service contract which we let. There are provisions in that which would stop it going offshore, but that is the only one I know of.
Ms Ghosh: That was a voluntary agreement we reached with Aspire because the change to the Treasury guidelines did not come in until after we were well down the track with Aspire. Our Aspire/ Cap Gemini colleagues were perfectly happy to enter into that deal.
Q7 Chairman: May I ask the Treasury Officer of Accounts what is the view of the Treasury about these properties being held offshore?
Mr Glicksman: As the witnesses have said, this was a legal arrangement.
Q8 Chairman: Was it desirable?
Mr Glicksman: As they have also pointed out, the Treasury issued guidance to departments following these events to ensure that departments were aware of this possibility in the future and took steps to try and make sure that undesirable tax arrangements did not come about in future procurement contracts.
Q9 Chairman: Mr Hopkins, should you not be more honest with the departments about your intentions to hold some of these properties offshore?
Mr Hopkins: We are a company that is owned and was set up by non-UK resident shareholders, so we followed all of the current guidelines and reacted -
Q10 Chairman: That is not the question I asked you. Should you have been clearer with the departments about your intention which I put it to you you always had to hold these properties offshore?
Mr Hopkins: It is a very common structure that we followed and the departments set the process -