Q11 Chairman: Can we look at special purchase vehicles mentioned in paragraph 2.20 and it is really summed up by the heading there: "Management fees charged by SPVs vary widely, are mostly unjustified and cost the public sector approximately £6 million a year"? What are you doing to get rid of them?
Mr Kingman: We are getting rid of them. We completely agree with the NAO about this. We have clear guidance which says that these fees are not justified.
Q12 Chairman: So you are getting rid of them?
Mr Kingman: Yes.
Q13 Chairman: And if we were to come back to you in a year or two's time, we would see that they were no longer on the radar screen.
Mr Kingman: We are categoric in our guidance. I cannot guarantee that every public authority will follow our guidance but I would expect to see this having a major effect.
Q14 Mr Bacon: You just said that guidance is not always followed because it is ultimately up to the authority to decide how to manage these things. I would like to continue where the Chairman left off on the subject of management fees because it says in paragraph 2.20 that SPVs, special purpose vehicles, are paid for the day-to-day management of PFI projects, including staff and other administrative costs. You would expect they had already been remunerated for this and that this had been priced in at the beginning and that essentially is your position, is it not?
Mr Kingman: Absolutely.
Q15 Mr Bacon: I take it the guidance you and I are talking about is this new SOPC4 that came out last year, is it?
Mr Kingman: March 2007.
Q16 Mr Bacon: Is that the one that says: "Thou shall not have management fees"?
Mr Kingman: Yes.
Q17 Mr Bacon: Why did it take so long to come up with this brilliant idea that since you are paying them to do it anyway, they should not be allowed to charge and get away with charging on top?
Mr Kingman: What the Report says, which is correct, is that this has been a growing phenomenon over time and what we have done is respond to that with the guidance.
Q18 Mr Bacon: They have just been creaming it basically, have they not?
Mr Kingman: There are fees which we would certainly agree are not justified.
Q19 Mr Bacon: I would like to go back a bit actually. I want to ask you a question about the report in the FT yesterday about PFI because it quotes Ken Wilde, a partner of Deloitte who is a member of the Financial Reporting Advisory Board, on the subject of that proportion of PFI which is not on balance sheet saying that while no-one can yet claim to know the exact proportion, pretty much everyone now thinks that all of it, or pretty much all of it will be coming back on. You very kindly responded in correspondence with the Committee in answer to queries of mine about the total outstanding annual unitary charges which on a net present value basis are £91 billion. The FT refers to an extra £30 billion. Presumably the difference is accounted for by the fact that it is not all capital. As you said in your reply to us, to add PFI unitary payments together and say that all of this should be added to the public sector net debt would be akin to adding up the electricity, gas, cleaning and food bills for a family home over the next 30 years and saying that this amount is part of the mortgage debt on the house. So when you add on, as presumably is likely to happen, the stuff that is off balance sheet at the moment, it will not include the facilities and management element of annual unitary charges, but will include all of the capital. Is that basically the gist of it?
Mr Kingman: Your understanding of my letter is absolutely correct. What comes on balance sheet depends on what the ONS decide and depends on what the new accounting standard is. We have said that we will move to international financial reporting standards in 2008-2009. We are in the process of discussing draft guidance with the Financial Reporting Advisory Body and with others, but until that standard is in place, until the ONS have decided how they are going to take that into account in what they decide for the national accounts, it is not possible to say what will come on balance sheet.
Q20 Mr Bacon: Presumably though, if some extra goes on balance sheet, then there is going to be an effect on department budgets and for people who have a PFI project where they are already paying an annual unitary charge which includes capital, when it goes on balance sheet they are going to get a double-whammy, are they not, because they are also going to have to pay a capital charge?
Mr Kingman: We have made clear to departments that we strongly support the present programme of PFI procurement. If there were to be any balance sheet change that had a budgetary impact, that is something we would discuss with departments, but we have made clear to them that they should continue to progress projects that are currently in the pipeline.