HM Treasury News Release
65/98 27 April 1998
-------------------------------------------------------------
SPEECH TO PFI CONFERENCE AT THE BUSINESS DESIGN CENTRE,
ISLINGTON, LONDON
Attached is a copy of the speech given earlier today by the
Paymaster General, Geoffrey Robinson to the PFI Conference at
the Business Design Centre, Islington,
London.
Check against delivery
SPEECH BY GEOFFREY ROBINSON MP, PAYMASTER-GENERAL TO PFI
CONFERENCE - 27 APRIL 1998
Introduction
1. Last month I visited Temple Primary School in one of the
most deprived areas of Manchester. The school dated back
to the early part of century, with all the associated
deficiencies of poor security, neglected maintenance and
inadequate facilities. Next door was a small urban park
which had become the haunt of drug and solvent abusers.
2. At the school, the teaching staff were excellent. They
impressed me greatly with their commitment and enthusiasm
and this had obviously rubbed off on the kids. But it
cannot be right that so many of our children are being
educated for the twenty-first century in nineteenth century
conditions. And if we make the full success of the PFI
which we intend, nor shall they be.
3. At Temple primary school a now agreed public/private
partnership will provide this community, its teachers and
children with a new school. A school that will be well
maintained and secure with modern facilities that will help
provide these children with a modern education, and increase
their aspirations so they make the most of it.
4. The reason I open my speech with this very real example, is
because that is what PFI is really about. It is about
enabling investment in key areas to take place that
otherwise would not; and to get best value for money in
doing so.
5. So it is on that note that I welcome you to this, the first
Taskforce Conference. I think it is an indication of how
we have restored credibility to the PFI concept, and of how
widely the Taskforce is respected in PFI circles, that there
are so many of you here today. So many, indeed, that we had
to move to the conference to a larger venue to meet demand.
6. PFI is part of the Government's Public-Private Partnerships
strategy. PPPs are about delivering high quality projects
and services, as well as value for money for the tax payer.
And it is about delivering the investment in the public
infrastructure that is desperately needed.
Treasury Role
7. One of the Treasury's most important jobs is to control
public spending - to say no - and this will always be the
case. There can never be any change or challenge to the
Treasury as the ultimate point of accountability. But we
must try to break away from simply being the "dead hand".
We must - and I believe we now are - think more
intelligently about how we spend taxpayers money.
8. In doing so, we must first reduce the mistrust and end the
turf wars between the Treasury and other departments, and
move to more open cooperation. For too long the bidding
process has been characterised by a situation where spending
departments bid for double what they need, the Treasury cuts
it in half and everyone congratulates themselves on a job
well done. In fact this is a most insidious process because
it leads to sloppy thinking throughout Government.
Propositions are not adequately tested in principle and the
real cost is not assessed in any adequate detail. Perhaps
worst of all, the end results are never rigorously analysed
against the claims made for the investments in the first
place.
9. For Heaven's sake we can do better than that! And I hope
(in speaking to a wider audience at this point) that some
changes in the Treasury approach are beginning to make
themselves evident. We shall certainly need to do better
because there will never be enough money to meet all
demands, given that every investment for public purposes
must be serviced from taxation in one form or another.
10. It is vital therefore that we develop new methods of
delivering public services and public investment aimed at
ensuring the most efficient use of resources to meet
priorities that are established by a process of thorough
analysis and open debate.
Resuscitating the PFI
11. This was our approach to get PFI going. Immediately after
taking office, we stopped the perversely counterproductive
policy of universal testing and insisted that departments
prioritised their programmes.
12. For 4 years PFI had been a dead-duck in the water because
of the lack of clear thinking and direction by the previous
Government. The Initiative had been floundering, the system
was gunged up with innumerable hopeless projects and
bureaucracy was seemingly unable to even communicate amongst
itself.
Bates
13. It was evident that we had to take a wide ranging look at
what was going wrong and asked Malcolm Bates to review the
PFI and to complete his review in six weeks. It was
completed to time in June of last year. I would again like
to pay tribute to Malcolm Bates who did a really outstanding
job for us. His review was central to resuscitating PFI.
14. One of the Bates Review's most important recommendations was
for the creation of a Taskforce which should work directly
from the Treasury itself. In recruiting the Taskforce we
decided to work directly with industry and Malcolm again
advised. As the head of the Taskforce we had the great good
fortune to find Adrian Montague who was Head of Project
Finance at Dresdner Kleinwort Benson. Adrian, working with
Treasury officials - notably Steve Robson and Peter Wanless
- put together the excellent team of eight people with the
balance of complementary skills we needed for the job
15. At the same time we wound up the previous Panel and
Executive. They had done some good work, but the time was
right to move on and develop more appropriate structures.
16. The Bates Report was commissioned in May, Adrian Montague
was recruited in July and the whole team was in place by
November last year. All 29 recommendations of the Bates
Review have now been implemented. Government on its own
could not have completed such a timetable. But working
together with the private sector we pushed the job through.
Results
17. And now the results are coming through too.
18. Over the last year we have breathed life into PFI. Projects
totalling 1.9 billion Pounds have been signed. (Leaving aside
CTRL) that's nearly half as much again as that achieved in
the five previous years since the Initiative was formulated
back in 1992.
19. Thanks to the vigorous action by our colleagues at the
Department of Health we are now embarked on the biggest
hospital building programme in the history of the NHS. The
scale of the programme has probably not been seen since
Victorian times. Eighteen new hospitals will be built in
the first wave and a further ten in the second - a programme
totalling some 3 billion Pounds.
20. And it is not just on such major programmes that PFI is
making the difference.
21. The Colfox school in Dorset is being built under PFI and
should be completed 6 months quicker than the local
authority would have expected to do it. The Head is
delighted with progress, and has even reversed the previous
trend of children within the school's catchment area going
to an out of area Grant Maintained School. This is another
example of new investment leading to new aspirations.
Opposition to the PFI
22. I quote these examples to those who are sceptical, to
encourage them to think again about what PFI is about. Yes
I know there are still those who have reservations about
PFI. But PFI is not just about commercial contracts and the
uncomfortable changes to established practices and ways of
thinking that these involve. PFI is about making a real
difference to people's lives. Are the sceptics saying they
don't want these hospitals and schools built? Of course
not. So we must all work together to ensure that the real
benefits of Public Private Partnerships enjoy the
perceptions they deserve.
Project Review Group
23. May I first stress again that funds are not infinite even
less so is the Government's capacity to service
improvements. That is why we have established the system
of PFI credits for each sector of Local Authority
expenditure and are keeping a close eye on the overall level
of transactions. And why - in order to avoid the wasteful
proliferation of bidding - the Project Review Group of the
Taskforce agrees the do-able projects in advance with the
Departments.
24. The Taskforce has compiled a list of 50 central government
priority projects, enabling bidders to commit time and
resources in the knowledge that the viability of these
projects is verified; and contracts will receive Taskforce
support. I should add that this does not mean many other
projects, not listed, do not represent good value for money,
or are not worthy of support.
25. A list of 40 local authority projects assured of central
government financial support was also released by the
Taskforce.
Maximising Benefits
26. The Government - people often seem to forget - even after
all the privatisation of the Tory years still represents 40
per cent of GDP. However successful we are with PFI in its
present limited form it can only represent a relatively
small part of Government capital expenditure - let alone of
total Government activity.
27. It is therefore all the more important that we get maximum
benefit from the experience it brings us and ensure that
public and private sectors learn from each other. For
instance there is scope for more benchmarking of activities.
28. The Taskforce is developing templates and framework
contracts and is creating a library of best practice and
approved templates that will lead to more not less sharing
of information. A crucial element of improving the PFI
process is learning from what has gone before. It will
also reduce the hassle, waste and duplication of what
happened in those Tory years.
29. As a further part of the learning process, a number of
guides, including a new introductory document, policy
statements, technical guides and case studies have been
published.
30. We must ensure that ideas produced in the public sector are
made available for commercial exploitation. Our approach to
defence diversification and the University Challenge
Initiative show that we are moving on this front too.
National Asset Register
31. And we must be prepared to bring in the private sector to
help Government departments get full value from their
assets, including by commercial exploitation where that make
sense. The compilation of the National Asset Register will
help the public sector realise the best value from its
assets. And we have made changes to give central and local
Government greater freedom and incentives to undertake this
sort of activity.
Resource Accounting
32. One significant new development that will encourage a much
more commercial approach by Government departments to the
use of their assets will be the introduction of resource
accounting. This is already operating on a trial basis
throughout Government and will become official accounting
policy from 1 April next year.
33. No longer will departments be able to take their assets for
granted. A depreciation charge will be visible and they
will be expected to maintain year by year the value of their
assets in real terms.
34. This will have two beneficial effects. First it will put
comparisons between PFI projects and purely public sector
investment on an equal footing; and second it will put
pressure precisely where it is needed - on the public sector
so that it maximises the value from the assets it owns.
35. The Treasury can make its own contribution, certainly on
current account savings, but also capital disposals, by
looking at the possibility of enabling Departments to retain
even more of the ensuing benefits. This will create the
correct incentives for departments to manage better their
assets and their spending programmes.
36. The scope of PPPs of all kinds will be significantly
increased with the introduction of Resource Accounting,
where it is worth noting that the UK is well ahead of
Europe. Indeed the same could be said of PPPs as well.
International Interest
37. An indication of how much progress we have made is the
increasing number of enquiries and visitors from all over
world, eager to find out about the opportunities PFI has to
offer. The Treasury has received delegations from areas as
diverse as Australia, Brazil, China, Japan, South Africa,
Eastern Europe and the Middle East, to say nothing of our
European neighbours such as France, Holland and Spain.
Whilst not looking to impose our view on others, this at
least gives us a chance to compare lessons, and share best
practices.
Partnership and Trust
38. I mentioned earlier the creation of templates and a library
of best practice with the emphasis on more openness. There
will always be issues of genuine commercial confidentiality
and intellectual property that must be protected. We shall
ensure that is so. I was shocked by the consultation we
conducted with industry in Opposition how far mutual
mistrust had developed between the public and private
sectors to the detriment of the reputation of both and of
the effectiveness of the whole PFI programme.
39. I hope we have made at least a start in restoring relations
of mutual respect and confidence. For at the heart of New
Labour is the desire to establish a new partnership between
the public and private sectors. As far as PFI is concerned
this means the Government as purchaser and your industries
as the provider.
40. We all realise that partnership implies and requires trust.
It is no good one side trying to screw the other, whether
it is Government trying to off-load risk to the point where
it is avoiding the responsibilities that only it can
properly assume; or whether it is the private sector seeking
disproportionate returns by exploiting information that only
it can properly appreciate the significance of.
41. If we are to seize the great prize that real partnership
offers - the rebuilding of our schools, the reconstruction
of our hospitals, the modernisation of our transport system,
the restoration of our infrastructure - then we can only do
so by a greater openness and trust between the two great
pillars of our economy.
42. Instead of hiding behind the barrier of policy or commercial
confidentiality we must share information. Lessons from one
project are wasted unless they are shared with others, both
within the public and private sectors. It is about a fair
deal for the taxpayer and a fair deal for the provider.
Benefits Showing Through
43. There are certainly signs that we are moving ahead in the
right direction together. Lets take the new prisons
construction programme. As a result of the experience
gained and lessons learned form the first tranche of PFI
deals to deliver prisons, the procurement costs of the
second tranche are some twenty per cent lower than the
first.
44. This is also a tribute to Tim Wilson, who headed up the
Contracts and Competition Group of the Prison Service. I
am delighted that Tim will be joining the Taskforce as Head
of the Policy Wing. I have every confidence he will
continue the excellent work Peter Wanless has set in motion.
Schools
45. I would like to say a few more words on the recent PPP
schools initiative.
46. As you know we dedicated 1.3 billion Pounds of the Windfall
Tax money to a four year programme of school refurbishment.
It wasn't enough of course. So we challenged David Blunkett
and indeed we challenged ourselves to increase it by
involving private sector capital in the process.
47. The result was an increase of 35 per cent in last year's
allocation and nearly 50 per cent in this years. And this
has meant that David has been able recently to encourage a
list of five pilot projects under the New Deal for Schools.
These projects will involve around 200 million Pounds of
investment, and will each address major infrastructure needs
across a large group of schools.
48. And let us be quite clear; without PFI, many of these
projects would not have been possible. We inherited public
finances in poor shape - with borrowing still high after 5
years of recovery. Against this background and the necessity
for tight control of public spending, PFI is enabling
Government to support a significant number of additional
projects beyond what can be provided through public purse.
49. We all know about the big PFI projects. But PFI can become
an agent for change also at a smaller level across a range
of public services. PFI is now being used in the Belfast
Hospital Renal Unit; the Highlands and Islands Airports; IT
facilities for schools in Dudley; IT for libraries in Kent;
and as you probably know there is discussion about using PFI
for the new British Embassy in Berlin.
50. So PFI can deliver a wide range of public services - large
and small - right across the UK, in all areas of public
service. This presents many opportunities to you, the PFI
provider as well as to the public.
The future
51. But we are under no illusions that whatever progress we have
made in the last twelve months, there is still plenty of
work to be done.
52. Whilst getting PFI right remains an immediate priority, we
are keen to widen the horizons and develop new kinds
partnerships.
53. For example, the Government's election manifesto committed
us to look for a public private partnership solution to
tackle investment backlog in London Underground. The Deputy
Prime Minister announced his intentions back in March, and
we are now committed to bringing in private sector to
develop 7 billion Pounds worth of infrastructure which is
in addition to the 1 billion Pounds to be invested over next
2 years from public funds while the private sector
concessions are put in place. Private sector expertise and
funds for infrastructure: the public sector retaining
responsibility for operations and the interface with
London's travelling community. A natural split of
responsibilities: an intelligent PPP that will soon be up
an running.
54. But there is still a long way to go and it won't be all
plain sailing if I may mix the metaphors.
Conclusion
55. Last week, a journalist sat in my office and said he had
been many times before to be told by my Tory predecessors
that finally, they had cracked the problem of PFI. He asked
me why I thought we had cracked the PFI problem.
56. I am not sure that as of today I can assure him that we have
entirely done so. But I hope when he reads this speech he
would be obliged to say he has at least an interim
affirmative answer. Before too long I hope to address you
all again with a further account which even the most
sceptical would have to report as solid evidence of the
further substantial progress we are making together.