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STEPHEN BYERS ON PPP AND PFI

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Speaking at the Social Market Foundation today*, former local government secretary Stephen Byers outlined the steps...
Speaking at the Social Market Foundation today*, former local government secretary Stephen Byers outlined the steps that need to be taken to secure greater transparency and accountability and to ensure that there is a 'level playing field' between PFI and its alternatives.

Mr Byers also called for the recent decision taken in local government to stop the development of a two tier workforce to be extended to other sectors in particular the NHS.

He said:

'It will never be possible to secure political support for PFI if people feel that the rules are rigged in its favour and that it is the only means by which a project that would bring real benefits will gain approval.

'There should be no presumption in favour of PFI. The crucial test has to be what is in the public interest. There needs to be a real choice between a range of financing options in order to identify the one which will achieve value for money. This means that there must be no incentives or restrictions which benefit PFI over other approaches.'

In his speech Mr Byers made several proposals and changes to existing procedures. These include:

  • There should be an annual report by either the Office of Government Commerce or the National Audit Office on PFI. Amongst other things this could outline the extent of its use; the benefits; the risk transferred and any lessons to be learnt and recommendations for the future.

  • Discount Rate. In comparing PFI with conventional capital schemes allowance needs to be made for the fact that under PFI payments will be made at a later date and will in real terms cost less. The discount rate until April this year was 6%. This was heavily criticised as unduly favouring PFI proposals. Since April a discount rate of 3.5% is to be applied. Mr Byers welcomes this as an important step towards establishing a level playing field but warns that had such a discount rate been applied earlier major PFI schemes would not have been approved.

  • Local council PFI gra nt. Stephen Byers questions whether this grant worth 11.5% of the PFI work undertaken should continue in its present form. This is presently made up of 4% as a notional repayment of the capital balance and a 7.5% discount rate. He thinks that for a local authority this tilts the balance in favour of PFI.

  • Public Sector Comparator. In judging whether a PFI offers value for money it is compared to the public sector alternative. How this public sector comparator is compiled is often kept secret which allows the allegation to be made that it is manipulated to produce the answer that the PFI is better value for money. Stephen Byers proposes that the work carried out to draw up the Public Sector Comparator should be made public.

  • Risk Transfer. One of the apparent benefits of PFI should be that the private sector is unable to walk away from the contract because some of the risk has been transferred over to the private sector. However there are now a number of examples like Royal Armouries, Leeds; Channel Tunnel Rail Link and Devonport Trident facilities where the risk has been borne by the government and the private sector has avoided its contractual responsibilities. Mr Byers suggests that consideration be given to a surety or bond system being introduced to secure the public interest.

    On the issue of the two-tier workforce Mr Byers says that it was always made clear that PFI was not to be used to worsen the pay and conditions of employees. He welcomes the deal recently negotiated covering local government which stops a two tier workforce developing and says that this needs to be extended to other sectors in particular the NHS where the Agenda for Change proposals represent a real step forward for NHS staff who are directly employed. It could lead to an increase in disparities between NHS staff and those employed by the private sector under a PFI to whom Agenda for Change does not apply.

    A full copy of the speech is available here.

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