Committee
Finance Committee, 23 Apr 2002
23 Apr 2002 · S1 · Finance Committee
Item of business
Private Finance Initiative/Public-private Partnership Inquiry
I want to explain briefly my role in relation to PPP policy and funding in Scotland. I also want to answer your questions on the issue as best as I can. Sandy Rosie and Andrew Clearie are here to help me with that.I have done my best to read the Official Report of some of the committee's previous meetings. You have fairly gone into detail and a wealth of evidence has been gathered. I hope that we can add the Executive's view on PPP.I take the lead in the Executive with regard to PPP policy and guidance. Clearly, individual ministers take responsibility within their service areas and ministerial portfolios. I am responsible for public services and PPP plays a part in all of that and will continue to play a key part in our strategy for improving public services.PPP remains in our armoury because it makes good sense. To use an apolitical tenet, it provides an effective response to important public needs and that it why it is there for the Executive to use. PPP answers the need for increases in resources and infrastructure in the public sector.As the committee is aware, PPP covers many areas. In terms of the Executive, however, it is worth placing PPP in context. Although it plays an important role, it makes fairly modest demands on the Executive budget. To give some scale, we have increased conventional capital spending by more than 25 per cent between 2001 and 2004. In relation to that, PPP is only 10 per cent of the total capital spend. Although debates go on about PPP being the only show in town, at 10 per cent, it does not quite meet that accusation.The important thing is that PPP meets some of the additional expectations that our communities have about public services. The total whole-life cost and the effect that it has on the revenue budget in Scotland is less than 2 per cent of the Scottish block. The accusation that PPP is the only show in town is, therefore, again misplaced.We have policies that are designed to regenerate public services. We need to respond to that heavy requirement, particularly for the environment. As a former convener of the Transport and the Environment Committee, I know that some of the demands from Europe and elsewhere with regard to investment in water and waste water infrastructures had to be dealt with.We know about the work that is being done in education and health to deal with the Victorian schools and 1960s and 1970s buildings that are no longer suitable for use. Some facilities out there are frankly unsuitable for decent public services. The new hospitals at Hairmyres, Edinburgh and Wishaw are a testament to what the public want from their public services. Those facilities are now up and running.We are involved in a big exercise on the PPP schools projects. I am sure that the committee is keeping a close eye on that, and interest will increase over the next wee while. Again, we are talking not just about assets but about policy and what we want to achieve. The issue is about community schools and mixed campuses for denominational and non-denominational teaching; about shared sites for primary nursery teaching; about the integration of special needs; about health being incorporated into the school environment; and about tackling imbalances and surplus buildings in our communities. The issue is not just about bricks and mortar, and that should not be forgotten.I have been looking through some of the committee's work and some of the words that have been expressed publicly. Those that compare the total project repayments with the capital value of the assets create an impression that the venture is not worth while. Clearly, chalk is being compared with cheese. We talk about the whole-life cost of the asset and inappropriate comparisons are sometimes made, making a travesty of the additional impact that we can make on public services. It would be useful to explore some of those issues.There are, and will continue to be, debates around the issue of borrowing rates and the profit that is involved. Political stances will be adopted about the use of private finance. I hope that the committee's work will add to the debate at a level beyond that, so that we can consider the overall impact that PPP has made, and will continue to make, in Scotland. We need to take a balanced view on those issues and publicise the arguments. It is in the public's interest to understand the debate that we are having about PPP and I welcome the opportunity to continue that public debate.I would also like to challenge the perspective that PPP is a challenge to the public sector. PPP has been used to develop and strengthen the public sector and to learn across the services. As the minister responsible for public services, I have been trying to emphasise that we can learn from the voluntary sector, from the public sector and from the business community. We need to be pragmatic. As someone who has worked in public services, I do not recognise the caricature that is sometimes drawn.Since 1997, the budget has risen from £16 billion to £22 billion. That is money that is spent on public services. The number of public sector employees and public servants has grown by 16,000 in that same period; that is an average increase of more than 3,000 per annum.PFI/PPP is not about an agenda of creeping privatisation, but about supporting and bolstering with another tool the massive amount of work that we do in the public sector. It brings other disciplines and benefits to the Scottish community.That concludes my opening remarks. I invite questions from the committee. I am sure that we will have an interesting time. I want to put in context the role that PFI/PPP has in the Executive's agenda. It is not the only show in town; less than 2 per cent of the revenue budget and less than 10 per cent of capital spend relates to PFI/PPP. The investment that we have made in public services over the years supports that view.
In the same item of business
The Convener:
Lab
We move to agenda item 5 and welcome Andy Kerr, the Minister for Finance and Public Services, to give evidence in our PPP/PFI inquiry. I invite the minister ...
The Minister for Finance and Public Services (Mr Andy Kerr):
Lab
I want to explain briefly my role in relation to PPP policy and funding in Scotland. I also want to answer your questions on the issue as best as I can. Sand...
The Convener:
Lab
I am sure that members will have questions on a number of the issues that you raised. I will kick off. From the work that the committee has done, it is clear...
Mr Kerr:
Lab
As the convener of the Transport and the Environment Committee—you also listened to the evidence, convener—I learned that there are fairly substantial up-fro...
Alasdair Morgan:
SNP
I am interested in what the minister said about the amount of conventional capital spend and the small proportion of capital spend that PPP takes up. From th...
Mr Kerr:
Lab
Those are matters for the chancellor. I have not signed up to that fundamental point. I do not see PPP as a route round the public sector borrowing requireme...
Alasdair Morgan:
SNP
It is clear that there is transfer of risk only if a project remains a PFI/PPP one. However, it could be argued that many of the private sector's capabilitie...
Mr Kerr:
Lab
I hope that that will be the case. My view has always been that the private sector has much to learn from the public sector about the management, organisatio...
Mr Davidson:
Con
On that point, do you think that there should be a central pool of expertise—a public sector consultancy, if you like—that would compete with the very active...
Mr Kerr:
Lab
We are learning all the time. For example, we have Partnerships UK and the Treasury. We could develop a unit within the Scottish Executive that would help us...
Mr Davidson:
Con
Will such an approach not cause some tension? For a start, you will be competing directly with the private sector. Are you suggesting that the Executive shou...
Mr Kerr:
Lab
I think that it smacks of the opposite. The private sector partner—or special purpose vehicle—involved in a project might have its own set of advisers that w...
Mr Davidson:
Con
You said earlier that you had worked on both sides of procurement in the public sector. Do you see any changes in relation to whole-life cost evaluation, whi...
Mr Kerr:
Lab
I hesitate to give a specific answer to that question; perhaps Sandy Rosie and Andrew Clearie can help me out. I can tell you that, on a superficial level, I...
Sandy Rosie (Scottish Executive Finance and Central Services Department):
I hope that I understand David Davidson's point correctly. The difference in appraisal—Andrew Clearie is better on the technicalities than I am—is the whole-...
Brian Adam:
SNP
I welcome the minister's statement that PFI/PPP is not the only game in town. That is an important point. The implication of what he highlighted is that the ...
Mr Kerr:
Lab
I think that what I said was that that is not the primary driver for me with regard to why we use PFI/PPP.
Brian Adam:
SNP
If those two points are valid, I presume that you make the determination on the basis of whether you can deliver the project to specification, on time and wi...
Mr Kerr:
Lab
You hit the nail on the head when you said that the Aberdeen hospital project was done through the traditional route. The point about any project that we und...
Brian Adam:
SNP
People's concerns are probably not about what is delivered at the end of the day but about the nature of the sausage machine that makes the assessment. There...
Mr Kerr:
Lab
I do not start from the premise that we need to do everything with PPP—I am trying to express the opposite view. I start from the premise of providing value ...
The Convener:
Lab
Can I be clear about your two messages? Is value for money in the public sector comparator the most appropriate mechanism for talking about the merits or dem...
Mr Kerr:
Lab
There is a balance. For me, value for money includes quality—quality should never be separated out. When I talk about value for money, I include quality aspe...
Brian Adam:
SNP
In the evidence that we have heard, costs—particularly the maintenance costs—have been cited as one of the main benefits of PFI/PPP. In circumstances in whic...
Mr Kerr:
Lab
I do not think that resource account budgeting is sufficient. Although it delivers in relation to certain aspects of the Executive's work, I am not sure that...
Brian Adam:
SNP
Do you believe that you can deliver good practice without the discipline of the market? With a PPP, someone else has control over the maintenance budget. Is ...
Mr Kerr:
Lab
I have always believed that competition, benchmarking and best value play a key role in the public sector. Even if we manage to develop a model in the public...
Mr McCabe:
Lab
Capital projects have always had an impact on revenue expenditure. Increasingly, people are expressing the concern that, because of the level that PFI paymen...
Mr Kerr:
Lab
The idea of an appropriate balance is not a spurious concept. There must be a levelling in relation to where we can go, so that we do not tip over the relati...
Alasdair Morgan:
SNP
I wonder whether you have contradicted something that you said earlier, when you spoke about putting public sector procurement and private sector procurement...