The c'llr. interview with Jesse Norman MP

Mark D’Arcy talks to Jesse Norman MP for the C'llr Magazine.

| LGIU | c'llr. (pp 12-13)

Eighteen months into their first parliament, most new MPs would be content to have had the odd speech noticed, to have won an approving nod from a party elder or been mentioned in a positive way by a parliamentary sketchwriter. Tory newcomer Jesse Norman has already soared over those normal career hurdles; he can claim credit for killing the Private Finance Initiative (PFI) and for the creation of a Treasury unit which aims to save the taxpayer £1.5 billion by clawing back some of the excessive profits he says private companies made from contracts under the last government’s PFI contracts.

Under Labour, PFI was the preferred method of financing, delivering and maintaining major capital projects – it underpinned new schools and hospitals, new roads, even new defence installations. There are something over 800 PFI projects across national and local government – but critics have long claimed that the system is far too expensive and complicated. Norman quotes a recent analysis which suggests that financing public projects through PFI has cost the taxpayer £20 billion more than financing them through more traditional means – far more, he believes than could be justified by the value added from private sector expertise. A new Treasury Code of Practice for PFI deals is expected to result in substantial savings.

Angered, he says, by the parking charges at Hereford Hospital, in his constituency, Norman mobilised a cross-party campaign, supported by 86 MPs, to persuade ministers that PFI contracts should not be regarded as sacrosanct – and ought to be renegotiated. A tipping point in the debate was reached when a study of the PFI contract for Queen’s Hospital in Romford found that savings of five per cent could be made. Applied to all PFI contracts, that translated into the Treasury’s £1.5 billion savings target.

The campaign website (www.pfi-rebate.org) is full of tales of overpriced hospitals, £15,000 laundry doors, £8,000 dishwashers, and even £22 light bulbs provided under PFI. Not to mention an extra £1 billion in the cost of widening the M25 which, it says, can be blamed directly on PFI. Norman says badly drawn contracts have saddled government agencies, the NHS and local authorities across the land with excessive costs – but the good news is that they should not despair; it is possible for them to trim those costs down. Even where contracts appear to lock the taxpayer into paying far over the odds for – say – routine maintenance of PFIfunded buildings, he says the private companies involved can be shamed into cutting their charges, especially when their faced by a group of public sector clients, all complaining loudly.

Norman is a member of the Commons’ Treasury Select Committee. Always a high-octane body, the Committee has become especially influential in this Parliament, partly because it contains several new MPs with extensive City and Business experience. With his background as a director of Barclays Bank and in a variety of businesses Norman has extensive experience of how major contracts should be written – and by deploying it on PFI, he has made his mark. His diagnosis of the problems posed by PFI is withering – and directed squarely at the last Labour government. To be sure, it was started under John Major, but under Labour it expanded tenfold – becoming “the only game in town” so far as the financing of large capital projects was concerned. The combined value of the current PFI contracts is around £210 billion. “Labour took over a system that was not working very well to start with and enormously liberalised and mildly cronified it,” Norman says.

The crucial flaw, he adds, was that the system did not constrain PFI clients – it didn’t push them into using standardised designs for new schools, for example. It didn’t insist that they decided exactly what they wanted from capital projects before they signed the contract, and at the same time it allowed the contracts to be vastly overspecified – perhaps requiring a school building to be lit 24 hours a day, when only a few hours in the evening would have sufficed. The golden rule of contracting, that good contracts are the product of good clients, was flouted on a multibillion pound scale, he believes.

One witness to the Treasury Committee’s inquiry into PFI jolted the MPs by telling them that the design and quality of new hospital buildings was better in the ‘60s and ‘70s than it is now. Part of the reason for that, in Norman’s analysis, is that the sudden boom in school and hospital construction under Labour arrived at a time when NHS trusts and local authorities simply did not have the expertise to commission such major works effectively. Many had not handled projects on that scale for decades and essentially didn’t know what to do. And often, in local authorities in particular, the need to assemble a political consensus behind a project resulted in a blurred specification. In stark contrast, the relatively traditional procurement process for the 2012 Olympics delivered good results, because it was based on good client behaviour – clear specifications and no chopping and changing. The clear lesson is that local authorities and other public bodies need to be far better advised in their dealings with the private sector – and then better results will follow.

Norman says local authorities who believe they have signed up to bad PFI deals do not have to resign themselves to paying out – they may have signed contracts, but those can be changed and they can take action to cut their bills. “It is very important for them to seek out other organisations dealing with the same PFI provider,” he says. “They should all then sit down with that provider and have a common conversation about making serious savings. They should enlist the support of their local MPs and they should not be shy of making their arguments in public – if necessary they should name and shame them. A big fuss can hit their share price, because when investors hear the word ‘renegotiation’ they worry.” Pressure on the share price can persuade companies to shift, he adds.

Local authorities should also talk to the government, not so much about the horror stories about excessive payments for light bulbs or replacement locks, but about the failures of process – about how they ended up with contracts they couldn’t understand or which gave them no control. The Treasury is reviewing the whole issue of private sector involvement in capital projects and public procurement; they need evidence from PFI users about what can go wrong.

But in an age of austerity, Norman believes there is no prospect of returning to old-style pure public borrowing for major capital projects. There is still a compelling case for involving the private sector – particularly when Britain badly needs sweeping improvements to the national infrastructure. So what would a post PFI model for enlisting private sector finance and expertise look like? He believes that more public projects could be financed according to the model used by big utilities – the arrangements for financing, say, a power station or a new water works include incentives to keep costs low. Next, he believes, clients should be ready to take a “modular” approach to new projects – using off the shelf designs for new school buildings for example. This, he says, can cut costs and ensure that the clients get a tried and tested product. (That lesson appears to have been absorbed by the Education Secretary Michael Gove, whose new school construction programme will be based on standardised designs. It will draw on private finance, but Gove promises it will be much more tightly monitored than previous PFI projects.)

And finally, the continuing element of the contracts, needs to be carefully considered. The example he gives is of the difference between the maintenance needs of a motorway and a hospital, If the motorway maintenance company goes bust, another one can quickly be found to take its place – and if there is a brief hiatus in work, it would not normally be a disaster; if a hospital maintenance company suddenly collapses, lives could be lost. The lesson? A client is less likely to need elaborate and expensive arrangements to maintain a motorway than a hospital – in one case it is worth spending the money to guarantee continuity of service, in the other the need is less obvious. But Norman believes that over recent years the taxpayer has signed up to costly guarantees that were simply not needed.

The other point to make about Norman’s campaign on PFI is that in previous parliaments it might have seemed an eccentric, even quixotic, endeavour. But in the 2010 Parliament, with its more open procedures and more assertive MPs, it is already clear that a determined parliamentarian who fixes on the right issue can push through real change.

Mark D’Arcy is a Parliamentary Correspondent for BBC News