Investment post faces scrutiny

THE TREASURY yesterday appointed a senior civil servant to co-ordinate private investment in public sector projects, including the Channel tunnel link, the Jubilee Line, and the Birmingham north relief road.

But Stephen Dorrell, the Financial Secretary to the Treasury, denied that private sector involvement in public schemes was 'creative accounting' to reduce public sector debt, when he encountered scepticism from members of the cross-party Commons Treasury Select Committee.

He told the committee the appointment of Steve Robson as head of the public enterprise group at the Treasury followed John Major's easing of Treasury rules to encourage more private investment in public schemes.

The Prime Minister announced in 1989 that he was discontinuing the Treasury rules which had inhibited private investment. The Treasury had insisted that such schemes should only go ahead if they were more cost-effective than publicly funded projects.

Few schemes were able to meet the Treasury critiera, because the Government was able to borrow money more cheaply than private firms. However, the Chancellor announced a further shift in policy in his Autumn Statement.

'If the public sector secures good value for money for the contribution it makes where the private sector is a major partner, that should satisfy our criteria. That is the major change we are seeking to introduce,' Mr Dorrell said.

He said the Treasury was not seeking to provide private funds for traditional public schemes, which would have been carried out anyway. It was an attempt to provide schemes on a fundamentally different basis. The Treasury would take into account the management expertise which the private sector would inject into public schemes.

Officials said the Treasury was encouraging more private sector involvement in energy saving schemes, and would shortly issue guidelines on leasing, contracting and joint ventures between the public and private sectors.

But Quentin Davies, a Tory backbencher, protested about the 'muddle' in the Treasury's appraisal of private investment in road and rail projects.

Nicholas Budgen, a Tory anti- Maastricht rebel, accused the Government of thinking up ways of trying to resuscitate the construction industry after 'screwing' the economy with the European exchange rate mechanism.

The Treasury currently expects a rate of return of about 8 per cent on capital investment in public schemes, but that is being reviewed, the committee was told by Kingsley Jones, head of economic expenditure, in the control division at the Treasury.