Enron advisers linked to £8bn Whitehall deals

The Government was hit by renewed criticism for involving private firms in public services last night after new figures showed that Andersen, the accountants embroiled in the Enron collapse, had been hired to work on Britain's biggest Private Finance Initiative deals.

John Prescott, the Deputy Prime Minister, made a robust defence of public-private partnerships (PPPs) when he addressed Labour's Local Government and Women's conference in Cardiff yesterday.

In a clear attempt to soften party opposition to a controversial PPP for London Underground, which is expected to be approved next week, Mr Prescott praised commercial input for improving schools, hospitals and transport.

But figures obtained by The Independent reveal that Andersen, which has been described as Labour's favourite friend in big business, had been involved in £8.3bn of Whitehall contracts. Statistics published by the International Financial Services Association, a group devoted to promoting PPPs, show that the accountants had advised on the fewest but most expensive deals.

Andersen has in recent days attempted to play down its role, claiming it had won a market share of less than 0.2 per cent of all "professional services" across central Government, compared with 15 per cent won by PricewaterhouseCoopers.

A spokesman said yesterday that across all Government, including agencies, its fees had totalled £15m, compared with £69.8m for PWC.

However, the IFSA figures for the value of contracts shows that Andersen won the lowest number of projects as financial advisers, but their value was the second highest.

As at April 2001, the firm was involved in just 25 contracts but they were worth £8.3bn. PWC was involved in 95 contracts and yet they were worth only fractionally more, £8.7bn.

Tony Blair was criticised this week for relying on reports approving PPPs that had been written by the firms with a vested interest in winning work from such deals. The Prime Minister has repeatedly quoted an Andersen report claiming that PPPs offer savings of 17 per cent, as well as similar reports from PriceWaterhouseCoopers (PWC).

One senior industry analyst told The Independent: "These figures show that after the De Lorean ban was lifted by Labour in 1997, Andersen were back with a bang.

"Their claims that they take up a small share of all contracts are disingenuous because this shows that they are involved in the biggest and most lucrative projects. They have a massive interest in showing PFI works. Unlike other players, as financial advisers they also have no risk at all if things go wrong."

Tony Travers, the director of the Greater London Group at the London School of Economics, said that the projected £150m in consultants' fees for London Underground proved how much was at stake for the firms involved.

Mr Travers said: "The scale of the private sector's involvement in PFI deals and the number of companies involved, be they lawyers, banks or consultants, means that they have such an enormous vested interest that they inevitably find PFIs are value for money. Can you imagine any of these companies criticising PFIs? The sums are so large that they are in effect semi-nationalised industries helping the Government get large sums of capital off its balance sheet."

John Edmonds, general secretary of the GMB union, also attacked the phenomenon of commercial companies approving the work of other private firms on PPPs and PFIs. London Underground has hired PWC to assess the value for money of such a deal, but Stephen Byers, the Secretary of State for Transport, has also hired Ernst and Young to assess its rival's figures. Both are expected to approve it.

Mr Edmonds said: "What we are looking at is a classic corporate old pals act where companies endorse each other's reports while they then profit from fees as a result."

But Mr Prescott said that Labour had "a good story to tell" on PPPs and PFIs, with the largest hospital building programme in the history of the NHS, successful transport projects and new schools.

He said: "I know it's controversial. But unlike the Tories, Labour believes that spending private-sector finance should be in addition to increased public spending, not replace it. Some say private-sector involvement always costs more. That's debatable but even if it were true, we have to ask ourselves the question, what is the price of not involving private finance? The real price is leaky, overcrowded classrooms. Who pays for it? The kids. The real price is delayed operations. Who pays? People waiting in pain. The real price is delayed journeys. Who pays? Passengers."

Mr Prescott's remarks met with stony silence from the delegates, but in a direct attack on the GMB's recent publicity campaign criticising private sector involvement, he said the union ought to highlight Labour's record on creating more jobs in the public sector.