HC Deb 27 June 2002 vol 387 cc990-1031

[Relevant documents: Second Report from the Transport, Local Government and the Regions Committee, Session 2001–02, on London Underground, HC 387-I, Seventh Report from the Committee, Session 2001–02, on London Underground—The Public-Private Partnership: Follow-up, HC 680, and the Government response thereto, Cm 5486; and Department for Transport, Local Government and the Regions, Office of the Rail Regulator and Ordnance Survey: Annual Report, 2002, Cm 5405.]

Madam Deputy Speaker (Sylvia Heal)

I must announce that the Speaker has selected the amendment in the name of Mrs. Gwyneth Dunwoody.

Motion made, and Question proposed,

That further resources, not exceeding £32,972,185,000, be authorised for use during the year ending on 31st March 2003, and that a further sum, not exceeding £31,415,020,000, be granted to Her Majesty out of the Consolidated Fund for the year ending on 31st March 2003 for expenditure by the Department for Transport, Local Government and the Regions.—[Mr. McAvoy.] 2.23 pm
Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

I beg to move, as an amendment to the motion, That resources be reduced by £1,000 in respect of Request for Resources 2 (Promoting modern, integrated and safe transport and providing customer-focused regulation) relating to grants to London Underground. The amendment would, at least officially, take away from the underground some of the moneys that are to be offered to it.

One hazard of being a country that has produced large numbers of engineers is that sometimes we are so used to our traditional backgrounds that we forget that it is important to understand why, if a country is to remain not only economically successful but capable of contributing to a very high standard of living of its people, it must continue to employ the best skills of its people. The British have been very good at engineering over many centuries, and particularly since Victorian times, when they were in the vanguard not only of creating fantastically good transport systems but developing them in such a way that those skills were spread throughout the civilised world. It therefore is rather sad that in recent years, and certainly under previous Governments, there has been a lack of consistent investment in good transport systems. Those systems, many of which we had ourselves initiated, were allowed to run down, and one classic example has been the London underground.

London as a capital city not only provides a most vibrant and exciting place to live but attracts some of the best brains in the world, and it is the centre of financial, political and cultural events that mean that its people require a high standard of infrastructure. Unfortunately, London Underground no longer provides that very high level of care. This is not a criticism of people who operate what is an old system; it is simply an acknowledgment that successive Governments did not provide the cash that was essential not just to maintain but to modernise and enhance the system, and although at least one modern line has been built, that was still not enough to provide the level that is essential.

Therefore, the incoming Government decided that they were going to look at a new way of financing the underground, and the Select Committee chose to look very closely, over a number of reports, at how that was going to be done, what its purpose was and what it was going to produce. On one occasion, the Leader of the House did reprimand me when I suggested that we had still not discussed that sufficiently on the Floor of the House, by saying that he was convinced that we had had a number of debates that had covered every aspect of the public-private partnership, but the truth is that there has not been a substantive vote, and although today might not be either the occasion or the manner that is necessary to decide such an important subject, it is perhaps instructive, on a day when we have just been discussing the debacle of Railtrack, to tell the Government that we are not convinced, as a Select Committee, that the public-private partnership is the way forward, will provide what we want or indeed is what the general public want.

As a Committee, we looked at the history of the public-private partnership. We took evidence not only from Ministers but from those working in the industry—from those dealing with the financing and the structure, the maintenance and enhancement of the system—and we discovered that some aspects of the deal were exceedingly disquieting.

As a Committee, we were worried that most of the arrangements for the bids had been Treasury led, to the point where Treasury officials appeared to be taking precedence over the Department for Transport, Local Government and the Regions in the negotiating, and providing individuals who were themselves directly dealing with the applicants for the bids, and yet we were not able to persuade Treasury Ministers to appear before us to discuss the implications. We said very clearly that we thought that that decision undermined the work of Select Committees, simply because the House of Commons does have a responsibility not just to ask awkward questions but to obtain answers.

Helen Jackson (Sheffield, Hillsborough)


Mrs. Dunwoody

I shall certainly give way to my hon. Friend. I am delighted to see her.

Helen Jackson

Does my hon. Friend agree, particularly as we are discussing the matter on an estimates day, and because the thrust of the Government's decision on London Underground was based on financial estimates and so-called value for money, that on criteria that varied according to advice from the Treasury, it was difficult, if not impossible, to get a balanced view from the entire Government without being able to take full evidence from the Treasury and Treasury Ministers?

Mrs. Dunwoody

That was precisely the point that concerned the Committee. Under normal circumstances—I have been in the House longer than I sometimes care to admit in public—one would have expected a major scheme of funding for the London Underground to be not only carried forward, but controlled at every point by the Department that was directly responsible—the Department of Transport, Local Government and the Regions. Of course, the Treasury must have an important guiding role in deciding public expenditure. Nobody disputes that.

However, the normal procedures that all Governments follow have always meant that the Department with the controlling interest went to the Treasury, discussed the figures at various points in the spending review, asked for the amounts of money that it needed, and negotiated on the basis of information about the sum that the scheme demanded. When the Department received a reply, it undertook the negotiations with the people concerned. That is the traditional way of proceeding, and I have not heard it argued that it did not work.

What concerned the Select Committee was that the more evidence we took, the more it became clear that the Treasury had somehow reversed its role, and was negotiating directly on a transport scheme that would determine the future of transport in our capital city and had been going on for over four years. Successive Governments have not found the money to keep such schemes going and to improve them, but we are discussing a scheme that is so complicated, and which creates and even replicates so many of the difficulties that we saw in Railtrack, that we felt that we were almost in danger of doing the same thing again.

We wanted the Treasury to come before us and explain why it did not take that view. We produced not just one report, but reports that stated time and again that we did not think that that was the answer, and we gave our reasons.

Chris Grayling (Epsom and Ewell)

Will the hon. Lady make it clear that on this issue, as on so many issues that the Committee discusses, and following on from the intervention from the hon. Member for Sheffield, Hillsborough (Helen Jackson), those views were strongly held right across the Committee, regardless of members' party political persuasion and perspective on the Government?

Mrs. Dunwoody

That was not a party political view. The Select Committee was so worried by the evidence that it took that it wanted to have a series of questions answered, and it felt that it had the right to ask the Executive to demonstrate exactly where it was going.

Why do a Government choose to move outside Government funding for major infrastructure schemes, if they are a Government committed to improving the transport system? They do so because they have reviewed their finances and concluded that they have so many demands in any given period of time that they must prioritise, which may mean that the money that is needed for infrastructure systems is not to be found within existing Government funding. Fine.

The Government must then consider how they intend to involve the private sector and develop the partnership and what benefits there will be. Experience teaches us that if Government enter into a deal that may raise money from the private sector, but which does not move the risk from the taxpayer to the private company, they are not providing the benefits or the long-term undertaking guarantees that they should provide.

So we asked whether the Government could convince us that there was a transfer of risk from the Government to the private company. That was not at all clear. What was clear was that because of the complicated nature of the scheme and the very involved system that was proposed, not only would we almost inevitably get into complicated disputes with the individual companies and with contracts, but there would be enormous problems for the staff involved. That would mean constant references to an arbiter, and the need to extend the powers of the arbiter to look at all the implications and come to a just and sensible conclusion.

We considered the fact that already the shortage of funds available to London Underground was constraining capacity. The sheer length of time that the creation of the particular form of financing was taking was immediately impacting on the work of London Underground. We began to argue, as we had in an earlier report, that there should be an independent assessment, and the Government agreed, sensibly, that that was a good idea. The response that we got from the people concerned was that, unfortunately, many of the elements in the public-private partnership deal are subjective.

Four years, and we are told at the end of that time that many of the judgments needed to work out whether the scheme represents value for money are subjective! I find that very worrying indeed. We can all bring to the table our prejudices in terms of negotiations and objectives, but if a Government are entering into massive commitments, it is essential that they should do so on the basis of clear facts, clear responsibilities, a clear transfer of risk and a clear indication of the cost to the taxpayer over a number of years. After all, the bid will have implications for public transport for over 30 years. That is an extremely long time.

The previous Secretary of State accepted that it would not be possible to provide definitive answers on value for money; well, why not? How are we to proceed, if we are not convinced that we are committing the taxpayers' money to a deal that is in their interest? We were sure that we wanted the National Audit Office to give its view of the particular and subjective aspects of the deal. The NAO's response was sensible; it said that it could not make a political judgment.

The public, however, do make political judgments. They look at a scheme and say, "Is this going to be what we want? Are we going to get a modern, comfortable railway and are we going to continue to pay for it not just through fares, but through the considerable subsidies that the scheme will receive?"

Those are the considerations that should concern us. The kind of financing that was being discussed was decided, it seemed to us, not on the basis of what was essential to modernise the railway, but on the basis of what we could afford. In a sense, the matter was decided the wrong way round. The decision was taken on the method of funding, then the Government looked at what they would get under that particular arrangement.

Geraint Davies (Croydon, Central)

Does my hon. Friend accept that, contrary to a normal private finance initiative, in which money is lent to be spent up front, the nature of the scheme was that £1 billion would be spent every year and the Treasury would supply that on a yearly basis? The picture that my hon. Friend has painted in that respect is not a reflection of the deal. With reference to risk transfer, does she accept that the penalties in the contracts, which would mean the elimination of suppliers or penalties out of their profit, under pressure from the bank, which is the third player in the relationship, would ensure risk transfer and ensure project management such as we see in large projects in the private sector, which we have not seen from London Underground in the public sector?

Mrs. Dunwoody

The answer is no, I do not take that view. if I did so, I would not have been a party to the report that sets out in considerable detail why I think that it is wrong. I am sorry if I am not making myself clear; perhaps I should speak in simpler Anglo-Saxon terms.

We were promised an initial saving of £4.5 million in the deal, but the Committee found that the present arrangements were flawed. Let me explain to my hon. Friend the Member for Croydon, Central (Geraint Davies) one of the reasons why. A large amount of London Underground's work is funded from the fare box. The amount that it takes from its fare box moneys towards its operating costs is higher than that which is taken in similar systems elsewhere. In 1998, London received 129 per cent. of its operating costs from the fare box, but New York received only 77 per cent. and Paris 63 per cent. When we consider the scheme, we must work out whether it will be heavily dependent on the amount that is receives from the fare box. If it will be, we should be aware that the amount that is available from the fare box is declining. Have the Government considered the implications? Who will find the difference? Will London ratepayers be faced with a considerable commitment of which they are not currently aware? If not, will the Government have to give much more substantial subsidies than we thought?

We must understand that the original Government estimates, which said in October 2001 that 45 per cent. of the deal would be financed from Government subsidy, 30 per cent. from the fare box and 25 per cent. from private finance, may no longer be valid. The figures may have changed so radically that the House should know about it. I am worried by the current proportions in relation to the various groups involved, as I am not at all sure whether the bidders are already laying down conditions that might mean that the figures that the House has been discussing are no longer accurate. Is it true that the people who are already involved in the deal are laying down a number of specifications and saying that they will require a certain number of millions of pounds in a single input of finance immediately when the terms are signed? If that is the case, why have we not been told?

Richard Ottaway (Croydon, South)

The hon. Lady will he aware of the Mayor of London's letter to a number of hon. Members, dated 12 June, in which he notified us that he had identified a large funding gap and was starting legal action against the Government and insisting that the PPP did not go ahead until an explanation was forthcoming. Would she consider it appropriate for her Committee to call in the Mayor of London and the Minister and try to resolve the matter?

Mrs. Dunwoody

My Committee may no longer be there. We have already taken evidence from Transport for London, but it may have been overtaken by changes in the existing arrangements. That is what concerns me, and I hope that the Minister will give some clear indications about that.

There are other difficulties. London Underground will have to monitor the arrangements, and the Committee asked whether it had sufficient staff and money to do so. It will need to employ more people, not fewer. We have seen on overground rail that, unless maintenance and operation are very closely monitored and there is very skilled supervision of engineering, we will run into serious problems in operating railways. If that is so in relation to Railtrack, may not also it be true in relation to London Underground? If so, will London Underground have enough money and staff to carry out the very high level of monitoring that is required?

The Committee was also very concerned about the sort of deal that says that companies will be able to press for better terms after seven and a half years. We took evidence and asked questions about that. We asked what would happen if the companies said at the end of seven and a half years that they did not think that they could continue and wanted substantially to increase the amounts paid by tax and ratepayers. I am afraid that we did not get a very detailed answer, so I ask the Minister again to address that point. In effect, London Underground can be held to ransom by the companies, which will be in an extremely powerful position. Who will decide what is a fair deal when we get to that point? Why is there no public interest exclusion? Why will it not be possible for the Government of the day to demand that change should come about because of the public interest? That seems something that should be automatically written into the contract, and yet, somehow or other, it is not there.

Surely, we have learned by now in dealing with private companies that the overriding interest of the tax and rate payer on matters such as safety must mean that the Government should have the right to intervene and say that they cannot continue with the contracts in their present form because of the implications for the travelling public. If not, there will be considerable difficulties. Major upgrades and enhancements that are not properly spelt out will be another source of difficulty. Why will they not be the responsibility of Transport for London? Why will it not be possible for them to be planned and take a direct form?

There is no 15-year public sector comparator and I am afraid that some of the figures that have been quoted have no basis in any of the published reports. The dominance of the highly constrained financial analysis as the basis for the decision-making process is ill-founded and mistaken. The Committee said: The level of cost overruns"— we have also been discussing this issue in relation to Railtrack— to which the Infrastructure companies will be exposed before they can seek an extraordinary review is paltry compared to the size of the investment programme. Again, I emphasise that risk transfer was one of the key reasons given to us for undertaking the deals, but we think that it is seriously undermined and could mitigate the desire to go ahead with this particular public-private interest.

We pointed out that, even at this juncture, the Government should have an alternative. I feel great sympathy for a new Secretary of State who enters a Department and is faced with a number of deals that appear half done, but we have spent more than four years arguing about how we can best come up with such a partnership deal, it is still not completed, and yet the Government are still saying "Unfortunately, there is no alternative, and even if we think that it is flawed and cannot provide the House with accurate financial information, we must nevertheless go ahead because there is no alternative."

Governments always have alternatives. They have a number of them, as we have seen in relation to something as basic as Railtrack. They have a responsibility to exercise their political judgment. Who in the 21st century would imagine that a capital city of the size and importance of that of the United Kingdom should be reliant on an underground system that is more than 100 years old, but unable to conclude a deal to improve, change and modernise it even after four and a half years' discussion? Who would believe that a Government who are so strongly committed to transport and who care about people's quality of life could still be suggesting that we should wander forward with a deal—I say this without wishing to be unkind—that is unproven, has vast numbers of holes in its responsibilities and does not indicate that it will deliver the goods? After all, all that Governments should have the right to determine is the need to deliver the goods. We come here to decide how our public money should be spent—that is why we are elected. The link between elected Members and the prioritising of Government schemes is the fact that it is our taxpayers' money that we are spending, and we have a special responsibility to ensure that it is spent responsibly, sensibly and, above all, with a clear end in mind that will produce a good transport system.

The Committee was not convinced. We asked to see Ministers who should have answered our questions. We published reports that we thought spelled out to the House: "Beware—this is a bad scheme, which can still be dropped and should be abandoned." Frankly, we did not get the answers that we wanted, and we have had to use a particular device to ensure that the matter is debated on the Floor of the House today. They are a grown-up Government—they should demonstrate that they understand that it is better to tell people, "We have a made mistake, and on the whole we think we ought to start again."

2.51 pm
Tom Brake (Carshalton and Wallington)

It is a pleasure to follow the hon. Member for Crewe and Nantwich (Mrs. Dunwoody), who is very experienced in these matters. We are happy to add our names to her amendment; I hope that that will not do her—or rather our—cause too much harm.

It would be churlish of me not to welcome the opportunity for the debate. I presume that this two or three-hour debate is the second and final phase of the wide consultation on the Government's part-privatisation plans for London Underground that was promised by the former Secretary of State for Transport, Local Government and the Regions. I hope that the debate will focus on the public-private partnership rather than on the personalities involved, including the Mayor of London, Bob Kiley, former Secretaries of State and the present Secretary of State. I deplore the way in which yesterday's debate, which was supposed to be about transport in London, was hijacked by the hon. Member for Ilford, South (Mike Gapes). He made some very serious allegations during that debate, which he has declined to repeat outside the House. Yesterday's debate was all about getting Kiley and nothing to do with getting London moving.

Mr. Barry Gardiner (Brent, North)

Can the hon. Gentleman explain how it is possible to hijack one's own debate?

Tom Brake

Many hon. Members thought that a debate entitled "Transport in London" would be about transport in London, but that was not the case.

The Government have always stated that their approach to the modernisation of the underground would be based on three principles. I quote: First, there must be no privatisation; secondly, safety must not he compromised; and thirdly, the contracts must offer value for money."—[Official Report, 7 February 2002; Vol. 379, c. 1126.] In our view, PPP falls foul of at least two of those three principles. First, does PPP constitute privatisation? I do not want to spend valuable time debating semantics. Chambers dictionary defines "privatisation" as to transfer from ownership by the state into private ownership". The Government say that PPP does not represent privatisation, but Liberal Democrat Members and many others consider that handing over responsibility for the maintenance of the underground to two private consortia, Tube Lines and Metronet, for 30 years represents at least part-privatisation. However, the debate about whether it is privatisation or part-privatisation is not nearly as important as the debate about whether PPP compromises safety or represents value for money. I shall focus on those two points.

Is PPP compromising safety? There is no doubt that PPP will make managing safety issues more complex owing to the fragmentation that it introduces to the industry—the very sort of fragmentation that has caused so many problems on the rail network. A network broken up into two parts will have more interfaces and there will be more opportunities for safety standards to diverge. Of course, more complex does not necessarily mean less safe, but it does mean that a greater effort will have to be put into safety standards to achieve the same level of safety than would be the case if there was not that fragmentation.

Of still greater concern is Transport for London's assessment that PPP hands over to the infracos' financiers—not to the infracos—decision-making powers over safety matters. On 19 June, Bob Kiley wrote about that to Mr. Stephen Williams of the Health and Safety Executive. So far, he has not received a substantive response. In his letter, he said that the JNP"— that is, Tube Line— finance documents we reviewed include unusual terms which will materially affect LUL's actual ability to control and/or work in partnership with the privately owned infracos. He goes on to say that the JNP finance documents detail mechanisms that convey to infraco lenders a panoply of powers to control or direct infraco activities. A sixty-two page 'Control Matrix"'— identifies— well over a hundred decisions Tube Lines and infraco JNP must take if the lenders so direct. These rights potentially include how works are performed, the scheduling of works, the choice of subcontractors and the settlement of disputes. He also observes that the Metronet finance documents, which may contain similar lender rights, have not been disclosed"— or had not been disclosed at that point. He went to say that there had been very little in the way of a substantive reply from the HSE to the many issues that had been raised in previous correspondence, and that he wanted a full response to each of those issues. He expressed surprise that the HSE had concluded that it was neither 'necessary or appropriate' for a face-to-face meeting to take place between its and TfL's counsel. He and I find it difficult to understand why that is the case, given the level of experience that TfL's counsel will have built up in considering and reviewing the contracts. If TfL's reading of those documents is correct, this is a very serious matter.

Will the Minister confirm whether TfL is correct in its assessment of the documents and, if it is, what guarantees he can give the House that the financiers of the infracos will always make safety their priority? If he can provide none, PPP should be put out of its misery now.

Ms Diane Abbott (Hackney, North and Stoke Newington)

One of the issues that Bob Kiley has raised is the use of subcontractors. Does the hon. Gentleman agree that one of the most problematic aspects of Railtrack was the increased use of subcontractors, because much of the labour they used was not permanent or skilled? We do not want that to be replicated on London's underground.

Tom Brake

I agree. The management of subcontractors is a key priority. One of the concerns about the fragmentation of the network is that it will be possible for Tube Lines and Metronet to operate to different standards, thereby making it even more difficult to control the work that is done.

Geraint Davies

The hon. Gentleman seems to be saying that the banks play no role in this, and that they are just leeches taking the money without providing added value. Does he agree that the banks' role is to provide a discipline to the private supplier who offers the service to the public? Does he agree that, without the banks, we are less likely to meet our targets, and with them, if the targets are not met, those private suppliers will be removed and replaced or their profits will be penalised, which will ensure that projects are delivered on time?

Tom Brake

I agree with part of the hon. Gentleman's point. Clearly, the banks have a role in relation to infracos. However, they should not have a role in making decisions that could have an impact on safety.

The final key question is whether PPP represents value for money. We will know the definitive answer when the National Audit Office conducts its investigation. Unfortunately, that will happen only after the financial close, when it is too late to do anything about it for the next 30 years. The NAO's remit must be changed. What is the point of finding in the next couple of months that the Government have squandered billions of taxpayers' money on the scheme when it is too late to make any changes?

I wrote to the Comptroller and Auditor General on 9 May to ask him to consider several specific points. They were: whether the rates of return the private consortia have been granted are reasonable…whether there are sufficient controls over the charges that the private consortia are able to levy…whether genuine risk transfer has been achieved at reasonable cost, and…whether the NAO's recommendations in their December 2000 report have been followed. In his response on 17 June, he confirmed that the NAO was continuing to monitor the PPP", and that it would produce a report as soon as is reasonably practical in the months following financial close. Clearly, that is welcome.

The NAO will have much to consider and investigate—for example, the obscene sums of money that will be dished out to Tube Lines for its PPP set-up costs, which include £36 million of so-called success fees to be given to Tube Lines' parent companies, Amey, Jarvis and Bechtel, and the more than £100 million that the Government have spent on their consultants.

Metronet has refused to comment on the precise indecency of its golden hello, and stated that it would not be appropriate to comment". That is bad news for Londoners. Will that be Metronet's response to any query for the next 30 years? So much for accountability.

It is not surprising that Metronet refuses to answer legitimate questions about the amount of taxpayers' money it will receive for its efforts. However, I did not expect the same response from the Secretary of State. I wrote to him on 20 June and asked, among other questions: Can you provide a detailed breakdown of the payments to be made to the two consortia? I also asked: Has the Government made an assessment of the validity of the consortia's claims for consultancy fees? I commend the Secretary of State on the promptness of his response. He replied to me on 24 June, four days later, and I welcome that.

I do not however welcome the content of the Secretary of State's reply, which confirmed that London Underground will be verifying all development costs before any such costs can be recovered from bidders. That is commendable, but he has not been able or willing to state the size of Metronet's bounty. We are left to speculate about the Government's generosity and Metronet's greed.

When the NAO makes its value-for-money assessment, as well as the nine-figure sums, it will have to take into account the fact that the start-up costs for a bond issue would be approximately £40 million, compared with between £440 million, according to The Guardian, and £570 million, according to the Evening Standard, for the Government's plan. It will also have to take account of TfL's estimate that a bond issue would have cost £1.7 billion less over seven and a half years. That can easily be verified, because its borrowing arrangements would be cheaper than the PPP arrangements that the Government chose. For those reasons and many others, it is highly unlikely that PPP can or will represent value for money.

Five years ago, Labour promised miracles for the tube. The Deputy Prime Minister stated: When the Greater London authority is established, the underground will, with the rest of London Transport, transfer to it. Several years after the establishment of the Greater London Authority, we still await the transfer of London Underground to it. He also said that we will return it to the people of London."—[Official Report, 20 March 1998; Vol. 308, c. 1541.]

Mr. Gareth Thomas (Harrow, West)

The hon. Gentleman will remember that Ken Livingstone commissioned the Industrial Society to review the PPP arrangements in late 2000. He may know that part of its document suggested that preparing a long-term alternative, such as bonds, to the PPP would take at least two years. Given the distance that we have travelled on the PPP journey, do the Liberal Democrats seriously advocate throwing all the work to one side and allowing two more years of misery before we can get started on the investment programme?

Tom Brake

The hon. Gentleman's intervention has the useful purpose of pointing out that the Government's plan, which has taken four and a half years so far, has not been signed. A bond issue could have been resolved in a couple of years at much less cost.

Chris Grayling

The Select Committee on Transport took evidence from Mr. Kiley, who said that he had the finance lined up and that he was prepared to start work, not planning, in six months.

Tom Brake

I hope that Labour Members listened carefully to that helpful intervention.

Geraint Davies

Will the hon. Gentleman give way?

Tom Brake

I should like to conclude, but I shall give way again.

Geraint Davies

The hon. Gentleman should accept that the bond issue is a red herring. Bonds take a large amount of money up front for investment. We are putting in money year after year; the Treasury will stump up the money every year. The only difference is the added value of private sector. Why does not the hon. Gentleman admit that the bond issue is a red herring?

Tom Brake

I do not believe that. It is important to point out how much more the Government have spent on their proposals and how much more the bond issue could have delivered for Londoners.

Ms Abbott

If the Government had taken a timely decision to allow the democratically elected Mayor of London and his transport commissioner to go ahead with the bond issue proposal, there would be improvements on the underground now. Far from being a red herring, the bond issue was the way in which the New York subway got massive investment. It is important to note, as much for the benefit of my colleagues as anyone else, that a mayoral election was fought and won on the simple subject of the partial privatisation of the underground. The people of London said then as they say now that they utterly oppose partial privatisation of their underground.

Tom Brake

The hon. Lady is right. The mayoral elections were a referendum on the proposals for London Underground. She is right to point out that if the Government had handed over control of the tube to London's government and Londoners, the system would be up and running now, whether we accept the two years that the Industrial Society suggested for introducing the bond issue or Bob Kiley's six months. However, we still await the Government's response.

Four and a half years on, the PPP contracts have not been signed; the tube is not in the hands of Londoners, and uncertainty surrounds who will be able to make decisions about safety. Evidence mounts to show that, for Tube Lines and Metronet, PPP is a game of "Who Wants to be a Millionaire?", in which they have the answers to all the questions that Chris Tarrant will ask. Public-private partnership is unworkable, unwanted and we should put it out of its misery now.

I urge all the amendment's sponsors and all hon. Members to join us in delivering a vote of no confidence in the Government's handling of the tube PPP.

3.9 pm

Mr. Geoffrey Robinson (Coventry, North-West)

Madam Deputy Speaker, I am grateful to you for calling me to take part in this debate. I thank, in passing, the Chairman of the Select Committee, my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody), for triggering the debate, because I can start by agreeing with her on one thing. When we started down the route of a public-private partnership—I was at the Treasury at the time—it was precisely because we had to decide what our priorities were. Those were times of extreme financial stringency, because—among other reasons—we had to take certain measures to stick to the Tory spending plans to get the economy back into a stable condition to lay the basis for what we are now able to do. My hon. Friend will agree that it would have been unthinkable for us to vote billions to the tube and the then tube management while denying the billions that urgently needed to be spent on health and education.

Richard Ottaway


Mr. Robinson

I am willing to give way, but I cannot see what possible point the hon. Gentleman can have. It was the Tories who got us into the mess by proposing to privatise the tube, trying to make an issue of it in the 1997 general election, and neglecting to invest in the system for 18 years. However, I shall be most interested to hear what the hon. Member for Croydon, South (Richard Ottaway) has to say.

Richard Ottaway

The hon. Gentleman said that he had stuck to the Conservative spending plans. If only the Government had really done that, there would be a lot more money in the underground today. In the last 10 years of the Conservative Government, we put £7 billion into the underground. Labour has come nowhere near that in the last five years.

Mr. Robinson

I was quite right; I should not have given way. I regret doing so and I do not intend to do so again.

We had to find a way forward, and we clearly had to go for a public-private partnership—there was no other way. Also, quite apart from the financial situation, there were other very good reasons for going for such a partnership for the tube, which I shall come to in a moment. We could skin a cat in so many ways, and when it came to public-private partnerships—which were quite innovative—there were many different options available. No. 10 had its view; the advisers to No. 10 had their view; the then Department of Transport, Local Government and the Regions had its view; I had a view; the Treasury had a view; and the Deputy Prime Minister had very strong views. We had to find a way that we could all see would carry this forward.

With the Deputy Prime Minister's agreement—we worked together closely on this, and I pay tribute to the real work that he put in to get this going—I convened a group of four business men with experience of both the public and private sectors to make a recommendation to us. Essentially, that recommendation is what we have today: a split at a point that can logically be defended and can, from a business point of view, be implemented at least as easily as the proposal to leave it to the present London Underground management to continue on their own.

As of today, the situation, as I understand it, is that the contracts are signed, subject to only two prior conditions: sign-off by the Health and Safety Executive. and obtaining clearance in Brussels. There is £3 billion of private finance lined up to back the scheme. So what stands in its way? Unfortunately, we have two fairly difficult road blocks still to overcome. One is the continued opposition of the Select Committee. While I pay tribute to all its work, and I recognise that, in part, its job is to make the Government's life difficult, this sort of opposition cannot be carried on to the point at which it makes it impossible for us to modernise the tube. I shall return to that in a moment.

Harry Cohen (Leyton and Wanstead)

My hon. Friend made the interesting point that different people in government had many different views about the PPP, and some of us would argue that it has ended up as a bit of a dog's dinner. He also said that the present plan was determined by four business men. Will he put on record who the four business men were, so that we can analyse their knowledge of the situation to see whether they had a vested interest in it?

Mr. Robinson

I shall be very happy to do that. I shall make sure that my hon. Friend will be satisfied on that point, and I am sure that he will be. I am anxious to reassure him, but I want to push on, if I may. There was a lot of other input into the matter—it was not just the four in the working group—and there had already been a lot of thinking that pretty much tended in the same direction.

The other road block involves the opposition from the Mayor and Mr. Kiley, which is now bordering on the irresponsible. I have no personal attack to make on Mr. Kiley; I do not know the gentleman. I think that I have met him on only one occasion, and I have certainly not had any extended conversation with him on these matters. I would, however, say to the House that he has been out of the business for 11 years, he has six Americans working in his office, and I think that a statement was recently made in the House—which I cannot verify—that another British manager had been dispensed with.

When Mr. Kiley made his first presentation to the London Underground board, he spoke for 55 minutes, and I am told that he spent precisely 90 seconds on what would be his plan for the underground. Whatever else one might say about the gentleman, he is not a team player; everything always has to be on his terms, or he will not go along with it.

Mrs. Dunwoody

I do not have any mandate to defend Mr. Kiley, but I want to address this particular point. If my hon. Friend would like to look carefully at the evidence that we took, in not one but two Select Committee reports, he will find that Mr. Kiley not only spelled out what he wanted to do—and why and how he wanted to do it—but gave clear evidence to us that he knew what he was talking about. Frankly, that was quite refreshing.

Mr. Robinson

Well, Mr. Kiley certainly talks a good fight, but if we ask, in modern parlance, whether he can "walk the walk", I do not think that we will ever know, because I hope that he is not going to be given the opportunity. My hon. Friend the Member for Crewe and Nantwich referred to the minutes of the Select Committee evidence; I have read them all.

Tom Brake

Will the hon. Gentleman give way?

Mr. Robinson

I want to make a little progress.

What Mr. Kiley is saying, if we boil it down, is that Ken and Kiley together can do the job, but they cannot do it on their own. No whizz kid could do that. They are going to be dependent on London Underground management—as it was then, and as it is now—to do the job with them and for them. They are saying, "Because it is us, we'll get it done." But where is the evidence for that?

I pay tribute to London Underground management. Given that they have been so constrained financially, and given the difficulties and pressures under which they have worked, they do a good job in running the system—particularly the public-facing operations. I regret to say, however, that they do not have experience of spending on and controlling major projects, and their track record on that is one of fiascos. They have never had the opportunity to do that in a sustained way, because of the way the finances were run—principally by the Conservatives—and, whenever they have been confronted with such a project, it has proved a failure.

We have only to look at two examples to see that what I am saying is correct. Let us take the construction of the docklands light railway. That was in such a mess by the end that the management had to call in the private sector to finish it off. More recently, the Jubilee line extension was running into the sand. What did the management do? They had to bring in Bechtel to complete the job.

Tom Brake


Mr. Robinson

I will give way in a moment.

Lord Levene intervened in both cases. If you have to bring Lord Levene in to intervene, you are in a pretty bad state. The idea, therefore, that all we have to do is give the money to Ken and Kiley Inc. and they will magically transform the ability of London Underground management to invest in, control and successfully bring to a conclusion the major projects that need to be implemented, is just wishful thinking.

Ms Karen Buck (Regent's Park and Kensington, North)


Tom Brake


Mr. Robinson

I shall give way to my hon. Friend first, and then to the hon. Gentleman.

Ms Buck

My hon. Friend is making a powerful case against the former management of London Underground. Why, if we had no confidence in them to manage those projects, do we have confidence in the very same people to manage the contract procurement for the PPP?

Mr. Robinson

They were not managing the contracts well. On a point of general relevance, it was London Underground management who were managing the projects, splitting them up into many separate contracts, making a mess of it and not finishing it—they were failing to do the job. The point is that they had to bring in Bechtel to finish the job. It is no good trying to blame Bechtel, just because it happened to have one part of the contract but could not finish it all. It was brought in to finish the job because London Underground could not. That is London Underground's track record.

When it came to the failure to complete the Jubilee line extension, and the need to bring in Bechtel, one of the greatest protagonists of leaving it to the tube—prior to Mr. Kiley—Mr. Dennis Tunnicliffe, finally agreed. We all felt, "Let's go for this split whereby we can have infrastructure companies that are specialists in those areas doing that particular work, and London Underground can run the tube operations and the trains as London Underground, which it does well."

Tom Brake

I thank the hon. Gentleman for giving way, but I urge him to continue his speech afterwards, as he is revealing some very interesting facts. I hope that before he sits down he will give us the names of the four business men who decided how the PPP should be structured, for instance. He has revealed another interesting fact, however: he has said that Bob Kiley will not have an opportunity to run the tube. Is he saying that there will be a veto on Bob Kiley keeping his post after the handover?

Mr. Robinson

I do not want to deal with interventions from Members who have nothing much to say about the real issues.

I shall return to certain other aspects of the Mayor's position shortly, but first let me say a few words for the benefit of members of the Transport Sub-Committee, many of whom are my hon. Friends. All the Labour Members are my hon. Friends, of course, as are many from the Opposition. I believe that they are sincere in their opposition, and I think they have made some good points. Indeed, I consider that the Committee may have improved some matters. I part company with the Committee on its continuing insistence on esoteric, pseudo-scientific calculations as the be all and end all of its assessment of the PPP.

When it comes to value for money, social cost benefit analyses and so forth, I can speak on the basis of some experience given my time in the Treasury. The whole thing is rather like a grand prize fight. In one corner we have the public-private partnership and its accountants PricewaterhouseCoopers, seconded by KPMG; in the other corner we have Transport for London. I cannot remember which accountants it went for, but I think it was Deloitte and Touche. It is seconded by a host of academics. The Government have appointed Ernst & Young as the referee who will try to find a way through the middle.

All those people and organisations will have been commissioned at enormous cost, and each will of course come up with broadly the view that those doing the commissioning wanted to hear. Anyone with any experience of business, contracts or courts, from whatever walk of life, will know that if a consultant, an economist, an accountant or a lawyer is paid and given a brief, he will give the answer that whoever has paid him wants to hear. That is all that has been going on here.

It is funny that Transport for London's advisers, seconded in the ring by the Select Committee, say that the PPP would be a disaster. It is equally funny that those commissioned by the PPP say that it represents value for money—that it will save £2 billion, £4 billion or whatever. Not surprisingly, the chap in the middle, the umpire, will say "It is a subjective judgment, but it is based on an objective assessment." I do not quite know how the circle can be squared.

Mr. Andrew Dismore (Hendon)

Exactly the same criticisms could be made of Ernst & Young, which was employed by the Government to justify the PPP. My hon. Friend describes Ernst & Young as an umpire, but in fact it is there to advocate a course on the basis of only half the available information. As more facts emerge, Ernst and Young's analysis becomes increasingly dubious.

Mr. Robinson

My hon. Friend should have listened to what I was saying. I said that there were two sides, the PPP and its lot doing their stuff and Transport for London and its lot doing theirs. The Government then appointed Ernst and Young and gave it pretty independent terms of reference, and it came down somewhat in favour of both sides.

Mr. Edward Davey (Kingston and Surbiton)

Will the hon. Gentleman give way?

Mr. Robinson

In a minute. I have already given way an awful lot, and I need no encouragement from Liberal Democrats.

Issues such as this cannot easily be resolved in a matter of nice calculations. I do not really believe that this is what makes Londoners anxious. If we organise the partnership properly and devolve responsibility for delivery of infrastructure improvements to the private sector, we are more likely to obtain value for money than if we choose a route that has proved disastrous in the past.

What is of real concern to Londoners? They fear that by making a division and handing responsibility for the infrastructure to the private sector in the hope that it will produce the goods, we will create another Railtrack. Indeed, many have assiduously fomented precisely that impression, perhaps because they believe in it or perhaps because they are irresponsible. Let me say as objectively as I can, however, why I think that we are not doing that.

To understand why we are not doing that, people must first understand what went wrong with Railtrack and why. Railtrack was part of a botched, rushed privatisation, which meant that it was quoted on the stock exchange and subject to the disciplines not of the need for investment and services, but of the need to produce profits to justify a high share price enabling high dividends to be paid. There was clearly an inherent tension in the situation, to which Gerald Corbett drew attention after his resignation. Having tried to balance investment and safety needs with the pressure for profits, Railtrack was driven in the wrong direction by the three-monthly reporting systems of the City and the requirement to show ever-increasing profits, at the cost of safety and investment in services and infrastructure.

That is not what is happening with the infrastructure companies, which have not been privatised. First of all they must provide a service. Their only remuneration relates to the service, and to the number of passengers they carry. If they do not meet the required service level—that will improve with time—they are penalised. If they do, they are rewarded. There has been talk of sanctions, which is already a big sanction. Those companies are rewarded only if they succeed—that is, if they carry passengers at least as well as is being done at present. Improvements should be built in, and the most important—which can only result from modernisation and investment—is a 20 per cent. increase in capacity, and in the number of passengers carried, over the next five or six years. If they do not achieve that, they will not be rewarded. It is as simple as that.

Opposition Members shake their heads because they do not want to hear the facts. The sanction is this: if the companies do not provide the service, they will not be paid. If they do not improve the service, they will not be paid. If they do not increase capacity, they will not be paid. They can do all those things only by investing, which is why they have £3 billion lined up for the purpose in the City.

Given a proper account, we can allay the public's fears. I am sure that, if we are given a chance to press ahead with the programme, benefits will result.

Mr. Gardiner

Does my hon. Friend agree with the Comptroller and Auditor General, who said that under the PPP the private sector would not have any operational responsibilities on the network but would mainly be responsible for the work that goes on overnight while the system is shut down, and that operations, including those of drivers and station staff, and responsibility for safety, would remain in the public sector?

Mr. Robinson

I am grateful to my hon. Friend because I was about to come to those points, particularly safety, but let me clarify where the split in regard to operations takes place. Drivers will be provided by the public sector, which will also set the timetable and service levels. Safety levels are set by the Health and Safety Executive, which has yet to sign off on the contracts, so that safeguard is already built in. They will be controlled by London Underground, which is already subject to them. The same standards will be imposed on the major infrastructure companies and monitored very closely. The safety issue will be emphasised in the new arrangements.

As I have said, the contracts are signed subject to two qualifications. I sincerely hope that the judicial review will find in favour, that Brussels will not interfere, and that the PPP will be able to proceed. However, there is one very nasty storm cloud on the horizon. The Mayor and Mr. Kiley could seek to appeal the decision in Brussels if it is positive to the PPP. That could get us into another legal wrangle, which might, I understand, last up to 14 months. My hon. Friend the Member for Crewe and Nantwich, the Chairman of the Select Committee, said that we had been at it for four years. We have completed it. We are now there, but there is that one last danger: a spanner could be thrown into the works at the last moment.

I sincerely hope that the Mayor will not allow that level of irresponsibility to be reached.

Mr. Mark Field (Cities of London and Westminster)

Will the hon. Gentleman give way?

Mr. Robinson

I will not give way any more.

I urge the Mayor to accept the decision from Brussels and to let us get ahead with this. If there were to be a further delay of that order, all the work that we have done would be thrown in the air.

Mr. Edward Davey

Will the hon. Gentleman give way?

Mr. Robinson

I am not giving way.

The private sector would walk. We know the damage that we are having to repair with Railtrack. The investment would not be there and we would really face delay. The only sufferers would be Londoners. Given the success that I am sure the PPP will enjoy, they can look forward to progressive improvements. If we can get ahead with the project now, those benefits will come over the next few years.

Several hon. Members


Madam Deputy Speaker

Order. This is a short debate and many hon. Members are hoping to catch my eye, so I hope that contributions will be brief.

3.31 pm
Richard Ottaway (Croydon, South)

I note that the hon. Member for Coventry, North-West (Mr. Robinson) is continuing the hatchet job on Mr. Kiley that was started by the hon. Member for Ilford, South (Mike Gapes) yesterday.

I congratulate the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) on securing this debate and on the way in which she introduced it. I congratulate the Select Committee on Transport, Local Government and the Regions on its work and on the two reports that it has produced, which have been very important.

My main concern about the way in which the matter has been handled so far relates to the delay. It was in 1996 that the right hon. Member for Oxford, East (Mr. Smith) said at the Labour party conference that we had to get on with it as quickly as possible. Mind you, in the same speech, he said that our air was not for sale, so we have to take his comments with a pinch of salt.

The point was then made in the 1997 manifesto. Then in 1997 a motion was debated on the Floor of the House calling for swift action. Then in 1998 the Deputy Prime Minister came to the Dispatch Box with full majesty and said, "I am not going to be rushed." That is one pledge that he has stuck to.

Then in 1999, the right hon. Member for Hamilton, North and Bellshill (Dr. Reid) said that the Government were making steady progress. Then the 2001 manifesto said that the move was the best chance in a generation to help the people of London. This year, the Prime Minister said that the Government would proceed when they were ready.

In Hong Kong, a whole airport was built in four and a half years. Land was reclaimed, roads were built, railways were put in place and tunnels were dug, all in the time that the Government have been deciding what to do about the PPP. In the interim, the Government have bumbled along, making do as far as the underground is concerned, providing a patchwork service. The tragedy is that the underground has such potential, but it has been consistently underfunded.

In the last 10 years of the Conservative Government, in cash terms, they put in £7 billion—£700 million a year. Labour Members are keen to say, "If you took out the Jubilee line, we would match the funding." It is not true. If one takes out Jubilee line funding from both Governments, the previous Conservative Government still put in more funding than this Government have done.

Then we had the fiasco in June last year. The then Secretary of State with responsibility for transport proudly announced that the grant had doubled from £267 million a year to £520 million a year, when £775 million had been promised and work had started on that premise.

What about the people of London? What has been happening in the interim? Simon Jenkins wrote in the Evening Standard: For millions of working Londoners, the Tube is their only experience of Third World squalor. They may not visit London's prisons, mental hospitals or sweat-shops. They may not frequent the ghettos of Hoxton or the tenements of Walworth. They live in tidy homes, work in neat offices and eat in clean restaurants. But they use the Tube. It is the nastiest thing they do. In the meantime, the Government have been working on the PPP. The right hon. Member for Hamilton, North and Bellshill said at the Dispatch Box in 1999: We have said that we will undertake that there will be a publicly accountable, publicly owned operation on the underground, that we will enter into negotiations and that we will complete those negotiations. If a mayor is elected in the course of the negotiations, we will do everything in our power to bring him or her into the consultation process."—[Official Report, 27 January 1999; Vol. 324, c. 409.] So much for that pledge. The manifesto in 2001 repeated it. It said: Our agreement with the London Mayor and the Transport Commissioner offers the best chance in a generation to upgrade the tube. During the general election, there was an agreement. Mr. Kiley was appointed chairman of London Transport on 4 May 2001. It is a familiar date. People will recall that the general election was called at that time. On 17 July, with the Government's majority safely in the bag. Mr. Kiley was unceremoniously sacked. In the intervening period, the election took place. I say to the Mayor and Mr. Kiley that accepting that point was probably the dumbest thing that they did. It was probably the smartest thing that the Government did. It was certainly the most cynical thing that they could have done.

When the Greater London Authority Bill went through the House, the Conservative party warned there would be a fractious relationship between the Mayor and the Government, and indeed the Assembly. Labour's London manifesto said in 1997: We believe that both the Greater London Authority and the Mayor are needed to provide a voice for London and to take the strategic city-wide decisions about the future—promoting … a top-quality transport system". When the Mayor is not measuring walls to see how far his neighbour fell the other day, he has not one but two pieces of litigation on which he is embarked. I hardly call that promoting London's transport system. There is litigation over the Deloitte and Touche report, and over the funding gap to which I referred in an intervention earlier. That funding gap is serious.

In the Mayor's letter of 12 June this year, he identified a £1.4 billion shortfall between the Government grant and the authority's funding needs. When I asked the right hon. Member for Tyneside, North (Mr. Byers) when he was Secretary of State how that gap would be filled, and said that the debt would otherwise be dumped on the people of London, he denied that that would happen.

The debt is going to be dumped on the people of London—unless the Minister wants to intervene now to explain how the funding gap is going to be filled. I notice that he has gone rigid in case any movement may be interpreted one way or the other. The truth is that there is a debt, and the people of London are going to have to pay for it. The Minister shakes his head. That is just what the previous Secretary of State did, but an explanation is needed for the people of London.

I turn specifically to the PPP. The Select Committee reports are devastating. The Government's response rejects those reports in language that they will come to regret. The Select Committee has an in-built Government majority. For it to call on the Government to abandon a major plank of their transport policy—indeed, it is at the centre of policy on the nation's capital—is high stakes indeed. Just to give the reason that there will be further delay is completely unacceptable, for reasons that were well explained by the hon. Member for Carshalton and Wallington (Tom Brake) earlier.

In one sense, the PPP is half right. It is right to involve the private sector, which has demonstrated through countless privatisations that it is more efficient, but this particular way of using it is wrong. One of the lessons that we have learned about Railtrack is that horizontal integration, separating railway from the operations of Railtrack, is a key factor in the failure of its operation. We should have vertical integration.

The Minister for Transport (Mr. John Spellar)

Is the hon. Gentleman therefore saying that the previous Conservative Government got it completely wrong, and if so will he put on the record his denunciation of that decision?

Richard Ottaway

The Minister is asking me to exaggerate in a way that I am not prepared to do. I am the first to admit that—for the reasons that I have just explained—things have not gone right, and I thought that that point had indeed been put on the record. I make no apologies for privatisations, 99 per cent. of which have worked. Privatisation of the airlines and the public utilities has been a tremendous success. [Interruption.] I make no apology for going ahead with the privatisation of Railtrack, but the manner in which it was done was wrong. It should have been split into the Great Western railway, the Great North Eastern Railway, and so on.

Chris Grayling

My hon. Friend will be aware that, in restructuring the industry, the Government have chosen to pursue exactly the same model—an infrastructure provider and train operating companies—as that employed under privatisation. That is presumably a vote of confidence from the Government in the making of such a division.

Richard Ottaway

My hon. Friend makes my next point. The Government ought to be learning from Railtrack's difficulties and adopting vertical, rather than horizontal, integration. We should have an integrated management system that hires private contractors who are paid on delivery of a service. The nub of the difficulties with the PPP is that London Underground is going to pay the infracos on the basis not of what they are actually doing, but of how they are performing. To that extent, TfL's hands are completely tied. The principle is okay in theory, but the formula is unbelievably complex. It is a completely untested mathematical model, containing thousands of minute elements, to which TfL will be bound for the next 30 years. Its complexity is outrageous. For example, Madam Deputy Speaker, if you look—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. I am beginning to get a complex.

Richard Ottaway

I do apologise, Mr. Deputy Speaker; I was concentrating so hard that I had not realised that the occupant of the Chair had changed.

The formula for abatement service points for defects and failures is: ASP to the power of AS, which equals epsilon i {ASP to the power of AS, times (1 plus UT to the power of 1)} minus ASP to the power of AS over THD. That formula applies only if ASP to the power of AS over THD is less than epsilon i—and so on. The system will be unbelievably complex, and will provide ample opportunities for the infracos to play the system and find loopholes. Entire careers will be made out of working a way through those formulae. The situation would be comical if it were not so serious.

Mr. Mark Field

Is not the nub of the problem that this form of PPP—consisting of a very complicated mathematical formula that my hon. Friend described far more fluently than I possibly could—above all lacks political viability? Many of us who did not support the creation of a London government are not in favour of this form of PPP, and it is clear that many London Labour MPs—other than those who are crazed by ambition to get a Front-Bench position—the Mayor of London and TfL are not in favour of it either. How on earth can this form of PPP be supported by a Government who supposedly support devolution?

Richard Ottaway

My hon. Friend is absolutely right. The 1997 Labour manifesto makes it clear that Labour wanted the Mayor of London to run a top-quality transport system. That is a broken pledge. The entire system will be maintained by people over whom TfL will have no control or direction. If TfL identifies a problem, it will be unable to do anything about it, provided that the infracos can show that the trains are running back and forth in accordance with a mathematical formula. The system is unviable, untested and cannot be taken seriously. That is why Ernst and Young described the idea that the system would prove beneficial as a subjective view, and I agree with the Select Committee that this is not the basis on which such decisions should be taken.

I ask the Government to think again, otherwise the people of London will be the losers. It is they who will have the ball and chain of the associated debt and problems clasped to their ankles for the next 30 years, and it is the Minister's party that will have to deal with the political consequences.

3.45 pm
Ms Karen Buck (Regent's Park and Kensington, North)

If there is one person who is guaranteed to send me scurrying to the warm bosom of my own Government, it is the hon. Member for Croydon, South (Richard Ottaway). In saying that, I intend no slur on my right hon. Friend the Minister. The hon. Gentleman's description of the tube as a third-world system was completely unrecognisable. For the most part, my comments on the PPP will be rather critical of the position that we have got ourselves into, but as someone who has used the underground every day for the past 20 years, I can say that it does London no favours—and nor is it true—to describe the underground in the terms used by the hon. Gentleman. It is important that we place on the record a true reflection of the system as it is.

Hon. Members probably agree with the Select Committee in several respects. We know that the tube desperately needs investment for maintenance and upgrade, that there has been underinvestment for most of the past two decades, and that the last thing that the underground now needs is further delay. It is critical that we start investing money as soon as possible. Even if the PPP delivers a significant increase in transport capacity—a moot point, and nor am I entirely convinced by the figures given by my hon. Friend the Member for Coventry, North-West (Mr. Robinson) on the scale of the increased capacity that the PPP will deliver—it will constitute only a small contribution to the additional capacity necessary to make London work. Concerned as it is with maintenance and upgrade, the PPP is not the same thing as the investment that is necessary for a first-class transport service for London in the 21st century. That is why I want to concentrate on the absolute and overriding importance of in no way allowing Transport for London's contribution to the running of the PPP—assuming that it goes ahead—to undermine other transport projects in the capital.

The other point on which we probably all agree is that, whatever model we proceed with, the private sector—be it private finance or private companies—will have a major role to play. The Mayor of London spelled that out last week, as has Bob Kiley on several occasions. Sometimes, we descend into a crude debate on private versus public management models, but such debates completely miss the point. The question is whether the PPP before us is the right model for procuring services that will deliver improvements to our underground, and in that regard I congratulate the Select Committee on the rigorous work that it has undertaken.

There are two areas of concern: safety and value for money. I should point out that I am not one of those who are convinced that the PPP is a major compromiser of safety on the London underground. I deplore the shroud-waving tactics that are sometimes employed in this debate. It is much too easy and glib to reduce very complex questions about resource investment, management, lines of accountability and the supervision of subcontractors to a simple formula that states that privatisation equals death, and the public sector necessarily equals top quality, guaranteed service delivery. However, the fantastic complexity of the PPP contract system does raise legitimate questions about how safety will be guaranteed and assured.

When these issues have been discussed in the House—not least thanks to my hon. Friend the Member for Leyton and Wanstead (Harry Cohen), whose forensic analysis of them in Westminster Hall could be usefully studied by the world's leading accountancy firms, especially at the moment—the other models of PFIs that have been used to provide transport in London have been cited to demonstrate that the private sector can deliver where the public sector cannot. The Croydon tram is one example. My hon. Friend the Member for Croydon, Central (Geraint Davies) is in his place, and I acknowledge that it is a model of good practice; the Docklands light railway is another. However, those PFIs are dwarfed by the PPP contract process, and that is an important point.

Nobody is claiming that it is impossible to put together a public-private partnership or a PFI to run transport projects. Of course that can and has been done. It is almost certainly the way forward. However, does a PPP of such epic scale and complexity offer the same scope for ensuring accountability, value for money and safety? I do not think so. The walls of the underground carry an advertising slogan for a film that claims that its plot has more twists than a bowl of fusilli, and that could also describe the contracts.

We all hope that the Government are right. If the PPP goes ahead, as I think it will, who cannot hope and trust that the safety case will be guaranteed? I have confidence in the Health and Safety Executive and no doubt that the Government are as committed to the maintenance of safety as anybody. However, the question of blurred accountability remains within the complex contracting system. That means that those who are charged with the operation of the service—Transport for London—have to pick their way through the contracts to ensure that the travelling public are protected every day.

Angela Watkinson (Upminster)

The hon. Lady is right that the Government claim that safety is the first and overriding priority and that it will never be compromised. Indeed, they have claimed that there will be a double lock on safety. However, the actual PPP contracts say very little about how safety will be improved by the London underground PPP. Instead, they provide for time-consuming, convoluted, paper-driven exercises, so it is unclear how safety will be improved.

Ms Buck

I have absolute confidence in the Government's commitment, but the HSE and the scrutiny and step-in powers of TfL will guarantee safety. I hope that they do, but the complexity and fragmentation raise questions. My concern is political as much as anything. As I said when the statement was made in February, the proof will not be today, tomorrow and next month, but every day for the next 30 years. That is a long time to be sure that there will be no problems. If there is a problem—he it a cost overrun or an accident—it will unfortunately be irrelevant whether the fault for it can be traced to the structure of the PPP, because it will get the blame anyway.

In the past few years—and we can argue about who is responsible—the PPP, as currently constituted, has not gained the confidence of Londoners. If we are fortunate and the lock works properly. the problem will not arise. If it does arise, we will have a major political problem.

Mr. Gardiner

I compliment my hon. Friend on her thoughtful and well-informed remarks. She acknowledged earlier—

Mr. Deputy Speaker

Order. Could the hon. Gentleman address the Chair rather than his hon. Friend?

Mr. Gardiner

Of course, Mr. Deputy Speaker. Could my hon. Friend clarify her remarks about private sector contractors needing to be involved with London Underground in any event to achieve the improvements over the period of the contract? How would the safety concerns that she has identified—she mentioned the word "fudging" in relation to the PPP—be better delivered under the public sector model? That is critical to understanding why she favours that over the PPP.

Ms Buck

The answer is simply that if the whole of the maintenance and upgrading of the trains and track are bundled together into a 30-year package, it is much more difficult for the public sector manager to scrutinise those projects. Under the contracts as currently set up, a subcontractor will report any problem to the private sector company. which will decide where responsibility for it lies and if it is in the contract with the subcontractor, it might be passed back to them to deal with. Bob Kiley was worried about a step-in power for TfL, but he also asked why it was stepping out of some responsibilities. If a contract is bundled up and then subcontracted, it is much more difficult for the public company to scrutinise what is happening. The letting of contracts between TfL—or London Underground, as it currently is—and companies to perform specific and discreet tasks, with a direct line of accountability, would have made such scrutiny much simpler and more manageable.

In response to my hon. Friend the Member for Coventry, North-West, I must say that the case made by the Government—which made great sense in 1998, and I was very sympathetic to it—was mostly based on value for money. Therefore, it is no good dismissing the various analyses of value for money—whether for or against—as almost irrelevant. I apologise for paraphrasing my hon. Friend's argument, but one cannot dismiss those analyses as biased because of how and why they were commissioned when the whole core of the argument for the PPP was based on value for money. The referee report by Ernst & Young does not offer us any great confidence in the value for money of the PPP. It says that the seven and a half year comparisons, which are the only ones that the public sector will have any contractual and legal power to control, are less likely to provide support for a value-for-money argument. Over 30 years, Ernst & Young are more sympathetic to that argument, but between seven and half years and 30 years there is no legal framework for enforcing value-for-money requirements.

The value-for-money case on which the Government rest their argument is fragile. Ernst & Young itself admitted: The value for money assessment is…part art and part science and involves a blend of subjective judgments and fact-based analysis. Alarm bells ring for me at talk of "fact-based analysis". It is like chocolate-based confectionery—not an attractive proposition. That whole description is so vague and unspecific that it is hard to have any confidence in it.

Geraint Davies

Does my hon. Friend accept that on some large projects, such as the channel tunnel rail link and the Jubilee line, the private sector has delivered on budget and to time? In the case of the Jubilee line, the private sector did so after London Underground had completely failed to do so. The issue is whether we should hand the management and maintenance to organisations that can deliver better than has been achieved in the past, in a way that is controlled through contracts with clearly specified outputs.

Ms Buck

I do not want to get into a dispute about examples of other projects, but I am not convinced that either of the ones mentioned by my hon. Friend came in on time and on budget. I have no problem with giving the private sector a major role under contract and financial disciplines.

Mr. Geoffrey Robinson

I do not want to dismiss the value-for-money argument, as of course it is important and one has to do one's best with it. I hope that my hon. Friend accepts that what I have said is at least substantially correct.

There were two other reasons for doing it in the way that we did. First, we needed to get the money from somewhere other than from Government. I know that my hon. Friend will accept that. Secondly, we had to improve on the management of projects. I think that both those objectives will be achieved.

Ms Buck

I do not want to pursue that argument much further. However, money coming from somewhere other than Government will be repaid through the fare box and through Government grant, with a significant rate of return for the private companies. Of course we need to lever in private money, but the idea that is sometimes implied—although not by my hon. Friend—that private companies will make a philanthropic contribution to public transport is slightly inaccurate.

I happily supported the idea of the PPP in 1998 for precisely the reasons set out by my hon. Friend the Member for Coventry, North-West. In the absence of unlimited public money we need to bring in private money, but I remain unconvinced that this is the right way to go about it.

I return to the point that the PPP is only a small part of the formula for improving London's transport infrastructure. However, the major enhancements likely to be needed over the next 30 years to increase tube capacity—referred to by my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody)—are especially vulnerable to some of the value-for-money arguments about which we are concerned. When it comes to negotiating the scope for major enhancements under the PPP, Ernst & Young—the referee—said: In practice, it will be difficult to resist the desire to maximise profit by the incumbent Infraco when Major Enhancements are planned. This is likely to have a negative impact on the value for money achieved although until such projects are brought forward, it is not possible to test the materiality of this issue. We have not tried to estimate what the costs of this behaviour might be, as the Major Enhancements are unknown".

That seems to me to make us extremely vulnerable. The major enhancements are likely to be the most important matter over the next 30 years.

How can we ensure that we can afford the whole framework of other major transport investments in London, whether it is additions to tube capacity or other transport projects such as crossrail and the east London line, if there is any risk that TfL's financial status will be compromised because PPP costs are not fully met? Other hon. Members have mentioned the matter, and I urge my right hon. Friend the Minister for Transport to do all that he can in the Department to ensure that Londoners—as taxpayers and fare payers using the transport system and London Underground—are not in any way disadvantaged by a contract between the Government and London Underground to which Transport for London is not party.

Transport for London will be contractually obligated to the PPP. Although the infracos within that partnership have received letters of comfort underpinning their financial security, Transport for London—which is responsible for the whole range of transport provision in the capital—will be exposed to a degree of financial risk, especially between years 3 and 7.5, for which it has not received comparable financial comfort.

If the PPP is to go ahead, the single most important thing is that TfL is given that financial security. It suggests that that might amount to £1 billion per quarter, but I am sure that negotiating positions on the matter are being struck already. We must make sure that the full operating costs of any PPP contracts are guaranteed by the Government, and that TfL and Londoners are protected from the financial risk. In that way, the other transport projects so essential to ensuring that London is a moving city in the early part of the 21st century can be guaranteed, and taken forward by Transport for London.

Mr. Deputy Speaker

Order. I make another appeal for brief speeches, as many hon. Members will be disappointed otherwise.

4.4 pm

Chris Grayling (Epsom and Ewell)

I begin by paying tribute to the hon. Member for Crewe and Nantwich (Mrs. Dunwoody), who sadly is not in her place at the moment, for the usual expert way in which she led the inquiry, and for the very fair way in which she chairs the Select Committee.

Perhaps the most telling point made in this afternoon's debate was made in the brief intervention by the hon. Member for Sheffield, Hillsborough (Helen Jackson), who is not in her place either. Recently, she made a number of public accusations, one of which was that I and other Opposition Members had hijacked the Select Committee. It would take a braver person than I am to attempt to hijack the hon. Member for Crewe and. Nantwich.

Even so, the fact that the hon. Member for Sheffield, Hillsborough chose to intervene to raise doubts about the proposal reinforces the degree of unanimity in the Select Committee. We heard wide-ranging evidence during the inquiry, and we concluded that the proposal was ill thought out and wrongly focused. The PPP will not work as it is supposed to, and the tragedy is that the ultimate losers will be the passengers.

The Committee's hopes were raised, briefly, when we took evidence from the previous Secretary of State, the right hon. Member for Tyneside, North (Mr. Byers). He made it clear that he was willing to look again at the PPP. Sadly, two months later, he had looked at it again and had not reached a different view. That is why we are where we are today.

I want to raise four issues this afternoon. The first has to do with congestion and capacity on the tube, which is one of the biggest problems with the PPP. Those of us who use the tube regularly know just how full it can be. Last night, I boarded a tube train and people were pressing at the doors. Our underground is bursting at the seams.

Any project to modernise the tube must create additional capacity, yet there is abundant evidence that the PPP, and the Government's other modernisation plans, will not deliver that. The background document to the Government's 10-year plan makes that clear. It states: An east-west rail link, such as CrossRail, will be the crucial element in providing crowding relief to east-west Underground lines…Our modelling suggests that, without it, most east-west lines on the Underground would be more crowded than today, despite other improvements. That is the Government's own statement about what will follow from the PPP.

The Select Committee took much evidence from people involved in the process more directly than Ministers. Their views on the capacity issue were very clear. Dennis Tunnicliffe said that, assuming that the PPP was delivered successfully, the present system would expand its peak capacity by 15 per cent. That means that capacity will remain slightly behind growth.

London Underground admitted that overcrowding on the network would not be reduced, as demand for travel in London overall was at saturation. The practical reality of the PPP is that people of my age travelling to work on crowded tube trains today will probably be travelling on equally crowded trains for the rest of their professional lives. The PPP scheme is not the right one to resolve the problems people face every day.

Mr. Spellar

Has not the hon. Gentleman noticed that London's population has increased by the population of Sheffield in the past 10 years? It is estimated to increase by the population of Leeds in the next 10 years, and there are also a million more people in work in this country now. Has not the hon. Gentleman noticed those pressures on the system?

Chris Grayling

I have, and that is why I am looking to the Government to do something about the problem. The scheme that they propose, according to their own figures and those of London Underground, will not sort out the problem of underground overcrowding. The Minister has no solution to that—although he should, as it is his job to have one.

The second point that I want to make is that the PPP is wrong in developmental terms. The Select Committee took abundant evidence to the effect that the scheme focuses on stations in its early years, and not on tunnels or trains. We were told that PPP would deliver smarter new stations over the first seven years. That is a great idea, and means that we can have lots of new tiled walls, but Bob Kiley offered compelling evidence that we should first invest in trains and infrastructure.

We heard no evidence to suggest that at the end of that seven-year period passengers will have noticed significant improvements to their journeys, apart from smarter stations. Nine new coaches will be delivered in the first seven years. The hon. Member for Coventry, North-West (Mr. Robinson) was lambasting the record of the last Conservative Government but, between 1992 and 1997, they put new trains on the Central line, new trains on the Jubilee line, built the Jubilee line extension and put new trains on the Northern line. I will happily take an intervention from the hon. Gentleman if he wants to tell me how many new carriages this Government have added to London Underground. No? The answer is that there have been none—not one new carriage in the past five years.

The hon. Member for Hampstead and Highgate (Glenda Jackson) was right when she wrote in The Independent five years ago that the priority needed to be channelling investment towards the core of our network. The tragedy is that, five years later, that has not happened.

Geraint Davies

Is the hon. Gentleman aware that the Jubilee line has been started since 1997 and that it might have a few carriages?

Chris Grayling

I admire the hon. Gentleman this afternoon; he is clearly after a job on the Front Bench. I offer him my best wishes, and hope that he gets one. He might remember that it was the last Conservative Government who started building the Jubilee line. No new infrastructure project has been started on London Underground since 1997.

My third point in relation to the Select Committee's investigation is about the role of the Treasury. The hon. Member for Crewe and Nantwich referred to this in her opening remarks. A number of pieces of evidence about the Treasury's role in the project gave rise to concern. We need to bear in mind the Treasury's motivation for this project. As the hon. Member for Coventry, North-West was honest enough to say, the Treasury had difficult financial choices to make, and it chose to spend the money elsewhere. That remains true to this day. The fundamental reason for pursuing PPP is to keep the debt off the balance sheet. It is to be able to make investment without it appearing under public borrowing.

The total amounts that the Government are talking about are deceptive. As always, they have taken everything including the kitchen sink—every maintenance budget that London Underground has had—lumped it all together and multiplied the result by 10 to create a stunning figure for the next 10 years. In reality, the amounts of money going in to the underground are comparable to—and, in many cases, slightly less than—what was being invested in the early 1990s and certainly when the Jubilee line was being built.

One of the most disturbing things about the evidence taken by the Select Committee was the regular indication that the Treasury had intervened in the project to ensure that its phasing meant that the expensive projects took place in the later years while the cheaper projects took place in the early years. We heard evidence from a number of people that the Treasury had intervened during the process to ensure that not too much money was pushed upfront in the project. That is reflected in the fact that the focus in the early years is on smarter stations rather than on new trains or radical changes to the infrastructure. As a consequences, passengers will again have to wait for the improvements that they want.

It is scandalous, though not untypical, that no Treasury Minister was willing to appear to discuss the project. I give credit to the Transport Ministers for their assiduous attendance at the Committee and their willingness to talk to it on request. We can have no complaints about their behaviour in that respect. In stark contrast, their counterparts at the Treasury refused and continue to refuse to participate in debates on areas such as these, even when it is palpably clear that they are pulling many of the strings from behind the scenes.

Mr. Edward Davey

Is the fact that the Treasury intervened to make sure that the investment is backloaded, not frontloaded, evidence that public sector money will be used to invest, and that the route chosen will impose more of a burden on the taxpayer without producing value for money? The backloading proves that the taxpayer will pick up the bill.

Chris Grayling

The hon. Gentleman makes a good point. This exercise is uncosted beyond the first seven years. If the more complicated projects are shoved into the second, third or fourth seven-and-a-half-year-period and not costed in the early stages, we have no idea who will pick up the bill in the end.

Mr. Davey

We will.

Chris Grayling

Well, it will be the taxpayer, as the hon. Member for Kingston and Surbiton (Mr. Davey) says. The contracts for the private sector contractors are, as we would expect if they are looking after their interests properly, quite tightly phrased. There is no evidence that the private sector is taking on a huge risk. As the weeks have gone by, it is clear that the Government have been taking on more and more risk but pretending that the opposite is the case, in much the same way as happened over the setting up of Network Rail.

The Government have made great play in the past few months of the work done by Ernst & Young to assess the viability of the public and private sector options and which represents the best value for money. The former Secretary of State announced in February that he had decided to go ahead with the scheme, that he had looked at the Ernst & Young report and decided that the scheme represented value for money. Not only did the Select Committee take evidence that London Underground had not even concluded the contracts at that point and had asked the Secretary of State not to make a statement, so that he compromised London Underground in the negotiations with the contractors, but the great report upon which the right hon. Member for Tyneside, North based his judgment started with the most extraordinary health check. Ernst & Young said: We have not sought to verify the accuracy of the data or the information and explanations provided by management. In other words, Ernst & Young had simply checked that the sums added up. It is rather as if I said to the Minister, "I have six sweets in one pocket and six in the other. I think that I have 12—could you check that for me?" The Minister could get out his calculator and add six to six to make 12, but he has no idea whether I can count or whether I have three sweets in that pocket or 10. That is the problem. The consultants did not check the detailed assumptions but simply that the baseline sums added up.

Mr. Gardiner

Will the hon. Gentleman give way?

Chris Grayling

I will when I have finished this point.

To compound that shortcoming, we also learned from the report that the public and private sector comparators will cost the same amount of cash. The only difference is an accounting nicety, apparently designed to reflect a social cost saving of taking the private rather than the public route. That is not used in any other PPP or private financial initiative scheme; it is a nebulous counting concept used by London Underground. We did not even have direct factual information on which to base an assessment of the Government's judgment that one route was better value than the other. It was an accounting trick.

Tom Brake

Does the hon. Gentleman agree that, at present, one has to be very careful of accounting niceties?

Chris Grayling

The hon. Gentleman's point speaks for itself. I apologise to the hon. Member for Brent, North (Mr. Gardiner) for not giving way to him first.

Mr. Gardiner

The hon. Gentleman claims that no substantive checking of the figures took place. I know that he must be aware of the National Audit Office report delivered on 15 December 2000 to his Committee, because his Committee commissioned it. Is the hon. Gentleman saying that appendix 2, which clearly sets out the methodology that the National Audit Office followed in establishing exactly what he claims has not been gone into is false, or will he accept that substantive investigations were carried out?

Chris Grayling

I refer the hon. Gentleman to the statement made by the former Secretary of State for Transport earlier this year, when he said: Last autumn, I announced that I intended to take independent advice from Ernst and Young on the evaluation process that London Underground and London Regional Transport had followed, and on the robustness of their conclusions."—[Official Report. 7 February 2002; Vol. 379, c. 1126.] I have referred to the health warning at the beginning of that report which, in my view, casts, at the very least, substantial doubt on the validity of the decision taken by the Secretary of State.

This scheme does not deliver real solutions to the congestion problems on the London underground. It delivers station improvements ahead of new trains and track improvements. It is financially questionable and does not enjoy the support of the public in London, the vast majority of London Members of Parliament, the democratically elected Mayor of London or any political party apart from the governing party, yet the Government are still determined to press ahead. All I can say to them is that it is not too late to change their mind; in Mr. Kiley, we have an impressive witness, with a track record, who came to the Select Committee with a clear action plan that, in our judgment, offered an attractive alternative. The Committee has seen no evidence that the Government have given full consideration to that option.

Mr. Spellar

If the hon. Gentleman finds the option so attractive, can he explain why his Committee said: we have not been able to evaluate that plan in detail over the course of the inquiry"?

Chris Grayling

We took evidence. We did not make detailed evaluation—that is not our job; it is the Government's job to carry out detailed evaluation.

Mr. Kiley has a track record. He has delivered real improvements in other cities. He is the commissioner for transport in London, appointed by the democratically elected Mayor of London. At the very least, in the view of the Committee and in my view, we and the Government should be giving serious consideration to the options that he proposed. The Government constantly say that there is no alternative, yet we have heard strong evidence for one. It is not too late for the Government to take that alternative; I fear that the route that they are taking will not deliver the solutions for which they are hoping. I appeal to the Minister at the very least to think again.

4.21 pm
Harry Cohen (Leyton and Wanstead)

I remain convinced that the PPP system set up by the Treasury is not the best one and that it will not achieve the maximum modernisation of the tube. As I have told Parliament previously, I am not opposed to PPP in principle, but this model is especially poor. Four business men who gave the PPP its genesis in the Government and I question their credentials for operating a public service.

I doubt whether the total amount of private money promised for the system will come through; it certainly has not yet done so for the main line railways. The timing is likely to delay important infrastructure improvements; and the money will be repaid at a high cost to the public pocket.

We are living in the time of WorldCom and Enron, where there are no proper standards of auditing and accounting. Instead, auditors and accountants are complicit in deception.

When I asked a parliamentary question about the cost of underground projects undertaken by the private sector, the reply was given in terms of the value to LUL. Actual spending is very different from the assumed value to an organisation, when that value has been set by the organisation. As an accountant, I call that bad accounting practice—exactly like the WorldCom case.

The Treasury's alleged £2 billion saving from the PPP, based on that WorldCom approach and a comparator skewed against the public sector, must be deemed unreliable. Will the Minister tell us where the independent audit arrangements are for the PPP finances?

I hope that the Health and Safety Executive will not be complicit in the project. It has yet to report on the tube safety plans, but I was told in another parliamentary answer that the contracts were likely to take effect this summer. That could mean that the Minister takes a decision with no informed parliamentary debate on the safety issues. Will the HSE report be available before the recess, and will there be a parliamentary debate before the contracts go ahead?

A recently published report from the former Department of Transport, Local Government and the Regions—its 2002 report—states that the 10-year planned investment for London—buses and tube—will be made up of £7.8 billion from the public sector and £10.4 billion from the private sector, making a total of £18.2 billion. A further £7.4 billion—described as public resource, but really a public revenue subsidy—is envisaged over the period, giving an overall total of £25.6 billion. Under the proposed system, much of the public money will not go directly into work on the tube but to company profits, dividends for shareholders and directors, and interest payments to City financiers.

Transport for London points out that there is a serious funding gap; it amounts to £1.473 billion for 2005–06 to 2009–10, including the sum of £771 million which is LUL's assessment of its funding needs in excess of the transport grant. TfL notes that an additional £170 million is necessary as a contingency reserve, for which nothing is provided in the current Government figures, despite the recommendation in the latest White Paper "Strong Local Leadership—Quality Public Services" that local authorities should have a duty to maintain adequate reserves. TfL also maintains that there is a £532 million gap over the period in provision for risks and other costs that need to be managed.

Under such contracts, too much risk remains with the public sector. In those circumstances—as my hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) pointed out—there is a powerful case for Transport for London to have the equal comfort that the Government have already provided for the private infrastructure companies. That would cover risks that were outside management's control—perhaps of magnitude or low probability—which it would not be sensible to fund from the transport grant.

The negotiations started at the behest of the Government have moved that risk from the infracos to TfL, so the Government should recognise their responsibility and provide the necessary comfort. The credit assessment agency, Standard and Poors, has already given TfL a "negative outlook" status, so the Government should rectify that with a letter of comfort and a proper funding agreement; otherwise TfL—and the tube with it—could go broke. Full-scale privatisation, which the Government say that they do not want and the public most certainly do not want, would inevitably follow.

The DTLR admitted a shortfall of £154 million per annum but maintains that it is a reasonable target for management to reduce costs and increase revenues. That sum is not a reasonable target; it approaches the entire operating budget of trains. PPP and PFI put more than 50 per cent. of TfL's cost base beyond its control. A high proportion of the remaining costs, such as business rates, are, in effect, fixed. The Government have pointed out that their PPP calculations were based on fares remaining constant in real terms. However, that leaves a huge rise in council taxes and huge cuts in services. The Treasury must think again.

The Treasury insists on unrealistic assumptions of wage growth—only 1 per cent. real wage growth. Public sector pay, London living costs, rail industry pay, higher national insurance costs from the recent Budget and extra management costs to cope with the complex PPP contracts all suggest that a higher figure will be necessary. The current assumptions are a formula for a showdown with the trade unions, which will be the Government's fault. The Government have also yet to agree, and pay towards, the administration arrangements of the London Transport pension fund.

Tube Lines, the infraco responsible for one of the three tube contracts, has submitted its draft financing documents. They show that lenders will have a panoply of powers to control or direct infraco activity in more than 100 decision areas. Bob Kiley said of that: London Transport's assent to the ceding of such control to the private lending institutions would represent an extraordinary and inappropriate abdication of public responsibility.

The documents reveal that there will be no price protection after the first seven and a half years—that is, for the remaining 22 and a half years of the contract. Furthermore, contract termination would be exorbitantly expensive: LU would be forced to be pay whatever the infraco demanded to keep it going—not the market price.

There would be large windfall profits for the infraco's sponsors, lenders, advisers and insurers. In the case of Tube Lines alone, the amount would be more than £100 million—merely for getting the contracts, not for any aspect of its performance in improving the tube. Tube Lines' rate of return would be pushed up to 32 per cent.—not the 15 to 20 per cent. that the Under-Secretary of State for Transport told Parliament was likely. Such pay-outs to the infracos' buddies on all the contracts are likely to amount to about £500 million—merely for getting the contracts, not for performance.

That is an abuse of public money. Bob Kiley said: The Underground is in desperate need of investment, yet PPP has been allowed to degenerate into a simple fee-generating mechanism for investors and advisers who have so far taken no risk and will be signing contracts that shelter them from any real possibility of loss. As the PPP will also impose a system of fractured management of the tube, it is plain that this financial scheme imposed by the Treasury is not the best way to achieve the maximum modernisation of the London underground, or of obtaining the best value for money.

4.30 pm
Mr. Edward Davey (Kingston and Surbiton)

The most disturbing contribution to today's debate is that of the hon. Member for Coventry, North-West (Mr. Robinson). He talked, for example, about the capacity improvements that will come from the PPP. He showed a misunderstanding of the contracts and a lack of knowledge of the details of those contracts, which do not provide some of the benefits that he mentioned.

In an intervention, the hon. Gentleman said that there was no other way to find the money and implied that somehow we would magically find new money through the PPP. We all know that that is not the case. We all know that the Treasury and the GLA, through TfL, will have to provide large sums to make the PPP work, so I found his fundamental misunderstanding of key aspects of the PPP particularly worrying.

I want to take issue with the hon. Gentleman on two of his major reasons for justifying the choice of PPP. First, he argued strongly that London Underground did not have the skills or track record to undertake such a public investment programme. If that were the case, why have the Government allowed London Underground to be the main procurers and negotiators and to provide the main legal background in negotiating those highly complicated projects?

If the Government do not trust London Underground's management to manage programmes and projects for the next 30 years, why do they trust London Underground to negotiate those projects? London Underground has never before negotiated such detailed projects. The hon. Gentleman's views do not make sense. When the hon. Member for Regent's Park and Kensington, North (Ms Buck) asked the hon. Gentleman those questions, he signally failed to answer. It is bizarre that London Underground has been given competence to procure, but not to provide.

The second major issue in the hon. Gentleman's speech about which I want to complain is his analysis that the Government had somehow to be the umpire and that the Government commissioned Ernst & Young to provide a report that would somehow choose between the many other reports that had been published. As the hon. Member for Epsom and Ewell (Chris Grayling) said, the Ernst & Young report failed to do that for the Government, but the hon. Gentleman should ask his right hon. Friend the Chancellor why he has failed to meet Bob Kiley throughout the process.

If the Government had wished to be an umpire, objectively judging the cases on both sides of the argument, why did the Chancellor refuse every single request for a meeting from the Commissioner of Transport for London? I find that deplorable. It came to the point where Bob Kiley's new year's resolution this year was that he would give up asking for meetings with the Chancellor. We know that the Chancellor is behind the opposition to alternatives to the PPP, so it really is a poor show that he will not even meet Bob Kiley, who has so much experience.

The hon. Member for Coventry, North-West then talked about delays. He made a plea to TfL and GLA: he asked them not to put further steps in the way of progress. In the past few years, many people have argued that the process should be speeded up and that Londoners wanted greater investment now, but the Government have stood in the way. I refer the hon. Gentleman to the debates in Committee when we considered the Greater London Authority Act 1999, under which the GLA was established. Liberal Democrat and Conservative members of that Committee predicted that it would take as long as it has done before Ministers could sign a contract. Ministers told us that we were talking rubbish.

I regret that we have been proved right, but that suggests that some of our other predictions about where the PPP will fail in clue course may well come to fruition. I hope that they do not. I hope that we and some of the Government's critics on their own Back Benches are proved wrong, and I do so for the sake of our wonderful city—London—and that of the travelling public. However, all the evidence that we have heard from many objective people inside and outside, and in the Transport Committee and other Committees, suggests that the PPP will fail.

One of my major remaining concerns is that the public sector's ability to end those complicated contracts with the infracos is limited. The termination clauses are weak, and a substantial burden is likely to be placed on the public sector when those contracts have to be ended. I regret that. The Government ought to have insisted on sensible ways of ending those contracts, so that when common sense prevails it will not end up costing the taxpayer too much.

4.35 pm
Mr. Christopher Chope (Christchurch)

We have had a very good debate, but it is a pity that each side has only 10 minutes for the winding-up speeches. It is also a pity that we are not debating a substantive Government motion in Government time, which is what the Select Committee requested, as we would have had a much more authentic idea of the House's view on the PPP.

I congratulate the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) on tabling the substantive motion. I am not sure that even she would wish to vote for it, but it has certainly enabled us to have a constructive debate. I do not think that people would want to vote for it because it simply refers to reducing the resources by £1,000, which would achieve nothing. People outside the House would not really understand why we would want to reduce the money for the scheme given that most hon. Members have argued for more money.

I hope that the Minister will address the fact that the hon. Lady and her Committee have produced reports based on evidence. The powerful thing about Select Committees is that, when they operate effectively, they ignore the prejudice and philosophical banter, and they go for the evidence. The Select Committee has carefully considered the evidence and reached its conclusions. The Government seem intent on rejecting all that evidence without putting any counter-evidence in its place.

The Government have insulted the people of London. They gave them the right to elect a Mayor, but when they did not vote for the right person, the Government no longer regarded the verdict of the people of London in that mayoral election as significant, and it is clear that the people of London think that this PPP provides the wrong solution.

Mr. Gardiner

Will the hon. Gentleman give way?

Mr. Chope

No, I will not give way at the moment because I have only a short time and almost all hon. Members who have spoken in this debate have done so at greater length than I will be allowed under these arrangements.

The present state of the London underground is unacceptable, and it has been getting worse during the past five years. We now have an underground system that is the most disrupted, overcrowded and costly network in the world. The hon. Member for Regent's Park and Kensington, North (Ms Buck) said that we must not be too dismissive of the state of the London underground, but I refer her to the findings of the Evening Standard panel of commuters on 7 May. The panel went to Moscow, Paris, Berlin and New York and came to the conclusion that we in London had got the worst deal. On time, cost and comfort, the London underground is the worst.

My hon. Friend the Member for Croydon, South (Richard Ottaway) rightly chided the Government for the long delay in getting to grips with the issue. We certainly had a clear policy at the 1997 general election, but I accept that it was rejected by the people. The Government had a clear policy at that election, but they have still to implement it. My hon. Friend referred to the statement that the Deputy Prime Minister made on 20 March 1998, in which he said that he would not be rushed. However, I remind my hon. Friend that the Deputy Prime Minister also said: Our proposals will take a little time to establish and deliver."—[Official Report, 20 March 1998; Vol. 308, c. 1541.] As he anticipated that there would be a delay of about two years before the PPP was up and running, he produced a two-year interim funding arrangement. Well, it is now four and half years later and we still have not got the PPP.

The hon. Member for Coventry, North-West (Mr. Robinson) said that the documents have been signed. I am not sure that they have. If they have been signed, why have they not been made available to TfL in their final form? TfL received documents on 8 May, but since then the documents have been further altered as a result of ongoing negotiations between the parties. I suspect that the Government will not make those documents available to TfL until after the challenge in the High Court later next month.

Mr. Gardiner

Will the hon. Gentleman give way?

Mr. Chope

Not at a moment, because of the time constraints to which I have referred. The issue that is most worrying for Londoners is the funding gap. That has been referred to by several hon. Members including my hon. Friend the Member for Croydon, South. According to the Government and London Underground, that funding shortfall is £771 million in the first seven-and-a-half-year review period. Transport for London thinks that that is £400 million to £500 million lower than it should be; it thinks that the funding gap could be well over £1.2 billion. As a result of that funding gap, Standard & Poor's, a leading credit agency, has taken a very negative approach towards Transport for London, which, in turn. could lead to it having a high financial burden. Standard & Poor's stated: In order to revise the outlook on TfL to stable, Standard & Poor's would require a funding agreement between TfL and the Government to provide sufficient cash to meet agreed costs in the first review period and to establish sufficient levels of reserves to enable TfL to manage short term risks; and clarification of the circumstances in which the Government would be likely to provide additional funding. If the funding concerns are not adequately addressed and significant uncertainties remain, the rating on TfL could be lowered. That will add to the cost of Transport for London finding finance for all the projects that it wishes to undertake. The Commissioner of Transport for London, Bob Kiley, said: The ultimate irony is that this highlights the weakness in the promise put forward by the PPP's most prominent supporters—that PPP would provide full and stable funding for rebuilding the Underground. That funding gap can either be met by the council tax payers of London, by the Government—through national taxpayers—or by fares. The previous Secretary of State, the right hon. Member for Tyneside, North (Mr. Byers) said that there was nothing inherent in the PPP that would require fares to increase. That, of course, is true. It is also true, however, that if there is a funding gap, and the Government refuse to meet it, the pressure is on Transport for London to raise the extra revenue from the people of London or through the fare box. We already have the prospect of the London underground being the most expensive such service anywhere in the world. Why should passengers have to pay much higher fares for a service that is still getting worse rather than improving?

Mr. Spellar

Will the hon. Gentleman tell us how much additional funding the Opposition are committing to London transport, so that we can add up their overall transport budget?

Mr. Chope

Clearly, the Minister anticipates that this process will continue until the next general election. If nothing is sorted out by then, we shall explain to the electorate exactly what we will do. We are facing up to the reality that there is a funding gap. The Government—for worse rather than for better—are in office, and they are responsible for answering the question of what will be done about that funding gap. The Minister is trying to find all sorts of excuses for not coming up with answers, and, up to now, he has blamed increased numbers of people living in London and the growth in the economy for the Government's failure to get to grips with the problems of London underground.

London underground users have become the victims of a squeeze by the Treasury, which is determined that any capital investment in the infrastructure is off balance sheet—Enron and WorldCom-style accounting—even if it means delay, poor value for money and de facto abandonment of the principle of risk transfer. Meanwhile, we have Transport for London, and a Mayor who is openly hostile to the private sector. Between them, the Mayor and the previous Secretary of State, the right hon. Member for Tyneside, North have made the private sector unwilling to invest except very much on their terms. That is why we have a PPP for seven and a half years, after which it can be torn up by the private sector, leaving Londoners with an incomplete project and a substantial liability to repay the debt.

This saga is an appalling indictment of the Government. It is a betrayal of the interests of the people of London. They deserve better. I hope that the Minister, in his reply, will assure them that we will get answers quickly, and that we will see material changes for the better in the quality of London underground.

4.45 pm
Mr. Spellar

On 8 May, the Government responded in full to the Select Committee's two recent reports on London Underground's modernisation plans. We welcome Parliament's continued interest in this important subject. That is what it says on my brief. That interest has been pretty thin, however, on the Opposition Benches. We have had contributions from two London Conservatives and two London Liberal Democrats. My hon. Friend the Member for Leyton and Wanstead (Harry Cohen) asked for another debate, but Opposition Members are not exactly bursting for it. They, like the public in London, are getting pretty bored with this subject; they want us to get on with it and start delivering improvements for the travelling public in London.

It is fair to say that these plans have been subjected throughout their development to an unprecedented level of scrutiny, and not just from Parliament. They have been examined and challenged at every opportunity by numerous critics, and they represent probably the most robust and rigorous public-private partnership proposal ever. Bluntly, we can either move forward with these plans or go back to methods that failed passengers in the past. Neither the hon. Member for Christchurch (Mr. Chope) nor the hon. Member for Carshalton and Wallington (Tom Brake) had a clear answer to that.

I also know that underground staff want to focus on running a world-class train service for customers. My hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) rightly took the hon. Member for Croydon, South (Mr. Ottaway) to task for his deplorable comments about London underground. No one denies that there are improvements to be made. We should also look at the real progress that has been made by London Underground. Last year, the amount of wasted customer time due to delays was cut by nearly 7 per cent., and more than 95 per cent. of its peak hour trains ran on time. Those improvements are being maintained—and in many cases bettered—this year. Recently, the tube broke a record by running more than 5,000 rush hour trains without a single cancellation due to missing drivers.

Instead of the talk about third-world services and all that nonsense written by journalists, we should be congratulating those staff who have successfully delivered a frequent and reliable service under the new Central line timetable. We should also congratulate the Northern line staff who have banished memories of the "misery line"—of which headline writers were so fond—by providing a service good enough to impress even the Financial Times. Across the network, customers are now giving London Underground some of its highest ever customer satisfaction scores. It is listening to its customers and finding new ways to improve its service—for example, by implementing a range of better ticketing facilities, and putting more staff on platforms to help reduce the time trains spend in stations.

I—even if the hon. Member for Croydon, South was not—was very impressed by the commitment and dedication to passengers demonstrated by the staff who ran a continuous 42-hour service during the recent jubilee celebrations. Within an hour of the event finishing on the Monday evening, 1 million people had been dispersed safely and efficiently, most of them on the special tube service. London Underground staff can be proud of the way that they served the public during the celebrations. They deserve better than the contemptuous remarks of the hon. Member for Croydon, South about a third-world service.

We also know, however, that London Underground's track record on the management of infrastructure projects is less good. It is almost a tale of two jubilees. Its success during the golden jubilee contrasts starkly with the Jubilee line extension project—delivered 20 months late, yet still not providing the expected level of performance. An extra £1.4 billion had to be found to complete the project. In answer to the Liberal Democrats, there is a world of difference between contracting for a service or undertaking the negotiations for the contract, and actually trying to micro-manage that contract. London Underground's performance in trying to pull together and integrate all the elements of the contract has not been good. It has a successive record of failure on price and on time in relation to trying to micro-manage that. However, projects such as that for the docklands light railway have come in to price and on time. We want to ensure that London Underground is able to do better in future.

We believe that the PPP will ensure better results, because it has been designed to put passengers first. Unlike alternative plans, it provides answers to the questions that really matter to the passengers. Will a service be available? How quickly will that service get me to my destination? Will the service be clean, comfortable and pleasant? Another aspect is not part of the PPP, but it is important. British Transport police are doing much work to make the service safe and secure.

The companies involved will have to meet demanding targets to satisfy passengers on those issues. They must install high-quality equipment on time, make it work and maintain it well. However, they will also have the freedom to innovate and to look for new ways to satisfy their customers. If they succeed, they will be rewarded, not excessively, as the Mayor alleges, but with an appropriate rate of return. However, that will be balanced by the considerable risks that they will take on. If they fail, they will be penalised, with no limit to the size of the penalties. Every penny of the money provided by shareholders—some £500 million—is therefore at risk. That is why the plans offer the right incentives. They concentrate not on administrative processes, but on getting the right results for passengers.

I was surprised by the comments of the hon. Member for Croydon, South who said that we should monitor inputs rather than outputs. I would have thought that the essence of modern contracting was to consider the outputs one achieves and to leave inputs to the specialists who are best able to deal with them. His remarks revealed very backward thinking.

We know that the proposed methods work. The new Northern line trains—I have mentioned the great improvements in reliability—supplied under PFI have helped underground staff to transform the old "misery line" into one of the best performing parts of the system. The trains run at about 98 or 99 per cent. reliability.

Mr. Gardiner

Has my right hon. Friend looked at the year-on-year funding for the tube against the successive three-year funding commitments given over the past 20 years? Has he noticed that Governments have consistently failed to deliver the investment that they promised? Does he understand therefore that, for many of my constituents, the chief attraction of the PPP is that the Government are contractually committed to putting the money in year on year and cannot suddenly decide in 10 years' time that their political priorities lie elsewhere? Does he understand that the public sector route is the route of uncertain investment—

Mr. Deputy Speaker

Order. That is far too long an intervention for this stage of the debate, especially if it is being read.

Mr. Spellar

But it was valuable none the less, Mr. Deputy Speaker, and very well expressed. As my hon. Friend rightly suggests, £1 billion will be sustained year on year and that will be enormously welcomed by the travelling public.

Mr. Chope

In the time that remains, will the Minister tell us how the Government propose to fund the £1 billion funding gap that has been identified?

Mr. Spellar

The enthusiasm of Opposition Members for Ken Livingstone and their gullibility for everything he says are truly extraordinary. We do not agree with his figures that claim a funding gap. Every passenger transport executive and passenger transport authority in the country has schemes that they rightly want for their people. However, we do not regard it as appropriate to put up a wish-list and then claim that there is a funding gap. We shall have that argument with TfL, but I am surprised that Conservative Members have become such ready allies of Mr. Ken Livingstone on this issue.

Mrs. Dunwoody

Will my right hon. Friend give way?

Mr. Spellar

My hon. Friend will have an opportunity to reply at the end of the debate, so I shall rattle through this part of my speech.

This is by far the largest-ever commitment to public investment in the London underground. The plans will unlock £16 billion in all over the first 15 years, including £4 billion from the private sector. Vast sums from both Government and business will give London the modern metro that it deserves.

My hon. Friend the Member for Regent's Park and Kensington, North identified the most important question that passengers will ask. Are the plans safe? Throughout the development of the plans, London Underground has put safety first. It has worked with private sector contractors for many years and it has an excellent safety record. It will retain unified management control of operations and its overall responsibility for safety across the entire network. The plans will allow it to take swift action, if necessary, to ensure the safe operation of the system.

However, the assessment of whether the underground is capable of being operated safely is, quite rightly, a matter for independent experts, not politicians. The Health and Safety Executive's assessment of London Underground's safety case for the operation of these plans is continuing. Let me once again state clearly and categorically: if the HSE does not accept London Underground's safety case, the plans will not proceed.

We want to modernise the London underground system and we have to work with private sector engineering firms to do so. That has always been true. There is no wholly public sector alternative. The real question, then, is how we engage the private sector.

Even TfL does not oppose, in principle, a public-private partnership for the tube. Its consultation response makes this clear However, the Mayor says that he has a problem with his role under the PPP. In our view, under these plans, his role will be to ensure that London Underground and its contractors deliver the quality of service that passengers expect. That is exactly what he should be concentrating on. The Mayor's alternative plan suggests that he wants to return to the days when London Underground had to plan the details of what its private sector contractors did, when they did it and how they did it. That is the approach that failed passengers year on year. It led to the failures on the Jubilee line extension, the Central line upgrade, which has only now come right, and on dozens more infrastructure projects over the years. TfL says that it could do better, but we have to take that on trust. We must consider its track record.

Abandoning the modernisation plans now would mean years of delay and decay while the Mayor decides what to do and how he would like to fund it. His decision to take further legal action to try to stop the plans is extremely disappointing, because the public are getting fed up with the long delays. They want us all to get on with the work, and I hope that that message is heard beyond this Chamber. Our intention remains that the modernisation plans should come into effect as soon as possible. That is what is best for London and best for the travelling public in London.

4.57 pm
Mrs. Dunwoody

With the leave of the House, may I say that this has been an important debate, not least because London deserves a really good underground system. The Select Committee raised several vital questions that have, sadly, remained largely unanswered. I believe that the House of Commons will need to return to this subject, but I am distressed that we have not at least considered alternatives to a scheme that the Committee found to be flawed and possibly unworkable. The House of Commons will, in due course. want to demand more answers and more action from Her Majesty's Government.

Debate concluded, pursuant to Resolution [11 June].

Questions deferred, pursuant to Standing Order No. 54(4) and (5) (Consideration of estimates) and Order [20 November 2000].