Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence


Examination of witnesses (Questions 500 - 519)

WEDNESDAY 1 JULY 1998

MR JOHN BALLARD, MR CHRIS BREARLEY and MR DAVID ROWLANDS

Chairman

  500.  No, I want Mr Ballard to tell me. I am sure Mr Ballard will deal with it with his normal tact and diplomacy.
  (Mr Ballard)  You would expect us to employ the appropriate people for the task, and, as Mr Rowlands has said, if we are engaged on a complicated thing, such as the London Underground PPP, we will want to ensure that we have got the relevant expertise.

  501.  How do you do that?
  (Mr Ballard)  Where that was available in-house we would obviously use it, but otherwise we would go out and get it externally, going through the normal process of tender and selection.

  502.  The normal process generally is selection?
  (Mr Ballard)  Yes.

  503.  And that is the one used by the Civil Service, right the way across Whitehall, is it, or particularly tailored to transport needs?
  (Mr Ballard)  No, we all operate within the same broad requirement, in terms of tendering. We are always required to get three tenders for any proposition and we are required to adhere to European Procurement Rules. The only exceptions are where there is particular expertise which is not available widely in the market, so there may be a case where you go for a single tender operation, but that is only done in unusual, exceptional circumstances, and we would need also to carry, I think, usually, the Treasury with us on something of this magnitude. So it is not something which we would enter into lightly.

  504.  Now Mr Rowlands mentioned the latest estimate of the cost overrun on JLE; what proportion of the cost is attributable to the need to install conventional signalling?
  (Mr Ballard)  I think that question was asked earlier, and I offered to——

  505.  Yes, that was the one which you were talking about before.
  (Mr Ballard)  I said I would give some information.

  506.  Buses; London Transport Buses. Their gross operating loss rose from £3 million in 1997-98 to an anticipated £20 million in the current financial year. This is largely due to increasing prices submitted by contractors for route tenders; in fact, it is surprising, the size of this increase. Will the Government allocate additional resources to make up for the shortfall?
  (Mr Ballard)  The increase in tender prices broadly is reflecting the price of staff in the market-place.

  507.  The staff? They are saying that this change is an extra charge on staff?
  (Mr Ballard)  No, I am not saying it is a charge on staff, but the tenders coming in, it is obviously reflecting the cost to the operator of running the service, and the main ingredient in terms of additional costs is obviously increasing wage costs.

  508.  It is a very large difference, we are not talking about a small percentage change, are we, Mr Ballard?
  (Mr Ballard)  It is a significant increase, but, as I say, it is simply reflecting the market-place. The ongoing provision in terms of subsidy is something that the Government will need to address in the context of how it disposes its finances generally, but, clearly, there will be a need to continue to provide assistance to London Transport, but I cannot give you an exact indication of the levels at this juncture.

Mr Stringer

  509.  Is there any evidence, in a sense, this is prima facie evidence, that one is dealing with rings and sort of anti-competitive practices, when you get such a large increase in subsidy; have you investigated at all whether the public sector here is subject to anti-competitive practices?
  (Mr Ballard)  We have not any specific evidence to suggest that is the case. If we had it, we would certainly pursue it.

  510.  But, surely, a huge increase like that, when the economy is booming, in London, more people are using public transport, you would expect the unit costs of buses to be going down. We have just had a reduction in the Budget, admittedly, it is not an historic reduction, on the fuel for buses. I would have thought there was prima facie evidence of something unusual happening here?
  (Mr Ballard)  You are right, in that you would expect bus usage to go up over time. Certainly, it is Government policy that it should do so, and part of the way in which that would be done is obviously tackling the whole range of issues that affect bus usage.

  511.  The last figures that the Secretary of State gave me, when I put in a PQ, was that figures for people using London Buses were going up, unlike most of the rest of the country over the last three or four years. I see no reason for thinking that that trend will have changed in the last few months. These figures are quite extraordinary, are they not?
  (Mr Ballard)  I think we will need to see how they progress. If Government policy is successful, as we obviously hope it will be, and bus usage goes up, then in time one would certainly expect the deficit to be reduced; but, at the moment, as I say——

  512.  Sorry, are you disagreeing with what I am saying, that bus usage in London has been increasing?
  (Mr Ballard)  No; it has gone up, yes, indeed.

  513.  And that the competition takes place at the tender stage, not on the road, as it does in other cities?
  (Mr Ballard)  Yes.

  514.  So would you not agree that these figures are very unusual? Do you think that there is £20 million extra going into the pockets of bus drivers?
  (Mr Ballard)  It is not all going into the pockets of bus drivers, but that is the prime driver, in terms of their increased costs, and, as I say, if there is any evidence that there is a cartel operating here, we would clearly want to investigate it. But, so far, certainly we have had no correspondence to suggest that is the case.

Mr Donohoe

  515.  So how can you explain this, how is it possible to explain this increase, at a time when there is growing usage; that would be something that an auditor would pick up, surely?
  (Mr Ballard)  I am not sure that I am going to get much further than simply referring to the explanation I have given to you. We can obviously go back and see if there is anything further that I can add, by way of a note.

Chairman

  516.  But you have investigated it?
  (Mr Ballard)  Yes.

  517.  You obviously were very concerned, when you discovered that these sums had changed so very drastically?
  (Mr Ballard)  As I say, the element that comes out on analysis is it is the attribution to increased labour costs.

Mr Bennett

  518.  Did you make any comparison with what was happening in other cities?
  (Mr Ballard)  No. Can you add any more?
  (Mr Brearley)  The system is essentially different in other cities, in that the routes are not franchised yet.

  519.  I understand the system is different, but if you are claiming that this is all down to labour costs I would have thought it would have been at least of some interest to try to make some comparison. It just seems that you have more or less accepted this. I think Mr Ballard said earlier that no-one had written in suggesting there was a cartel. Surely, when you have got an increase of this size, you ought to be actually going and looking to see whether there has been some fixing of the prices?
  (Mr Ballard)  The first thing to do, and this is not something that is done directly by the Department but obviously by London Transport, is to investigate the basis upon which these tenders are being put forward, and that is where the rigorous examination takes place, by London Transport. What we have to be satisfied is, from the Department, that they have actually carried out that examination in a thorough way.


 
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