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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