House of Commons Hansard Debates for 5 May 1999 (pt 33)

6 pm

Mr. Sayeed: My hon. Friend the Member for Uxbridge (Mr. Randall) said that he used the tube to get to school. So did I--some years earlier than he did, I think. In the days when I first used the tube it cost half an old penny to go from Hampstead to Belsize Park.

Mrs. Eleanor Laing (Epping Forest): Gosh, you are old.

Mr. Sayeed: I am old. That shows how many years I have been using the tube. Without the tube, London would grind to a halt. We forget that more people travel on the tube than on the whole of the UK railways.

In the past, we condemned the Soviet Union for a number of things, one of which was its suppression of demand by increasing queues, permitting shortages and making sure that life did not work productively. We are doing exactly the same with the tube service.

Breakdowns on the tube have increased by more than one third, much to the irritation of our constituents and ourselves. We know that the Government have cutthe subsidy to the tube. In the last 10 years of the Conservative Government--between 1987 and 1997--the average subsidy was £700 million. Under the Labour Government, the subsidy has been £500 million, and the subsidy will end in May 2000. There is nothing in the Treasury figures to show what will happen after that.

Mr. Mike Gapes (Ilford, South): Will the hon. Gentleman confirm that, in the last two Budgets of the right hon. and learned Member for Rushcliffe (Mr. Clarke), there were significant cuts in the funding of London underground and that the figures that he has given do not give the whole picture?

Mr. Sayeed: The hon. Gentleman is correct, but we must look at the entire 10-year period. We expected to denationalise London underground, and we were preparing it for that. As the Conservative Government had properly funded and expanded London underground enormously during their 18 years, there had been front-ended funding. To reassure the hon. Gentleman, I have no ideological hang-up about funding London underground. We should use the best system; whatever works.

When Price Waterhouse was asked about four options for future funding, the options were determined not by Price Waterhouse, but by the Government. In essence, the Government had determined the form of the funding for London underground. I find it extraordinary that the Government did not recognise that, if they decided to bring in a company of the repute of Price Waterhouse, they should have allowed it to decide on what it believed would work best. It would then have been for the Government to reject or accept it. However, the fact that the Government had determined the four options that Price Waterhouse was to look at meant that the company was constrained from looking at other options, including privatisation.

We are told often that the Government want an integrated transport policy. I regret to say that that is no more than a slogan. The Government, with the Bill--

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in terms of the incoherent proposals for the underground, London's main artery--are making sure that we will not have fewer cars on London's roads, but more. They are suppressing demand on the underground, they are pricing it out of existence, they are making sure that the public subsidy is cut and they are making sure that travelling on the underground is an increasing misery.

As I said, without the tube, London would grind to a halt. Without the tube, people would not get to their jobs to earn money and to produce a prosperous Britain. It is incumbent on any Government to produce a public transport system for the capital city that will work. This Government are clearly failing to do that, and the Bill--which demonstrates that they are confused as to what they should do in the future--deserves to fail.

Mr. Edward Davey: It is astonishing that we are having to consider 10 new clauses tonight. They are substantial new clauses, which change the dynamics of the commercial agreement to which the House is being asked to give its consent.

New clauses 37 to 46 are needed logically by the PPP in terms of the structure that the Government are proposing. With a 30-year lease to private sector companies, there is a need for review. In Committee--when the Minister surprised us with the announcement--it was stated that a review was needed because the technology might change, and that the agreement would have to be reviewed to take account of that.

There may be a need to review the performance of the contract, and how well the private sector company is doing with respect to the initial understanding. There is a need for a review to serve the interests of democracy. If we are to have elections for a mayor to oversee Transport for London, clearly the parameters of the agreement could be changed.

Mr. Brake: Am I right in thinking that when the Liberal Democrats proposed a review in earlier debates, the Minister pooh-poohed it?

Mr. Davey: My hon. Friend is right, but the Government have thought again. Within their own framework, there is a need for review, which shows the costs of their proposals. The right hon. Member for Bromley and Chislehurst (Mr. Forth) referred to the higher costs, and the Liberal Democrats contend that the Government's PPP proposal will be an incredibly expensive way of maintaining, developing and investing in the London underground.

In such contractual relationships, one must think of the risk involved. The private sector contractor must be compensated for those risks. There are risks inherent in such contracts, including construction risks; we have seen those on the Jubilee line extension, with the overruns and the difficulties in tunnelling. Such matters are difficult to know a priori, so compensation is needed.

There are funding risks, and we have heard about the higher costs for the private sector in terms of getting the capital--something to which my hon. Friend the Member for Carshalton and Wallington (Mr. Brake) referred. We have heard references to the Chantrey Vellacott estimates of the costs.

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The new clauses, with the introduction of the arbiter, add another, expensive risk. Anyone signing such an agreement will know that the contracts may change in future, not just by agreement, but by fiat. New clause 40(6) states:

"A direction under subsection (3) above shall be final and binding . . . and shall, if and to the extent that the notice given under subsection (5) above so provides, take effect as a term of the PPP agreement."

There is no doubt that anyone signing up to suchcontracts could be forced by the PPP arbiter to havetheir commercial agreement rewritten--without their agreement, necessarily. Which company would enter such a commercial agreement unless it knew that it would be massively compensated up front? That is where the higher costs will come in as a result of the Government's proposals. The travelling public of London and the taxpayer will be asked to pay those higher costs.

In the Financial Times, the Minister said that one of the reasons for the arbiter was to make sure that companies did not make "windfall profits". When the potential bidders heard that, they were amazed. They find the idea that they will make huge profits ludicrous, considering all the risks involved. One of them was quoted as saying:

"We don't see enormous profits, but the risks are considerable."

The risks are indeed massive, and people will be persuaded to take them on only by up-front payment.

The complexity of the PPP agreements lies not only in the need to analyse the risks before drawing up the legal documents. Imagine the extra transaction costs involved in setting up the whole system. There will be huge bills from the lawyers, bankers and other consultants. In opposition, Labour Members criticised the Conservative Government for paying so much in consultancy fees when they privatised the railways. The new proposals do not avoid that, despite what the Government hoped. Arguably, the transaction costs will be much higher. They will not be one-off, either, because of all the reviews. The costs inherent in the system, by basic common-sense analysis, are incredibly high.

My hon. Friend the Member for Carshalton and Wallington made it clear that there are alternatives. We set them out in detail in Committee. The hon. Member for Croydon, South (Mr. Ottaway) spoke about the academic studies. If the Government had bothered to cross the pond to the United States of America, of which the right hon. Member for Bromley and Chislehurst (Mr. Forth) is so enamoured, they would have seen, in the hotbed of capitalism, examples of public sector owners operating public transport systems in urban areas incredibly successfully.

John Kramer took over Chicago's urban railway company--it is overground as well as underground--when it was in a total mess and had been deteriorating because the previous public sector operation had not invested in it, but he was able to make it a success by issuing bonds, backed up by ticket revenue and state taxes, so that the people who provided the private finances knew that the returns would be stable. Over 20 years, he issued more than $20 billion-worth of bonds. That money enabled his management team to plan investment with certainty and transform Chicago's transportation system into the envy of the country.