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When I was leader of Croydon council, we introduced Tramlink, which was a public-private partnership. The private sector invested some £100 million and the public sector some £125 million. As has been pointed out, there was a delay. The system was supposed to begin operating last November, but in fact it started in May. Already it is the most successful tram system in the country, moving 45,000 people a day.
The cost of the delay from November to May is being borne by the private sector. Risk transfer was built into the contract. Under PPP, a contract is drawn up, and if the private sector fails, the cost of failure in terms of delay or exceeding the budget will be transferred. That is precisely the point that I made earlier in an intervention on the right hon. Member for Chelsea and Kensington--
Mr. Davies: I should have said the right hon. Member for Cities of London and Westminster (Mr. Brooke). I intervened on him earlier, when he hailed the Jubilee line as a great Tory success. I pointed out that it was about £1 billion over budget and a year late. That was no success. If it had been a PPP, the transfer of risk would have gone to the private sector. That is the point. The issue is about value for money.
Mr. Livingstone: Is my hon. Friend aware that under their contracts, contractors will be fully compensated if they run only 95 per cent. of the existing service? Services can be cut by a further 5 per cent., but they will still be fully compensated. That does not build in an improvement, but allows a further margin for failure.
Mr. Davies: That is not an a priori point, but a contingent point. The issue is the terms of the contract. Unacceptable contracts may be drawn up, and Mr. Robert Kiley, the hon. Member for Brent, East and others may produce good ideas on how they can be tightened up. I agree that there could be good arguments for doing that, and various issues have been raised in that respect. People have asked, "Why can't we untie these? Will they last the 30 years? Can't we have different options?" Those are legitimate value-for-money questions that should be considered by the Public Accounts Committee and the National Audit Office in reaching a verdict, just as we should consider such matters in reaching our verdict. There is a proper debate in which those points should properly be included. There is nothing inherently good or bad about the proposed system. We should be discussing the contingent issue of what the contract says, and what is best for the public in terms of value for money.
Tramlink is a project in which we were able to transfer risk. As a result, we have already established the most effective tram system in the country. That shows that the proposal can work. It has been suggested that it would not work in particular scenarios, but that is obvious.
Mr. Stephen Pound (Ealing, North): Before we move away from the superficial attractions of bond issues, I have a brief question. I am sure that other hon. Members are more than aware of the answer, but sadly, I am not. I do not know any philanthropic capitalist who is anxious
Mr. Davies: As has been pointed out, it is hoped that bonds will be self-financing. The risk, however, is that they will not be. If that happens, we must then decide who pays. One would usually assume that London taxpayers would pay, but the Mayor is not empowered by current legislation to increase taxes. If it is proposed that the Mayor should be empowered to raise taxes, Londoners will have to be consulted again. Obviously, there was massive popular support for the hon. Member for Brent, East when he became Mayor, but it was not given on the understanding that he would be able to raise taxes. We are considering a different political question, to which people might respond differently.
Mr. Davies: I do not know. My hon. Friend might be right, but the point is that we do not know. There may be a downside liability, but there is currently no cover for such liability. Again, value for money is at stake, not the cost of capital. In debates such as this, it is often said that the cost of capital for PPP is greater than the cost of bonds and public sector borrowing. I agree, but the Jubilee line is an obvious example of how other factors must be taken into account. The cost of capital would have been completely overwhelmed by the extra cost of taking the traditional route, because of the cost in terms of delay and running over budget.
Various issues, including delays, must be considered in relation to the argument of PPP versus bonds and tax raising with bonds. Those issues must be considered carefully, although it is understandable that hon. Members are saying, "Okay, we've been hanging around here for ages. When will we get something done?" One of the costs of bonds is simple to explain. If we all decided to take the bonds option, a couple of years would be added to the timetable for the tube's overall progress. That is a genuine cost. It is not merely a delayed letter or a similar hitch, but a measurable cost in terms of economic activity and disruption for the people of London. That must be factored into the analysis.
Mr. Brake: I agree entirely that if a bond issue were launched now, a two-year process might be initiated. However, will the hon. Gentleman contrast the two years that might be involved with such a project with the four years involved with the PPP? Had the Government embarked on bonds four years ago, the system would now be up and running.
Mr. Davies: With respect, that is rather a silly question. As with all political choices, we have arrived where we are. That being so, what is the best thing to do? The hon. Gentleman might be able to argue that we should have done something earlier--an argument that could be taken back in time. Given where we are, should we keep going and finish PPP, or opt for bonds to see whether that approach works after another couple of years? These are the real options.
Mr. Davies: That was an important intervention. We must be crystal clear about different options and costs. One of the variables is obviously delay. I believe that work should be brought forward by public sector direct investment if there is an acceptable gap in PPP investment when set against what the new levels of investment should be.
The hon. Member for Brent, East suggests that bonds could bring forward funding within weeks. I understood that there would be delay for years. However, it is a matter of fact rather than judgment, and I stand to be corrected. One of the issues must be the cost of time, and I am sure that that will be factored into how the National Audit Office and the Public Accounts Committee approach the matter.
We have not talked about the third option, which is privatisation. We all know that the history of Railtrack privatisation involved the sale of about £2 billion worth of assets, which were valued at £8 billion a couple of years later. With the Tories' suggestions, we would look forward to the same thing--a rip-off sell-off, a takeover by a profit-maximising operator, who would reduce capacity, increase price and provide a worse service for Londoners. I have not dwelt on privatisation because it is such a ridiculous suggestion from the Tories.
We need sure investment now. The investment should not go up and down, as Government funding does. In reality, Governments sometimes turn down investment as they approach elections. That is precisely what the Tories did. That is why we ended up with a £1.2 billion backlog of essential investment. For self-interest rather than public interest, the Tories decided, "We'll cut that back, introduce a few pre-election tax cuts, mess around with interest rates and tamper with the political process." PPP gives a guaranteed cashflow investment into public services. That is one of the key benefits. With bonds, issues arise about different values and risks that may affect investment flows over time. That is something to be factored into the various considerations.
Different people make different assessments. Professor David Currie of the London business school thinks that PPP would be £2.3 billion cheaper, and that overall it would bring about savings of £3.3 billion. Such analyses are professional, but they are contentious. I make that point because the hon. Member for Brent, East listed people who had adopted a different argument.
Members have dwelt on safety, an issue that is important to us all. The first condition of safety is investment now. The second condition is value for money. As my hon. Friend the Under-Secretary of State has said, in terms of ownership, safety will still be the responsibility of London Underground. The Government are attempting to put into place an investment stream that will be a pre-condition for safety.
I have already talked about sanctions on contractors. It is important that there are proper controls and sanctions over inadequate investment or management performance. The Mayor should have the power to act in the interests