Memorandum by Capital Transport Campaign
(LU 02)
On behalf of Capital Transport Campaign, I am
submitting evidence in connection with the Committee's forthcoming
meeting on London Underground on 15 December. The evidence submitted
is concerned with the sources of funding for the essential modernisation
of the core Underground, and how this money has been spent by
the present management of London Underground. I summarise the
gist of our evidence below.
1. The principle that passengers should
contribute to the costs of modernising the Underground through
the farebox has been followed by the management of London Underground
since 1989. (Monopolies & Mergers Commission Report on
London Underground, 1991, p 128.) It has led to a succession
of above-inflation fare increases which have resulted in a very
substantial real increase in the cost of travel by the Underground
of 36 per cent in the past decade. London Transport first achieved
a positive gross operating margin of £24.4 million in1994-95,
and in the most recent financial year, 1998-99, the gross operating
margin for London Transport was £255.5 million, with a gross
operating margin for the Underground of £288.1 million. (London
Underground Annual Report for 1995-96, p 69, and for 1998-99,
p 58 and 61.) Passenger fares are by any account a substantial
source of income for the Underground.
2. The continuing and worsening deterioration
of the Underground is widely recognised, and has been monitored
by a number of indices, including increasing infrastructure failures
and increasing delays and disruptions to passengers on the Underground.
(Hansard, 22 April 1999, col 620; Chantrey Vellacott
Index of Disintegration, April 1999; Capital Transport Campaign,
Delays and Disruptions on the Underground in 1998, March 1999).
3. How the funds received by London Transport
and allocated to the core Underground have been spent is not altogether
clear, from the information given in London Transport's most recent
Annual Report for 1998-99 (pp 15-16). This document gave
all too sparse details as to how £415 million was invested
in the core Underground in 1998-99.
| £ million |
| Track | 95 |
| Signalling and communication | 28
|
| Lifts and escalators | 26 |
| Total | 149 |
A further £68 million was spent on stations, although
what this was spent on—and when—is not at all clear.
The report referred to £10 million refurbishment of Mornington
Crescent station. However, the Evening Standard reported
on 27 April 1998 that Mornington Crescent station reopened on
that day after a £10 million pound refurbishment, taking
place over five and a half years. The accounting principles by
which this £10 million is allocated to spending in the financial
year running from 1 April 1998 to 31 March 1999 are unusual and
innovative, to say the least.
4. Some of the spending on stations in this financial
year may refer to what the Annual Report describes as "providing
better station facilities":
"Better convenience shoppping facilities have been created
through a programme to introduce quality sales outlets and branded
retailers into station concourses in the central area. Customers
are also benefiting from the additional cashpoints which have
been installed across the network." (p 16)
Capital Transport Campaign believes that convenience shopping
facilities and cashpoints in central area stations do nothing
to improve the deteriorating quality of the actual journeys made
by passengers on Underground rolling stock. On the basis of the
figures provided in the Annual Report, there is a very substantial
sum of money that is said to have been spent on the core Underground
with absolutely no indication of how this was spent. The figures
given only account for £217 million of the £415 million
expenditure; at least £198 million is unaccounted for; and
there is the £10 million spent over five and a half years
on Mornington Crescent station in addition.
5. Half of all people travelling to work in Central London
in the morning peak use the Underground to make part or all of
their journeys. The deterioration in service to passengers has
a substantial cost in terms of time lost through delays. London
Underground has a responsibility to account for how it spends
the funding allocated to the core Underground on modernising the
infrastructure.
6. Grant funding for the Underground from central government
has been used for funding the modernisation of the core Underground
over the past decade. Statements made by Mr Denis Tunnicliffe
indicate that a significant shift is taking place in the proportions
of the costs of this modernisation which are met by the different
sources of funding. In the September edition of an LUL publication,
On the Move,Mr Tunnicliffe said that:
"Of the £434 million spent on investing in both
the Tube and buses, £367 million was self-generated, with
only £67 million coming from Government grant. [italics
added]
Investment in the existing Underground totalled £415
million during the year. Much of this was used for upgrading and
renewing basic infrastructure, the benefits of which are not always
immediately apparent to customers."
Basic arithmetic shows that no more than 17 per cent of investment
in the core Underground came from Government grant in 1998-99.
7. Lord MacDonald, Minister of Transport, supplied Harry
Cohen MP with figures on investment in the Underground, stating
that the DETR's calculation of how much of the investment programme
is funded by the gross margin "differs somewhat from Denis
Tunnicliffe's figures, because Denis talks of self-generated funds"
which goes wider than sales revenue and appears to include items
such as disposals and working capital movements." Lord MacDonald
gives a figure of £459 million for investment in the core
Underground in 1998-99, £25 million more than the figure
cited by Denis Tunnicliffe. It is worrying to find such a substantial
divergence on the between Mr Tunnicliffe and Lord MacDonald on
the crucial subject of how much was invested in the core Underground
in 1998-99: £25 million is a substantial sum of money. It
certainly would make the complex subject of investment in the
core Underground somewhat clearer if Mr Tunnicliffe and the DETR
sang from the same hymn sheet.
8. Mr Tunnicliffe goes on to discuss expenditure on stations
"in the year", including Mornington Crescent, which
he clearly distinguishes from expenditure on basic infrastructure.
The figures provided in the Annual Report for 1998-99 identified
40 per cent of expenditure on the core Underground as basic infrastructure:
less than half, which is an idiosyncratic use of the word "much".
9. In a letter to Harry Cohen MP dated 16 September 1999,
Mr Tunnicliffe states that in 1999-2000 "approximately 47
per cent of investment (in the core Underground) will be funded
by Government grants with the remaining 53 per cent being financed
by the surplus of ticket revenue over operating expenditure and
other internally generated resources. . .
10. Capital Transport Campaign views this increase in
the proportion of investment in the core Underground funded by
Government grant, from 17 per cent to 47 per cent as a major shift.
Accordingly we wrote to Mr Tunnicliffe on 1 October 1999 to express
our hopes that London Underground would "publicise this major
shift in the sources of investment in the core Underground",
and we think it is news that passengers would welcome. We also
asked if it would "make possible a fares freeze for passengers
in the year 2000, which would go some way to compensate them for
the appalling service they have received this summer and autumn,
from expenditure on modernisation, a significant proportion of
which was financed through fares revenue.
11. We received a reply to our letter after the latest
round of fare increases on the Underground was announced. On 4
November, Mr Tunnicliffe replied, saying:
"London Underground continues to implement a massive
modernisation and repair programme which creates major investment
needs. Equally it must continue to meet its day to day operating
expenditure. The changes in fare levels just announced should
ensure we continue to do so. . .
The costs of this vital work, both materials and labour, inevitably
rise year on year and we need to budget for those rises. Given
these pressures, it would be financially irresponsible to do otherwise
and therefore to eat the seed corn. A fares freeze—which
would be bound to lead to cuts in investment or services—is
not a realistic proposition for us to consider."
12. Mr Tunnicliffe's reply failed to acknowledge the
major substantial increase in the amount of modernisation work
which will be funded by Government grant in the current financial
year, of which he has provided evidence. Capital Transport Campaign
maintains that passengers are entitled to be informed of this
significant change.
13. The amount to be invested in the core Underground
in the current year, 1999-2000 was stated by Mr Tunnicliffe to
be £365 million, in his letter to Harry Cohen MP, dated 16
September 1999. This is significantly less than the amount that
was invested in the core Underground in 1998-99, which was stated
in the Annual Report and also by Mr Tunnicliffe in September
to have been £415 million. The expenditure on the core Underground
in the current year will be 12 per cent less than in the previous
year, despite "the costs of this vital work. . .inevitably
ris[ing] year on year. . ."
14. In other words, there will be less "seed corn"
for the core Underground, despite a much higher proportion of
Government grant towards the costs of its modernisation. If less
is being spent on the core Underground, and a much larger proportion
of this smaller amount is being funded by Government grant, it
is extremely difficult, we think, for London Underground to justify
yet another round of above inflation fare increases in January
2000. They can hardly apply the long established principle that
passengers should contribute yet more through the fare box for
the costs of modernising the Underground when—on the limited
available evidence—the sums do not add up.
15. London Transport has an obligation to provide evidence
that sums do add up and can be seen to add up before asking for
an additional contribution from fare-paying passengers. They were
asked to provide an account of how the additional Government grant
of £517 million, made last July, would be spent, to obtain
this funding. The accounting they provided was not altogether
convincing to Capital Transport Campaign.
16. Capital Transport Campaign holds that expenditure
by London Underground on modernising the core Underground financed
by either Government grant or passenger fares, should exclude
any spending on the conversion of central area stations into shopping
arcades. For London Underground to do so with these funds can
be compared to genetically modifying the "seed corn",
and this will hardly win the hearts and minds of passengers.
17. When the fares increase for January 2000 was announced
on 29 October, London Underground stated in its press release
that Underground fares will rise overall by 2.5 per cent, 1.2
per cent above the rate of inflation in July, which is the benchmark
for public transport fare increases in the London area. Richard
Smith, on behalf of London Underground, said that passengers would
be told how the additional income raised through the above-inflation
fare increases would be spent in a year's time, after the money
raised thus has been spent. Capital Transport Campaign was not
satisfied by this offer, for several reasons.
— on the basis of Mr R Smith's statements, it appears
that London Underground will only account for how the additional
funding raised by the above-inflation fare increases is spent.
As the ever-increasing operating margin on the Underground demonstrates
(paragraph 1, above) the contribution from passenger fares to
the costs of modernising the core Underground in any one year
is substantially more than the revenue raised from that year's
above-inflation fare increases. Consequently, we hold that London
Underground has an obligation to account for how the whole gross
operating margin is spent, not just that relatively small proportion
which represents how much income from fares has increased due
to the percentage points by which the annual fare increase exceeded
the rate of inflation. Mr Smith's offer may well refer to this
much smaller amount of funding, and it is a point which should
be clarified on behalf of the passengers who provide this funding.
— London Underground was asked by the Government
to provide an account for how they would spend the £517 million
grant awarded in July before the grant was agreed. London Underground
will require passengers to provide them with substantial funds
for a year before saying how they have spent this money. This
treats the very substantial contribution made by the captive financial
source of passenger fares with much less regard than the Government
grant. We think that both sources of essential finance should
be advised, with as much accuracy as is reasonably possible, how
the funding they provide for the essential modernisation of the
Underground is spent before they provide these funds.
— Finally, there is a catch to Mr Richard Smith's
promise to passengers of telling them something in a year's time.
As Lord MacDonald states "responsibility for setting fares
will pass to the Mayor for London next year." In a year's
time, the management of the Underground will be in the hands of
Transport for London. Can Mr Smith in all honesty make the commitment
he has made to passengers on behalf of a body with a different
name?
18. Consequently, Capital Transport Campaign thinks that
London Underground should be prepared to set out how they plan
to spend the amount by which passenger fares will exceed operating
costs in the year 2000, in advance of the fare increase announced
for January 9, 2000, coming into force. Their offer that something
will be revealed at a later date does not stand up to eximanation.
19. We hope that some of the points made above will be
raised with Mr Tunnicliffe when he and other officials of London
Underground meet with the Transport Select Committee on 15 December.
There are three issues of concern which have been set out in our
evidence:
(A) There is a significant difference between Mr Tunnicliffe's
figure for investment in the core Underground in 1998-99 and that
provided by the DETR. The difference between these two is at least
£25 million. It could be more, bearing in mind that Mr Tunnicliffe
has included £10 million spent on refurbishing Mornington
Crescent station from 1992 onwards in the accounts for the period
1 April 1998 to 31 March 1999.
(B) Since according to Mr Tunnicliffe, Government grant
will provide a much higher proportion of the funding for investment
in the core Underground, and significantly less will be invested
in the core Underground in 1999-2000 than was invested in 1998-99,
his poetic justification of the above-inflation fare increase
announced for January 2000 in terms of seed corn does not stand
up to examination. On the basis of the figure he has provided,
the investment programme for the current year could—and
Capital Transport Campaign thinks—should be financed with
a fares freeze in the year 2000. It is not the responsibility
of passenges in the here and now to bankroll future investment
programmes in subsequent financial years through their fare payments
in the year 2000. [paragraphs 9 to 14]
(C) Capital Trannsport Campaign thinks that London Underground
should provide an accurate account of how they are spending the
funding which passengers contribute to the costs of modernising
the core Underground, and that such an account should be provided
well before the name of London Transport disappears into the history
books. [paragraphs 15 to 18]
Cynthia Hay
Co-ordinator
3 December 1999
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