Examination of witness (Questions 80 -
99)
WEDNESDAY 15 DECEMBER 1999
MR DENIS
TUNNICLIFFE
80. You are convinced that there are techniques,
which presumably they think amount to constructive tension, which
can save these incredible billions of pounds?
(Mr Tunnicliffe) What we have done is we have worked
through the whole portfolio of work that is done and we have talked—I
say "we" it has been done basically between Ove Arup,
our engineering advisors, Price Waterhouse, our financial advisers
and our own engineers—and they have worked through the things
that have been done. From what they have seen as to how the private
sector works in these circumstances, they have taken views of
efficiencies that have emerged elsewhere under private pressures,
and they have taken the view that yes there is significant improvement
to be had.
81. They have effectively established that a
series of good practices, management techniques which are identifiable,
are quantifiable, are understandable, are implementable by human
beings add up to this package of savings?
(Mr Tunnicliffe) They take the view that on average
the way the private sector behaves with private incentives as
compared with the generality of how we have been able to behave
with the constraints or whatever that we naturally find, will
have a substantial difference in efficiency together with the
monies that they will have which will allow that in general to
be exploited by increased volumes. Therefore they will find it
relatively easy to take advantage of these people.
82. I have to challenge that last statement.
Price Waterhouse did their sums on the basis of equal amounts
of money being available in the public sector and in the private
sector. Let us take that as a given, as it were, if these skills,
these management techniques that can be so clearly identified
and added up are there, why do you not implement them in your
current structure in the public sector? If you have not got the
people who understand these techniques well enough to implement
them, why do you not hire them to people, which is perhaps back
to Mr O'Brien's question, is the management of London Underground
up to the job?
(Mr Tunnicliffe) If 18 months ago somebody had said
"Well, we have looked at all these reports, Dennis, and we
are not going to make any change", clearly we would have
been struggling—not struggling that is the wrong term—we
would have been seeking to do exactly what you suggest. We have
not because we have been asked over the last 18 months to position
ourselves as efficiently as possible with the most effective people
and organisation into three companies which will be attractive
to the private sector and the private sector will buy and then
bring to the party pressures and techniques and efficiencies.
It is not so much that there are a series of techniques that you
can see out there and say "Look you can do that, that and
that", what the conclusion has been, as these people have
taught, as I say from Price Waterhouse, from Ove Arup, from our
own engineers, some of whom have worked in the private sector,
they have taken a view that given how much we tend to have to
pay for something, and given how much the private sector has to
pay for something, there is a substantial difference. Now, you
have to remember the Deputy Prime Minister's position on this
is that that case is sufficiently persuasive that it is proper
to go into a competition and find out from the market place, not
from a consultant's report or whatever but from the market place,
whether businesses with real money behind them are willing to
put in bids which will yield those efficiencies. We will only
start to see that picture next spring when those bids come in.
83. I am sure I will get the opportunity to
ask the Deputy Prime Minister for his view but at the moment I
would like your view. To follow from what you have just said,
it seem that the viable alternative was for you, as a public company,
to restructure your management in order to adopt these more professional
and more efficient techniques and thereby achieve in the public
sector the efficiencies which we are now going to try and achieve
with a public private partnership. That follows from what you
have just said, is that right? That would have been an option
that the Deputy Prime Minister could have chosen to give to you
and you would have been able to implement it or made a good fist
of trying to implement it?
(Mr Tunnicliffe) I could have tried to make the delivery
more efficient but in a sense I have been trying to do it for
eight years. We have had some successes. When we self-examined
ourselves with these experts in producing advice to the Deputy
Prime Minister we had to confess that we had not made the progress
that we would expect the private sector to make. Now clearly if
we had been asked to manage the railway in the public sector we
would have carried on trying to improve, just as we would have
carried on trying to persuade Government to produce the steady
amount of money which is an important part of making that happen.
84. The private sector has this magic, which
Price Waterhouse called "constructive tension" which
somehow makes it all possible for them to do it and you cannot.
That is what I do not understand.
(Mr Tunnicliffe) I suppose that the people looking
at this look across the range of apparent improvements that have
occurred over the last 15 years as parts of the private sector
have taken over from the public sector in provision.
85. It is an empirical assessment not a management
assessment.
(Mr Tunnicliffe) It was a series of judgments and,
because the judgments were taken in a lot of places, they were
added together saying "There would be a high probability
of a substantial advantage in terms of improved efficiency coming
from a private sector focus on the delivery of these projects".
Certainly sufficient of a probability that it was a sensible road
to go down and explore the market and see if indeed the market
would behave as our advisers predict.
Mr Bennett
86. How far was this £1.9 billion original
estimate for the Jubilee Line extension really optimistic or was
it geared as low as possible to convince the Government to give
you the go ahead?
(Mr Tunnicliffe) It was actually in today's money,
if you want to compare 3.5 with something, you need to compare
it with 2.1 if I recall.
87. That was not the question I asked you. Was
it really set as low as possible to convince the Government they
should give you the go ahead?
(Mr Tunnicliffe) I did not think I was doing that
at the time. Clearly I was trying to make the project look attractive
and trying to make sure there was no fat in the project and indeed
we did cut some things out. In other areas where we thought it
was very valuable we put bits of money in so we have an all new
train fleet, for instance. I have to confess, and you can look
back and say "How could you get it so wrong" but at
the time when I said to Government it was deliverable for that,
I genuinely believed it.
88. What have been the consequences? With the
extra money what on the system has not had money spent on it that
should have had money spent on it?
(Mr Tunnicliffe) I could try and give you a written
answer to that. The key issue is that—
89. The Central Line could have been upgraded
substantially, could it not?
(Mr Tunnicliffe) No, the problems with upgrading the
Central Line have more or less all been the limitations of the
technology and making it work and so on. It has not been a money
problem. We will give you an answer but it will be things like
track renewals and that sort of thing. The key thing is a lot
of problems occurred before May 1997 and we did not get a very
good hearing and we did have to pull back our core programmes
quite significantly. Whilst we have sometimes wished this Government
would respond to our concerns more rapidly, essentially as compared
with the inherited budgets previously, new monies, as you know,
of £365 million I think in March 2000 and a further approximately
£500 million in July this year have come to us. We did have
to pause in one or two of our programmes. Broadly speaking we
have been able to maintain an average of around £400 million
a year in the three years which we are in the middle of now.
90. On the Jubilee Line are we ever going to
get 36 trains an hour?
(Mr Tunnicliffe) I hope so.
91. Do we need them to move the sort of number
of passengers?
(Mr Tunnicliffe) Certainly we do not need them for
a number of years but the Jubilee Line, and in a sense here I
do not make an apology, was in part an act of faith. It was a
belief that the building of the line would stimulate development
out of all proportion to what the simple planning models would
say and that very much like the Victoria Line for different reasons
before it, traffic would grow on it at an enormous rate and the
revitalisation effect of the line both on the Isle of Dogs itself
and on the corridors it serves would cause the thing to grow.
I think within a decade, personally, we are going to be saying
yes we need all the capacity we can get out of the line.
92. You are then hoping to get 36 trains?
(Mr Tunnicliffe) That would seem to be the theoretical
upper limit and certainly we want to set out a strategy that can
lead us to that if the demand is there.
93. In general can you tell us anything about
the balance between getting extra numbers of passengers and fare
increases?
(Mr Tunnicliffe) We know that broadly speaking fare
increases have in them the elasticity of I think decimal 26.
94. Can you explain that?
(Mr Tunnicliffe) As I was going to say, if we put
up our fares say ten per cent—I do that because the arithmetic
is easy—we would expect to lose 2.6 per cent of our traffic.
It varies between a business elasticity of about 0.19 so with
the worker driven traffic it is very elastic and I think it is
0.4 for our leisure traffic.
95. A very trivial question, when I buy a carnet
why can I not have one ticket which allows me to do ten journeys
rather than waste an awful lot of paper with ten separate tickets?
(Mr Tunnicliffe) The technology is not currently up
to it. We have a private finance initiative scheme to introduce
gating, new ticket machines right across LT including the buses
and that will move I think in about two years time to a contactless
smart card medium, which is a touch and pass type medium. It is
very probable we will be offering your carnet then on that electronic
medium.
Chairman
96. Mr Tunnicliffe, I do not want to keep you
here forever but there are certain things I need to know and I
need fairly brief answers. What about the conventional signalling
system that you have gone back to on the Jubilee Line rather than
the original sophisticated equipment idea. Why is that?
(Mr Tunnicliffe) Essentially because our contractor
so far has not been able to make the sophisticated system work.
97. Did you presumably give him the specification
and ask him to do it in the first place and presumably you were
then satisfied he could do it?
(Mr Tunnicliffe) We gave him an output based specification
and yes—
98. You were satisfied he was capable of doing
it and he was not?
(Mr Tunnicliffe) That is correct; as yet.
99. As yet. So what are the specific cost implications?
(Mr Tunnicliffe) I simply do not recall at this moment.
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