Examination of Witnesses (Questions 280
- 299)
MONDAY 17 APRIL 2000
RT HON
JOHN PRESCOTT
MP, RT HON
LORD MACDONALD
OF TRADESTON,
MR MIKE
FUHR AND
MR PAUL
DAVIES
280. Can you also define for us what "action"
means in respect of the Rail Regulator?
(Mr Davies) I will pass back to the Deputy Prime Minister.
(Mr Prescott) Do you mean the Rail Regulator in regard
to the Underground because we do not have a Regulator as such?
281. We were talking about action.
(Mr Prescott) Action and penalties on performance.
282. The action you mentioned.
(Mr Prescott) Of course we have learnt a great deal
from the weakness of the Regulator, Madam Chair. We hope by the
use of incentives and penalties that we have learnt from the mistakes
we have made because what we inherited on the surface railway
system was a mess, a total mess—I think we are all generally
agreed about that—and we have spent a lot of time trying
to get it back on track. Certainly working with the public/private
sector, as we are on surface rail, does mean you are using incentives
and penalties. That is the best way of doing it. We have learnt
sufficient now to be able to make sure this works.
283. Could you tell us what the Rail Regulator
has actually done?
(Mr Prescott) The new Regulator has tried to set out
a whole new set of agreements. Let us go to the beginning. When
I first came in the Regulator told me that he had no means of
enforcing the promises that were made by Railtrack. I said that
was totally unacceptable and was he now telling me that he had
no powers to enforce the promises that were made by Railtrack?
He said he was intending to negotiate a voluntary agreement to
change the terms of the contract. He did negotiate one and that
in a way was some improvement but not improvement enough. I, of
course, then changed the Regulator and I have asked the Regulator
now to renegotiate these agreements, toughen up the standards
and make sure that they live up to their promises. I think this
Regulator is now using some of that new legislation with the extra
fines that he said he would impose on the industry if they did
not live up to their promises. From what I can hear of Railtrack,
they seem to be screaming and saying the Regulator is too tough
so it seems we have got somebody in there batting for the public
interest and I am quite pleased about that.
Chairman: I am sure everyone is very pleased
about that, Deputy Prime Minister. Mr Forsythe?
Mr Forsythe
284. How large do you expect the difference
between the Underground's revenue and the cost of the PPP?
(Mr Prescott) And the argument whether there is a
shortfall in it, whether it could cover all its maintenance and
investment? Indeed, I think that is one of the fallacies we have
heard when people talk about whether the Underground is making
sufficient to cover its costs. It does to cover its running costs
but not its maintenance or indeed its investment requirements,
and I think it is only in the last two years we have seen an improvement
in the situation. So it covers maintenance but not its investment.
Whether there will be a shortfall in this is a matter for the
judgment of the contracts as to how much it would cost to do it.
We will then have to make an assessment. There have been various
estimates made and I know there has been some discussion in the
Committee here and indeed in the Committee of the Bill of the
House when it was dealing with this. We have always made clear
if it was necessary to meet a difference we would be prepared
to do that, but we cannot make a judgment at the moment. I might
add that the Docklands Light Railway System has a contribution
from the public sector as much as from raising its own resources.
We cannot make a proper judgment at this stage until we have assessed
the contract bids.
285. Is the Government then prepared to make
a commitment at this point that that gap would be looked after
by government and is it going to be at a certain level or will
the level fluctuate depending on circumstance?
(Mr Prescott) I think we are all agreed that the Underground
itself must raise sufficient resources to be able to meet its
commitments for investment and running the railway system. The
argument is one of efficiency and whether you could have a zero
grant system. I do not know whether that is possible or not. You
cannot really tell until you know the cost of the efficiencies
and that is why the long-term nature of these contracts is something
you have to take into account. I cannot give you a proper answer
to that at the moment but the issue is not solely whether you
get the extra from the Treasury or from the PPP. It is about the
levels of efficiency in different forms of organisation which
we have chosen to illustrate in this particular PPP.
286. Would the Mayor have to raise fares to
recover any reductions in revenue?
(Mr Prescott) The Mayor does indeed have the ability
to raise fares. It will be his or her responsibility. I see one
of the candidates (confirmed again today in the paper) has said
there will be a freeze on fares for four years. That is an extra
£200 million that will have to be found either for investment
or on the fares or as a subsidy of one form or another. Do not
forget also that the Underground did use to receive some subsidy
and grant from the precept that used to be levied on London authorities.
Two-thirds of the grants came that particular way, from a precept
on the local authorities. It is always pointed out that London
Underground of course is able to operate with a greater proportion
of its requirements coming from revenue and fares than, say, Paris
or New York. At the end of the day it is whether you have got
sufficient investment to carry people and whether they are prepared
to travel for that price. We believe on our modelling that you
do not have to make any increase in price above inflation but,
indeed, it is up to the Mayor to make the decision.
287. What about a recession, that would have
an effect on the numbers of travellers?
(Mr Prescott) That is a very interesting point. It
is the same one we have with the railways at the moment in trying
to make an assessment of what are the requirements for railways
investment. It has always been the view, and indeed there is strong
evidence for it, that there is a correlation between the level
of use of the railways and the level of economic activity. I think
the growth we are now seeing on the public transport system is
probably as much to do with the congestion problems we face as
it is anything to do with the fares or the level of economic activity.
But it is an interesting question and it is one we are focusing
our minds on when you take a long-term view of how much might
come from fares and what is needed for investment in a good modern
railway.
Chairman
288. What did you decide when you focused on
that?
(Mr Prescott) Pardon?
289. What was the final conclusion?
(Mr Prescott) I have not got one, to be honest. We
do not want to enter into a recession—and I am not saying
we are; we have done very well on the economy—but it has
gone on longer than most and we have not had the cyclical development
that we have seen before and we are still getting an increase
in traffic. My judgment, my inclination is to believe that perhaps
it is more to do with congestion than it is to do with price or
economic activities, although I suspect, like everything, it is
a bit of each.
Mr Gray
290. First of all, can I just pick you up on
a very small point you raised. Did I understand you to say that
if there is a shortfall in the revenue it is possible that would
come from a precept to the local authorities?
(Mr Prescott) No, I was trying to indicate, and I
am sorry if I confused you, I do not know whether it is a zero
grant or subsidy game until we have a look at what the costs are
and what the levels of efficiencies are, but we have not ruled
that out as a possibility. I gave examples of London Docklands.
291. Is there any circumstance under which it
might become a precept on London local authorities?
(Mr Prescott) No, I do not think that can be because
that is to do with the local financing as it is at present, though
in fact, as you know, the whole London Transport situation is
financed from a grant, from money we give to the GLA which then
gives it to London Transport. Perhaps I should add, of course,
there has been much discussion about congestion charges, parking
charges and things like that which are supplementary incomes which
a mayor has a right to be able to implement if they so wish.
292. As you say quite like a tax.
(Mr Prescott) Like what? I did not hear the last point.
293. Like a tax I am saying, but that is something
for another day. The question I want to ask you, I have been rather
puzzled by the discussions so far this morning. If you are seeking
a way to maximise investment and to transfer risk away from public
sector into private sector and to maximise the excellence of the
service provided to the travelling public, and you have explained
that those are the things you are seeking to do, as the Chairman
said a moment ago that sounds to me like a very, very powerful
cogent argument in favour of straight forward privatisation which
is exactly what ministers from my party used to argue with regard
to privatisation of lots of things. So why is the PPP better than
privatisation?
(Mr Prescott) We think it gives the proper level of
public accountability. We actually think the people in London
prefer to keep the public ownership. This is not a privatisation
in any way, they want to keep their assets, they have invested
in it. What we are trying to do is to modernise them. Privatisation,
if the past experience is anything to go by, gets sold off at
a knock down price and does not necessarily lead to the guaranteed
investment. I just pray in aid the present railway system. Leaving
that aside, I do happen to believe that it is far better with
the public sector and in the way we have described. It is a unique
PPP. It is the largest one that has ever been done, provided we
pass all the tests that we have said we will compare it for, for
best value. It will be the best way of a public sector doing what
it can do best in providing its services and the private sector
giving us the kind of private finance and efficiencies that will
give us the benefit in providing that long term investment.
294. So the only benefit is the public accountability,
that is boiling down what you have said?
(Mr Prescott) No, I happen to think that in this way
we will get the best from the public sector and the integration
of the transport system. Integration is a very important part.
If you were privatising this one, I think it is important that
you have a total public transport system. I think that is best
served by its public ends but I see no reason why you cannot borrow
the money privately. You could argue leasing, you could argue
different ways of raising finance from the private sector. Bankers
will provide the money provided the conditions are acceptable
to them. I think we get the best of the private sector in its
efficiencies and project management alongside the public sector
providing the best in providing a public service.
295. Right. But when Mr Dobson was here last
week he accepted that it was ideological. He said "of course,
it is ideology, that is all it is. There is no particular advantage
in PPP" or he could not think of any. He said "It is
ideological". Are you disagreeing with him?
(Mr Prescott) I do not know, I have not read all his
evidence.
296. I thought you had.
(Mr Prescott) I have read some of the evidence. I
think I must have gone through God knows how many documents in
the last 24 hours and I have tried my best to keep up with it.
The way that Frank referred to that about ideological is the way
I assumed I was referring to. Whether you raise it by bonds or
by PPP is not an ideological issue. I have been highly critical
of a public sector and public financing which has denied most
of our public sector industries proper capital to do the investment
to modernise and that is straight across from electricity, water,
all these, because we did not have a proper public financing facility.
All governments, and I have been critical over a long time, but
that does not mean to say I keep banging my head against the wall,
I have to find another way of doing it. I started off with leasing
on some trains and I have ended up with the Public/Private Partnership
in the Underground which I think makes sense and is a good way
of raising the money and keeping the profit.
297. If your opposition to privatisation is
it is ideological, or if your opposition to bonds seems very fundamental,
surely there is a three out of four chance, let us say, that you
will have a mayor shortly who will be fundamentally at disagreement
with you, as I understood it, Mr Livingstone or the Liberal Democrat
or Mr Norris?
(Mr Prescott) I cannot keep up with Ken, he keeps
changing. I think he came here and said he was Public/Private
Partnership now provided it went past the public. Yes, that is
the feeling we get when we listen to his statements. One shakes
the head but nevertheless that is the case. As all candidates
know, if we think this is the best value in the interest of Londoners
in the way that we have said and we have fought it on our manifestos,
we will sign the deal.
298. It is waffle though, is it not? Surely
what we are talking about here is maximising investment and removing
risk and surely the way to do that is by privatisation. All this
is waffle about public accountability.
(Mr Prescott) I do not know how you have got the nerve
to talk about privatisation belonging to a government that introduced
a rail system whose mess we are trying to deal with.
299. I think British Airways and the water companies
and a whole raft of other privatisation have been demonstrated
to be outstandingly successful. This is not the place for an ideological
discussion.
(Mr Prescott) Not to continue the point but just to
say on British Airways, if you look at that, all its changes were
made basically under the public sector, as a matter of fact. Talk
to Lord King about that.
Chairman: When we talk about finance we are
not talking about how British Airways took over a number of Concordes.
If we move on, Mr Gray, have you finished now on this?
| 
