Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence


Examination of Witnesses (Questions 300 - 319)

MONDAY 17 APRIL 2000

RT HON JOHN PRESCOTT MP, RT HON LORD MACDONALD OF TRADESTON, MR MIKE FUHR AND MR PAUL DAVIES

Mr Gray

  300. I think so, I think the Deputy Prime Minister has accepted that there could well be conflict with the mayor if the major has a different view about how the finance should be raised.
  (Mr Prescott) Yes. That is a fair point. If the candidate, Mr Norris, who now I think is back on privatisation from what he seemed to be saying in his evidence, if he favours that, yes there will be direct conflict. If others try to come in and say "Look, even though it is best value I did disagree with it. I want something else, I want to try bonds and delay it for another two or three years" then I would just accept that I am in conflict with the mayor and get on with doing the job for Londoners.

Mr Stevenson

  301. One question, finally, on the public sector comparator, Deputy Prime Minister, which I touched on earlier and a second question or two about the alleged funding gap. My direct question about the public sector comparator is this. As we understand it, this comparator is applied over the whole 30 year life of the PPP?
  (Mr Prescott) I think only 15 years if I am correct.
  (Mr Davies) No, the full 30 years.
  (Mr Prescott) I am sorry.

  302. I saw you nod.
  (Mr Davies) Yes.

Chairman

  303. Mr Davies is that a yes or a no?
  (Mr Davies) That is a yes.

Mr Stevenson

  304. As we understand it, the contracts are reviewable every seven or eight years and once they have been signed, presumably the successful consortia will be in a pretty powerful position when that review comes. You are hardly likely to tell them to go away. What happens if those seven or eight year reviews blow a fair old hole below the water line of your public sector comparator that has been taken over the full 30 year life? Is this not a pretty important fall?
  (Mr Prescott) The 15 years I am referring to, I think, is the judgment about how much investment can be done over that period of time because it is difficult to make investment requirements over 30 years, so I am sorry for misleading. In regard to renewable, that is the seven and a half year period we put in to look at it and the mayor to discuss whatever changes he might want to make in this kind of thing. Basically I have the contract and, as I understand it, it is not a renegotiation of the contract. Perhaps it could be explained better by Paul.

Chairman

  305. No renegotiation, Mr Davies, just a calm acceptance of the fact it can continue?
  (Mr Davies) It is not a renegotiation. At that time there is an opportunity for London Underground to respecify the levels of service it wants because it does not know today what exact levels of service it wants in 22 years' time, let us say. There are periodic times when you can say to the private sector "I thought I wanted 30 trains an hour, we want 35 trains an hour" or whatever they may say. Clearly if they respecify what they want, the private sector has to reprice what they are delivering and that is, if you like, the contentious point. The two have to agree the economic and efficient price to deliver those services and that is what will happen at the periodic review. In the situation you described, because you were saying they are quite strong at that stage, and in the situation they could not agree, under the Act there is a statutory arbiter who is brought in to determine the true, economic and efficient price for delivering those services.

Mr Stevenson

  306. This review—just to get this clear—is nothing more than an opportunity to respecify?
  (Mr Davies) Primarily, yes.
  (Mr Prescott) Also, I think, would it not be possible, if the mayor took the view that they wanted to extend some lines, it might be the same contractor on their route, to say "We want to extend that" or "We want to modernise this particular section". They can do that but at the end of the day what they would be doing is they would be negotiating with that contract and saying "What would it cost to do it?"

  307. I think we understand that. I was just trying to clarify what effect, if any, a review of the contract, which is a public sector comparator over 30 years, when you have this review every seven and a half years, it is merely a respecifying exercise?
  (Mr Davies) It is not reviewing the contract at all.

  308. Can I go on, finally, to this alleged funding because we have heard evidence from witnesses that are pretty certain in their own minds, based on the information they have, that there will be funding gap. We have heard from some that the bond option would mean something like a £16 million per year funding gap. The PPP option would mean something like £95 million a year funding gap. Yes, you can frown, Mr Davies, the evidence is all there, I am sure you have looked at it.
  (Mr Davies) Yes.

  309. There is evidence we have received, also, that after two years there will be £175 million funding gap and that is likely to continue. Would you care to comment on those figures?
  (Mr Prescott) There seems a 100 per cent difference even in some of the figures you have got. I think that shows availability that makes it difficult to give us proper judgment. I think we have given the honest one to say there may well be but until you get the cost—and since this is a variable affected by what happens on the interest rate that you are borrowing, which is the point being made here, the risk and how far you transfer it, the cost it is going to be, and the level of efficiencies—it is very difficult to make that judgment. I do not run away from the point, as I think I said earlier, that it is not a zero grant that we are saying we can bring about, it may well be some contribution but we cannot tell that, and nobody can, and even those who are giving out the estimates have a difference of 100 per cent.

  310. My last question is about the possibility of a public comment. On 13 March I think it was reported in The Times that the Government was prepared to consider something like £2½ billion of public support, if I can use that term, to address any funding gap. Has that got any validity at all, that report?
  (Mr Prescott) Whatever the press says I have extreme doubts. Since it was a quote of my colleague and he is well aware of it, I will ask my colleague to answer it.

Chairman

  311. Lord Macdonald?
  (Lord Macdonald of Tradeston) Chairman, if I was quoted in that way, I was certainly misquoted. What I said to journalists when we were announcing the commitment to the extension of the Docklands Light Railway when this question was put, I said I would refer them back to Glenda Jackson's statement whilst she was Minister of Transport for London when she told the GLA Bill Standing Committee in February 1999—and I quote her—"Our aim is to avoid paying further grants if possible but that is not a prerequisite of concluding the PPP". What we have said, building on what Ms Jackson said some 14 months ago, we have never ruled out subsidy but we believe it is pointless to speculate about the level of it at the moment until the bids have been scrutinised.

Mr Stevenson

  312. My Lord, the £2½ billion that was quoted was false?
  (Lord Macdonald of Tradeston) Certainly it never crossed my lips.

  313. The £2½ billion that was quoted did not come from the Department of Transport?
  (Lord Macdonald of Tradeston) Certainly it did not come from the Department or from the press briefing which was an open press briefing. I think it was based on assumptions that the journalist had made, certainly nothing we said.
  (Mr Prescott) Or, as far as we are aware, any informed comment. That does not worry journalists.

Mr Bennett

  314. Can I take you on to the East London extension and the Croxley Link projects. Are they going to be paid for out of this PPP or part of this PPP?
  (Mr Prescott) I am sorry, is that the extension in London?

  315. The East London line.
  (Mr Prescott) I see. No, I do not think they are at the moment. What we are dealing with is the Underground lines. The only reason it probably came into play was when we attempted to see if we could get the connection between the main rail line system and the Underground and the possibility of an exclusive contract with Railtrack. We gave them the opportunity to see if they could make the east-west connection. That did not work out, as you know, and what we did ask for the other extension, which was the East London connection, was to ask the Strategic Rail Authority to report back to us on it. That is where we are at the moment.

  316. So it is not going to be part of the sub service?
  (Mr Prescott) It is not a part of this, no.

  317. Right. How are you going to get the funds for those and for bigger things like CrossRail and the Chelsea-Hackney link? Are not all of those essential or are they not going to have to be funded in a different way?
  (Mr Prescott) They are essential and I suggest you ask the London Mayor because it will be their decision.

Chairman

  318. Forgive me. That is a little bit—
  (Mr Prescott) Disingenuous.

  319. The word was your choice, Deputy Prime Minister, I would not bandy comments on the English language with you.
  (Mr Prescott) The word was on my lips.


 
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