Examination of Witness (Questions 78 -
99)
WEDNESDAY 5 APRIL 2000
RT HON
MR FRANK
DOBSON MP
Chairman
78. Good afternoon to you, Mr Dobson. You are
most warmly welcome. Would you like to identify yourself for the
record. If you want to make any general remarks, this is the moment
to do it.
(Mr Dobson) I am Frank Dobson. I am the
Member of Parliament for Holborn and St Pancras and I am Labour
candidate for Mayor of London. I think the only introductory statement
I would like to make is this: from my experience with the private
finance initiatives in the National Health Service, I came to
the proposition of these public/private partnerships somewhat
sceptical but I have become convinced that where any particular
bid will provide a lower outturn cost, then they are a good bargain
for the public. We really do have to avoid a repetition of the
scandalous investment record of London Underground which has been
characterised by huge delays and enormous cost overruns in practically
every project they have ever been involved in, of which the Jubilee
Line Extension is but the greatest and most spectacular where
it is two years late, still not working properly and it cost £1.5
billion more than it was supposed to. To get that sum in perspective,
most people in the country, including the BMA and the Royal College
of Nursing, think the extra £2 billion the Chancellor of
the Exchequer has found for the Health Service this year will
lead to a step change improvement in health care in the whole
of the United Kingdom, but London Underground spent the equivalent
of three quarters of that on the cost overrun of extending one
tube line. I also believe £1.5 billion is, roughly speaking,
equal to the total amount of investment that there would be in
new transport provision in the West Midlands for the next five
years. In those circumstances I do not think we can go on financing
and making contracts in the way that London Underground has done
in the past.
Chairman: Mr O'Brien?
Mr O'Brien
79. On the issue of PPP, which you have advised
us you believe in, do you believe that sufficient safeguards are
in place to prevent safety standards falling when the three infrastructure
companies and the separate operating company for the Underground
are created particularly with a PPP?
(Mr Dobson) There are two points I would like to make.
First of all, what I am in favour of for any particular project
is whatever would be the best deal for Londoners in terms of actually
getting a tube line improved, maintaining it properly on a regular
basis over a long period of time, leaving every aspect of the
operation of London Underground in the unified hands of the publicly-owned
London Underground and also making sure that at every stage in
the proceedings any changes that are made are cleared in advance
with the Health and Safety Executive. Providing those conditions
are met, we can then see what the outturn price would be. I think
there has been some confusion with quite a lot of people that
the PPP, if it works in any particular case—and it seems
to me that it has to prove itself for each particular project,
or disprove itself in some cases—if it proves itself in
any particular project what it has to do is to ensure that, as
I have said already, the organisation of every aspect of the operation
of the Underground remains in the hands of London Underground.
In those circumstances I think that it is reasonably safe to go
forward. But there seems to me an impression abroad that what
is proposed through the PPP is the equivalent on the Underground
system of what the previous Government did by way of franchising
out and breaking up every aspect of British Rail so that one organisation
was responsible for operating the infrastructure, information
systems and signalling systems, and a wide variety of other operating
companies were responsible for operating the trains. That is not
what is proposed in any PPP that has been put forward.
80. In view of your experience are you satisfied
that there are sufficient safeguards built in there at the present
time?
(Mr Dobson) There will have to be and it will be an
obligation on London Underground to do the rail safety case for
every aspect of the operation of the London Underground. As I
say, I would want every stage of any contract to be cleared in
advance with the Health and Safety Executive because we have got
to recognise that safety is not just a matter of technical things
and it is not just a matter of how operators behave, but changes
in management, changes in management approach and changes in management
structure can have an impact on safety and they therefore need
to be cleared in advance.
Ms McIntosh
81. If Mr Dobson's concern is the best deal
for Londoners, why not full privatisation?
(Mr Dobson) Because I do not think it would be the
best deal for Londoners.
82. Can you persuade the Committee why you think
PPP is a better deal?
(Mr Dobson) I do not want to be rude but I would not
bother to try to prove that it is a better deal than privatisation
because I think full privatisation would not be a good deal. What
I would say in relation to other methods of funding is this: there
has been a lot of talk about the cost of the capital to finance,
say, bonds or government borrowing as against the higher cost
of capital to fund a PPP, and it is certainly true that the odds
are that a bond would probably carry an interest rate of around
six per cent, if it was not guaranteed by the Treasury, and the
capital for a PPP might run out at about ten per cent, but that
is not the crucial figure. The crucial figure is the outturn figure,
what would be the final cost of the project, and if there were
any cost overruns, who would pick up the bill? With the PPP, I
think that there are incentives in the system to get them to finish
things on time and there are incentives built into the system
to ensure that they do not have cost overruns and the biggest
incentive of the lot is that the consortium and their financial
backers will have to pick up the bill for any cost overruns in
a way that they have never had to do with the Underground up to
now in the traditional contracts that have been let. And so, for
instance, if the Jubilee Line Extension had been financed through
a London bond then Londoners would now be having to find £1.5
billion more and that would be the equivalent of £500 per
household.
Mr Gray
83. I am puzzled by this. Surely the biggest
incentive of all would be to put the whole thing into private
hands. You said a moment ago that you would not bother to explain
to the Committee why a PPP is better than a PFI. I think you have
to explain to the Committee and others who are listening why a
PPP is better than privatisation.
(Mr Dobson) For a start, as I say, I think that to
privatise the tube on the basis of the sort of arrangements that
the previous Government applied to the railways would be absurd,
I think it would be damaging, I think it would be bad for safety—
84. Do not let us talk about the privatisation
of British Rail.
(Mr Dobson) In that case, I am not in favour of establishing
a privatised monopoly in London because I think that that would
be disadvantageous as well.
85. Simply because it is a monopoly?
(Mr Dobson) By and large, monopolies are not a good
thing.
86. Surely under a PPP it would effectively
be a monopoly? A PPP is not introducing competition into London
Underground, or is it?
(Mr Dobson) Yes it is. I think you misunderstand the
situation. Various consortia have been invited to submit bids
under the PPP for the two groups of lines and they are in competition
with one another and that should be an incentive for them to keep
the cost down.
87. Various consortia might well try to buy
it if you privatise it. I am not sure the PPP process or the privatisation
process is anything to do with competition. The point you made
that you must not have London Underground owned by a monopoly
because they might put up prices, for example, indicates that
somehow competition might be introduced to the running of the
Underground?
(Mr Dobson) No, I am not suggesting competition should
be introduced into the running of the Underground. What I am saying
is that there is an element of competition in the PPP approach
to the renewal and continued maintenance of the Underground lines,
and I think that is a sound idea as indeed there would be even
under the traditional system because the project would be put
out to tender. My concern about the traditional system is that
it has ensured that when anything has gone wrong the public have
had to pick up the tab and I do not think the public should go
on picking up the tab any longer. I think the advantage of the
PPP is to tie in the sources of finance with the contractor so
that they both share the financial risks. In exchange for those
financial risks they get a higher rate of return than the financiers
would get if they were selling bonds but nevertheless the total
outturn cost to Londoners, providing the bids are sound bids,
should be cheaper.
88. Surely full privatisation would lead to
the handing over of all of those risks, lock, stock and barrel,
to the private sector. Surely your objection is ideological rather
than anything else?
(Mr Dobson) It may be. There is nothing wrong with
ideological.
Mr Gray: It is what is best for Londoners.
Mr Donohoe
89. Do you think the Piccadilly line, as it
is, is adequate to serve London's main hub airport?
(Mr Dobson) I do not think any of the lines are doing
the job that Londoners want. From the point of view of the average
Londoner using the system, they find a system that is unreliable,
dirty, breaks down, escalators do not work, things are slow, things
are filthy, the trains are not running when they ought to be,
the system is a mess; it has got to be updated.
90. What plans do you have for building new
lines or upgrading the existing lines and how would you see these
schemes being paid for?
(Mr Dobson) There are two aspects. Clearly in terms
of the people who are presently subjected to the indignities of
travelling on our existing tube system, our first priority must
be to improve the system from their point of view, to make their
journeys better, to get them where they want when they want in
reasonable conditions and, indeed, to improve those conditions.
So we need to introduce things like air-conditioning which has
not been available in the past on the tube, and those people who
stifle on the tube during the summer really look forward to the
idea of a spot of air-conditioning. In addition to that we need
more capacity which is why I am a strong supporter of the cross-rail
project running from Paddington to Liverpool Street initially
and then out to Stratford. I also believe we need to complete
the East London line which was ripped up in the Beeching days
and that would make a big contribution to improvements to transport
in East London and also it would mean we could complete what one
might describe as an outer circle route round inner London which
would be advantageous to people. All of this is just trying to
deal with existing problems. I believe in the end we need to try
and get ahead of the game. I therefore believe that ultimately
London needs an outer orbital route running round the outer London
boroughs out as far as Edgware in the north or East Croydon in
the south with connections—
91. How do you pay for that?
(Mr Dobson)—Because one of the problems in London
is that most people get a bad deal from the transport system but
the people living in the outer London boroughs get the worst deal
of the lot. Very many of them live in one outer London borough
and work in another. If they want to get there by public transport
they have frequently got to come in on a radial line into the
middle and then out again.
92. I am interested to learn how you are going
to pay for those. How do you pay for those schemes?
(Mr Dobson) My approach is quite straightforward.
We need to look at whatever propositions are put forward for each
project and assess which is most likely to get built quickly and
on time and to price, and then choose which is the best deal for
Londoners depending on whatever propositions are put forward.
If we get a package by way of a public/private partnership and
that is the best bargain, that is fine, and if we do not, we will
have to look at other means of financing it.
Chairman: We have exactly five minutes and three
members want to ask questions. Mr Olner?
Mr Olner
93. I want to explore the bonds versus PPP issue.
You are quite convinced that PPP is the best route forward because
at the end of the day that delivers no risk to Londoners?
(Mr Dobson) Providing it is a decent bargain, yes.
Going back to my experience as Health Secretary, I approved 19
hospital building projects using the private finance initiative
and I think it was five or six not using the private finance initiative.
In some cases there were competing bids. Obviously there were
competing bids for each of the hospitals and some of them were
a better bargain for the Health Service than others. It is best
to choose the best bargain, but in some cases the PPP was not
workable and so I think if you are not ruling things out on grounds
of dogma then anyone who is Mayor or who is Secretary of State
for Transport has obviously got to say, "Well, the PPP may
work in certain circumstances but there may be circumstances in
which it will not." The test is what will be the ultimate
cost to Londoners? And it is the outturn cost and who will pick
up the risk of the cost overruns which I think are the most important
considerations.
94. Just one last quick question from me. London
Transport management—what are you going to do to get that
sorted out?
(Mr Dobson) It does not apply to everybody but I think
its record is that it is very, very poor and it is particularly
poor at managing capital projects. We were talking about the Jubilee
line which is a huge project but the Hillingdon station building,
I think that was 40 per cent over budget, the renewal of Mornington
Crescent station in my constituency, I think that is 40 per cent
over budget, and the renewal of West Ham station, I think that
is double the original budget, so that has been very, very badly
managed. I think, generally speaking, the management of London
Underground has been poor for a very substantial period of time.
So it is a combination of a need for further investment and a
need for better management and we need both.
Mr Bennett
95. Do you see workplace charging and road pricing
as being one of the ways to meet the gap between fares and the
cost of running the system?
(Mr Dobson) I do not support the proposition for charging
people for workplace parking. I support the proposition for congestion
charging in principle but we have all been advised that it would
take something more than three years in order to get a full blown
electronic system in place. I think in a city as big as London
we should not try to do it other than by doing it properly with
the latest technology. So I do not believe it will be possible
because if there is an estimate that it is three and a quarter
or three and a half years, experience suggests that it will be
four.
96. Even at the end if it was going to four
years should the revenue that comes in from it help to subsidise
the tube fares?
(Mr Dobson) By law the revenue that comes in must
be spent on improvements in public transport of one sort or another,
but I do not think a paper-based system, which is what some people
are proposing as an interim measure, would be very likely to work.
It would be very costly to administer and might actually by its
administration make congestion worse than it is now.
97. You would like it to come in under the next
mayor rather than the present one?
(Mr Dobson) I do not think a proper system could be
introduced during the first term of the first mayor, but I do
believe that it ought to be introduced ultimately. I think if
we are going to have a city which has a reputation for modernity
it would be best if we actually had a modern system.
Dr Ladyman
98. Besides the Jubilee line and the cost overruns
you cite there, what other examples do you have of cost overruns
in the private sector which are involved in partnership?
(Mr Dobson) The private sector is always involved
and the private sector makes a fortune out of the cost overruns.
The people supplying the finance make even bigger fortunes. Under
the traditional system of contracting for whoever is lending the
money, the more money they lend, the more profit they make. They
have got an incentive in a sense to see things go wrong. Under
a PPP it is their money they are overspending and they have got
an incentive to make sure things are done properly.
Chairman
99. On that note, Mr Dobson, can I thank you
very much for coming to give evidence.
(Mr Dobson) Thank you very much.
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