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London Underground
7 pm
The Secretary of State for Transport, Local Government and the Regions (Mr. Stephen Byers): With permission, Mr. Deputy Speaker, I should like to make a statement on the future of London Underground.
Earlier today, the board of London Regional Transport announced that it was "minded to proceed" with the plans for modernisation of the tube. In coming to its conclusion, the board has undertaken a thorough evaluation of the bids to assess whether they are likely to provide value for money. It is confident that they will do so and that the proposed contracts will provide an appropriate basis for the future maintenance and renewal of London Underground's infrastructure.
The board of London Regional Transport will now consult the Mayor of London and Transport for London under the terms of the Greater London Authority Act 1999. The final decision on whether to proceed will be taken in the light of that consultation.
Last autumn, I announced that I intended to take independent advice from Ernst and Young on the evaluation process that London Underground and London Regional Transport had followed, and on the robustness of their conclusions. Ernst and Young began its work in October, and has kept in close contact with London Underground during the evaluation of the final bids.
Ernst and Young reached the following conclusion. Overall, the methodology adopted for assessing the value for money by London Underground has been robust and appropriate, and London Underground's recommendation that the public-private partnership proposals deliver value for money is a subjective one, which is supported by its analysis. Copies of the report were placed in the Vote Office at 2.45 this afternoon, when I answered a written question on this issue.
I have always made it clear that my approach to the modernisation of the underground would be based on three principles. First, there must be no privatisation; secondly, safety must not be compromised; and thirdly, the contracts must offer value for money.
Under these proposals, there will be no privatisation. London Underground will remain in the public sector and will have control of all operations. It will run the trains, work the signals, control the track and operate the stations. So there will be no privatisation, or part-privatisation, of the London underground. The public sector will be in charge of the safe operation of a single unified network. London Underground will set the strategic priorities for investment, and monitor the performance of the private sector contractors that build and maintain the infrastructure.
Where the contracts differ from current arrangements involving the private sector is mainly in their scope and duration, and in the allocation of responsibility for integrating the various packages of work necessary to upgrade the tube and modernise it properly.
These are long-term arrangements that envisage a real partnership between London Underground and the private sector, which will work together to deliver sustained improvements. That partnership should enable substantial efficiencies to be realised and locked into the long-term process of tube modernisation. In particular, it should prevent the problems of the past, when infrastructure
improvements—notably, of course, relating to the Jubilee line extension—have all too often come in over budget and later than originally planned.The private sector will be contractually bound to deliver specific improvements. London Underground will be empowered to monitor the contracts closely and enforce them rigorously. If the private sector companies fail to perform, they will be penalised for so doing. If that sanction fails, they could lose their contracts. If the private sector does not do the work properly or puts safety at risk, London Underground will have the power to step in, do the necessary work and bill the private sector accordingly.
Secondly, safety will not be compromised. The Health and Safety Executive is currently considering the changes to London Underground's railway safety case to reflect the bidders' proposals for maintaining and upgrading the network. Only if those are accepted will the modernisation plans be allowed to proceed. If they do proceed, the infrastructure controller, London Underground—in the public sector—will retain clear statutory responsibility for safety across the whole of the network. The private sector infrastructure companies will have a contractual safety case with London Underground. They will have to perform to standards every bit as demanding as those required at present by London Underground's own statutory safety case. It will be for the Health and Safety Executive to accept the safety case. That is not a matter for politicians to decide. In my view, it is far better to leave it to the independent experts.
The third test is value for money. I have always said that the tube modernisation plans should not proceed unless they are likely to provide appropriate value for money. In preparing its final assessment of the proposed tube modernisation contracts, London Underground has conducted a full evaluation of value for money. As the National Audit Office has said, value for money is not a simple pass-fail test. London Underground has carried out a thorough evaluation of bids, incorporating both a financial assessment against a public sector comparator and wider factors that cannot be quantified in purely financial terms.
Essentially, the public sector comparator measures the cost of providing the same modernisation of tube infrastructure under current arrangements. It also takes account of two possible funding scenarios: annual grant and bond finance. Hon. Members will be aware that in December 2000 the National Audit Office reported on the public sector comparator that London Underground proposed to use and made various recommendations. Those have been taken into account in the construction of the comparator used for this final evaluation of the bids.
London Underground's evaluation demonstrates that the tube modernisation contracts are likely to deliver good value for money over their 30-year term. Even when tested on a much more demanding seven-and-a-half year basis, the value for money of the PPP remains favourable. The bids look good not just against a public sector option funded in the conventional way through annual grant, but also one funded by bonds, which was, of course, the Mayor's preferred approach.
On the basis of the advice that we have now received, the Government believe that the tube modernisation proposals represent the best way forward. In headline
terms, London Underground will receive investment on an unprecedented scale. Now that the actual bids have been evaluated, I am able to report that we would expect investment of about £16 billion in the next 15 years. That figure includes nearly £8.5 billion to be spent on trains and signalling, nearly £4 billion on track, and more than £3.5 billion on stations. By any standards, it will represent a step change in the amount of money spent on the underground and will begin the process of making it a system fit for the 21st century.The benefits of proceeding with the tube modernisation contracts are considerable. Over the first 15 years of the contract, London Underground will save £2 billion compared to traditional public funding. On any measure, that represents a significant saving to the public sector. What is more, the contracts will mean faster and more reliable tube journeys than the alternatives. London Underground says that those could be worth as much as a further £2 billion to its passengers.
Such savings can be achieved only through harnessing the private and the public sectors together, which is why this partnership is such an important feature of the Government's reform of the delivery of public services. Over the first 15 years of the contracts, £4 billion of the money going into improvements to the tube will come from private finance. Put simply, if that private finance was not forthcoming, it would need to be found within the public sector or not at all, which would mean less money to spend on other priorities such as health, education and other parts of the transport system.
We believe that there is now a clear choice. On the one hand, we can move ahead with proposals that will see the tube transformed, with real year-on-year improvements beginning immediately the contracts are signed. We think that that is the right way forward, subject, of course, to the outcome of the consultation process and to the board of London Regional Transport taking a final decision to proceed with the contracts.
Alternatively, we could look forward to yet more delay while different plans are prepared and a new procurement exercise is put in place. That would condemn Londoners to several more years of the status quo, with a creaking infrastructure that is unable to deliver the efficient and modern underground system that the travelling public rightly deserve.
Our modernisation plans for the tube will unlock £16 billion of investment over the next 15 years, the equivalent of £5,000 for every household in London. There will be no privatisation. The publicly owned London Underground will remain in control and safety will be paramount, which is why the Health and Safety Executive will have the final say.
These proposals form the basis of creating a tube fit for the 21st century, and I commend them to the House.
Mr. Eric Pickles (Brentwood and Ongar): I thank the Secretary of State for his usual courtesy in giving us sight of his statement before he made it. No doubt he expects us to rant and rave over the fact that the statement was made at 7 pm when the entire world knows exactly what he intends to do, but frankly there are more important things to deal with and I intend to move on, save to say that I congratulate the Secretary of State on making history. Usually statements at 7 pm have been on matters
of war or catastrophe. This is the first time that a statement has been made at 7 pm on an impending catastrophe.In particular, I thank the Select Committee for its splendid work, which has made the Secretary of State's statement understandable, and the many Labour Back Benchers who have briefed me over the past few days warning me about the problems that are to come.
The Secretary of State is enthusiastic about these proposals. Sometimes we are told that savings will total £3 billion, sometimes that they will total £4.5 billion. Now we are told that they will total £2 billion.
The Secretary of State says that the proposals represent best value for money, real improvements and a saving for the public. I almost expected him to produce a piece of paper from the Government's favourite accountants saying that this is the best thing for transport policy since the De Lorean motor car.
Does the Secretary of State understand that the proposals rely on a serendipity of circumstances? Everything has to be lined up to the most favourable of the various variable circumstances for the savings to occur. The PPP is more expensive than the Mayor's bonds. Does the Secretary of State accept that to achieve £1 billion of savings, efficiency savings of 35 to 40 per cent over the public service model would be needed? Given that the projects involve not only infrastructure but day-to-day maintenance does he seriously expect the House to believe that 40 per cent. savings can be achieved?
The proposals also rely on the serendipity of nothing going wrong. The liability of risk for certain events and assets has been shifted from the private sector to the public sector. The liability of risk of contractors will be capped. That is why the Secretary of State was most careful to use the expression, "They will be billed accordingly." According to the contracts they will not pay accordingly because their liability will be capped. Does he agree with London's Transport Commissioner that
- "the amount of risk that has been transferred"
- "is barely perceptible"?
Let me briefly read from the Ernst and Young report:
- "The contract structure is unique, inevitably meaning that it has not been proven in a commercial environment . . . If the contract structure, in particular the risk transfer and review mechanisms, does not function effectively, either through poor design or operation, then there is a risk that value for money could be eroded."
I wish to ask the Secretary of State about the connection of Ernst and Young with the various contractors who are bidding. I expect such a company to have some connection with many of the main players, but I am surprised that it has entered into a partnership with W. S. Atkins, one of the principal bidders. Did the Department question the partnership? What assurances did the Secretary of State receive? These are matters of probity. I should be grateful to hear from the Secretary of State why it was felt appropriate for Ernst and Young to go into partnership with W.S. Atkins.
The Secretary of State fails to address capacity. All the decisions are pushed to the second quarter of the 30-year period. There will be no new trains for years. There will be no upgrades for years. Ten years from now passengers will notice little or no difference. Will the Secretary of State confirm that the Jubilee line will have no new trains or no newly refurbished trains until 2018? Will he confirm that the Bakerloo line will have none until 2018? Will he confirm that he will be 67 years old before the Bakerloo line sees refurbished trains? I know that the Government are asking us to prepare for retirement, but I do not think that that is entirely what they had in mind.
The PPP will be supported by a combination of fare box and public subsidy. Before the Select Committee the Secretary of State said he felt that the fare box could cover 30 per cent. of the PPP without raising fares above the rate of inflation. Can he now tell us what the level of public subsidy will be over the first seven-and-a-half year period? Given that he has extended the consultation period until 8 March, which coincidentally is the same date as the Health and Safety Executive is due to approve version 3.1 of the safety case, is he confident that by the end of the consultation period we will have the HSE safety case?
This is an off-balance deal. It is so off balance sheet that it would make Enron blush. For five years the Labour Government have neglected the tube. Public investment has been down by 25 per cent. Delays and overcrowding have increased. The measure bears all the hallmarks of the Secretary of State: it is wildly optimistic, it completely disregards dangers and it is made with the certain knowledge that when it is time to give account, others will be carrying the can.
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