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Mr. Gardiner: Will the hon. Gentleman give way?

Chris Grayling: I will when I have finished this point.

To compound that shortcoming, we also learned from the report that the public and private sector comparators will cost the same amount of cash. The only difference is an accounting nicety, apparently designed to reflect a social cost saving of taking the private rather than the public route. That is not used in any other PPP or private financial initiative scheme; it is a nebulous counting concept used by London Underground. We did not even have direct factual information on which to base an assessment of the Government's judgment that one route was better value than the other. It was an accounting trick.

Tom Brake: Does the hon. Gentleman agree that, at present, one has to be very careful of accounting niceties?

Chris Grayling: The hon. Gentleman's point speaks for itself. I apologise to the hon. Member for Brent, North (Mr. Gardiner) for not giving way to him first.

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Mr. Gardiner: The hon. Gentleman claims that no substantive checking of the figures took place. I know that he must be aware of the National Audit Office report delivered on 15 December 2000 to his Committee, because his Committee commissioned it. Is the hon. Gentleman saying that appendix 2, which clearly sets out the methodology that the National Audit Office followed in establishing exactly what he claims has not been gone into is false, or will he accept that substantive investigations were carried out?

Chris Grayling: I refer the hon. Gentleman to the statement made by the former Secretary of State for Transport earlier this year, when he said:

"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."—[Official Report, 7 February 2002; Vol. 379, c. 1126.]

I have referred to the health warning at the beginning of that report which, in my view, casts, at the very least, substantial doubt on the validity of the decision taken by the Secretary of State.

This scheme does not deliver real solutions to the congestion problems on the London underground. It delivers station improvements ahead of new trains and track improvements. It is financially questionable and does not enjoy the support of the public in London, the vast majority of London Members of Parliament, the democratically elected Mayor of London or any political party apart from the governing party, yet the Government are still determined to press ahead. All I can say to them is that it is not too late to change their mind; in Mr. Kiley, we have an impressive witness, with a track record, who came to the Select Committee with a clear action plan that, in our judgment, offered an attractive alternative. The Committee has seen no evidence that the Government have given full consideration to that option.

Mr. Spellar: If the hon. Gentleman finds the option so attractive, can he explain why his Committee said:

"we have not been able to evaluate that plan in detail over the course of the inquiry"?

Chris Grayling: We took evidence. We did not make detailed evaluation—that is not our job; it is the Government's job to carry out detailed evaluation.

Mr. Kiley has a track record. He has delivered real improvements in other cities. He is the commissioner for transport in London, appointed by the democratically elected Mayor of London. At the very least, in the view of the Committee and in my view, we and the Government should be giving serious consideration to the options that he proposed. The Government constantly say that there is no alternative, yet we have heard strong evidence for one. It is not too late for the Government to take that alternative; I fear that the route that they are taking will not deliver the solutions for which they are hoping. I appeal to the Minister at the very least to think again.

4.21 pm

Harry Cohen (Leyton and Wanstead): I remain convinced that the PPP system set up by the Treasury is not the best one and that it will not achieve the maximum

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modernisation of the tube. As I have told Parliament previously, I am not opposed to PPP in principle, but this model is especially poor. Four business men who gave the PPP its genesis in the Government and I question their credentials for operating a public service.

I doubt whether the total amount of private money promised for the system will come through; it certainly has not yet done so for the main line railways. The timing is likely to delay important infrastructure improvements; and the money will be repaid at a high cost to the public pocket.

We are living in the time of WorldCom and Enron, where there are no proper standards of auditing and accounting. Instead, auditors and accountants are complicit in deception.

When I asked a parliamentary question about the cost of underground projects undertaken by the private sector, the reply was given in terms of the value to LUL. Actual spending is very different from the assumed value to an organisation, when that value has been set by the organisation. As an accountant, I call that bad accounting practice—exactly like the WorldCom case.

The Treasury's alleged £2 billion saving from the PPP, based on that WorldCom approach and a comparator skewed against the public sector, must be deemed unreliable. Will the Minister tell us where the independent audit arrangements are for the PPP finances?

I hope that the Health and Safety Executive will not be complicit in the project. It has yet to report on the tube safety plans, but I was told in another parliamentary answer that the contracts were likely to take effect this summer. That could mean that the Minister takes a decision with no informed parliamentary debate on the safety issues. Will the HSE report be available before the recess, and will there be a parliamentary debate before the contracts go ahead?

A recently published report from the former Department of Transport, Local Government and the Regions—its 2002 report—states that the 10-year planned investment for London—buses and tube—will be made up of £7.8 billion from the public sector and £10.4 billion from the private sector, making a total of £18.2 billion. A further £7.4 billion—described as public resource, but really a public revenue subsidy—is envisaged over the period, giving an overall total of £25.6 billion. Under the proposed system, much of the public money will not go directly into work on the tube but to company profits, dividends for shareholders and directors, and interest payments to City financiers.

Transport for London points out that there is a serious funding gap; it amounts to £1.473 billion for 2005–06 to 2009–10, including the sum of £771 million which is LUL's assessment of its funding needs in excess of the transport grant. TfL notes that an additional £170 million is necessary as a contingency reserve, for which nothing is provided in the current Government figures, despite the recommendation in the latest White Paper "Strong Local Leadership—Quality Public Services" that local authorities should have a duty to maintain adequate reserves. TfL also maintains that there is a £532 million gap over the period in provision for risks and other costs that need to be managed.

Under such contracts, too much risk remains with the public sector. In those circumstances—as my hon. Friend the Member for Regent's Park and Kensington, North

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(Ms Buck) pointed out—there is a powerful case for Transport for London to have the equal comfort that the Government have already provided for the private infrastructure companies. That would cover risks that were outside management's control—perhaps of magnitude or low probability—which it would not be sensible to fund from the transport grant.

The negotiations started at the behest of the Government have moved that risk from the infracos to TfL, so the Government should recognise their responsibility and provide the necessary comfort. The credit assessment agency, Standard and Poors, has already given TfL a "negative outlook" status, so the Government should rectify that with a letter of comfort and a proper funding agreement; otherwise TfL—and the tube with it—could go broke. Full-scale privatisation, which the Government say that they do not want and the public most certainly do not want, would inevitably follow.

The DTLR admitted a shortfall of £154 million per annum but maintains that it is

"a reasonable target for management to reduce costs and increase revenues."

That sum is not a reasonable target; it approaches the entire operating budget of trains. PPP and PFI put more than 50 per cent. of TfL's cost base beyond its control. A high proportion of the remaining costs, such as business rates, are, in effect, fixed. The Government have pointed out that their PPP calculations were based on fares remaining constant in real terms. However, that leaves a huge rise in council taxes and huge cuts in services. The Treasury must think again.

The Treasury insists on unrealistic assumptions of wage growth—only 1 per cent. real wage growth. Public sector pay, London living costs, rail industry pay, higher national insurance costs from the recent Budget and extra management costs to cope with the complex PPP contracts all suggest that a higher figure will be necessary. The current assumptions are a formula for a showdown with the trade unions, which will be the Government's fault. The Government have also yet to agree, and pay towards, the administration arrangements of the London Transport pension fund.

Tube Lines, the infraco responsible for one of the three tube contracts, has submitted its draft financing documents. They show that lenders will have a panoply of powers to control or direct infraco activity in more than 100 decision areas. Bob Kiley said of that:

"London Transport's assent to the ceding of such control to the private lending institutions would represent an extraordinary and inappropriate abdication of public responsibility."

The documents reveal that there will be no price protection after the first seven and a half years—that is, for the remaining 22 and a half years of the contract. Furthermore, contract termination would be exorbitantly expensive: LU would be forced to be pay whatever the infraco demanded to keep it going—not the market price.

There would be large windfall profits for the infraco's sponsors, lenders, advisers and insurers. In the case of Tube Lines alone, the amount would be more than £100 million—merely for getting the contracts, not for any aspect of its performance in improving the tube. Tube Lines' rate of return would be pushed up to 32 per cent.—not the 15 to 20 per cent. that the Under-Secretary of State for Transport told Parliament was likely. Such pay-outs

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to the infracos' buddies on all the contracts are likely to amount to about £500 million—merely for getting the contracts, not for performance.

That is an abuse of public money. Bob Kiley said:

"The Underground is in desperate need of investment, yet PPP has been allowed to degenerate into a simple fee-generating mechanism for investors and advisers who have so far taken no risk and will be signing contracts that shelter them from any real possibility of loss."

As the PPP will also impose a system of fractured management of the tube, it is plain that this financial scheme imposed by the Treasury is not the best way to achieve the maximum modernisation of the London underground, or of obtaining the best value for money.

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