Examination of Witness (Questions 560-579)|
WEDNESDAY 5 DECEMBER 2001
560. Can I start by taking you back to the issue
of best value. There have been a lot of conflicting reports and
a lot of contributions from the different consulting firms on
(Mr Byers) It certainly has been best value for them,
561. Absolutely. From the position you are now
in, do you remain very optimistic that it will be demonstrated
that PPP represents best value? If it does not, what happens then?
Will you hand London Underground over in its current form to Transport
(Mr Byers) I am going to wait and see what the advice
is and what the detailed contracts are which are finally negotiated.
I think it would be premature to say the three contracts are going
to achieve value for money, it is going to be a tough test as
far as I am concerned. The preferred bidders should not take it
for granted that they are going to be successful. We are going
to look at this very, very carefully and then make a decision
which is in the public interest, and as proper contingency planning
we will make sure there are alternatives in place if these do
not achieve value for money.
562. What would Plan B be?
(Mr Byers) We are working on it at the moment and
we have time available to us, but between now and the middle of
January or thereabouts, perhaps February when the final decisions
are taken, we will need to make sure there are alternatives available.
563. Is handing it over to Transport for London
one of those options?
(Mr Byers) Certainly keeping it in the public sector
and handing it over to Transport for London will be one of the
options we are considering.
564. We heard a few minutes ago that during
the bidding process London Underground asked the bidders to reschedule
the works for financial reasons which were set out in their bids.
Was that decision taken entirely within London Underground or
did either your Department or the Treasury have any involvement
in the request to restructure the bids?
(Mr Byers) The position has been we have been at arm's
length from the negotiations. The negotiations rightly have been
conducted by London Underground. I have made it very clear that
I want London Underground to secure the best possible deal for
the travelling public and for the taxpayer. That does mean I think
there have been changes, there have been greater demands being
made on the preferred bidders as a result of the strengthening
of our negotiating position because it has to achieve value for
money, and we are go back to that point. If the preferred bidders
felt they were getting an easy ride they probably would not have
satisfied the value for money test. Our position has been strengthened,
there are some things which perhaps some people would have liked
which I have ruled out. If I can give the Committee one example,
I am very keen, bearing in mind advice from the Public Accounts
Committee of this House, that in an arrangement like this of a
public private partnership if there is any possibility of a refinancing
deal taking place, in other words perhaps taking advantage of
lower interest ratesbecause we know in earlier public finance
initiatives under the previous administration very often they
could be renegotiated and the benefit of that would all go to
the private sector bidder, and the public sector and the Government
did not benefit at allthe benefits of that have to be split
half with the taxpayer and half with the private sector, which
is the right way to do it. It is a tough negotiation but we have
to get the best possible deal for the public sector.
565. May I put one specific proposition to you
underlying that. It has been suggested to this Committee that
the ordering of new trains was pushed back by a number of years
for financial reasons and at the request of certainly London Underground
and potentially the Treasury or the Department. Did that happen?
(Mr Byers) It has certainly not been at the request
of the Department or the Treasury. I think we need to wait and
see the details of the contracts which are finally negotiated.
My own view is that rolling stock is an important part of modernising
the tube but as are signalling and the track. It is a question
of making sure that we put in place measures which will see for
the investment which is being made the quickest improvement in
the Underground. I think we need to wait to see the detail of
the contracts once they are negotiated but it has been London
Underground who have led the negotiations.
566. A final point relates to the quality of
the assets, the quality of the knowledge about the assets. We
have heard a lot about the issue of asset quality on the main
railway network, given the process you are going through now are
you satisfied that enough information exists about the quality
of the assets to put fairly firm figures on costs in the future?
If it proves to be the case that information is not adequate,
given what you told us a moment ago that the contractors hold
liability, if that is the case, do we risk a repeat of contractors
being deluged by overruns of costs?
(Mr Byers) I will need to refer to the evidence given
by Derek Smith on behalf of London Underground to the Committee
on 21 November when he made the position, and he is the one who
knows the asset register, very clear. He said, "It means
we know about the vast majority of our assets, and we certainly
know about our track, our tunnels, our signals . . . and so on,
because we can see all of those and we can inspect them and we
know their condition.". Then Mr Bennett asked, "And
do you know, you have got it written down and recorded, their
condition?" Mr Smith said, "We have, indeed . .
." and put into categories. So London Underground clearly
do feel they have a proper asset register, and they are the ones
who should know.
567. Secretary of State, according to the Best
and Final Offer bids of May this year, 30 per cent of the funding
over the first 7½ years is to come from fare box revenue
operating surpluses. The operating loss projected for this year
is £122 million. How will the 30 per cent be achieved?
(Mr Byers) As I understand it, the operating costs
for this year are inflated mainly because of a change in the accountancy
procedures; the way they have reordered their accounts. There
is also a deficit this year, partly because of additional staff
and additional drivers who are being taken on by London Underground,
and I certainly welcome the fact they are recruiting more drivers
and more staff for the Underground. In terms of what will be achieved
in the first 7½ years, although the Best and Final Offer
bids were submitted a few months ago, we will have to wait and
see what the final negotiated contracts are like because there
has been a fair bit of movement as far as they are concerned.
The important thing for me is we have given a very clear undertaking
there will be significant sums of taxpayers' money going into
London Underground and we do not expect to see a large increase
in fares to pay for the investment that will be taking place.
That is not part of the formula, not part of the equation, as
far as the Government is concerned.
568. I will come to public subsidy in a moment,
if Mrs Dunwoody allows me, but are you saying therefore the main
reason for the £122 million operating loss is the reordering
of accounts and more drivers, both of which presumably must have
been known were going to happen when the Best and Final Offers
were made? Secondly, I was interested in your comment, "We
will have to see what the final contracts are" because I
think I quote you correctly when you said "There has been
a fair bit of movement". Are you in a position to give us
some idea of what that fair bit of movement has been?
(Mr Byers) Negotiations are still going on and they
are about to be concluded, as I understand it. As I think I mentioned
earlier, in reply to Mr Grayling, we are trying to drive as hard
a bargain as we possibly can. I know there have been all sorts
of allegations about the contracts being soft as far as the private
sector is concerned, and I think when people see the details of
the contracts it will be useful to compare some remarks which
have been made on the record about what people feel will be in
the contracts with what materialises when they are published in
January. That will be the acid test. I am not being disrespectful
to the Committee, I cannot as I sit here today tell you what the
569. I understand that. My next question is
based on what we know rather than what may come out, and what
we know is when the PPP was developed the operating surplus forecast
was for £419 million and rising. There is a loss of £122
million this year. If my arithmetic is correct, we are talking
about £612 million if we add those two figures together.
I am advised the change in the accounting regime explains about
£150 million of that gap, so that still leaves well in excess
of £400 million at odds with the initial calculations. Would
you (a) agree with that rough arithmetic in general terms and
(b), I still put the question to you, where is the money going
to come from?
(Mr Byers) You are absolutely right in saying as a
result of the accountancy changes, to bring the accounts in line
with the 1999 Financial Report and Standard 15, which I know the
Committee is fully apprised of, it required a change in the way
in which investment was defined and that meant a £150 million
difference. Mr Stevenson is absolutely right in saying that. In
terms of the other aspects, there are a variety of factors: an
increase in payments under the existing PFI contracts; increased
spending on maintenance and renewal in an effort to make the assets
more reliable; the cost of extra drivers and station staff, recruited
to run extra services and improve reliability. Those have been
the main factors which have led to the costs being increased.
Moving forward in terms of the modernisation plans, these are
all issues which will be and can be accommodated within the negotiations
which are going on at the moment with the preferred bidders.
570. Yes. You have said you are determined that
any requirements because of shortfalls which may occur will not
come out of the fare box, and you indicated that public subsidy
would have to be considered in those circumstances. Are you saying
therefore, Secretary of State, that the Government will make good
these shortfalls and, if so, for how long?
(Mr Byers) What I am saying is that within the finance
we are committing to the modernisation of the London Underground
we should be able to accommodation this situation. We are not
building into it the need to increase the revenue from the fare
box, for example, by a significant amount. We are talking within
our plans of increases at around the rate of inflation and no
more. When people can see the proposals we are able to negotiate
with the preferred bidders then they will recognise what we are
looking at here is for the first time, and we are going to do
it in four batches of 7½ years, a significant increase in
the investment going into London Underground.
571. In the context of your answer, when the
PPP was developed, the original forecast was for £490 million
surplus and increasing, you say you recalculated that, or words
to that effect, what figure are you building into your forecasts
now other than the £490 million surplus?
(Mr Byers) Figure in relation to?
572. In relation to the £490 million surplus
which was built into the original PPP deal.
(Mr Byers) That is information which one or two gentlemen
who might now be sitting behind me would find it extremely useful
to have. Sorry. We have to wait a month or two when we have the
contracts and people can see exactly what we have been able to
573. Secretary of State, in your opening remarks
you gave a catalogue of amazing delays and how the people of London
and people who use the Underground have suffered because of lack
of investment over a period of time. It has been suggested that
there would be a 15 per cent increase in capacity with the investments
and with the contracts you have referred to, it was suggested
that would be achievable in 20 years. You have moved the goalposts
to 30 years, why is that?
(Mr Byers) The period of the modernisation plans will
run for 30 years. The initial £13 billion we are committing
is for the first 15 years and within that we are looking at 7½
year contractual periods when, after 7½ years, there can
be a periodic review. The reason why we have gone for 7½
years is we think that that is short enough to give us a degree
of flexibility but also long enough to allow people, including
the infrastructure companies, to plan for the longer term. The
idea of having four 7½ year periods we felt would be able
to secure greater value for money as far as the taxpayer is concerned.
It also means managing the assets for that length of period, because
what we are looking at here is the private sector, the infrastructure
companies, taking on responsibility for managing those assets
not for just a short period of time but probably for the whole
life of that particular asset, and so 30 years, on the basis of
advice we have received, seemed to be the appropriate length of
time, both in terms of the assets being managed and also in terms
of a long-term period by which we can see dramatic improvements
in the quality of service being offered on the London Underground.
574. Is the inference in the reply there, Secretary
of State, that we have difficulties in establishing a PPP which
will deliver what we are looking for, that is the increase in
capacity to help reduce over-crowding, to help reduce delays,
to help reduce cancellations? Is the fact the 20 years that was
suggested in the first instance by London Underground has now
been extended to 30 years because of the fact the PPP cannot deliver?
(Mr Byers) We will need to see in January or February
whether it does deliver better value for money. I have always
been very clear, since I took over responsibility for transport
in June, as far as our modernisation plans were concerned, there
should be no privatisation, no compromise on safety, and it will
be the Health and Safety Executive which decides finally, and
on value for money we will have a debate about whether value for
money is achieved. What we are able to do within the agreements
which have been negotiatedand people will be able to see
what can be achieved within 15 years and not the 20 or even the
30we will be looking very closely at what can be achieved
within 15 years as far as the improvements are concerned. When
people can see the contracts, can see the details, and there will
be great detail about what will be achieved and the timescale
under which the improvements will be delivered, I think many people
will be quite surprised at the benefits and the scale of the benefits
which will come about. What I would say is they should not really
be too surprised because during the periodcertainly at
one stage during the first 7½ year periodthere will
be something like getting on (and this is an estimate) for half
a million pounds a day being spent on each of the tube lines by
way of investment. This is a huge scale of investment which potentially
we are going to see going into London Underground. That will bring
benefits, it will bring benefits in terms of reliability, better
rolling stock, improved signalling, improved tracks, and that
will mean capacity will be increased, there will be more trains
running and that will enable more people to be carried through
the system. I know some people say, "Why are you bothering
about changes to tube stations", but I think many of us who
use the Undergroundand I use it when I come down from my
constituency in the North East as indeed Mr O'Brien might at King's
Crossknow that King's Cross for two times during the day
is actually closed because of capacity restraints, and then we
come down to Victoria and we have the same problem at Victoria
Station because it is closed because so many people want to get
on the platforms. So we have to improve the stations just to be
able to improve capacity. I think when people can see it in the
round, they will recognise that actually capacity improvements
is going to be one of the key objectives we will be able to achieve.
575. Are you suggesting then, Secretary of State,
that the 15 per cent increase in capacity is not sufficient to
meet the shortfall in the needs of the travelling public now,
and the increase that will generate new customers on the Underground,
and therefore when we talk of 15 per cent are we providing sufficient
to take up what we are short of now to increase demand?
(Mr Byers) As most people who travel on the Underground
know, it is not just actually at peak hours there is over-crowding.
You can be travelling at the weekend and trains during the day
are often very over-crowded, and indeed during the summertime,
during not what would be regarded as the normal peak, the trains
are very over-crowded, so there is a real issue of over-crowding
which has to be dealt with and the increased capacity will go
some way towards meeting that. We have got enough capacity as
a result of the modernisation programme to overcome some of those
difficultiesnot all of them, it is still going to be the
case that during peak hours there will be people standing and
it will not be the perfect system we would all want to see. As
the Committee will know there has been a drop in ridership since
11 September, which is affecting London as indeed other major
cities, but that should not be a long-term trend and we should
see passenger numbers increase again. Part of it is due to economic
prosperity and the economy growing and that will have an impact
as well but we do need to plan for increased capacity.
576. Are you going to lift your sights from
15 per cent to 20 per cent, 25 per cent, over the 30 years?
(Mr Byers) One of the advantages of the 30 year programme
is to have flexibility to meet new demands as they arise, and
if the demands are increasing there will be the flexibility within
the programme, within the modernisation plans, to meet increased
577. If I can take you back to the beginning
and your statement when you were talking about cancellations and
delays, signalling and everything else, you gave it in a broad
brush approach, you did not give any impression there was a breakdown
in these figures. Have you got any information to suggest what
it is in various sectors within London Underground, what the efficiencies
(Mr Byers) By "sectors" do you mean individual
578. Let us take, for instance, the Jubilee
Line. Do you have any information that suggests that the Jubilee
Line is far more efficient? Is it any different from the others?
I travel on the Underground and I have to tell you the Jubilee
Line is filthy, there are delays on it, there are problems on
it which are no different from any other part of the system, and
yet it is almost brand new, the investment in it was enormous,
and it does not give me any confidence to suggest that there is
going to be at any time in the future any improvement.
(Mr Byers) I think the Jubilee Line Extension is a
very good example of where projects managed in the old way can
go wrong. There was a 56 per cent cost over-run on the Jubilee
Line Extension. I think we all know there are big problems with
signalling on the Jubilee Line, which may well be part of the
problem Mr Donohoe has referred to, and I know London Underground
do keep records by line, and I am sure they will share them with
the Committee. There have been improvements. I use the Northern
Line and the Northern Line has improved dramatically in the last
four to five years because of the way investment has taken place
there. The lines do vary. We must always be vigilant, London Underground
certainly, to identify the reasons why a particular line has particular
579. Do you see the improvement being general
in terms of the PPP being introduced into the full system?
(Mr Byers) The phasing of the improvements will vary
depending on the individual contracts and on the particular lines
which the bidders have responsibility for. I am particularly keen
that when the details of the contracts can be announced, we will
have the detail line by line about the improvements that will
be available and also a timescale put to them, which we can then
hold the preferred bidders to. I think the public will want to
know what the improvements are going to be and what it is going
to mean for their own particular tube station and their own particular
tube line, so I am very keen, and I have been saying this to London
Underground, to get the details of the improvements so the public
can actually see in a tangible form the benefits which will be
delivered through the modernisation plan.