Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witness (Questions 600-618)



Dr Pugh

  600. Secretary of State, in December 1999 the Deputy Prime Minister stated in the House of Commons that the Underground would save £4.5 billion. You do not believe that, do you?
  (Mr Byers) I am sorry, I did not quite catch what you said.

  601. I will say it again. In 1999 the Deputy Prime Minister said in the House of Commons the Underground PPP would save £4.5 billion. I am putting it to you on the basis of what you have just said, you no longer believe that.
  (Mr Byers) I do not know the context in which the Deputy Prime Minister said that, so it would probably be inappropriate for me to comment on the specifics, but what I can say to the Committee is that I do not know whether or not these three negotiated contracts are going to be value for money, and I will judge that in January and February.

  602. But in your mind it is possible there may be no savings at all?
  (Mr Byers) It is possible they will not offer value for money compared to the public sector alternative, yes.

  603. On the subject of value for money, has your Department quantified a total amount when the exercise is completed which will be spent by public bodies on consultancy and consultant costs?
  (Mr Byers) There is not an estimate as we meet tonight on the total cost at the end of the exercise. We do have a figure for the amounts which have been paid so far which I could let the Committee have by way of a written document if I cannot find it immediately. London Transport's current estimates of the final out-turn on consultancies, and this is London Transport, is around £98 million, and for the transition as a whole London Transport forecast a figure of a little over £150 million.

  Dr Pugh: What are your fees likely to be for Ernst and Young?


  604. What do you pay them to tell you what you want to know?
  (Mr Byers) That usually comes out a bit more.

  Chairman: I could probably do it cheaper.

  Mr Donohoe: £450 an hour.


  605. This Committee would be delighted to advise you for rather less than that.
  (Mr Byers) What figure do you have in mind, Mrs Dunwoody?

  Chairman: £450 an hour.

Dr Pugh

  606. Can you tell us what Ernst and Young will be charging you?
  (Mr Byers) I will certainly provide that information.

  607. On a different area, it has been suggested that one problem dogging the Underground all along has been the lack of consistent investment. Whose fault has that been? Your Department's or the Treasury's?
  (Mr Byers) I think successive governments have failed to invest in the Underground. We just need to be very honest about this and just look at the levels of investment. It is an underground system which has suffered from chronic under-investment, and that has happened for such a long period it could even go back to the days when we had a Liberal Government.

Mr Donohoe

  608. You are going back sometime now!
  (Mr Byers) I am going back a long time. We are looking at a Victorian system and we have to go back a long way to find a Liberal Government.

  609. I want to go back to last week's meeting. In last week's meeting it was said that a missing witness here, a clear missing witness, deeply implicated in the whole process of PPP, is the Treasury. Do you think the Treasury should be here as a witness given their involvement in the Underground process?
  (Mr Byers) I lead for this on behalf of the Government, so I am more than happy to speak for the Government as far as our modernisation plans for the Underground are concerned. I do speak for the Government, not just my own Department. What I am expressing here about value for money is the view of the Government. Obviously we must consult closely with the Treasury because of the large sums of public money which potentially are going to be invested in London Underground, but I hope I have been able to give you evidence which reflects the position of the Government.

  610. Can I quote from a Parliamentary Answer by your colleague, Andrew Smith. He writes, "Treasury, DTLR and London Underground officials are in regular contact about various aspects of the PPP." We have seen DTLR, we have seen London Underground, why should we not see the Treasury?
  (Mr Byers) Because in Government I speak on behalf of the Government on these matters.

  611. But the Treasury presumably has its own point of view?
  (Mr Byers) I reflect the Government's point of view, which will obviously involve the views of the Treasury as well.

  Dr Pugh: Is it not an unreasonable view of the Select Committee that to some extent we are wasting our time talking to you—

  Chairman: I do hope not!

Dr Pugh

  612.—when we should have the Treasury?
  (Mr Byers) It is the way Government works. A Cabinet Minister is responsible for policy in a particular area and I reflect the views of the Government. What is important is the message I am giving this Committee this evening is that on behalf of the Government it is not just the view of Stephen Byers, Secretary of State, it is the view of the Government that value for money has to be achieved.

Mrs Ellman

  613. If this system is as you describe it, a private company working for the public sector, why can not London Underground be a company limited by guarantee as you propose for Railtrack?
  (Mr Byers) It may not need to be because in fact London Underground at the moment is operating in the public sector. It has the responsibility for putting the interests of the travelling public first, it is not compromised by the need to drive up shareholder value, so in essence some of the benefits which might come from a company limited by guarantee, about just being focused on the needs of the travelling public, about re-investing any operating surplus, are already reflected in the structure that London Underground has got. I do not think we need to change the governance of London Underground in order to put the travelling public first. I think the important thing for me is that the modernisation plans do not compromise the ability of London Underground to operate and control what takes place and do so in a way which puts the interests of the traveller first.

  614. Ernst and Young have said that it might not be possible to have a conclusive assessment of value for money, and the National Audit Office have pointed to subjective factors which have to be considered. In view of that, what factors are you going to bring into play to decide finally whether this is the right scheme?
  (Mr Byers) There are a range of factors and I think you are right when you say that unfortunately for all of us it will not be one of those recommendations which says clearly "Yes it is value for money or no it is not". As Mrs Dunwoody said at the beginning, it will involve a subjective element. That makes things difficult for some of us but that is a challenge we will have to rise to. The National Audit Office have said that they now believe London Underground are approaching it in line with the recommendations that the National Audit Office made earlier this year, or last year, in relation to public private partnerships, so it is good they are doing that. In the light of that, the National Audit Office have said they do not feel there is a need to have another report before the contracts are concluded, so we will have to rely on the advice of consultants like Ernst and Young and also make our own judgment. There will be a range of factors we will need to take into account, for example, we will need to look at the way in which the public sector has dealt with these sort of contracts in the past, we will I think need to build in some improvements which are taking place as far as the public sector is concerned, and all of those factors will need to be taken into account when we arrive at our final decision.


  615. Is there going to be a committed stream of funding from the Treasury if you go down the Transport for London route?
  (Mr Byers) This is something we are considering as one of the alternatives if there is a need for a Plan B. As I think I mentioned earlier in reply to Mr Grayling, we have not yet arrived at a conclusion.

  616. All of this will be made manifest and transparent when the great New Year dawns?
  (Mr Byers) Is that next year you are talking about!

  617. Let me make myself quite clear. You have told us you will give us information in January or thereabouts?
  (Mr Byers) I will certainly provide the Committee with the Ernst and Young review which I have requested. Whether or not in January we will be in a position to disclose what an alternative might be, I honestly do not know at this stage, but certainly by the time the decision is taken on value for money, which will probably be the middle of February, we will need to know what an alternative might be.

  618. You are a sharp fellow, would you sign a 30 year contract if you did not know what the cost was going to be for the last 23½ years?
  (Mr Byers) It would depend on the nature of the 7½ yearly periodic review. That is how I would judge it. It goes to the points Miss McIntosh has made about the role of the arbiter in these things. Given the commitment the Government has made in terms of funding, there is huge potential here, certainly for the private sector to be interested but most importantly for the travelling public in London to see a significant change in the quality of the London Underground, and that has to be our objective. I honestly think we have delayed for far too long this money going in and the time has come now for decisions to be taken, and in the first two months or so of next year these decisions will be taken and then we can get on with investing this money in the London Underground which is so badly needed.

  Chairman: Thank you, Secretary of State. I have to say that is the least that the London public deserve. We know you will be keeping us fully informed and, if you are not, then we may have occasion to remind you. Thank you for being so helpful this afternoon.

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