Examination of Witness (Questions 600-618)|
WEDNESDAY 5 DECEMBER 2001
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,
(Mr Byers) I am sorry, I did not quite catch what
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.
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.
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
Chairman: I do hope not!
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.
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
(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
(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