FIRST SPECIAL REPORT
The Transport, Local Government and the
Regions Committee has agreed to the following Special Report:
THE ATTENDANCE OF A MINISTER FROM HM TREASURY
BEFORE THE TRANSPORT, LOCAL GOVERNMENT AND THE REGIONS COMMITTEE
Introduction
1. During its recent inquiry into the London Underground,
the Transport Sub-Committee was informed that important decisions
about the future funding of improvements were being taken by HM
Treasury. This is a concern which had been raised in earlier inquiries
on the subject. In particular, it has been alleged that the Treasury
made:
(i) the principal decision to fund improvements
to London Underground by a Public Private Partnership (PPP); and
(ii) key decisions about the scope and nature
of the deal: it was responsible for deciding the timing and level
of funding, and for delaying vital improvements to the network.
The decision to opt for
a Public Private Partnership
2. One of the bidders for the PPP contract, Michael
Cassidy, chairman of LINC told the Sub-Committee that:
"This was a scheme that was..., conceived,
designed and manufactured by the Treasury".[1]
The Treasury has provided insufficient and uncertain
funding to the Underground over a number of decades. A source
of secure investment is vital for the efficient running of London
Underground. Whilst the Secretary of State for Transport, Local
Government and the Regions, Rt Hon Stephen Byers MP, claimed that
money would be made available for whatever scheme was found to
offer the best value for money, London Underground made it clear
that one of the major benefits of the PPP was that it was the
only way to provide a guaranteed stream of Government funding.[2]
London Underground's Final Assessment Report is predicated on
the Treasury's rationale for PPPs despite its own initial assessment
which identified continued public sector ownership or full privatisation
as the preferred options. It is clear that the Treasury's refusal
to provide adequate funds for a public sector solution has been
of the utmost importance.
The amount and timing
of the funding
3. Throughout the process of preparing the PPP scheme,
the Treasury continued to be involved in the details of the scheme.
Mr Cassidy informed us that "it was apparent, at various
stages of the bid process, that it was necessary for the Treasury
to exercise their role of influence on the bidding process."[3]
The Treasury decided what improvements would be purchased. Major
changes were made at Christmas 2000, when the combined total of
the three contracts became clear. At this point all of the bidders
were told by the Treasury "that the totality of this project
was now too expensive for the nation to afford, so please go away
and readjust your bids by taking out sectors of the work or delaying
expensive parts of the work to later years."[4]
London Underground Limited admitted that, but for this decision,
it would have been possible to deliver some of the key benefits
earlier.[5]
4. The result of these changes was that the capacity
enhancements of 15 per cent offered by the PPP were delayed from
year 20 to year 30 of the contracts, which falls behind expected
passenger growth. Thus, vital improvements to the Underground,
which are necessary for the economy of London and the UK, have
been unnecessarily delayed. Moreover, delaying more expensive
work to periods where the prices are not fixed will add further
to the risk that the final cost of the PPP will be higher than
forecast.
5. The Sub-Committee invited a Treasury Minister
to give oral evidence to it on 9 November 2001, but this request
was declined.
Conclusions and recommendations
6. In its report on the Treasury in the last Parliament,
the Treasury Committee concluded
"We are concerned that the Treasury as an
institution has recently begun to exert too much influence over
policy areas which are properly the business of other Departments,
and that this is not necessarily in the best interests of the
Treasury or the Government as a whole."[6]
7. If the claims made to the Transport Sub-Committee
are right, there could be no better example of the excessive influence
of the Treasury than the decision to plump for a PPP scheme for
London Underground to the exclusion of other options, and then
to interfere with the bidding process. It is argued that one man
has been principally responsible for this choice, the Chancellor
of the Exchequer. The Secretary of State for Transport, Local
Government and the Regions has been little more than a messenger.
The Chancellor has imposed the PPP scheme despite the opposition
from a wide range of experts. It is a scheme which will not provide
the capacity enhancements which Londoners and the national economy
require. It has not been proved to offer better value for money
than other options, which could be rapidly developed. It fails
to adequately transfer risk and it is needlessly complex.
8. Answers are therefore needed from HM Treasury
to some very important questions. In refusing to give evidence
to the Sub-Committee to explain their decisions, Treasury Ministers
have treated this Committee with disdain. It is most important
that they appear. Accordingly we recommend that the House make
the following Order:
That a Minister from HM Treasury do attend the
Transport, Local Government and the Regions Committee to give
evidence about the London Underground PPP.
1 HC 387-II, Q 374 Back
2
HC 387-II, Q 29, 21.11.2001. Derek Smith said 'In other countries
there appears to be a different sort of commitment to funding
public infrastructure; that appears not to have been the case
in this country and in relation to the underground'. Back
3
HC 387-II, Q 374 Back
4
HC 387-II, Q 378 Back
5
HC 656-i, Qq 90-93 Back
6
Third Report of the Treasury Committee, HM Treasury, HC
(2000-01) 73-I, para 21 Back
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