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David Taylor (North-West Leicestershire) (Lab/Co-op): In the light of the powerful analysis in the report, which I warmly welcome having been a long-term and trenchant critic of PPP and its cousin, the private finance initiative, does my hon. Friend feel that there is a serious risk that, at some time in the short to medium term, Tube Lines will go the same way as Metronet? Does she agree that the way of avoiding the catastrophic costs and impact on the public is to take Tube Lines back in-house as
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soon as possible so that its shareholders cannot meander quietly into the darkness of a tunnel to pocket their profits while we taxpayers have to underwrite their incompetence and veracity?

Mrs. Ellman: I share my hon. Friend’s concerns. The Committee’s recommends constant monitoring and that the requirement for annual reviews be followed to ensure public value for the money spent.

Mr. Nick Raynsford (Greenwich and Woolwich) (Lab): As a representative of the area served by Tube Lines, I am surprised to hear the views expressed by my hon. Friend the Member for North-West Leicestershire (David Taylor) and, indeed, by my hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman), implying an absolute parallel between Tube Lines and Metronet. There is not. Our experience of Tube Lines’ management of the Jubilee line has generally been very satisfactory. It has increased capacity and improved efficiency and performed good station updates, whereas the procurement of the Jubilee line under the traditional arrangements produced a serious cost overspend of about £1.5 billion and a much delayed introduction. I hope that my hon. Friend the Member for Liverpool, Riverside will give a more reasoned appraisal of the respective performances of the different PPP contractors, bearing in mind that although Metronet failed, it is not a basis for criticising the performance of Tube Lines.

Mrs. Ellman: I can assure my right hon. Friend that the Committee’s evidence did not indicate a parallel between Metronet and Tube Lines. However, it would be prudent to take the lessons of what happened with Metronet’s failure to ensure that it is not repeated.

As my right hon. Friends the Secretary of State and the Minister look ahead at what should happen now in order to take over from where Metronet failed, I hope that the Minister will give an assurance that the lessons of Metronet’s failure have been learned, and that she will ensure that the public benefit from much-needed improvement on the underground and that they get value for money from the investment that goes into much-needed public services.

8.7 pm

Norman Baker (Lewes) (LD): May I say how collectively sorry we are that the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) is not with us? I very much hope that the hon. Member for Liverpool, Riverside (Mrs. Ellman) will pass on my good wishes and doubtless those of colleagues on both sides of the House.

There is no doubt that this PPP has been a catastrophic and expensive failure, as the hon. Lady indicated; it has also been an avoidable one. There is no doubt that some of the measures put in place to set up the PPP were flawed from the beginning, and I shall come back to some of them. The consequences are the one or two lines in the enormous tome produced by the Treasury that sets out the billions of pounds of taxpayers’ money that has been necessary to deal with the problem that was unnecessarily created. The Secretary of State herself called the measure “a terrible failure” when she gave
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evidence to the Committee, and the hon. Member for Liverpool, Riverside rightly referred to the failure to deliver stations and track maintenance and to get anywhere near meeting any of the targets that were set for Metronet.

It is worth going back to 1998, when the PPP was rushed through. Hon. Members may recall that at the time there was considerable uncertainty about whether the PPP was the correct course of action to follow. The Mayor, whatever else his faults, was clear that it was not the appropriate measure. He called the PPP “inherently unworkable”. He even took High Court action—unsuccessfully—to stop it, whereas the Chancellor at the time, now Prime Minister, talked about the PPP in glowing terms, saying that it would remove the need for public subsidy entirely, which reminded me of the suggestion that nuclear power might be too cheap to meter. Perhaps we should mind the yawning gap between the Government’s policy platform and the drain down which public finances roll.

This is the second debate today indicating a failure of the Treasury to get a hold on important financial matters. We had a debate on Northern Rock and now this debate on Metronet. Metronet has plenty of faults, but I want to come on to the Government, because they cannot escape the blame for the situation.

The Government have even managed to alienate some of their supporters who were in favour of PPP or PFI schemes. Jeremy Warner, the respected economic journalist, wrote in The Independent that the justifications for the PPP that needed to be met

One of them was that

It is difficult to see how that has applied in the case of Metronet. Jeremy Warner also spoke of the PPP’s sharing the risk of a cost overrun, which is difficult to justify in this case, given that London Underground has been landed with 95 per cent. of the debt.

The Liberal Democrats do not take the dogmatic view that PPP is always the right solution or always the wrong solution. I disagree with the Committee’s absolute hostility to it, although I would add that the Government’s trust and confidence in it has not been borne out by reality. As late as 18 July last year, the Prime Minister was still saying—in response to a question from my hon. Friend the Member for Twickenham (Dr. Cable)—

That was clearly the Government’s preferred model at that stage, but of course it has not been possible to implement it.

Graham Stringer (Manchester, Blackley) (Lab): The hon. Gentleman was being uncharacteristically inaccurate and unfair to the Committee when he said that it was totally hostile to PPP. We examined what happened, and it is a sad story, but if the hon. Gentleman reads paragraph 21 of the conclusion he will find that the Committee believed that Metronet’s failure should be thought about and understood before a PPP is considered again. I would describe that as a very balanced look at what was going on, not as total hostility.

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Norman Baker: I agree that that paragraph is balanced, but I would suggest that any reading of the report—and I have spent most of today reading it—leads to only one conclusion, which is that there is hostility to the concept of the PPP throughout. Paragraph 96 states:

I am not suggesting that the Committee was wrong to examine some of those matters. Clearly there has been a significant failure that needs to be addressed, and there are lessons to be learned. One of those lessons is that the private sector will naturally seek to minimise risk and to maximise profit. Of course it will: that is what it is there for. But it is the job of Government to ensure that the rules are set down—the tracks are laid out, if you like—in such a way as to prevent the incurring of disbenefit by the taxpayer, which in this instance the Government have failed to do. That does not mean that they will not be able to do it in future with some other PPP arrangements, but the fact remains that they spectacularly failed to do it on this occasion.

The Government’s failure to sell Metronet to the private sector following the collapse means that the costs of operating in administration, and the costs of the overspend, will be picked up by the public purse. It is not clear to me, although it may be to others, to what extent that will be a matter for the Treasury and to what extent it will be a matter for Transport for London. It would be helpful to hear from the Minister exactly where the arrangements lie. Pursuant to that question, we also need to know whether Metronet’s spectacular failure will lead to a scaling down or a lengthening of the process by which the improvements to London Underground were planned. Will work that was to be undertaken in, say, 2012 be delayed until 2016 or 2017? What are the consequences of the failure for the planned works? I think that people in London would like to know the answer to that question.

Justine Greening (Putney) (Con): I can certainly tell the hon. Gentleman what is happening at East Putney station. From what I can make out, the modernisation is being put on hold, and at the very least is being delayed.

Norman Baker: I fear the worst when I hear the evidence from East Putney. I hope the Minister will tell us that that is not the case.

David Taylor: Does the hon. Gentleman agree with my right hon. Friend the Member for Greenwich and Woolwich (Mr. Raynsford) that no lessons need to be learned about the supervision of the Tube Lines contract from this spectacular collapse, although the company’s only exposure is the £180 million of equity it has invested in the project and although, four years into a 30-year project, it has already made a “profit” of nearly £160 million? That is not much of an exposure to risk, is it?

Norman Baker: The original PPP contract with Metronet was clearly very flawed, and the contract with Tube Lines cannot be perfect either. It should be said, however, that far fewer complaints and concerns have
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been raised about Tube Lines. It is important to look at each company on the basis of its delivery, and Tube Lines appears to be in a rather better state than Metronet ever was.

Mr. Raynsford: I apologise for having to intervene in the hon. Gentleman’s speech, but I think I should put the record straight, because the interpretation placed on my remarks by my hon. Friend the Member for North-West Leicestershire (David Taylor) simply is not correct. I merely observed that it was wrong to draw general conclusions about the PPP on the basis of the specific failure of Metronet. My own experience, like that of a number of others, is that the performance of Tube Lines in terms of efficient management and improvement of its service is generally satisfactory, and I think that that too should be taken into account in any balanced and non-dogmatic appraisal of the PPP.

Norman Baker: I will not try to referee the contest on the Labour Benches. I agree that it is not necessarily possible to draw general conclusions from this or that PPP, although it might be possible to draw conclusions about the Treasury.

What kind of PPP was this? We have heard about the tied supply chain. It is a disgrace that Metronet should give business to its parent companies without any defence, ensuring neither value for money nor the exposure of those companies in the event of a problem. How could that have got past the Government when the project was set up?

On 17 October, Chris Bolt, the rail regulator but also the arbitrator in this case, told the Committee that Metronet saw this as “a cost-plus contract”. That was his assessment: Metronet was there to bump up the price. It wanted to add bits and pieces, and to charge London Underground for the privilege of doing so. We learn that Metronet had equity of only £350 million, which was completely inadequate in relation to the cost of the scheme. The main question to be asked is why on earth it was allowed to get away with the tied supply chain, the cost-plus outlook and the inadequate equity. How can the PPP have been set up on that basis? I remind the House that the Government spent £500 million on legal assistance and consultancy fees. I do not know what advice was being given, but it seems to me that the Treasury might have recouped at least some money for the taxpayer by asking for a refund, because it was obviously singularly badly advised.

Stephen Hammond (Wimbledon) (Con): Might not the Treasury have been trying to find a way of imposing the scheme and the legal advice enabled it to do so? Could it have been that way around?

Norman Baker: That might well be so. It is difficult to interpret the position differently. But if that was the way in which public money was being spent, it suggests an improper use of public money—and certainly an unwise and ineffectual one, given how matters turned out. A contract that was designed to last for 30 years lasted only four years before collapsing. That is a terrible racket.

When the Secretary of State gave evidence to the Committee on 7 November, she said:

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That is a curious statement. It suggests that getting best value for money for the taxpayer means spending lots of other money. It is a strange way of justifying what was a financial disaster for the Government, for the taxpayer and, I am afraid, for the people of London.

I hope that the Government will learn lessons from this. There are lessons about the micro-management of train matters that they need to take on board. According to an article by Christian Wolmar, Ministers are about to make the same mistake with replacements for high-speed trains on the national rail network. He wrote:

Have we heard that before somewhere? According to those in the rail industry to whom I have spoken, the cost of the new high-speed trains on the east coast line will be well above what it should be as a consequence of the process in which the Department for Transport is involved. So look out, perhaps, for excessively priced trains on the high-speed east coast line come 2012-13.

This PPP contract is difficult to defend in any way. It did reward contractors for moving toilets nearer to the drivers’ cabs at the end of the line so that they took less time going to the loo. That is, perhaps, one positive aspect that I have managed to find from reading through the PPP contract. It might have saved a couple of quid here and there by that move—or perhaps not when the cost of moving the loos is taken into account. The micro-management in the contract is such that it specifies such matters, yet it is unable to deal at all with the big questions about who Metronet gets its business from, why there were cost-plus contracts, and what would happen if it went into liquidation, which then occurred. No thought was given to that prospect by those who ratcheted up £500 million in bills for the taxpayer in order to give advice—but we did have advice about how near drivers’ cabs should be to toilets at the end of platforms.

The Government need to learn many lessons from this, such as how to run their railway policy, not to micro-manage, and not to look at PPP through rose-tinted spectacles and to understand that it might have a role to play but it will not necessarily be the best option for the taxpayer. They also need to be more open about their own mistakes in 1998 and beyond.

8.21 pm

Harry Cohen (Leyton and Wanstead) (Lab): I congratulate the Transport Committee on its important report and my hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman) on introducing it so effectively, and I also add my best wishes to my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody).

I welcome the debate on London Underground’s public-private partnership arrangements, as they are in a bad way. That is in fact an understatement following Metronet going into administration last July. Let us not
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forget that Metronet had responsibility for two thirds—it was probably more than that in reality—of the maintenance of the London underground network. Despite having money flooding in from the Government, the private consortiums have not given value for money overall, and we now have this debacle.

I was recently travelling in on a District line tube train in the vicinity of Tower Hill station. I advise the Minister to travel in on that line; actually, I do not advise her to do so, as there is a piercing screeching sound for a long way along the route. That was meant to be the responsibility of Metronet, and I suspect that such screeching sounds will affect commuters a lot more now, and give them an unpleasant journey into work and back home.

Justine Greening: I thought it was only me on that tube train that day nearly having my eardrums perforated, but the hon. Gentleman was obviously on the same train.

Harry Cohen: That is proof of what I say. I feel sorry for the London commuters who have to put up with that experience almost daily, and other passengers.

The private consortiums have done the soft work—the relatively easy work—but even much of that has barely been done. A lot of the major work, however, such as new trains and major station rebuilds, has not been done. I suspect that much of the difficult and expensive signalling and the track work is also still outstanding. We should be given some detail on what still needs to be done, and how much of the important signalling and track work that was thought necessary has not been done. That is despite £1 billion of funding per annum from the Government. Metronet was grossly inefficient, and it was brought down by the cost overruns. The independent PPP arbiter deemed that they were Metronet’s responsibility, and Metronet’s response was to walk away, leaving a bill for the taxpayer.

The hon. Member for Lewes (Norman Baker) made a point on consultants, which I wish to repeat. The Government paid them £500 million for this contract, and it resulted in this situation just four years later. Their role has been a rip-off of the taxpayer.

Stephen Hammond: I wonder, therefore, whom the hon. Gentleman blames for the writing of that contract. In his view, there has been a rip-off in respect of the contract. Someone wrote that contract and presumably someone should have been looking out for the public interest. Is it not true that the Department for Transport and the Treasury must therefore be culpable?

Harry Cohen: They are certainly culpable in a number of respects, and they sign off the contract at the end of the day, but they went to the consultants, who charged them a hefty fee. I remember, by the way, that whenever different expert witnesses gave evidence on other topics, such as the safety aspects of splitting up the maintenance from the operation, all of a sudden more consultants who had been paid by Government came along to put a case in favour. This was clearly a waste of money, and the taxpayer was ripped off.

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