Examination of Witnesses (Questions 119-144)
RT HON
SADIQ KHAN
MP AND MS
BRONWYN HILL
9 DECEMBER 2009
Q119 Chairman: Good afternoon. Would
you identify yourself for the record, please.
Mr Khan: My name is Sadiq Khan.
I am Minister of State for Transport.
Ms Hill: Bronwyn Hill, Director
General, City and Regional Networks.
Q120 Chairman: Minister, are you
of the view that the PPPs are good value?
Mr Khan: If you look at the investment
over the last 13 years and the progress we have made since PPP
began a few years ago, people using the Tube in London have seen
huge improvements. If I measure success by the quality of Tube
travel that commuters in London receive, then I think the answer
is yes.
Q121 Chairman: Metronet failed, costing
the taxpayer large amounts of money, and from the evidence we
have read and heard today, Tube Lines has its difficulties as
well. Do you think that you are just blinded to the concept of
PPPs and just want to support it in principle without looking
at the consequences?
Mr Khan: The reason why I have
said that PPP had been a success is the criteria I gave for defining
that success. I am not an ideologue. To me it is not the type
of finance that matters; what matters is that we get finance into
London's Underground system. I recognise the failings of the Metronet
collapse, I recognise the amount of taxpayers' money that has
been lost, I recognise the NAO Report's findings in relation to
the poor corporate governance in Metronet and the lack of leadership,
but I also see examples of some of the improvements that my constituents
and Londoners have seen since the start of the PPP, whether it
is the improvements in the stations, that some of the previous
witnesses may or may not like, whether it is the improvements
in the escalators, whether it is the increasing number of tube
trains now running through our tunnels, whether it is the increased
numbers of passengers now using our tube system, whether it is
the fewer rolling stock that fail or the fewer breakdowns in the
systems in London, whether it is the increased numbers of people
coming into London. I have seen huge evidence of the fruits of
the investment generated by PPP, but I am not blind to some of
the failings and I am the last person to say that PPP has been
a utopian perfection. I accept the failings.
Q122 Mr Martlew: We have had this
evidence session today and we have a very high profile transport
system in the London Underground, probably the most famous in
the world. We put this partnership together between private sector
and public sector and when things go wrong is it not going to
be a great temptation for the politician in charge, the Mayor
of London, to say, "It's not my problem, it is somebody else
to blame." Is that not a fault with the system? With such
a high profile Public Private Partnership, the Government should
have known that they would have had this sort of problem when
they were pushing it through, especially as the then Mayor was
not in favour of it and, to be honest, quite a few of the backbenchers
were not in favour of it. You were putting up something that was
bound to be shot down.
Mr Khan: Let me answer the question
in the context of PPP. I am the only parliamentarian here who
represents a London constituency and who is a Londoner. I have
seen the Tube system before PPP and after PPP. I can tell you
that in the 1980s and 1990s there was huge underinvestment in
our tubes: we had shabby stations, we had Tube trains that were
very old. Clearly we have stations that are more than 100 years
old and there had be no investment in the infrastructure for literally
decades and London had no governance since the mid 1980s. Let
us be transparent, we fought the 1997 General Election with a
manifesto committed to a Private Public Partnership to generate
investment in the Tube, when the then government wanted to privatise
and sell off the Tube infrastructure. We then proceeded to devolve
local government to a Mayor and a GLA, but the engine for the
investment was the Public Private Partnership which led to the
investments we have seen over the last period. I will give you
one example by way of illustration. In the year preceding 1997,
roughly speaking about £380 million was invested in the Tube.
Last year, £1.8 billion was invested in the Tube. As I have
said, on any objective criterion, for the experience of passengers
in London there have been huge improvements.
Q123 Mr Martlew: Do we accept that
that had to be done through the Public Private Partnership? We
had not built any new schools in my constituency for 50 years
and we are now building three, but that is not being done by PPP;
it is because the Government have made more money available and
that is what they have done with the Underground.
Mr Khan: If you see some of the
ways that the private sector has levered in the money, it has
been borrowing from the financial lenders. Of course we have been
paying contractors with the performance element of the PPP. We
have seen a huge leverage of investment from the private sector
as well.
Q124 Mr Leech: Mr Martlew asked the
question I was going to ask, so I will ask a different one. Do
you think that Tube Lines is going down the same route as Metronet?
Mr Khan: It is not for me to defend
Tube Lines but the short answer is no. If you compare and contrast
what the NAO, the PAC, the Transport Select Committee, the Arbiter
have said about Metronet compared and contrasted to Tube Lines,
it is comparing apples with pears.
Q125 Mr Leech: Do you think lessons
have been learned from the failuere of Metronet?
Mr Khan: I hope so. I can give
you some examples to illustrate the point. Eric made the point
that back in 1997 and onwards PPP was a new, innovative way of
trying to lever in monies from the private sector to invest in
a Tube system that had been underinvested in for decades. There
was some nervousness about the private sector lending monies in,
so the security we gave to the commercial lenders may have been
overgenerous. One of the lessons learned is to make sure that
when the Treasury now gives advice to departments on PFI projects,
there are now standardised contracts. We have changed the way
we pay contractors. You see the M25 widening project, the A1 major
upgrade projects on a different system, so the same sort of losses
that were incurred in Metronet hopefully could not occur. You
will have heard from the previous witnesses examples of how there
will be greater transparency and information being passed between
ex-Metronet and TfL, the Mayor, and the Secretary of State than
was previously the case, so I hope lessons have been learned.
Q126 Mr Leech: If Tube Lines were
to fail—and it sounds as though some people want them to
fail—would the Government take a different view on the relative
success of PPP?
Mr Khan: I am always ready to
accept that PPP has its failings. It is not a perfect system but
if you look back to where we were in 1997, 1998, 1999, the GLA
Act of 1999 onwards, I can see no evidence of a better form of
investing the sums of money that we decided to invest since the
start of the PPP.
Q127 Mr Hollobone: Minister, you
said you were not an ideologue when it comes to PPP. In the evidence
to this Committee from Transport for London they say "Metronet's
failure was largely the result of its own inefficiency rather
than a consequence of the PPP structure. However the legacy of
Metronet's collapse has inevitably raised questions about whether
an alternative model may offer greater efficiency and value for
money As the one remaining PPP contractor, it is on Tube Lines'
shoulders that the case for the PPP model now rests." What
is your response to that assessment?
Mr Khan: There is a delicious
irony in the current Mayor Boris Johnson wanting to nationalise
the Tube. As far as the ideologue point is concerned, I make the
point that if you look at the NAO Report, a comprehensive report
into Metronet's collapse, they did not point to PPP as the reason
for Metronet collapsing and for the losses; they pointed towards
poor corporate governorship and they pointed towards poor leadership.
It was open to them to point the finger at PPP. I have accepted
and I recognise that PPP are not perfect, but I do say that if
you go back into time there was no other way of investing the
sorts of money we invested in London Underground. Accepting John's
point that we do not know what is around the corner with Tube
Lines, putting aside the Jubilee Line upgrade issues there are
currently, if you look at the last period, on all the objective
criteria Tube Lines have performed remarkably well. On the Northern
Line I see for myself, as an MP who has three stations along the
Northern Line, the improvements on the tracks, in the station,
in the numbers of CCTV cameras, in the numbers of help points,
and the quality of the trains. Or on the Piccadilly Line and on
some of the improvements on the Jubilee Line there have been huge
improvements. Some of the transparency Tube Lines have with TfL
and with the Department for Transport and with the Arbiter are
lessons that, in hindsight, Metronet could have learned from.
Q128 Mr Hollobone: Interestingly
both you and the Mayor for London have told the Committee this
afternoon that you are not ideologues. The Mayor was taking a
very practical approach to managing what is a difficult contract.
I do not think anybody disagrees with that, but there has been
strong evidence to the Committee this afternoon that Tube Lines
is in trouble, and the RMT have just told us they expect it to
collapse, although they would not give a timetable when they expected
that to happen. As a Minister of the Crown, are you not placing
the situation on at least amber alert, because there could be
a very heavy demand on the taxpayer were Tube Lines to collapse.
Mr Khan: One of the things I do
feel strongly about and where I am an ideologue is in relation
to devolution. I believe, as a Londoner, that the Mayor of London,
even though he may be from a different party from me, and the
Assembly and the TfL Board have been devolved powers by this Parliament
in the 1999 GLA Act to be responsible for the transport arrangements
within London. That being said, I accept that the money of taxpayers
outside of London is invested in the London transport system.
That is one of the reasons why, for example, when it came to learning
the lessons from the collapse of Metronet, we have ensured that
the new independent panel is transparent and open in relation
to how 8 of the 11 lines are run from the ex-Metronet by LU. You
will hopefully have heard from both the Mayor of London and Richard
Parry—and I know you are hearing from the Arbiter in January—about
how we have learned the lessons to help ex-Metronet to have greater
transparency and to make sure there is a passing of information
between us, TfL and ex-Metronet.
Q129 Mr Hollobone: If you are not
prepared to put your office on amber alert for a potential collapse
of Tube Lines, one mechanism which you could introduce, which
has been recommended by both this Committee and the National Audit
Office and which you have prayed in aid on several occasions in
this session already, is that the PPP Arbiter be given powers
to initiate a review on his own terms rather than after a reference
from one of the interested parties. Is that something that you
would consider?
Mr Khan: That is a good question.
When Chris Bolt has been asked the question, "Do you think
you have enough powers and what sort of powers do you think you
could have?" one of the things he has raised, which is interesting,
is the issue of having powers himself to go in and look at what
has happened rather than being asked to do so. As you know, with
Tube Lines there is the periodic review which we are going through
now for period 2 and, if necessary, they have the opportunity
to call for an extraordinary review as well. My understanding—and
my officials receive regular updates from Tube Lines—is
that Tube Lines pass up not just to my department, not just to
TfL but also to the Arbiter lots of information, and that is one
of the ways in which the Arbiter is able to benchmark the performance
of Tube Lines versus the performance of ex-Metronet as well. One
of the reasons we went down the route of coming to an arrangement
with the Mayor and TfL to have an independent scrutiny panel was
because that was the immediacy, that we could straightaway get
more information and transparency in relation to what is happening
with ex-Metronet. If we decide over a period of time it is not
working, then we leave open the option of legislation, because
these will require legislation because these are contractual terms
we have with Tube Lines and ex-Metronet to look at what we do.
I do not think we have reached that stage. I am confident that
Tube Lines are transparent with the Arbiter, with ourselves and
with TfL. There is no evidence that they are not, by the way,
and it was not the same with Metronet. I am confident that the
corporate governance in Tube Lines and the leadership is not the
same as with Metronet. I am confident that the regime set up with
the Mayor, elected by Londoners, to have independent scrutiny
will lead to greater transparency and more information being passed
to us, to give us the reassurance that you rightly say we need
to have.
Q130 Graham Stringer: You say there
have been problems with PPP but it is still the better structure
or best structure. Do you regret giving 95% guarantee for losses
to Metronet?
Mr Khan: One of the questions
that I ask myself is: Did the fact that the financial lenders
had that big guarantee mean they were more lax than they otherwise
would have been in relation to the monies they lent? What reassures
me is the fact that if you look at the amount of shareholders
monies lost: £200 million of loans and a further £340
million of equity and contractual penalties so about £540
million in total and the banks had 5% at risk—it is still
a huge sum of money. Yes, on the one hand maybe only 5% that was
the reason why they were more lax than they otherwise should have
been, but I go back to the point where back in the late 1990s
or the early part of the 2000, there was not a queue of people
queuing up to lend monies to what was a innovative way to fund
a Tube system that had been underfunded for literally decades.
Q131 Graham Stringer: I accept the
last part; I do not really accept the figures you have just said,
not that they are not true in themselves but if you look more
deeply at them there was basically a corrupt relationship between
Metronet and the supply companies because they were paying themselves.
While the headline losses to Metronet may be, whatever you say,
£300 million or £350 million, they had trousered that
money themselves, had they not? They had circulated the money
to themselves in very inefficient contracts, so in actual fact
their incentive was just to funnel the money through to the supply
companies/themselves and the losses or the liquidation of Metronet
therefore meant less to them. The controls that we look at, the
bank said, "Well 5% we can stand that, we are being paid,"
and the companies themselves took very little risk because they
were paying themselves loads of money, and at the back of that
is the taxpayer or the government paying 95%. That cannot have
been a sensible contract.
Mr Khan: The Treasury now does
not give those sort of guarantees—one of the lessons that
has been learned. Second, if you look at Tube Lines they have
similar guarantees of 95%, and you will see shareholders and leadership
which is very different from Metronet. Third, the advice back
then was that the only way you were going to get financial lenders
to lend the sort of monies that we needed to invest in a system
that had had underinvestment for decades, would be to borrow from
the private sector and you would need guarantees to do so, the
comfort letters that we gave to LU, because LU themselves had
none of the funding. Last, do not forget, notwithstanding the
point that you made—if one penny of taxpayers' money is
lost it is one penny too much and I take your point very seriously—you
still see over the last period more than £4 billion worth
of investment in those lines run by Metronet and ex-Metronet.
One point is this: do not forget that having tied supply chains
is not unique to this contract. We had tied supply chains in relation
to the high speed rail, the new Channel Tunnel Link, in relation
to the widening of the M25 and the A1 upgrade and others as well.
Q132 Graham Stringer: What you seem
to be saying is Tube Lines so far have behaved well, but the contracts
were open to abuse and there was nothing in the system that stopped
it. While you are defending PPP, it was open to abuse. That does
not mean to say that Tube Lines or anybody else involved would
abuse it. Clearly Metronet did. Does it concern you that those
people in the supply chain, that is the original shareholders
of Metronet, are still effectively getting public money because
they are still working on the Underground?
Mr Khan: You mean those below
the—
Graham Stringer: The people doing the
work.
Q133 Chairman: When the Select Committee
looked at this previously, these were the points that we drew
out of what had happened and we expressed our very great concern
about the way that the PPP had been constructed in this relationship
particularly, on this supply chain.
Mr Khan: You mean why they haven't
been blackballed. Is that the point you are making?
Q134 Graham Stringer: Yes, precisely.
Mr Khan: First, I am not sure
if I accept they were corrupt. You have made that point quite
forcefully, but I am not sure about that.
Q135 Graham Stringer: I think that
if something has a cold nose, a furry coat and wags its tail,
it is a dog. If that money is going through the system and people
walk away with the money, I think it is corrupt.
Mr Khan: I think having a 95%
guarantee may lead to people being less careful about how their
money is being invested and not having the right checks and balances
as they should do. That is one of the reasons why we changed the
guarantees we give in these sorts of arrangements. I accept that
point. It is one of the lessons we have learned. I go back to
the point that, back when these contracts began, the advice I
have is that these were the terms that were required to give comfort
to those lending monies.
Graham Stringer: I do not want to turn
this into a sort of discussion of history, but it is not completely
true that there were not warnings right the way through the setting
up of PPP. There were dangers, were there not? This Committee
in 2000 asked very unusually for the National Audit Office to
get involved and look at PPPs before they were let. The National
Audit Office drew attention to the fact of the models being used
were suspect and there was a lot of uncertainty in the system,
yet the Government ploughed on and went through it.
Chairman: A division has been called.
It will be ten minutes if there is one vote, and if there are
more we will be back as soon as possible.
The Committee suspended from 4.39 pm to 5.14
pm for divisions in the House.
Chairman: Mr Stringer.
Q136 Graham Stringer: I was trying
to say that on warnings from the National Audit Office the Government
changed its position a number of times on PPPs, saying there would
be no cost to the public purse at the start of it to various different
models where there clearly was going to be a charge. When it was
implemented, the risk was not transferred and there were problems
with Metronet and we now are facing problems with Tube Lines.
You say you are not ideological, but it seems to me that there
must be a better way of either a public sector way or of really
transferring the risk. Why is the Government so wedded to saying
it still supports the PPP process?
Mr Khan: If you look at other
projects which have needed major investment, we have moved away
from a PPP type model. As far as the Tubes are concerned, Tube
Lines are in 30 year PPP contract, albeit with four different
phases, so what you are talking about are the other 10 or 13 lines
that are currently ex-Metronet. Proof that we are not ideologues
is the fact that the other ex-Metronet are being brought back
for LU to run using other methods of levering in monies. Unless
you suggest that we terminate the contract with Tube Lines, I
am not sure what else we could do.
Graham Stringer: The contract with Tube
Lines may terminate itself. There is clearly doubt in it, as we
have heard today. I am trying to understand why in the written
submission and in the oral submission you have made this afternoon
you are still wedded to PPP. I accept there were problems with
wholly public-funded schemes before, but there are examples of
huge projects in this country that have been brought in on time
and according to budget. Terminal 5: wholly the private sector.
We are in a completely non ideological mode this afternoon. Why
is the Government not saying we will learn from that and we will
move for a model closer to the management systems used for TfL
or other projects that have worked well?
Q137 Chairman: Is your justification
of the PPP in the evidence we have from you something defensive
about a decision that was taken some time ago without recognising
a better way of moving forward?
Mr Khan: There are two issues
there. One is how is Tube investment funded and the second is
general ways of funding government/private projects. I am not
suggesting that PPP is an ideal model for the latter. I am suggesting
that we are now in train (if you will forgive the pun), approaching
year eight of a 30-year contract with Tube Lines, and so, unless
you are suggesting that we terminate Tube Lines, I am not sure
what else we can do vis-a"-vis the London Underground.
Q138 Chairman: What assurances have
you sought from Tube Lines in relation to its work 2010-2017 on
the Northern and Piccadilly Lines?
Mr Khan: The good news is that
we are currently going through the periodic review for period
1 to period 2, and one of the things that the Arbiter is looking
at is all sorts of issues in relation to costs of period 1, costs
of period 2, safeguards and levers. One of the things that we
have with Tube Lines, which we did not have with Metronet, is
information systems, risk management systems, management controls,
meaning that information is passed on to the Arbiter who can make
the call. I have seen no evidence of the sort of financial crisis
or corporate governance problems or other problems that there
were in Metronet. The alternative is a case where Tube Lines are
bending over backwards to provide information to the Arbiter,
TfL, the Mayor and the Department for Transport as well.
Q139 Sir Peter Soulsby: In your earlier
answer to Philip Hollobone, you were quite positive about the
prospect of an increased role for the Arbiter. As I understand
it from the evidence we have had, it is not so much Tube Lines
that are being resistant to that; it is London Underground and
the Mayor, it seems to me, who were resistant to that. As I understand
it, it has been left to them to discuss it together. In your earlier
responses you said that ultimately it was subject to legislation,
but clearly you cannot force it upon them. On the other hand,
as it seems unlikely that they are going to agree, and it is also
unlikely that we are going to get legislation, are you and the
department prepared to put a considerable amount of pressure on
them to try to get an improved role for the Arbiter?
Mr Khan: One of the most important
and pressing issues of the last period has been what sort of relationship
does government have in relation to making sure there is value
for money, bearing in mind that ex-Metronet has now been taken
over by LU/Mayor/TfL. There is taxpayers' monies involved as well
as obviously London taxpayers' monies involved. It is balancing
the fact that on the one hand we believe in devolution and making
sure that London can have the governance and the leadership that
we envisaged in the 1999 Act, but also bearing in mind there has
been a huge financial loss by the collapse of Metronet. The pragmatic
solution is the independent scrutiny panel, whereby not only do
we look at the financial investment arrangements of London Underground
but also across the rest of TfL, estate, which includes buses
and trams. There are currently discussions taking place between
us and the Mayor on terms of reference for the independent panel,
what sort of people would be on the panel to ensure it does not
become co-opted into part of the Mayor's fiefdom and to have issues
of conflict, which is one of the lessons that we have hopefully
been trying to improve upon in relation to transparency of information.
The point I was making is that I accept the criticism that we
need to make sure there is transparency in terms of how general
taxpayers' money is spent. If it is the case that the independent
scrutiny panel does not work and we are not satisfied, then legislation
is an option we will have to explore.
Q140 Sir Peter Soulsby: It struck
me from the evidence that we had from the Mayor that it was him
and Transport for London (influenced by his attitude) who were
resistant to interference in their thinking, and that in fact
the response we had from Mr Finch was much more positive and it
saw the prospect of some order being brought into the relationship
if there were a stronger role for an external Arbiter.
Mr Khan: Your analysis is one
I would not disagree with. In fact the experience I have had,
and I have been in this job since June, is that Tube Lines are
having to passing information on. If the discussion is as to whether
we have an annual report from the Arbiter, in fact Tube Lines
give much more information than in end of year reports. There
is an irony that Tube Lines are more than happy for an Arbiter
to have more say, because they would say, "We are giving
more information now to the Arbiter, to Department for Transport,
to TfL than would be required under the legislation." But
I go back to a point I made previously, the one point where I
am an ideologue is devolution, having a Mayor of London, even
though he or she may be from a different party, having the tools
at his or her disposal to run London—with the caveat, bearing
in mind that there is general taxpayers' money, your constituents/taxpayers'
money and monies from others from outside London being spent,
that we need to make sure that there are sufficient safeguards
and levers to make sure we are confident that the money is being
spent properly. So far I am reassured by the arrangements we have.
But if there is a stage where I am not happy, we are not persuaded
and we think it is not working, we have to have the option of
legislation.
Q141 Chairman: Are you satisfied
with the position of the Government or the department in relation
to getting access to the information you need?
Mr Khan: From Tube Lines or from
ex-Metronet?
Q142 Chairman: From any source, because
one of the difficulties with Metronet is that the department lacked
access to information at the right time.
Mr Khan: That is a good question.
One of the problems with Metronet when it was Metronet was that
they themselves were not on top of information, let alone us or
TfL. As far as Tube Lines and ex-Metronet are concerned, I am
confident we are given the information that we need—in fact,
we are given information we have not asked for, which is a good
sign. My officials are in regular contact with TfL and Lord Adonis
and myself work closely with the Mayor of London, as you would
expect us to, bearing in mind the huge sums of money and huge
reasons why London Transport needs to work effectively.
Q143 Graham Stringer: Is it possible
to say in the period of this Labour Government how much central
government money and how much local taxpayers' money as opposed
to fare box money has gone into capital investment in the Tube?
Mr Khan: That answer can be provided.
Q144 Chairman: Could you let the
Committee have that information.
Mr Khan: Yes. That will include,
in answer to a previous question, where private money has gone.
I am happy to provide the Committee with that.
Graham Stringer: That would be very helpful.
Chairman: Thank you very much, Minister.
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