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Lord Clement-Jones moved Amendment No. 280VA:

After Clause 167, insert the following new clause--


(" . Before any PPP agreement is entered into the Authority shall be required to have carried out and published an economic assessment in respect of the life of the agreement which demonstrates that such PPP agreement represents value for money at least comparable to that which would have been available through a publicly financed arrangement.")

The noble Lord said: The reasons for this amendment are twofold. The first is the reluctance of the Government to reveal the detail of the modelling underlying the PPP scheme that they are adopting. The Government are proposing contracts which should last for 30 years, yet they are withholding vital information, principally that contained in the original Price Waterhouse report, for reasons of commercial confidentiality.

In Committee in another place, the Minister for Transport in London said:

    "We have thought carefully about releasing the information ... To be of any use we would need to release a large amount of material, much of which would be helpful to bidders. That would prejudice London Underground's negotiating position in the PPP competition, so we shall not release that modelling". But the authors of the LSE papers in June last year and in March this year said:

    "neither Parliament nor the general public has any means of assessing the nature of the risks they are being asked to take on". The only response to that position is to ensure that other control mechanisms are included in the Bill to at least ensure that the economics of the PPP are transparent.

Secondly, in the bidding process the Government are duty bound to ensure "best value". The Government

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recognised this in their response to the Select Committee report on London Underground. They said:

    "Clearly, it is only possible conclusively to demonstrate that the current proposals represent best value once bids have been received. At that stage we will need to satisfy ourselves that the deal is really right". In the same paragraph the Government commit themselves to developing a comparator against conventional public sector funding.

    "This will help to assess the bids and ensure that we actually obtain the value for money we expect".

The Minister for Transport in London made an even clearer statement to the Standing Committee in another place on 25th February. She said:

    " ... the public sector--namely London Underground, which will remain in the public sector, as it is now--will be the benchmark against which all private bids will be measured ... we will not be awarding contracts irrespective of the value of the bid. Best value will be the watchword".

This amendment is designed to ensure that the Government live up to that pledge and that the economics of the PPP proposals are completely transparent. I beg to move.

Lord Whitty: I do not think that there is a difference of principle in this amendment. The amendment requires the GLA to carry out a public sector comparator exercise before any PPP contracts are signed to show that the contracts are at least comparable on value-for-money grounds with the Underground remaining within the public sector. We have no intention of proceeding with any aspect of the PPP unless we are convinced that the contracts offer best value for passengers and taxpayers.

However, to ask the GLA to undertake this exercise would be inconsistent with the Government's intention--this has been made known throughout our statements--to see through the PPP negotiations before transferring the Underground to TfL.

In those circumstances, the terms of the noble Lord's amendment are not appropriate. I therefore ask him not to pursue it.

Lord Clement-Jones: Before doing that, I must ask the Minister: if the TfL were to ensure that the public sector comparator was in place, would that be acceptable to the Government?

Lord Whitty: No. My point is that the comparator for the PPP would be established by the Secretary of State before the PPP handed over either to the mayor or to TfL. Therefore, the Secretary of State would carry out the comparator exercise.

Lord Clement-Jones: In that case, my question remains the same, except I substitute the Secretary of State for Transport for London. If the Minister were to commit to conducting a public sector comparator in the name of the Secretary of State in those terms and were to agree that that should be in the primary legislation, it would be most satisfactory.

Lord Whitty: We are committed to conducting a public sector comparator exercise. As for publishing the

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details of that exercise, it depends when the noble Lord suggests that that should occur. If they were published before contracts were signed--I think that is the intention--there would be a problem. The tenderers would clearly not have much of an incentive to go as low as they might because they would simply have to beat the public service comparator. Therefore, we would not publish at that stage. However, once the competition is concluded, the full details will be made available through the National Audit Office in the usual way.

Lord Clement-Jones: I think that I can see some chinks of daylight in the Minister's comments. The issue may revolve largely around timing, but I suspect that it revolves also around the Government's commitment to conducting the exercise and putting it in the Bill in a concrete fashion. At this stage in the proceedings, the best thing for me and my colleagues on these Benches to do is to read what the Minister has said to see whether we can return with something slightly more satisfactory at Report stage.

I do not think that we are a million miles apart. I can understand the Minister's reasons for saying that the Government would not necessarily want to publish before contracts were concluded. On the other hand, that might be the point when the Government were perfectly able to say, "This is the PPP company we wish to proceed with and these are our reasons for doing so".

I am not sure that I fully understand the Minister's reasons, but we will consider over the next few days what he has said. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Clement-Jones moved Amendment No. 280WA:

After Clause 167, insert the following new clause--


(" .--(1) In exercising his powers under section 134(1) to determine the matters specified in section 135(2)(a), the Mayor shall ensure that the general level of fares to be charged by Transport for London for railway services in respect of which a PPP agreement has been entered into is no more than the general level 12 months previous to that time increased by a percentage equal to the control rate.
(2) In subsection (1) above the control rate shall be at any time the number of percentage points by which the most recently available figure for the retail prices index has increased on the retail prices index for the month 12 months previous to that figure less the factor X.
(3) In subsection (2) above--
(a) "the retail prices index" is the general index of retail prices (for all items) published by the Office of National Statistics, and if that index is not published for a month which is relevant for the provisions of this section then this section shall be construed as referring to any substitute index or index figures published by that Office; and
(b) "the factor X" shall, prior to 1st April 2002, be equivalent to two percentage points, and on or after 1st April 2002 shall be equivalent to one percentage point.")

The noble Lord said: In the financial structuring of the PPP, it appears that the pay-back provisions to the private contractors will depend heavily on significant annual profits being earned by London Underground.

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The authors of the LSE papers that I mentioned earlier estimate those to be approximately £450 million per year. However, in a recent paper they make the point that, while London Underground has generated significant growth in operating revenues of £210 million in 1996-97 and £264.7 million in 1997-98, those have been notably lower than the figure they estimate will be required in any future repayment schedule for the PPP.

The requirements to make this level of profit will apply during each year of the 30 years of the contract. So how will those levels of profit be made? In its assumptions about PPP, London Underground seems to have assumed that passenger numbers will continue to grow and that fares will rise by 1 per cent above inflation in each year for a number of years. The need for real fare increases of this size has been affirmed first of all and then denied by the Minister for Transport in London in the Standing Committee in another place. But, in response to the Select Committee, the Government said:

    "It is not our policy to see large increases in public transport fares. Our proposals are not based on such increases. The PPP will not be dependent on significant increases in fares". However, that at least some real fare increases will be needed is the only conclusion that one can draw.

Chantrey Vellacott, the chartered accountants, have produced a briefing note which concludes that fares may have to rise by as much as 30 per cent, which would clearly be unacceptable. It follows that the Government seem confused about what the necessary subsidy will be. For instance, in their response to the Select Committee report on London Underground, they have stated that there are no provisions in their plans for central government subsidy after the year 2000. Yet at the Committee stage in another place the Minister for Transport in London seems to have conceded that, if it represents good value for money, part of the central government grant to TfL could go to the PPP contractor.

What is the true position? As the noble Lord can see, this amendment on pricing is designed as a probing amendment. What is the true position; or, as I should say, what is today's position? What real underlying assumptions are the Government using? I hope that the Minister can shed some light on all these aspects. I beg to move.


Lord Brabazon of Tara: I rise to support the principle of the amendment, as it follows closely an amendment standing in my name which we debated earlier and which covered the whole of TfL rather than just the London Underground. I notice that the noble Lord, Lord Clement-Jones, is being slightly more generous to TfL in factor x. But from what was said previously, I think it would be unwise to put figures in that paragraph. One would probably want to see what the books looked like before one put that in. The noble Lord is right to say that the accountants' report

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suggested that fare increases of 30 per cent would be necessary to finance the PPP. I, too, shall be interested to hear what the Minister has to say in response to that.

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