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London Underground

3.9 p.m.

Lord Peyton of Yeovil rose to call attention to the future of London Underground; and to move for Papers.

The noble Lord said: My Lords, the London Underground has a vital place not only in our transport system, but in the lives of millions of people who are obliged to use it daily in order to get to work. There is a somewhat bland statement in London Transport's last annual report to the effect that,

I cannot help feeling that the majority of passengers would express that truth in rather rougher terms.

It would not be helpful to take a long dive back into history and I hope that the Minister will not do so either. It must be said that when the Government came to office the London Underground was already facing severe problems. However, in recent times the situation has reached crisis levels with little sign of progress.

In March 1998, the Deputy Prime Minister, full of the enthusiasm that, from time to time, powers—and even overpowers—him, introduced to Parliament a measure that is known to its limited friends as PPP. It is a partnership between the public and private sectors. Neither privatisation nor old-style public ownership, it was presented to Parliament as a miracle that would solve the problems of London's Underground. Under the scheme, the Tube itself, the station services, the ticketing and the drivers would continue to be the responsibility of London Underground, which would also be responsible for safety. When these

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arrangements were in place, London Underground's functions would be passed to the Mayor of London. Arrangements were already in hand at that time to elect such a personage.

Under the scheme, London Underground would invite bids from three private groups. The successful bidders would each be given 30-year leases of a section of the network in which they would upgrade and maintain the infrastructure. The scheme has received and has deserved a chilly welcome. As the Mayor has frequently said, it would leave the operators of the tube altogether dependent on the private sector contractors to discharge their responsibility for safety. Similarly, an arrangement that covered prices only for the first seven and a half years of a 30-year period would leave the operator with very few cards in his hand. There were also doubts as to the wisdom of splitting a single network into three, with all the added complexity that would result.

The scheme, dear to the heart of the Treasury, since it would, at least for the time being, serve to keep the problem off its doorstep, has the footprints of the Chancellor of the Exchequer and his advisers all over it. However, he has been resolute in not becoming involved, washing his hands of the matter and declining to be told of the palpable defects of the PPP scheme. He would simply rather not know.

Meantime, the Government were going ahead with arrangements to create a Mayor of London who would eventually be responsible for operating the network. They had a brainwave. That nice, obliging Mr Dobson could be persuaded that here was a glittering future that would be rather better and more comfortable than a seat in the Cabinet and ministerial office at the Department of Health. He could also be relied on to see the merits of PPP, even if few others did.

Mr Livingstone then appeared—something of a cloud on the Government's horizon. He made no attempt to conceal his dislike of PPP. He thought that it would be a rip-off for the private contractors and that safety would be jeopardised. I understand that Mr Livingstone is something of a loner and one whom Ministers might find a slightly uncomfortable associate, particularly as he is equipped with a sense of humour and, from time to time, takes the opportunity to deflate people who take themselves over-seriously and to make their plans look ridiculous. He was, in due course, elected and, disturbingly for the Government, continued to declare that PPP would not work. On 3rd July 2000, he appointed Bob Kiley as Commissioner for Transport. Mr Kiley brought with him a formidable reputation for having redeemed the New York Metro. The Mayor also set up the institution known as Transport for London.

A paper war followed, the beneficiaries of which were few and far between, as long as one excludes the consultants. I remind your Lordships of Mark Twain's famous remark that the first consultant—having in mind the advice that he gave on the apples—was Satan. Much of the advice that the Government have received in this area has not been good.

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On 13th December, Mr Kiley presented two reports to the Mayor. The first echoed his concerns about PPP; the second was a programme for the rehabilitation and management of the London Underground. On 15th December, the National Audit Office issued a report on certain strategic issues and the contractual framework proposed. I do not have time to say more than that the National Audit Office was not an enthusiastic supporter of the project. A further report by Mr Kiley to the Mayor was issued on 23rd February, based on fuller information as to the shortcomings of PPP. On 4th May, Mr Kiley was appointed chairman of London Transport by the Government. Then a new Secretary of State came along—Mr Byers. At one time I was inclined to see Mr Byers as the villain of the piece. He has been guilty of certain wrongdoing, but in that wrongdoing he has been subordinate to the arch-wrongdoer in this piece, who in my view is the Chancellor of the Exchequer.

There followed three independent relevant reports, none of which gave comfort to the Government or the supporters of PPP. The Institute of Public Policy Research indicated that there were,

    "significant problems with the Government's current PPP".

The International Project Finance Association said that the,

    "Government has ignored specialised advice on the scheme's flaws".

Later, a report on safety by Parsons Brinckerhoff indicated serious shortcomings.

Meanwhile, on 17th July, some six weeks after he had been appointed, Mr Kiley was sacked. I shall return to that point later. He was sacked partly because he was about to deliver a report by Deloitte & Touche into the shortcomings of the PPP. Having sacked Mr Kiley, the Government immediately took the matter to court to seek an injunction to prevent the report ever appearing in the public sector. The judge made it clear that the court was not ruling on either the safety or the value-for-money aspects of the PPP.

London Underground sought leave to appeal against Mr Justice Sullivan's ruling that the injunction be lifted. In the event, it was lifted, and the report proved to contain very little of commercial importance. However, it did have certain statements which, obviously, the Government found very embarrassing as they were critical of, and adverse to, PPP.

This is not the time or the place to discuss the rights and wrongs of the Secretary of State's handling of Railtrack. What can and must be said is that those who are now involved in negotiating the details of financial arrangements may well fight a little shy of a Secretary of State who clearly does not accept that goalposts are intended by those who place them to be fixtures and not easily moveable.

As I said, Mr Kiley was sacked as chairman of London Transport less than six weeks after he had been appointed and when he was about to present that report. In my view, that move reflected the desperation of the Government. They failed to suppress the report and they can now be seen clearly as having behaved

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shabbily and rudely towards a man who knew more about the problem than either Ministers or their advisers. It remains to be said that the sacking was carried out in a way which was not only uncivil but downright rude. It was delivered in a letter written by the director general of the department concerned. In it he stated:

    "Accordingly, the Secretary of State has regretfully concluded that you [Mr Kiley] are unable and unfit to continue properly to discharge the functions of Chairman of the Board".

Those words are usually loaded with insult, and they were on this occasion. I am surprised that a senior civil servant should have allowed himself to be the pawn of a Minister in writing such a letter.

Of course, the Secretary of State is responsible for that letter. But, as I said, he cannot be seen as much more than a protective barrier erected by the Chancellor of the Exchequer to protect himself from responsibility and from a consequent wave of public opinion should anything go seriously wrong.

I do not believe that anyone who has served as Minister of Transport can fail to be aware of the way in which the Treasury has always shuddered at the mere thought of railways and of its seeming contempt for managers who, starved of resources, face insoluble problems. The present Chancellor of the Exchequer has become a leading protagonist of such negative attitudes. What he and his advisers should now bear in mind is that London Underground is both necessary and permanent. It will not go away. The sooner the money required to refurbish it is found, the less will be the ultimate cost. The longer the Government and, in particular, the Treasury put off the evil day, the greater will be the ultimate cost. My Lords, I beg to move for Papers.

3.25 p.m.

Lord Elder: My Lords, I start by congratulating the noble Lord, Lord Peyton of Yeovil, on tabling this Motion and on his success in winning the ballot. I say at the outset that I could not agree with him more that the provision of money for the Underground is a key factor. It seems to be at least ironic that we should be debating the matter in this form now when we have a Government who talk about putting in the sums of money that every government should have been investing over the past 50 years.

All of us who use the Underground regularly—I have done so for the past 30 years or so—have a vested interest in getting the system back to being one that is comparable with those in overseas capitals. Some are modern and some, like Paris, are quite old. As is the case in relation to so much that was done in the 19th century, as a nation we have been content to use the resources left to us—the water and railway systems are other examples—but we have been far less willing to make the necessary continuing commitment in terms of investment and upkeep. That is as true of the Underground as it is of anything. In the 19th century, it was a world leader, as it was for much of the 20th century. After a further period of low investment and neglect, it has fallen to this Government, and this Government alone, to make the decisive move towards a more modern system.

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The Government have been criticised in certain quarters for going down the road of privatisation when, in fact, they are not doing so. The Underground will still be publicly owned and run. They have been criticised for replicating Railtrack and for putting safety at risk when they are doing neither. London Underground will still run the Tube, and the public sector will remain in charge of safety and will demand the highest standards. It has been said that the whole system should be handed over to Bob Kiley. However, as a national asset—it should be seen as a national and not only a London asset—the Government must retain ultimate responsibility for the system, as clearly and rightly they propose to do.

I intend to speak briefly today and to concentrate on one key element of the Government's plans; that is, the question of value for money and whether or not the funding method proposed, with private finance, can give value for money when, demonstrably, that means of financing will be more expensive than public borrowing or a bond issue. On paper, that is indisputably the case.

I have always wanted to believe that the public sector can carry out as cost-effectively and as efficiently as the private sector any major or minor project. But I am afraid that, with a few honourable exceptions, the evidence is that that has not been the case. Cost overruns are the norm, and the best way for the public sector to achieve its objectives on time and to cost are by using the private sector. What should work on paper regrettably does not appear to work in practice.

Going back 30 years to my time at university, I convinced myself without qualification that the Soviet system worked perfectly on paper. However, experience since then has shown that it came a good deal short of working in practice. The reality is that, with investment on the scale envisaged, we simply cannot afford the sort of cost overrun that we saw occur with the Jubilee Line extension. That extension shows the quality that we want to achieve—that is undoubtedly the case—but not the way in which we should go about it if we want value for money.

We do not save by having public borrowing rather than private finance if the savings from the cost of the funds are entirely wiped out and more by a cost overrun on the whole budget. I am afraid that that has been the case far too often. It will fall to the private sector to ensure that the risk is managed in a way that will ensure that it manages the investment and invests in the quality of the assets. It will know that if it fails in its job, it will be its profits that will suffer.

That is a guarantee of the private sector's interest in the project, of the effectiveness of its management, and, as a result, of value for money for the public. That is the whole point of the PPP scheme, and why the Government should be supported in trying to make it work.

I welcome the fact that the Secretary of State has asked Ernst and Young to carry out an independent review of the plans. When the time comes for the

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National Audit Office to consider what has happened—as it surely will in order to follow up its initial report—the Government will be able to say that their preferred route for the spending of the money, via the private sector, meant that the public indeed got good value for money. We, the regular Underground users, will be able to take pride in what has been achieved.

3.30 p.m.

Baroness Hamwee: My Lords, I must congratulate the Government—that may not be how the Minister expected me to start. However, we all know that the public are interested only in services being delivered; they do not care much what is the structure that underlies those services. So it is a particular achievement of the Government that they have created so much interest in, and opposition to, their proposed arrangements for London Underground.

That is in part because of the controversy surrounding the public/private partnership. Although we all know—and the noble Lord, Lord Elder, has reminded us—that PPP is not the same as the structure for the national railways, the Railtrack fiasco has dealt a blow to public confidence in the Government getting such things right. I hope that that blow will not be fatal, but the Government seem determined to compound the problem.

I have an interest to declare—I wish it were more of an interest. I am a member of the Greater London Assembly; I am currently its chair. Our main job is to act as watchdogs over what the Mayor of London does. As regards the Tube, I should prefer to be doing that job on behalf of London's travelling public, its businesses and all its communities, rather than, yet again, finding myself criticising central government because they have not yet handed the Tube over to London's devolved government.

I could use the whole of my speech, and more, reciting facts about the appalling state of the Tube. I shall not; but I shall give a taster.

Over a 12-month period in 2000-2001, there were more than 3,500 signal and points failures and no fewer than 14,448 train breakdowns. Research by my honourable friend the Member for Carshalton and Wallington tells us that the number of faults on signals, points and track has grown by more than 35 per cent in the past year. In answer to a Written Question in another place, asking how many lines on the Underground were subject to delayed or cancelled services on one day in October, a Minister gave details of incidents which were the cause of "significant" delays—I think that a delay is significant for that purpose only if it is longer than 15 minutes—which amounted to 903 minutes, or more than 15 hours.

London Underground's annual report, published in August, tells us that it failed to reach customer satisfaction targets set by the Government in seven areas, which include safety, service security and information—no small matters.

Transport for London's managing director of finance and performance has said publicly that he simply cannot understand why the results of opinion

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polling among passengers indicate such high levels of satisfaction—contrary, perhaps, to what the noble Lord, Lord Peyton of Yeovil, said. We have tried to explain to him that that is not because passengers are satisfied but because their expectations are so low. Whether passengers are impressed by expenditure on London Underground's current, "Your Tube", advertising campaign—no doubt not cheap—I leave noble Lords to guess.

The Minister told the noble Lord, Lord Peyton of Yeovil, on 29th October that the Government are "pressing" for swift improvement. Exactly whom are they pressing?

None of that will improve until the future is settled. I am not 100 per cent supportive of the mayor's action in the matter. I have been openly critical of him for his attacks on London Underground's management. Calling them "dullards", as he did—and, no doubt, other things—has had the inevitable, perhaps intended, effect of some of the most senior management leaving and their posts remaining unfilled. Such events are bound to affect the whole complement. They must feel as if they are not valued—in part, because they do not know what will be their future.

The future and the date of change remain uncertain. I know that my noble friend Lord Bradshaw will talk more about the possible future financial structure. The Minister told me last month in a Written Answer:

    "The Government's intention is to transfer London Underground Limited to Transport for London after the long-term plans for the modernisation of London Underground's infrastructure have been put in place".—[Official Report, 29/10/01; col. WA 147.]

Well yes, that much we know. Briefing material that I received for today's debate describes the public/private partnership as being "misconceived from birth". That may not be physically possible, but frankly that is not much more daft than are the Treasury rules which are so artificial and make such a sham of devolution.

Deloitte & Touche raised crucial concerns about whether the PPP is good value for taxpayers' money, and about the procurement process, which has led to the convoluted contract regime. London Transport sought to suppress publication of that report, and I for one was delighted that the courts took the view that a document of such public concern should, subject to a bit of tippexing out of the identity of the preferred bidders, be in the public domain. In the long term, the courts' support of transparency in such circumstances may be significant.

Deloitte & Touche is one of the plethora of consultants involved in the saga. We know that the Government have now engaged Ernst & Young to ensure, to cite the Minister:

    "a proper independent and objective assessment . . . of the value for money of those bids".—[Official Report, 29/10/01; col. 1164.]

I do not know whether the Government do not trust PricewaterhouseCoopers, who are engaged by London Underground for this purpose, or whether they do not trust London Underground, which

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engaged them. They may be running round hoping that someone, somewhere will give them the answer that they want.

The Channel 4 News economics correspondent commented that:

    "PPP is supposed to yield efficiency savings. But it also brings uncalculated compliance and monitoring costs. No wonder the civil service spent more than £100 million on consultancy and legal fees, trying to prove it will work".

The Minister and I both know enough about how lawyers can create paper. The PPP relies on 135 separate contract documents, more than 2,800 pages of contract terms containing—I have no idea who counted this—2 million words.

As the paper mountain grows, so—despite the lack of dialogue between London Transport and the mayor and his commissioner, Bob Kiley—do concerns about the structure. There were recent threats of strikes on the Underground over facilities available to staff. In the normal world, people would rent a Portacabin. Under the PPP, with its 30-year time frame, they have to provide for maintenance for 30 years, so a Portacabin would cost £250,000.

From all those contracts, the finance market testing clause stands out as one that should concern us. It provides that, if financing is not available to an infra-co—one of the private companies—or if the infra-co simply does not obtain financing by two months before each seven-and-a-half-year review date, TfL must either review the infra-co's obligations, so that it does not require financing, or pay the infra-co its costs as they are incurred. In other words, TfL must provide the financing itself. I take that to mean that if the infra-cos run out of money, or their backers or shareholders will not provide it, London's council tax payers will have to pick up the bill.

The cover of the Government's 10-year transport plan is labelled "integrated transport". That is an idea—an ideal—to which we all subscribe. Transport is not integrated in TfL's budget for next year—which, of course, must also take account of future years. I criticise TfL for not including any figure for the cost of the transfer—if the Minister can assure me today that it will be absolutely cost-neutral, I will go away happier than when I arrived—but I can understand its difficulty, as it has not been provided with the financial and performance information for the plan years involved. It simply cannot take account of it because it is not involved in the debate.

If something goes wrong with PPP, unlike Railtrack the infra-cos will simply lose their contracts. What exit strategy have the Government designed that will protect the public in those circumstances? Can the Minister say, having, still, an open mind about whether PPPs provide value for money and safety—and he assured the House about that—what is the Government's alternative? What is the Government's Plan B?

Earlier this week the Minister answered a question on turn-out at elections, and he did not need persuading that increasing the reputation of politicians and the political process is an important

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ingredient. The public believe that far too much of this debate is about personality politics and that the Government are still frankly miffed that they do not have their own candidate in place as mayor. That may not be the case, but it is the perception.

The public, too, understand that there are occasions when minds need to be changed. There is no shame in that. Indeed, it would do the Government's reputation a lot of good, and London's travelling public would cheer.

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