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Lord Falconer of Thoroton: My Lords, on the first point, I thoroughly agree with the noble Lord's analysis of the profound difference between these proposals and the privatisation of Railtrack. Railtrack involved privatisation and the separation of track and train. In the Railtrack model separate groups were appointed; in this model London Underground remains in control of the whole process of the Tube.
As my right honourable friend made clear in another place, safety is a matter that cannot be left to the politicians. The Health and Safety Executive will form conclusions about the safety of the proposal, as it intends to do. I have not read the comment of the Mayor about the matter, but we have confidence that the Health and Safety Executive will form an unbiased and an objective view on safety. It is right that it should be left to that body.
Lord Ezra: My Lords, will the Minister indicate whether, in the period of nearly five years during which the PPP has been discussed, the level of funding made available to London Underground has been adequate? Does he recall that before the last election the Deputy Prime Minister mentioned a figure of £775 million per annum being made available, but that, in practice, it appears that much less has been made available? Will that not add to the backlog from which the PPP will start? Has that been taken into account in the PPP proposals?
Lord Falconer of Thoroton: My Lords, I cannot give the noble Lord a precise figure at the moment, but I shall put it in writing to him. As regards the figure being adequate, it is perfectly obvious that substantial investment is required in the Tube. These three PPP contracts take that into account.
Lord Brooke of Sutton Mandeville: My Lords, grateful as I am for any conclusive or even contingent decision by the Government, I have one general question and one particular question to put to the Minister. My first question follows on that asked by the noble Lord, Lord Ezra. Why has it taken four and two-thirds years of theological discussion by this Government to reach this point? During that time Londoners—I declare an interest as a Londoner myself—have watched the service deteriorate steadily and the capital's productivity has been seriously eroded in the process.
My particular question relates to the Minister engagingly using the words in the Statement "work the signals". In recent years signalling on the Underground has been a nightmare. I speak as a commuter and as someone who has talked to Underground management. Will these new arrangements lead to the abandonment by the Underground of the unique signalling specifications that we have set up in this country, as the lack of orders ineluctably cause international signalling companies
to close their British subsidiaries—subsidiaries that were set up to be UK specific—and instead will they lead to accepting international specifications, which will mean ordering more cheaply and, perhaps even more importantly, more swiftly off the peg? I ask that latter, small question because it sounds as though the Government are about to embark on another and larger UK-specific experiment.
Lord Falconer of Thoroton: My Lords, perhaps I may write to the noble Lord about the signalling point, because I am not in a position to deal with it. On the question of why it has taken so long, we had to evaluate all the options in relation to the Tube, which took some time. Thereafter, once it had been decided to go down this path, a necessary consequence was that there had to be complicated negotiations. Once those negotiations reached a close, there had to be an evaluation of the safety case and of the value-for-money case. The matter was not speeded up by the fact that the Mayor of London opposed the proposals and, ultimately, took the Government to court in the middle of last year, which inevitably delayed the process further.
Lord Oakeshott of Seagrove Bay: My Lords, when the Government can borrow money for 30 years at 5 per cent fixed, or 2 per cent nominal, how on earth can this PPP represent value for money to the taxpayers? Why does the Minister believe that some of the most profitable companies quoted on the Stock Exchange are drooling over the prospect of these contracts? Does the Minister not understand that their shareholders would sack the PPP bidders' boards tomorrow unless they were building in projected rates of return of at least double or treble those on government bonds?
Lord Falconer of Thoroton: My Lords, the assessment made by London Underground of the comparison with the public sector comparator considers all of the issues, including the return on the cost of borrowing, and forms the view clearly that it is better value-for-money to go with the PPP than to take the public sector comparator. Ernst & Young has made an analysis of the approach taken by London Underground and it too has concluded that the approach taken by London Underground is appropriate to consider where the risk should lie. That company considers that substantial gains will be made in terms of management and performance if the PPP goes ahead.
Lord Elder: My Lords, does my noble and learned friend agree that it is quite remarkable that the two Opposition parties seem to be so nervous about the introduction of public sector finance and involvement in this project? Is it not more remarkable, given that the bulk of the finance and all the administration will remain in the public sector and that the private sector's involvement, while significant, is relatively small? Does he further agree with me that the advantage of that private sector involvement is that, perhaps for the
first time, we will be able to drive the situation in which the delivery on time and to cost of public sector investment will be met?
Lord Falconer of Thoroton: My Lords, London Underground remains in the public sector. That is made clear. The risk of delivering the improvements in the infrastructure falls to the private sector under the PPP. That is the merit of the system.
Baroness Sharp of Guildford: My Lords, may I press the Minister further about what rate of return he would expect for the private sector operators?. His reply was that it, "reasonably reflects the risk that they are taking". At what level will this be? So far as I can see, very little risk is actually being passed on. In so far as there is a shortfall of revenue, it is passed on to Transport for London. Again, as my noble friend Lady Hamwee explained, in the case of the financing, if the infra-cos fail to come up with the financing within two months after the seven and-a-half-year period—the break in the middle—then it is for London to find the financing for it.
Lord Falconer of Thoroton: My Lords, the break is delivery so far as concerns the contract. They must deliver particular standards of modernisation and improvement. If they do not, not only do they risk not making a return on the contract but they also risk being fined. There is the risk. It is a commercial risk.
Lord Tope: My Lords, I must first declare an interest too as a Member of the London Assembly and indeed of its budget committee that is this week and next week scrutinising Transport for London's budget. The Minister, I am sure unintentionally, forgot to answer one of the very important questions from my noble friend Lady Hamwee who chairs the GLA's budget committee. She asked about what she referred to as the "dowry". Can the Minister confirm that when London Underground eventually passes to TfL that it will be passed over with a dowry, with a sufficient sum to meet all its liabilities?
Lord Falconer of Thoroton: My Lords, in the light of the conclusion now in relation to the PPP negotiations, of course the position is that final decisions in relation to all of that can now be made.
Lord Tope: My Lords, can we have a translation?
Lord Falconer of Thoroton: My Lords, obviously I cannot give a specific figure in relation to the dowry, nor am I in a position to give assurances in relation to particular arrangements. Obviously, now that the PPP contracts are near to finalisation, the position is that all of those financial details can be worked out, but on the basis that the Government stand firmly behind the PPP contracts as the way forward for the Tube.
The Duke of Montrose: My Lords, is the noble and learned Lord saying that he is not willing to tell us what
the rate of return is? If he does not have knowledge of what the rate would be, can he tell us when it will be made available?
Lord Falconer of Thoroton: My Lords, I think that I have made it clear that there will be different rates of return in relation to each of the three PPP contracts. It will not be possible just to give a headline figure in relation to that. The rates of return will have been taken into account in the value-for-money comparison.
Lord Oakeshott of Seagrove Bay: My Lords, if the Minister is not able to give us one headline figure, perhaps he could give us the three figures.
Lord Falconer of Thoroton: My Lords, I think that I have made it clear that it would not be possible just to take a headline figure for each one, but that it has been taken into account.
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