London Underground

I wish to record the apologies of my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody), the Chairman of the Transport Committee, who is recovering from illness. I am very pleased, Mr. Deputy Speaker, that the House has the opportunity to consider the Transport Committee's report on London Underground and the public-private sector partnership agreements. The PPPs on London Underground are the Government's creation and have always been extremely controversial. This short inquiry centred, however, on the spectacular collapse of Metronet, one of two private sector consortiums that had signed 30-year PPP contracts to renovate and modernise specific parts of the London Underground. The two Metronet infracos went into administration on 18 July 2007 following the failure of an appeal to the PPP arbiter for additional funding through an increase in the infrastructure service charge. As the Select Committee's report clearly documents, that was a double failure: it was a failure to deliver public services and it was a catastrophic financial failure. Contracts that were supposed to deliver 35 station upgrades over the first three years in fact delivered 14—a 40 per cent. delivery of the requirements. Stations that were supposed to cost Metronet-SSL £2 million in fact cost £7.5 million—375 per cent. over the anticipated cost. By November 2006, only 65 per cent. of scheduled track renewal had been achieved. If that were not enough, the service delivery failure has come with a £2 billion financial tag—a tag reported tonight in the estimates' request for additional funding—which takes three forms. First, there is a £1.7 billion grant to Transport for London to cover Metronet's debts; and, secondly, a £158 million grant for Transport for London, which is understood to be the first instalment of the costs caused by Metronet's going into administration—and it is believed that the total cost of that is about £630 million. The third part is £150 million of further grant to Transport for London in recognition of the increased costs. I hope that the Minister will inform the House whether that is, indeed, the full bill and what the impact of approving that additional funding will be on other transport projects. The Committee took evidence from the PPP's arbiter, Unite, the Transport Salaried Staffs Association, Tube Lines, the chairman of the Greater London assembly's transport committee, the former chairman of Metronet, the PPP administrator at Transport for London and the Secretary of State. The report reveals shocking deficiencies in the construction and operation of the failed PPP contracts. Those include a tied supply chain, with most of the capital expenditure contracts awarded to Metronet's parent companies—WS Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water. Risk transfer was minimised with 95 per cent. of lenders' debt guaranteed by London Underground. In short, as the report concluded,"““the Metronet contract did nothing more than secure loans, 95 per cent. of which were in any case underwritten by the public purse, at an inflated cost—the worst of both possible worlds. As with the shareholders, what minimal risk was borne by Metronet's lenders was disproportionately well rewarded, at the expense of the tax and fare payer.””" A reading of the Committee's report indicates that what has happened is nothing short of a national scandal. The report identifies the failings of the PPP in both concept and practice, and makes recommendations for the future, suggesting that the PPP itself might be a flawed model, but indicating the importance of transparency and accountability to ensure efficiency and value for money in future, through a public or private sector vehicle. Following the collapse of Metronet, Transport for London was the only applicant to take over its work. In October last year, a memorandum of understanding was signed between the Department for Transport and Transport for London. Important questions arise from the report and subsequent events, which I hope the Minister will be able to answer. How will the delay in Metronet coming out of administration affect what is to happen next, and how will it affect costs? It was anticipated that Metronet would come out of administration by 18 January. That has not happened. If finance for the future cannot be secured at reasonable terms, without guaranteeing the vast majority of the debt in the public sector, will loans direct to the Government be considered? Do the Government agree with the Committee's findings that there should be no further PPPs without a comprehensive assessment of genuine risk transfer? It is vital that the Government remember the catastrophic collapse of Metronet when its parent companies next bid for publicly funded work. That is extremely important, as is the future of the repairs and upgrades on the London underground. The Government entered into the PPP, with great controversy, because of their concern about some inefficiencies in the public sector. However, it is important that they remember that when private companies fail to deliver on large public projects, those private companies can walk away and the taxpayer picks up the pieces. That is, indeed, what is happening with Metronet.