London Underground

If the hon. Gentleman will let me continue, I am coming on to that. I am saying that the principle is sound, but that the contract was at fault. I will come on to re-emphasise that, and it is exactly what the Select Committee report makes clear. The hon. Member for Richmond Park (Susan Kramer) will remember that in 1998 the board and its advisers, KPMG and Lazard, evaluated 15 different financing options. The first was to keep the whole operation in the public sector and use London Transport-backed corporate bonds, secured on future cash flows, to finance the capital investment. The second was to sell a 25-year franchise to the private sector to operate the whole system and to carry out the investment required. Fare levels and service frequency and quality were also prescribed. I think she will confirm that the London Transport board and its advisers suggested that if option 2 had been taken, it would have generated £2 billion for the public purse. The board presented the Treasury and the Department for Transport with 15 different options. The Treasury started to exert influence for its favoured option. The Treasury Committee in 2001 noted that there was the"““excessive influence of the Treasury…to plump for a PPP scheme for London Underground to the exclusion of all other options.””" It further stated that"““the Treasury…has begun to exert too much influence over policy areas which are properly the business of other departments. This is not necessarily in the best interests of the Treasury or the Government as a whole.””" What was clear in the end was that out of those 15 options, the 14th best option was selected. The Government at the time said that the PPP would realise more than £16 billion and save more than £4 billion. The London Transport board and its advisers said that on a discounted cash-flow basis, the difference between options 1 and 2 and the 14th was a £3 billion cost to the taxpayer. Let us be clear about this: there was a cost to the taxpayer that could have been avoided right at the outset of the contract. It is also true, as the hon. Member for Lewes (Norman Baker) noted, that there was a bill of £500 million for lawyers. Mr. Travers, in his evidence to the Committee, said that the"““PPP is virtually impossible to understand””" and that the Government had been naive in believing that nothing could go wrong with the contracts. At the very heart of what we are considering—at the very heart of the report—is the fact that the PPP was imposed on London Transport against the advice of the board and the financial advisers. It was the man who was in charge of the Treasury at the time who is culpable and responsible for that. This month's issue of Rail Professional magazine says that"““the unravelling of the PPP at such expense to the tax payer is seen as a serious blow to””" the Prime Minister. The Prime Minister was responsible and is responsible. In the end, the total cost of the debacle will be much closer to £4 billion. If the imposition of the structure of the PPP is one of the major causal factors, why did Metronet itself fail? In evidence to the Committee, Mr. Pimlott said that"““it ran out of cash because it spent too much money””," and Mr. O'Toole answered, ““Metronet lacked control.”” Both of those may be correct, but they are not exactly insightful or particularly helpful. As many hon. Members said, there is a clear difference between the two contracts and the two companies delivering them. The significant problem with Metronet was the tied supply chain. The same parent companies of Metronet were allowed to be organised into another company, Trans4M. It supplied the station upgrades and delivered only 40 per cent. of its obligations. What is clearly at the heart of the failure of the contract was conceded by Mr. Pimlott when he said that"““the contractual arrangements were a very negative factor””" and that"““it was a contract which gave Metronet very little in the way of leverage.””" It was a building-type contract, not a PPP output-based contract. There was an issue that the tied supply chain was a major contributing factor to the failure of Metronet. It was unable to penalise underperformance and lack of delivery and could not hold back funds. The hon. Member for Manchester, Blackley (Graham Stringer) made the point that Mr. Pimlott said in his evidence to the Committee that when he tried to exercise that influence, he was threatened with litigation. Of course, that would be so, given that the contract was structured in that way. However, it is clear that Metronet's shareholders, along with the Government, are at the heart of its failure. Responsibility for the cost overruns and the lack of delivery to Transport for London lies principally with the management and shareholders. But if the tied supply chain is a problem for Metronet, another problem for it is that, as it argued to the Committee with some pertinence, part of its overspend and lack of delivery to Transport for London was due to TfL itself. If the Mayor can be credited with having opposed TfL at the beginning, he can certainly be culpable for the way in which he acted in the operation of the Metronet contract. The Mayor and Transport for London—the Mayor tells everyone that they are interchangeable—were guilty of continual specification change. Mr. Pimlott gave the example of the upgrade of Lancaster Gate station. Metronet was asked to repaint it three times in different shades of grey because the board of Transport for London could not make up its mind. Mr. Lezala, Metronet's chief executive, said that that was indicative of London Underground's wasteful approach. He also said"““there are lots of examples… where we are spending twice as much as planned.””"