Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)



  120. But, a year ago, just over a year ago, the then Chief Executive of London Underground told the Committee that continued Government subsidy would be modest, and, subsequent to that, that figure was estimated to be between £95 million and £175 million a year. The equivalent assessment of that now would bring that up to £380 million a year. Are you saying these figures are not known to you?
  (Mr Smith) There are figures that are known to us, but until we have assessed the final bids we cannot be sure about the actual numbers.

  121. At what stage will you make a judgement about what these numbers are?
  (Mr Smith) At the point when we have completed the negotiations of the contract with the bidders and received their bids and that we have been able to assess their bids, to cost them and to analyse them in detail.

  122. And will you at any point consider whether the amount of public subsidy thought to be right at that point is likely to be the correct figure, or as something so unclear that it is likely to rise? Would that be part of the consideration?
  (Mr Smith) We will certainly assess, as I mentioned, whether raising the money this way is value, compared with other ways of raising the money, and we will identify what figure is needed in terms of subsidy to deliver this, if we regard it as being overall value for money. It is then a matter for Government to decide as to the extent of subsidy that it is prepared to commit to the underground on a continuing basis.

  123. Would you not be considering what subsidy would be required to produce the same level of service through some other method of raising money; is that not relevant to you?
  (Mr Smith) It is only relevant in that we are comparing, for value purposes, the different ways of raising the money.

  124. And value, to you, does not include amounts of public subsidy and whether the amounts of subsidy relate to quality of service for the passenger, who hardly seems to get mentioned in all of that?
  (Mr Smith) That is certainly a good definition of value.

  125. Is it one you use?
  (Mr Smith) We certainly are very cognisant of the fact—

  126. But are you using that?
  (Mr Smith) That we deploy public money all the time.

  127. But are you using that measure of value?
  (Mr Smith) It is one measure of value, but we also use comparative measures of value.

  128. But is that measure of value the best use of public subsidy, in terms of the passengers' interest, a measure of public value that you are using, you are deploying, in the assessment that you are making?
  (Mr Smith) If the assessment we make is that the Public Private Partnership is better value for money than the other forms of financing the investment in the Underground then it will be a better use of the public subsidy.

  129. But is the question of the use of public subsidy, in itself, part of your considerations?
  (Mr Smith) Most certainly. We have to recognise that we are in the public sector and we depend upon a good proportion for our operations and investment for public funding.
  (Mr Poulter) Could I just add a brief point. The public sector comparator and the bids have costs associated with them; those are compared, as are the levels of public subsidy, that they would both imply. So, very clearly, they are both part of the decision on value for money, and on whether the Public Private Partnership should go ahead.

Mr Donohoe

  130. Can I just say, Mr Smith, earlier you talked of £30 billion over the next 30 years, something in that order; what proportion of that is public and what proportion of that is private?
  (Mr Smith) That is considered as the amount that would be raised by the private sector, over that period, for the purpose of investment in the underground network, and the assumption was £13 billion over 15 years.

  131. That excludes any public money; so what do you guesstimate is the likely investment by the public sector over that same period?
  (Mr Smith) The public money comes in two ways; directly from the public, because they pay their fares, and, of course, through the taxpayer, through subsidy. That will contribute towards the infrastructure service charge that is paid to the private sector companies who are investing; that charge is fixed, in accordance with the way in which they are performing, in relation to the contract.

  132. So what is the guesstimate of that amount of money, what is the figure for the money?
  (Mr Smith) Until we receive the bids, it is very difficult to estimate.

  133. But you know, over the last year, what that figure would be. What was it over the last year; public money was put into the system by virtue of fares, or by virtue of subsidy?
  (Mr Smith) We had £520 million for investment in the underground, from the public purse, for this year.

  134. So if that is projected over 30 years then we are talking £15 billion?
  (Mr Smith) Yes; but I ventured that it was £13 billion over 15 years.

  135. Over 15 years?
  (Mr Smith) Over 15 years.

  136. I have got this wee problem, I am finding it difficult to follow. What do you expect to make as savings by the use of the Partnership?
  (Mr Smith) We do expect that, because the flow of investment will be consistent and predictable, the private sector infrastructure companies will be able to make efficiencies in the delivery of projects. It is, I am afraid, the truth, under the publicly-funded model that we have at the moment, that we are uncertain, year on year, precisely how much money we will receive, and so, in the past, we have started projects and we have stopped them, which is profound inefficiency, we have designed projects and then not gone through with them.

  137. What happens if a company that has got this project goes bust, in the middle of the project; surely, in these circumstances, there are equally the same difficulties, faced by you, in that circumstance, as it would be if it were in the public sector? And, given that the two sort of run parallel, in terms of when the economy is strong the companies are strong, one presumes that that is just as much of a problem as what you face at present?
  (Mr Smith) In the Public Private Partnership structure, the infrastructure companies would be working solely for London Underground, so unless they performed spectacularly badly they would not go bust, because the Underground will not go bust; if they perform very badly, potentially, they might. The virtuous circle here is, if the infrastructure company performs well—

  138. So it is a no-risk investment?
  (Mr Smith) No, there is a risk; they have got to perform well.

  139. But if they go down, if a company of some size goes down, then surely that section of the responsibility goes down, and therefore you have got a problem? And if the Government are not in a position to be able to give you additional resources then that is that aspect of the underground still?
  (Mr Smith) Mr Callaghan, if he may, would like to clarify this picture, but I think the risks sit where appropriate, and he can explain.

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