House of Commons - Transport, Local Government and the Regions

Select Committee on Transport, Local Government and the Regions Second Report

V. AFFORDABILITY

56. There is clearly a significant requirement for a long-term commitment to public subsidy of the Underground. The National Audit Office told us that:

"The absolute question is what standard of underground system can be afforded; there is then a subsidiary question of how to finance and manage the transition from what we have now to that system."[133]

We took evidence from a number of witnesses regarding the improvements that the PPP would deliver, particularly in the light of the large change in requirements for Government subsidy highlighted above.

Capacity requirements

57. At the time of the previous inquiry into London Underground, the then chief executive of London Underground, Denis Tunnicliffe stated that peak hour passenger numbers were forecast to grow by 1 per cent a year with greater growth around the peaks and off-peak. He said that:

"Assuming the PPP is delivered successfully over the next 20 years, the present system will expand its peak capacity by 15 per cent and that means we have stopped slightly behind the growth."[134]

58. In its submission to this inquiry, the Government stated that the PPP will now deliver a 15 per cent increase in capacity over the 30 year period of the contracts.[135] The Secretary of State told us that over the 30-year modernisation period, it would be possible to increase investment to meet demands as they arose.[136] London Underground were unsure as to when a 15 per cent capacity increase would be delivered but told us that the first seven and a half year period would see a reduction in faults due to asset failures, which will be the responsibility of the Infracos, of about 30 per cent.[137] Metronet provided details of a number of improvements it expected to deliver, such as an increase in train capacity of six per cent on the Bakerloo line and a five per cent increase in the capacity of the Metropolitan line over the first seven and a half years.[138] Both Infracos would reduce the number of signal, track and train faults thereby increasing the capacity of the system.[139]

59. London Underground admitted that overcrowding would not be reduced on the network because "the demand for travel in London overall is at saturation, particularly in peak periods, any capacity we provide, increased capacity, will fill up".[140] Metronet told the Sub-Committee that they would be investing significantly to improve those stations that suffer from the most severe overcrowding.[141]

60. The target date for increasing the capacity of the existing network during the peak period has been moved back from Year 20 to Year 30. Providing the 15 per cent increase by Year 20 was acknowledged to be slightly below the forecast passenger growth. It is of great concern that the PPP will not now provide those improvements that London Underground Limited believes necessary and practicable by Year 20. A lack of network capacity will increase pressure on other transport networks and will be detrimental to London's prosperity.

Public subsidy constraints

61. The National Audit Office has a long-standing and clear line on how affordability and value for money interact. It expects Government Departments to take a view of value for money over the whole life of a project and not to compromise in the short-term because they are short of money.[142] It is clear from the evidence presented to the Sub-Committee that capacity improvements have been delayed over those that were initially deemed achievable. London Underground acknowledged that the modernisation programme could be undertaken faster and that more investment was being delayed to later periods in the contract "than would otherwise be ideal".[143]

62. The Sub-Committee received contradictory evidence as to which body had been making the key decisions about what improvements to the Underground would be affordable. London Underground Limited is assessing the value for money of improving the Underground through the PPP compared with other forms of finance. London Underground Limited told us "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".[144] That approach is in contrast to the National Audit Office's advice on affordability considerations described in paragraph 56. London Underground Limited has not considered how the subsidy requirements of the options under consideration relate to quality of service for the passengers directly.[145]

Role of the Treasury

63. Michael Cassidy, chairman of one of the losing consortia (LINC) told the Committee that "This was a scheme that was, conceived, designed and manufactured by the Treasury" and that "it was apparent, at various stages of the bid process, that it was necessary for the Treasury to exercise their role of influence on the bidding process."[146] He explained that a major change to the bids occurred at Christmas 2000, when the combined total of the three contracts became clear. Mr Cassidy said that at this point all of the bidders were "told by the Treasury, that the totality of this project was now too expensive for the nation to afford, so please go away and readjust your bids by taking out sectors of the work or delaying expensive parts of the work to later years."[147] That approach, he believed, would allow the future projected increase of revenue flow, coming from the railway system from increased passengers, to offset the capital costs and reduce the public subsidy requirement.[148] This was confirmed by London Underground Limited who admitted that it would have been possible to deliver some of the key benefits earlier in the PPP process. The decision to delay more expensive work to periods where the prices were not fixed would add further to the risk of the final cost of the PPP escalating.

64. The Secretary of State told the Sub-Committee that his Department had "been at arm's length from the negotiations"[149] and that the decision to delay investment in trains "has certainly not been at the request of the Department or the Treasury".[150] London Underground Limited told us that it had discussed with the Treasury the "overall shape of the deal" and "the sort of commitment which the Treasury might make over the long term",[151] but that it operated through regular contact with the Department.[152] There appeared to be a lack of lead responsibility displayed for decisions relating to the affordability of the investment programme for the Underground, particularly given the significant change in public subsidy required compared with the 1999 projections, and the subsequent delay in the timescale over which the transport improvements required by the Underground would be achieved. It is inconceivable that the Treasury did not take a meaningful and material role in such a significant financing commitment that will have ramifications for public finances over a 30-year period. Consequently, we are appalled that neither Treasury Ministers nor officials would appear before the Sub-Committee. That refusal threatens to undermine the Departmental Select Committee system. Those Ministers who make decisions must be accountable to Parliament for them.