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."
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
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."
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.
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.
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.
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.
Both Infracos would reduce the number of signal, track and train
faults thereby increasing the capacity of the system.
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
told the Sub-Committee that they would be investing significantly
to improve those stations that suffer from the most severe overcrowding.
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
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.
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".
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".
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.
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."
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."
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
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"
and that the decision to delay investment in trains "has
certainly not been at the request of the Department or the Treasury".
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
that it operated through regular contact with the Department.
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
133 Q331. Back
Funding of London Underground, Q134. Back