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


Memorandum by TSSA (LU 02)

LONDON UNDERGROUND

INTRODUCTION

  The TSSA once again welcomes the opportunity to contribute to the Sub-Committee's work.

  We set out our evidence as per the headings (reproduced in bold type) in the Committee's press notice (04/2001-01, 25th September 2001).

1.   The desirability of an independent audit prior to signing the contracts to ensure value for money

  The TSSA has consistently argued for an independent audit prior to signing the 30-year PPP contracts for the following reasons:

    —  Best value—several erudite and independent reports[1] have revealed that the financial desirability and the assumptions used regarding the relative advantages of the public and private sector are very questionable.

    —  Public Interest necessity—Given the controversy of the PPP and the indisputable public interest nature of LUL it is vital that there is conducted, in the public domain, an independent audit prior to signing. A public utility must be publicly accountable and this can only be achieved through public scrutiny. If the government are so confident about the merits of the PPP why the continuing need for secrecy? Without full disclosure of the financial details of the PPP, including the assumptions concerning the public sector comparator the PPP will lack democratic legitimacy.

2.   How much information about the precise nature of the contracts should be made public before they are signed?

  It has been a regrettable fact that the vital public debate on the PPP has been impoverished because the Government has suppressed the information needed for informed evaluation.

  It is salient to note that Lord Cullen's second Ladbroke Grove report published this month concluded that during the mainline Refranchising process the HSE should receive full details of the proposed bids[2]. TSSA safety reps have consistently commented to us that because so much information is deemed as "commercially sensitive" they have been denied the information they need to contribute to the PPP evaluation process. Because of the potentially adverse consequences of inadequately informing front-line staff in their safety consultations we believe there is an overwhelming argument for full and candid disclosure of contract details without prejudicing legitimate commercial confidentiality. Restricting information only to the HSE, despite their professionalism and integrity will be insufficient to allay the justifiable concerns of trade union Health and Safety representatives.

3.   The allocation of risk between the public and private sectors

  The Funding London Underground (Financial Myths and Economic Realities) report[3] concluded that financial risk transfer was incomplete and the GLA/Mayor will have responsibility for meeting the majority of the outstanding debt if a PPP company has its contract terminated—ie the bank debt.

  The public sector and the taxpayer are still ultimately financially liable because it is not credible that a government will permit a vital public utility to fail. This reality compromises the market disciplines that the private sector can allegedly introduce.

4.   The opportunities to adjust the contracts after they have been signed; and the role of arbitration in the event of dispute over the contracts

  Obviously it is vital with 30-year contracts that they possess the flexibility to allow for changing circumstances and priorities, though we note that the mainline experience has demonstrated that "contract culture" has resulted in cost inflation, operational rigidity and continuous disputes over responsibilities and jurisdictions.

  It is also essential that LUL, perhaps via the Secretary of State has sovereignty and possesses the power to settle disputes in the public interest.

5.   Regulation following the signing of the contracts and the expected relationship between Transport for London and the infrastructure companies, and how to ensure proper accountability for the Underground system

  For LUL to be satisfied that the work that is needed to maintain, renew and enhance the network is being done to the correct standards they will have to monitor and audit Infraco activities thoroughly. This will be bureaucratic and costly, but because the PPP necessitates contractual relationships rather than managerial control, regrettably this will be imperative. However, effective regulation will be problematic. We suspect that this process will divert funds from maintenance, renewal or enhancement into an excessively bureaucratic process—if LUL management have devolved responsibility to the Infraco will they have the engineering and technical expertise in the future to effectively assess an Infraco's plans or it's work? Will LUL have to duplicate this expertise to enable them to supervise the Infraco's, if not how can they realistically "control" them?

  It remains to be seen if the Infraco's will be flexible and allow TfL the discretion and power to direct the work as they see fit.

  TfL/LUL must formulate medium term strategies for service delivery and agree the programmes of work with the Infracos. Achieving these service delivery strategies will determine Infraco performance and ensure their accountability only if these plans and their progress are also publicly advisable.

6.   Setting and enforcing performance targets for London Underground

  In the long-term LUL must provide sufficient services to the growing patronage and passenger demands (punctuality, frequency, reliability and comfort). This is very challenging and obviously requires expanding capacity.

  Therefore in the medium term LUL should state how they intend to meet provide present levels of optimum services (in consultation with TfL/passenger and employee representatives) and what resources will be needed to deliver this. The strategy will direct the work that the Infraco's must provide. LUL will then be judged on how well the system provides the services that LUL calculated where necessary (see above).

  One of the problems will be that LUL's performance is ultimately dependent on the Infracos but their control will be indirect. Mainline fragmentation has proved the dangers of splitting the vertical integration of a railway and we support Mr Kiley's contention that PPP will compromise "unified management control" which is a prerequisite for the most efficient and safety system.

7.   Increasing capacity within the existing network, extending the network and integration within and between transport modes in London

  We believe that PPP will not increase the capacity of the network sufficiently to satisfy London's commuters and businesses.

  According to the Government the PPP will commit £13 billion over 15 years, and to put this into historical context official past investment expenditure investment figures are reproduced below.

5.16  London Underground:  investment expenditure/(£) millions:  1989-90 to 1999-2000
Year Total investment expenditure
1989-90307
1990-91459
1991-92369
1992-93728
1993-94786
1994-95928.5
1995-961,087
1996-971,034
1997-98800
1998-99697
1999-00997


  Source  Transport for London (1999-2000 prices).

  Four issues emerge. Firstly £13 billion over 15-years appears only to replicate recent spending levels and this seems an inadequate figure to enhance a system given that recent spending cannot even maintain it. Secondly, the government's own analysis reveal that just 55 per cent, or £7.15 billion, of that will actually be spent on maintaining and enhancing the infrastructure—the balance being diverted to the Infracos and their shareholders[4]. If £13 billion appears to be an inadequate sum, in terms of meeting passenger expectations and London's economic needs what will be a real spend of £7.15 billion achive? Thirdly, according to one recent independent academic report, LUL "is currently faced with a backlog of £1.2 billion, representing infrastructure assets (track, signalling, rolling stock etc.) which are being used beyond their design life[5]". This analysis is borne out from the latest official figures regarding the condition of Tubes infrastructure: "Just 12 days ago, it was revealed that breakdowns on the Tube involving signal points and track failures reached a record 4,738 during the last 12 months, according to LU's own figures. The rise of 35 per cent masks the fact that some lines have seen breakdowns double in the space of a year[6]." Finally, with the multiple interfaces created by PPP/fragmentation how confident are the Sub-Committee that all of this money will actually be spent on improving LUL's assets rather than increased administration and bureaucracy? A recent "Rail Business Intelligence" study concluded that "railway electrification and upgrade costs which remained constant under British Rail have increased by two to three times since privatisation" and that the "separation of responsibilities within London Underground PPP could also introduce similar cost escalators"[7].

  The Government's much welcome 10-year Transport Plan envisages significant expenditure and enhancement for the mainline. Unfortunately since its privatisation in July 2000 the privatised railway has been buffeted by continuing crisis and the financial collapse of Railtrack and the scepticism of the City mean it is unrealistic that the private sector will contribute as planned to rebuilding the railway. The lesson for LUL and the Government is that for the Underground public funds must be spent on increasing capacity significantly over the coming years because the private sector, for all it's virtues lacks the ability to commit to such huge long-term projects that are vital for national prosperity.

8.   Industrial relations

  The TSSA is highly concerned over the current state of industrial relations but believes we can engage seriously and constructively with LUL on the vital issue of improved human resource strategies that must be aligned to clear corporate objectives based on customer needs.

  This means serious investment in training and developing all its staff, including the further implementation of equality policies. This process must be audited and not simply be about achieving IiP status. If the investment in training and development is genuine and effective it will result in changed staff behaviour throughout all the levels of the organisation. This changed behaviour will manifest itself in improved managerial and supervisory skills combined with enhanced competencies and the framework for achieving this will be the training, development and equality policies that LUL must devise and implement in consultation with the trade unions.

  The TSSA could facilitate this process because whilst our duty is to promote our members interests we recognise that our members will prosper best within an LUL that is truly customer focused and that invests properly in its most important asset, its people.

  There seems to have been a deteriorating relationship between LUL, ASLEF and the RMT which have resulted in industrial action which is not in the best interests of either the passengers or staff. We believe it is imperative that the Capital, its people and its economy can operate without damaging disruption.

9.   Passenger and staff safety

  Firstly we believe that passenger and staff safety is indivisible. Secondly, our health and safety representatives passionately believe that PPP will be less safe than the current vertically integrated system. We state this because:

  We believe that the PPP potentially repeats the problems experienced by the discredited national rail system of increased bureaucracy, fragmentation and poorer communication. Many commentators are sceptical that such a system is in the best interests of either:

    —  Efficiency (maintenance and renewal costs will probably rise due to increased interfaces, bureaucracy and "diseconomies of scale")

    —  Safety

      —  Fragmented responsibilities and new organisational arrangements with the potential for inconsistent messages about safety priorities and for divergence in working practices

      —  Companies that will have sharper conflicting commercial and operational interests and fewer incentives to co-operate together voluntarily—greater interfaces that are more difficult than under a single unified structure

      —  Increasing resilience on sub-contractors, particularly for maintenance

      —  Contractual relationships rather than a command structure—if it is not written down it may not be done

  Lord Cullen's second report has highlighted the concerns over separating infrastructure control from maintenance and renewal. TSSA members are deeply concerned how contractors will be effectively managed. LUL is rightly proud of their safety management system, but the question that needs to be answered is, will PPP provide a better structure for that system to operate in?

  Legally we do not dispute that quite rightly, safety responsibility remains with LUL under the PPP. However, that illustrates the basic deficiency of PPP—it confuses "responsibility" and "control". If responsibility stays with LUL this implies that the Infraco's are not responsible, but if there is an accident, incident or problem there is therefore scope for the very "territorial dispute" that LUL claim is not possible. The fundamental question is, does LUL have real safety responsibility and control under PPP—simply, will PPP be safer and more efficient than a non-fragmented unified system?


1   Funding London Underground (Financial Myths and Economic Realities) Gaffney et al-February 2000, Evening Standard article ("Experts say Tube PPP won't work")-13 July 2001 and Rail Business Intelligence ("Historic Cost shows `privatisation inflation' "), 28 June 2001, Deloitte and Touche Report (24 August 2001). Back

2   The Ladbroke Grove Rail Inquiry Part 2 Report, paragraph 9.102. Back

3   Funding London Underground (Financial Myths and Economic Realities) Gaffney et al-February 2000. Back

4   Guardian-"Railtrack collapsed because of PPP. So why is the government still forcing it on the tube" (12 October 2001). Back

5   Funding London Underground-Financial Myths and Economic Realities (Gaffney, Shaoul & Pollock) February 2000. Back

6   Evening Standard-"PPP protest as court battle starts" (23 July 2001). Back

7   Rail Business Intelligence ("Historic Cost shows `privatisation inflation' "), 28 June 2001. Back


 
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