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

Examination of Witnesses (Questions 100 - 119)



Miss McIntosh

  100. One last question: say there was 10 per cent or 7 per cent or 5 per cent, so more than 1 per cent transfer, would you not prefer that the PPP was up and running and working before congestion charging was introduced?
  (Mr Godier) Clearly, because of the very significant improvement to capacity and reliability that the PPP is going to unlock—

  101. In how long a timespan?
  (Mr Godier) The system would be much more able to cope with significant increases, but since we are not forseeing significant increases, I do not think it is really an issue.

Dr Pugh

  102. Can I ask you about contractual arrangements. It seems to me you are entering into contractual arrangements, which, for all practical purposes, you cannot terminate. Is this thing rather reckless about that?
  (Mr Appleton) No, but I think Mr Callaghan will answer the question better than I will.
  (Mr Callaghan) A fundamental part of what London Underground needs to achieve out of this contract is to have people who are looking after its infastructure; recognising how long that infastructure lasts, which is typically of the order of 40 years for trains, and it might be 100 years for bridges because it is only by taking a long term view of what makes the infastructure work that will get the right balance between maintenance and investment, and the right balance between investment in different types of assets. Our view, therefore, is that it would represent a fundamental weakness in the structure if it were very likely that the contract would come to an end earlier than 30 years, because it would create exactly the wrong incentives. It would create the incentives in the private sector to guess that the contract would end early, and then try to optimise their position over a shorter period of time.

  103. You do not see that as a problem, but as a virtue?
  (Mr Callaghan) Exactly. So what we have done is to say, "If it works, provided the private sector are delivering what the underground needs, there is no reason to bring it to an end, and, therefore, the only circumstances in which it would come to an end is if the private sector do not deliver".

  104. So the circumstances are you are going ahead with it, which you acknowledge, without any kind of democratic mandate on this, but, by not having a public termination clause, you are ignoring Treasury Taskforce's guidance, and you are ignoring the recommendations of Ernst & Young and Transport for London. Why, simply, have you not included some kind of clause to get out?
  (Mr Callaghan) I think the precedents are completely different. Most PFI schemes are—

  105. A scheme like this has never been done before, so precedents do not come into it, do they?
  (Mr Callaghan) You said that other PFI schemes have it, and I am explaining why they are different. Other PFI schemes, or almost all, are about a building phase early on, and a maintenance phase thereafter. Therefore, the fundamental asset is in place very early. This is not like that, this is about investing in a huge portfolio of assets over a very long time. What Ernst & Young said was that they did not address the question of whether, structurally, having this termination right was the right thing to do. What they said was, "Other deals have it, and if you wanted to negotiate it afterwards, it would be more difficult to do then than it would be now", which is clearly true. That does not address the fundamental question, which is that, in our view, it is a bad idea in principle to have it at all, and that is why we have not got it.

  106. So just backing your evidence, not the evidence of lots of other schemes that are run differently?
  (Mr Callaghan) I am making an assessment based on the fact that this scheme is completely different from other schemes, as you said yourself.

Mrs Ellman

  107. Do you have any absolute commitment from the Treasury that the funds will be available for the next 30 years?
  (Mr Appleton) We do not have such commitment yet, but everything we have heard, assuming that the Government finally say, "Yes, you can proceed with this scheme", the Treasury, as a consequence, will make the funds available.


  108. I am sorry, Mr Appleton, can we have that a little louder?
  (Mr Appleton) We do not have a commitment from the Government, from the Treasury, in writing at this instant that says, "We will make X amount available in Y years". Everything we are led to believe is that if this scheme goes ahead and gets the Secretary of State's approval, that such funds will be made available.

Mrs Ellman

  109. If you do not have a commitment, how can you be so sure that this scheme is so good?
  (Mr Appleton) It is where we came in. We started this in order to get the funds to fix the tube. We have now reached the point where we have a scheme that will do it and the money will be provided. It will involve the Government in making up the difference between what we generate through the fares and what we have to pay for the Infracos(?). It would strike me as quite ludicrous for the Government to agree with us going ahead with the scheme if it did not in the same breath say, "Yes, indeed, we will make up the difference".

  110. But the Government have not said that, have they?
  (Mr Appleton) They will.

  Mrs Ellman: You are confident they will.


  111. God will provide, is that what you are saying, Mr Appleton?
  (Mr Appleton) Not God will provide.

Mrs Ellman

  112. What kind of commitment have you had?
  (Mr Appleton) If they agree this is a sensible way forward and they encourage us to do it, and agree with our decision, then it seems logical they will say, "We will play our part".


  113. You do not have that in writing. You have only your impression that this is what they will do. How long have you been dealing with Government departments, Mr Appleton?
  (Mr Appleton) Regretfully six years, Chairman.

  Chairman: You are obviously very new at the job.

Mrs Ellman

  114. Who have you been dealing with in the Treasury who has given you the certainty and faith in their ability to deliver?
  (Mr Callaghan) We do not deal, as a matter of routine, with the Treasury. We deal with the Department of Transport, Local Government and the Regions, which is our sponsoring department. As Mr Appleton says, everything we have heard from the Government is that they will make such a commitment at the appropriate time. I understand that they are having discussions with us, and indeed, most recently with Transport for London on that basis.

  115. Might that come from officials, or certainly ministerial authority for those statements?
  (Mr Callaghan) Obviously we deal with officials. No doubt, when we get the final statement, it will have the appropriate ministerial authority. But, as Mr Appleton says, there is still some way to go between sitting here today, and finally signing off on these deals, and getting the funding in place is clearly part of the process of concluding the process.

  116. Would it make you feel even more secure if we were able to have a Treasury representative in front of us at this Committee, that we could ask that Treasury representative the same question? Would that make you feel better?
  (Mr Appleton) That is one for the Committee, not for us.

  117. It would be helpful to you, surely, if we could ask the Treasury?
  (Mr Appleton) We are trying to tell you that we remain confident we will get the funds. We would not take this decision if we did not have that confidence.

  118. But does that mean you have been given the commitment and been asked not to disclose it?
  (Mr Appleton) We have received no such instruction.


  119. No such commitment and no such instruction. No to both questions, Mr Appleton, or only one?
  (Mr Appleton) To the second: no instruction to conceal.

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