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

Supplementary note by the Department for Transport


  1.  Further to the Parliamentary Clerk of the Treasury's letter of 27 March, please find below the Government's response to three further points raised by the Committee following questions to the Financial Secretary on 6 March.

Confirmation that the first 10 years of grant support for the London Underground set out by Secretary of State Byers are firmly committed for the entire 10 year period or whether they will be reassessed at the time of each comprehensive spending review?

  2.  The then Secretary of State, in his evidence to the Committee on 6 March, gave details of the Government's unprecedented offer of committed grant funding for Transport for London in respect of the first eight years of the London Underground modernisation programme. The sums offered are sufficient to enable London Underground to plan ahead with certainty and meet its obligations under the PPP contracts. Account will be taken at spending reviews of changes to forecast revenues, the effects of inflation, and projected payments under the PPP performance regime. This commitment was reaffirmed by the Chancellor of the Exchequer on 15 July as part of the Comprehensive Spending Review 2002. The sums involved will be accounted for accordingly.

Whether the Treasury intends to allow local authorities to borrow money, secured against anticipated future revenues from local road charging schemes, to improve public transport prior to introducing the schemes?

  3.  On 12 June, the Office of the Deputy Prime Minister launched consultations on a draft Local Government Bill. As a consequence of the new prudential system proposed by the draft Bill, revenue generated by road charging schemes could be used as backing for borrowing by local authorities, under the new prudential system of capital controls, as long as the proposed expenditure is chargeable to the same account. The Government would expect local authorities to be cautious in estimating the likely proceeds of charging schemes, and to make allowance for the risk that the scheme raises an amount lower than expected.

  4.  I understand the current consultation will close on 23 August. Decisions on these matters are for the Deputy Prime Minister.

To provide the Committee with details of any PFI or PPP contracts that have not included a Public Interest Termination clause. We would also be grateful for the Treasury's understanding of why such a clause is not required in the London Underground PPP and whether it disputes the comments of Ernst & Young.

  5.  The PPP for London Underground, like the Underground network itself, is unique. The Government does not believe that it would be sensible to attempt to apply a single PPP model inflexibly to projects as varied as prisons, hospitals, roads and rail networks. That principle is reflected in the relevant guidance from Her Majesty's Treasury and Partnerships UK.

  6.  The PPP enables London Underground to terminate the contracts in a wide range of situations—including insolvency, serious safety breaches, or persistent poor performance—in a way that offers good value for money. The Government is confident that these provisions are sufficient to allow the public interest to be maintained in all conceivable scenarios. There is no need for additional termination provisions. Even if a right to voluntary termination were provided, the Government believes it would be unlikely that London Underground would ever want to exercise that right, given the likely costs involved.

  7.  Furthermore, the Government considers that the inclusion of voluntary termination rights would be likely to undermine the purpose of achieving efficient whole-life management of the assets, and would therefore be likely to damage the value for money offered by the contracts. The PPP performance management system, controlled by London Underground, will itself provide sufficient incentives for the contractors to act reasonably and mitigate costs.

25 July 2002

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Prepared 24 October 2002