Select Committee on Transport, Local Government and the Regions First Special Report


The Transport, Local Government and the Regions Committee has agreed to the following Special Report:



1. During its recent inquiry into the London Underground, the Transport Sub-Committee was informed that important decisions about the future funding of improvements were being taken by HM Treasury. This is a concern which had been raised in earlier inquiries on the subject. In particular, it has been alleged that the Treasury made:

      (i)  the principal decision to fund improvements to London Underground by a Public Private Partnership (PPP); and

      (ii)  key decisions about the scope and nature of the deal: it was responsible for deciding the timing and level of funding, and for delaying vital improvements to the network.

The decision to opt for a Public Private Partnership

2. One of the bidders for the PPP contract, Michael Cassidy, chairman of LINC told the Sub-Committee that:

   "This was a scheme that was..., conceived, designed and manufactured by the Treasury".[1]

The Treasury has provided insufficient and uncertain funding to the Underground over a number of decades. A source of secure investment is vital for the efficient running of London Underground. Whilst the Secretary of State for Transport, Local Government and the Regions, Rt Hon Stephen Byers MP, claimed that money would be made available for whatever scheme was found to offer the best value for money, London Underground made it clear that one of the major benefits of the PPP was that it was the only way to provide a guaranteed stream of Government funding.[2] London Underground's Final Assessment Report is predicated on the Treasury's rationale for PPPs despite its own initial assessment which identified continued public sector ownership or full privatisation as the preferred options. It is clear that the Treasury's refusal to provide adequate funds for a public sector solution has been of the utmost importance.

The amount and timing of the funding

3. Throughout the process of preparing the PPP scheme, the Treasury continued to be involved in the details of the scheme. Mr Cassidy informed us 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."[3] The Treasury decided what improvements would be purchased. Major changes were made at Christmas 2000, when the combined total of the three contracts became clear. 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."[4] London Underground Limited admitted that, but for this decision, it would have been possible to deliver some of the key benefits earlier.[5]

4. The result of these changes was that the capacity enhancements of 15 per cent offered by the PPP were delayed from year 20 to year 30 of the contracts, which falls behind expected passenger growth. Thus, vital improvements to the Underground, which are necessary for the economy of London and the UK, have been unnecessarily delayed. Moreover, delaying more expensive work to periods where the prices are not fixed will add further to the risk that the final cost of the PPP will be higher than forecast.

5. The Sub-Committee invited a Treasury Minister to give oral evidence to it on 9 November 2001, but this request was declined.

Conclusions and recommendations

6. In its report on the Treasury in the last Parliament, the Treasury Committee concluded

7. If the claims made to the Transport Sub-Committee are right, there could be no better example of the excessive influence of the Treasury than the decision to plump for a PPP scheme for London Underground to the exclusion of other options, and then to interfere with the bidding process. It is argued that one man has been principally responsible for this choice, the Chancellor of the Exchequer. The Secretary of State for Transport, Local Government and the Regions has been little more than a messenger. The Chancellor has imposed the PPP scheme despite the opposition from a wide range of experts. It is a scheme which will not provide the capacity enhancements which Londoners and the national economy require. It has not been proved to offer better value for money than other options, which could be rapidly developed. It fails to adequately transfer risk and it is needlessly complex.

8. Answers are therefore needed from HM Treasury to some very important questions. In refusing to give evidence to the Sub-Committee to explain their decisions, Treasury Ministers have treated this Committee with disdain. It is most important that they appear. Accordingly we recommend that the House make the following Order:

    That a Minister from HM Treasury do attend the Transport, Local Government and the Regions Committee to give evidence about the London Underground PPP.

1   HC 387-II, Q 374 Back

2   HC 387-II, Q 29, 21.11.2001. Derek Smith said 'In other countries there appears to be a different sort of commitment to funding public infrastructure; that appears not to have been the case in this country and in relation to the underground'. Back

3   HC 387-II, Q 374 Back

4   HC 387-II, Q 378 Back

5   HC 656-i, Qq 90-93 Back

6   Third Report of the Treasury Committee, HM Treasury, HC (2000-01) 73-I, para 21 Back

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