Examination of Witnesses (Questions 120
WEDNESDAY 27 FEBRUARY 2002
120. Ah, so you have been given a commitment,
but you have not been told you should make it public?
(Mr Appleton) Mr Callaghan said to you, Chairman,
121. I know what Mr Callaghan said.
(Mr Appleton) We will finally get it at the end of
Chairman: We are back to "God will provide",
yes. Mrs Ellman.
122. Have the Treasury not already asked for
work to be put back beyond seven and a half years?
(Mr Callaghan) About Christmas last year, we got bids
in on two or three competitions which demonstrated that the cost
in the early years of doing this work was higher than we anticipated,
and it is true to say that, looking at the public spending priorities
as a whole, we were asked to defer some of the work to later periods.
123. Who asked you to do that?
(Mr Callaghan) Through our contact officials.
124. In which department?
(Mr Callaghan) As I said, we work with officials in
the Department of Transport, Local Government and the Regions
because they are our sponsoring department.
125. So, if you have already been asked to put
important work back, presumably for financial reasons, does that
not make you feel rather insecure about commitments for the future?
(Mr Callaghan) Not at all. If the basis on which we
are being asked to phase the work is on the basis of the Government
being able to say, "If you do this, we will be able to commit
at the appropriate point to a level of injection of public funds
in the underground not hitherto seen", then of course that
is something we are going to embrace. The whole purpose of doing
this is to make sure that we get the underground finally fixed,
as Brian says, and have enough money to do it. That, clearly,
as in any public expenditure decision, has to be looked at in
terms of resources as a whole. For this to work, we need the Government
to be behind it, just as we need our other partners in this process.
126. Is your understanding that there would
have to be a formal commitment from the Treasury before figures
could sign contracts?
(Mr Callaghan) I imagine that our commitment will
come through our normal channels, through the Department. I cannot
imagine they are going to give us that commitment unless they
have authority to do that from whatever their normal channels
are inside Government.
127. Suppose funding does not come as anticipated,
either from the Treasury or through revenues: what implications
would that have for London Transport?
(Mr Appleton) We could not pay the bills. It would
be that straightforward.
128. Would that mean that the companies, or
you, would go bust? London would not have any transport? What
would it mean?
(Mr Appleton) Obviously, having to think on our feet,
because it is not an eventuality we have considered, once it is
committed, we do not expect that someone will come forward and
say to us, "Stop", but if we have to stop because the
funds are not available, we will have to stop.
129. Do you not think you should take into consideration
the unexpected when you are looking at public service?
(Mr Appleton) Yes, of course, but not, in mind, something
which is quite outlandish.
130. When you made your assessment about PPP,
did you not look at any unexpected eventualities?
(Mr Appleton) I will let Mr Callaghan talk about that,
because that is the nature of a contract like this.
(Mr Callaghan) I think there are a wide range of things
that it is reasonable to consider in any business. Any business
is going to face the unexpected. Of course you have to look at
the unexpected in weighing up any business proposition at all.
We have comprehensive assessments of the risks that might arise,
both around the PPP contracts themselves, and all sorts of other
events that might occur that might affect the underground and
131. Does that include the Infracos going bust?
(Mr Callaghan) It certainly does include one of the
Infracos going bust, yes. However, as I have said, and I have
said in response to questions from this Committee before, the
only way the underground is going to get fixed, and the only way
the PPP is going to go ahead, is with a suitable commitment of
public funding. As we all know, we are only in this situation
because the underground does not generate enough revenue from
passengers to undertake the investment that it needs. The risk,
therefore, that the Government, having agreed, as Brian said,
that this deal should go forward, then changes its mind and says
that the money it agreed would be needed to make this deal work
is suddenly not there, it is not really a business risk that we
can take into account in the way that you are describing. We have
to rely on the fact that the Government are going to honour the
commitment that it makes when it enters into what is a long term
132. If that is not a business risk you are
prepared to take into account, I ask Mr Appleton directly: Mr
Appleton, have you been given a commitment that finance will be
made available as anticipated at this moment over 30 years?
(Mr Appleton) Commitment defined as, "Here is
the letter saying so", no.
133. What happens, if there is a change of Government,
to that contract?
(Mr Appleton) I believe that PPP will be a success;
it will do what is required, which is to fix the tube. If, in
12 years' time, there is a change of Government, that success
will be demonstrated, and I would think an incoming Government
would say, "Please continue".
134. The whole history, the problems that the
tube is now in is the stop/go attitude of successive Governments
of sometimes letting you have some money; sometimes stopping,
at pretty short notice, the money. What makes you think that it
is any different now than the possibility for the next 30 years
of what happened over the previous 30 years?
(Mr Godier) I have worked for the underground most
of my working career of nearly 30 years and I have lived through
this stop/go regime, and the one thing that Governments tend not
to do, in my experience, is to default upon contracts that have
already been entered into. It is not really good Government business
in the public sector to do that. So the way the stop/go has worked,
has tended to prevent us entering into new contracts to spend
money rather than making us cancel and default on existing contracts.
Given the longevity of this contract, we would expect any Government,
particularly as we expect it to succeed, to continue to honour
135. There is not going to be any contract between
you and the Government as far as the level of subsidy is concerned,
(Mr Godier) No, there is not, but the Government would
know that if they changed the level of subsidy, in a way that
meant that we could not afford the service charge for the PPP
any longer, that it would, in effect, be either bankrupting a
public corporation, or causing us to default on our obligations
to the private sector. The Governments would tend not to do that.
136. No, but the Government could be saying
very firmly that you have to raise more through the fare box,
and you might have difficulty in doing that?
(Mr Godier) It would be unlikely that we would have
difficulty in principle, but clearly that would be an option.
As you know, the underground will transfer to the control of the
Mayor and Transport for London, who already do control
fares policy for the underground, and it would be a matter for
them whether or not they wish to respond to a change in subsidy
levels by a fare change. That is a matter of public policy which
is very difficult for us to predict.
Chairman: Mr Stevenson, we should be aware there
may be a vote.
137. The deferment of some of the work post
the first seven and a half years, a question that was put by my
colleague, I think Louise Ellman to Mr Callaghan: you were unable
to identify which department was involved in this. Could I ask:
the idea to do this, was that initiated from yourselves, or was
it initiated by some Government department?
(Mr Appleton) I was there at the start. The original
thinking was that we all had to find a new way forward. Going
on like we were was never going to solve the tube. The work that
was undertaken, my memory is, of course involved the underground
and LT; it did involve the Department of Transport, and it did
involve Treasury officials. Each, in their way, put in certain
parameters. For instance, we said, "It must allow us to continue
improving safety". The Department of Transport said, "Of
course we are not going to privatise the tube", but it involved
138. I understand that, but the idea, then,
to postpone some of the work after the first seven and a half
year period for financial reasons, that was confirmed from questioning
by my colleague, Louise Ellman. I simply try to identify whose
idea that was, never mind who you were talking to. Was it yours,
or was it some department in Government?
(Mr Callaghan) I think the straightforward answer
to that is that any public organisation such as ourselves has
its budget agreed with its sponsoring department; its sponsoring
department has its budget agreed with the Treasury, it is everybody.
So there is no one word answer to that.
139. Let me then paint a very simple picture:
you, Mr Callaghan, turn up at the Treasury and you walk through
the door and some idea came from somewhere about postponing some
of the work past the seven and a half year period for financial
reasons, but nobody had the idea, it just emerged. Somebody must
have said, "We should do this for financial reasons".
What I want to get at is: did that come from your organisation,
or did it come from a Government department? Simple as that.
(Mr Appleton) It did not come from us.