HC Deb 15 March 2002 vol 381 cc1204-12

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Stringer.]

2.31 pm
Mr. Edward Davey (Kingston and Surbiton)

In this short debate I want to review the current consultation on the public-private partnership for London Underground. I want to show that that consultation is inadequate and that that inadequacy will mean that London Underground will have to allow a second consultation period in due course.

Moreover, I want to show that it was the incompetence of the Secretary of State for Transport, Local Government and the Regions that led to that bungling. I believe that this latest example of the Minister's incompetence is yet another reason for him to resign. If a Transport Secretary cannot even organise a consultation process competently, what faith can the House have in his competence to turn round Britain's failing transport system?

If time allows, I also want to bring new evidence to the House that, contrary to statements by the Secretary of State for Transport that this deal does not represent the privatisation of London Underground, it is now clear from detailed analysis of the legal documents linked to PPP that London Underground's key assets are indeed being transferred to the private sector in all meaningful senses. Therefore, on a key policy objective the Government have gone back on their commitments to the House.

We are only just beginning to learn the full horror of the tube deal with which the Government wish to saddle Londoners; a deal that will not bring the transport improvements that we all so desperately want, and a deal that is so self-evidently such bad value for money for the taxpayer that the Government are afraid of publishing information to enable everyone to become aware of that fact.

I am grateful to you, Madam Deputy Speaker, and to your colleagues, for the opportunity to debate this key issue for Londoners and for the country. The Government have sought to deny Parliament the debate. The Transport Committee, in its recent report published on 7 March, concluded: It is essential that the Government allows Members a debate and vote in the House of Commons on a substantive motion on the future of the London Underground and the PPP. However, the Government have refused such a debate. The all-party early-day motion 914 also calls for a debate on the consultation on PPP, yet the Government still refuse. What are they afraid of? I am particularly grateful to the Chair for allowing this debate, and only sad that it is merely an Adjournment debate on a Friday afternoon.

What is happening in the consultation process? Under the Greater London Authority Act 1999, London Underground Ltd. has a legal duty to consult the Mayor and Transport for London, apparently for 20 days. The Secretary of State for Transport said that that consultation period began on 7 February when he made his statement to the House. What has happened since then?

Lawyers from Transport, for London, the legal team of Ken Livingstone and Bob Kiley, have since then been encamped in the so-called bid room based on the 11th floor of the Albany house offices of London Underground. Under the strictest rules of confidentiality, that team has crawled all over the legal agreements so far negotiated between London Underground and the Government and the three final bidders, the private sector infracos.

My hon. Friend the Member for Carshalton and Wallington (Tom Brake) and I paid a visit to that bid room yesterday. We were prevented from reading most of the documentation, but we were able to take a look at the key agreement, schedule 1.9, more of which later. We were also able to talk to a key London Underground negotiator, Martin Callaghan, and the head of TFL's legal team, Stephen Powell. It is on the basis of information so gleaned, plus the excellent reports by the Transport Committee that I can make my case today.

The first part of my case is that the current consultation process does not meet the legal obligations of London Underground to consult Transport for London. Why? The documents that TFL is being shown are incomplete; some of them contain serious omissions. Moreover, TFL's legal team is still waiting for documents that it has requested but which London Underground has so far failed to provide. The original consultation period was due to have been completed by 8 March, but when TFL threatened London Underground with legal action because it had failed to meet so many of its requests for documents, London Underground was forced to extend the consultation period to 22 March.

Yet even now, only five business days away from the end of consultation, TFL is still awaiting documents. Are they crucial documents? Is TFL asking for unnecessary things? Who knows? However, as TFL is the body that this House has charged with the job of oversight of the final documents, surely it should be given the benefit of the doubt and receive enough time to look at them. That is the interpretation that I would expect a court to make. Unless and until TFL has completed full oversight of final documents, the statutory consultation process cannot be considered finished.

If the Minister questions my interpretation, he should contact London Underground. I understand that it has already accepted in principle that a further round of consultation will have to take place, for the very reason that I allege: the documents currently being scrutinised by TFL are not complete. That begs a key question for this debate: why did the Transport Secretary trigger consultation on 7 February when the documents were clearly not ready for statutory consultation? Did he effectively mislead Parliament by triggering the consultation, or was it incompetence on his part?

There is another piece of crucial evidence to consider: the letter from Sir Malcolm Bates, chairman of London Underground, to the Secretary of State, dated 6 February—the day before consultation was triggered. Yesterday, I saw for myself a copy of the letter in the bid room. I was not allowed to bring the letter out of the bid room, but I did manage to transcribe it word for word. I will shortly read the House relevant extracts from my notes. However, the key message of the Bates letter to the Secretary of State is this: "You are acting too hastily; wait—we are not ready." Yet the Secretary of State, who had already started spinning his intention to make a statement to the press, decided to go ahead, against the advice of the boss of London Underground, who was responsible for the negotiations.

Sir Malcolm Bates's letter is entitled "Value for Money Assessment of the PPP". He writes that the bid prices are not contractually committed and goes on to state: There are a number of areas where we know they will reduce, as a result of technical adjustments. There is also drafting to be finally settled, especially in periodic review. Anyone who knows anything about the agreement knows that the periodic review is crucial. The letter continues: The only competitive leverage left at this stage is that the bidders do not know their individual positions against the Public Sector Comparator. For this reason, London Underground had decided that the published version of the Assessment Report should show the financial comparators in aggregate, not in detail. We would have intended to release the full figures only once the agreements were signed, towards the end of March. The letter also states: I have been informed by your officials that you intend to publish the Ernst and Young Report in full, which will include the comparators for the individual competitions, despite my strong representations. I have told your officials that we think this will damage the public sector's interest during the remainder of the competition. The letter says that it is felt that there is little alternative but to publish alongside the Ernst and Young report a full version of London Underground's report. Sir Malcolm says that he wanted the Secretary of State to be aware of the risks that follow. He concludes by saying: Obviously we will do our best to mitigate any damage. Why did the Secretary of State jeopardise the negotiating position of the public sector? Why did he ignore those "strong representations"?

We have on record some explanation given by the Secretary of State himself when he was questioned in the Select Committee on 6 March. I refer to the uncorrected evidence of the hearing, which is available on the Internet. He said: I was very clear, and I think I gave a commitment to this Committee, that I would publish the Ernst and Young report. I took the view that there was nothing in the Ernst and Young report that would compromise the negotiations that Sir Malcolm Bates was involved in.

We should note that that is in direct and complete contrast to what Sir Malcolm wrote. The Secretary of State then tried to suggest that the lack of finality in the contracts was due to the consultation process. That is a tempting argument, but of course he would say that because the documents were being consulted on. In any case, it is again in direct contrast to what Sir Malcolm wrote. His letter makes it clear that there were several issues in the contracts yet to be determined and completely unconnected with the consultation process.

The Secretary of State's final defence in the Committee was that he had a duty to the House to report the Ernst and Young analysis. But in so doing, did he have to prejudice the competition in the PPP, which is designed to get better value for money? Did he have to trigger consultation on incomplete documents, so rendering it inadequate and incomplete, and thereby falling short of the statutory requirement?

I contend that the Secretary of State's judgment was seriously flawed, Far from speeding up the process of the PPP and pushing ahead with the Government's plans for London Underground, he has, by his inactions, caused even more delays and confusion. The whole consultation process will have to be undertaken again. I have no confidence in a Minister who cannot even get such simple, basic judgments right. In my opinion he should go.

Before I conclude on the consultation process, I want to share with the House and the public at large some of the more disturbing findings that have emerged from the work of the TFL legal team, especially in a document called schedule 1.9, which is part of a whole mountain of documents dealing with the PPP arbitrator—the regulator, as it were, for the PPP deal. In 1999, when the then Minister responsible, the hon. Member for Hampstead and Highgate (Glenda Jackson), introduced in Standing Committee the concept of the PPP arbitrator, I told her that it would cause trouble, and it has. The negotiators have put into schedule 1.9 all the difficult issues that they could not resolve in the rest of the documentation, including equity rates of return, the extent of risk transfer and the process for terminating the contracts.

Most significantly, much of schedule 1.9 has yet to be agreed. In other words, key parameters of the whole deal have yet to be finalised. How can Ernst and Young, London Underground or the Secretary of State have made any assessment of value for money when such key issues have not been finalised? It beggars belief. Worse still, what has been negotiated of the half-negotiated schedule 1.9 is extremely disturbing. We find that the risks of cost overruns have not been properly transferred to the infracos—they have been capped—so the public sector is not properly protected from them. Furthermore, the ability of the public sector to terminate contracts at a reasonable price is extremely limited. In normal circumstances, they will be almost impossible for TFL to get out of.

The Select Committee picked up on that in paragraph 10 of its report, which bears rereading. It states: We are also concerned that there is no Public Interest Termination clause in the contracts. Ernst and Young stated in their review for the Secretary of State that: 'In our view, it would be a lower risk option for London Underground to have an express right to seek voluntary termination with an agreed mechanism in line with the Treasury Taskforce Guidance. In particular, the obligation on the PPP contractor to act reasonably and mitigate costs would improve the value for money of the termination and enhance London Underground's negotiating leverage throughout the contract.' The Committee concludes: The decision to proceed with an experimental contract structure without the inclusion of a Public Interest Termination clause is difficult to justify, does not follow Treasury Taskforce Guidance and seems likely to compromise further value for money. That is a damning indictment. The contracts will tie the hands of future democratically elected Governments; they will not be able to say, "This deal is bad value for money. It is not delivering what we want, and we want to end it in the public interest." That goes completely against the lessons learned from PPP and PFI elsewhere. It hands all the negotiating power to the infracos.

I want to issue a challenge to the Minister. As London Underground yesterday felt able to allow my hon. Friend the Member for Carshalton and Wallington and me to read schedule 1.9 without signing a confidentiality agreement, will he publish the document to allow for public scrutiny, and if not, why not?

There are even more serious reasons why the Government should do that. If the Minister will not publish the documents, I shall ask London Underground to let me enter that room and transcribe them, and we shall see how the public react to that.

The Government are trying to avoid debate on this issue and to avoid publishing the documents because the PPP does not meet one of their key political objectives: not to privatise London Underground. The PPP as currently negotiated and under consultation—albeit inadequate consultation—amounts to the privatisation of London Underground's major assets. Despite Ministers' claims and protestations, which we shall no doubt hear repeated today, London's tube is being flogged off. One need only consider the definition of privatisation used by PricewaterhouseCoopers, the company retained by London Underground as its principal adviser on PPP: The transfer of services and/or assets, either on a permanent or finite basis from state to private sector operation and/or ownership".

This is how the Health and Safety Executive, an independent body, describes version 3.1 of the PPP on its website: Under the terms of the PPP, London Underground's infrastructure, rolling stock and stations will be owned and improved by three PPP infrastructure companies. Those were not my words or those of the Select Committee.

We find a further definition in the contract details. In the April 2000 asset transfer scheme, a legal agreement that sets out how the assets of the tube will go to the infracos, there is an important definition: Where therefore an asset is referred to as being allocated to an Infraco, this means that the relevant Infraco is regarded as having ownership of the relevant asset under the terms of the PPP contract.

Other parts of the contract show clearly that the private infracos will have ownership of all the assets for 30 years. Details of any handback to public sector ownership are sketchy, to say the least. The public sector's right to reacquire those assets is as yet theoretical. It is another Government objective gone wrong.

This whole sorry saga is the most depressing I have had to watch unfold since I was first elected. It reminds me of the poll tax, in that political decisions at the very top of Government are being kept to in spite of all the evidence that they are wrong and all the experts demanding a total rethink, and despite analysis after analysis warning that this will be bad value for money and will create huge problems for London's underground system in the future.

The current consultation period will in law have to be restarted before any final decision can be taken. I therefore implore the Government to stop this madness before they consign London to 30 years of an expensive, painful and crazy experiment.

2.47 pm
The Minister for Local Government (Mr. Nick Raynsford)

The Government very much welcome the opportunity to debate the future of London Underground. We would have preferred the debate to be conducted on a more rational and better-informed basis, but unfortunately the hon. Member for Kingston and Surbiton (Mr. Davey) has revealed only too clearly in his comments that he does not understand the process and has not fully understood the information to which he has had access.

Mr. Edward Davey


Mr. Raynsford

I shall not give way to the hon. Gentleman. He will wait for a while and I may consider giving way later. Having made an extremely intemperate and, in my view, mean-spirited attack, he should listen for a while to the Government's response.

The hon. Gentleman mentioned his visit to the bid room. At no point did he acknowledge the fact that I personally arranged for that visit after he expressed concern that he had not had that opportunity.

Mr. Davey


Mr. Raynsford

I have already told the hon. Gentleman that I will give way in due course. I ask him to contain himself for a little while. He has made some extremely ill-judged and ill-tempered remarks and he should listen carefully to my factual response.

I arranged for the hon. Gentleman to have access to the information and to visit the bid room. It was an exceptional arrangement and I should have thought he might at least acknowledge that.

The hon. Gentleman referred to the consultation process. He clearly does not understand that it is entirely in line with the procedures spelled out in the Greater London Authority Act 1999. If I recall correctly, he served on the Standing Committee that considered that Bill and should therefore be familiar with it. Our actions are entirely consistent with the requirements of that Act. There is no question of the consultation being conducted in any way other than in strict conformity with the requirements of the legislation.

The hon. Gentleman quoted a letter from Malcolm Bates, totally misunderstanding it and presenting it as an argument for delaying the process. It was nothing of the sort. In that letter, Malcolm Bates reasonably expressed concern that public disclosure of certain information, as part of the consultation exercise, might make it more difficult for London Underground to secure the best possible deal in the public sector's interest.

The Secretary of State—because he believed strongly that public consultation was paramount and that it was right that full public consultation should take place—insisted that the full Ernst and Young report should be made available. Did the hon. Gentleman, who has criticised the Government for not ensuring adequate consultation, give the slightest credit to my right hon. Friend for that decision? On the contrary, the hon. Gentleman tried to turn things around, in an extraordinary distortion of the facts, to criticise the Secretary of State for personally seeking to ensure the widest possible consultation.

The hon. Gentleman's argument that the process is a privatisation is based on a complete misrepresentation of the facts. He is fully aware that London Underground continues to remain wholly responsible for running the underground. As I shall explain in the course of my remarks, the maintenance of the infrastructure will be conducted by the three infrastructure companies, under the partnership. To enable that to happen, they must have a lease on those assets for a period of time, but that is part of a partnership that will generate the huge investment necessary to transform the underground. That is very different from privatisation—it is public-private partnership.

The arguments have gone on too long. Londoners are increasingly impatient with politicians—often ill-informed politicians—talking about the underground but not actually delivering results. Londoners want to see action. The plans that London Transport has developed, and on which it is consulting the Mayor and Transport for London, are designed to deliver the improvements that we all want to see. They are designed to deliver a safe, reliable, modern, clean and integrated system—and to do so more quickly than any alternative.

The debate about the PPP has sadly been characterised by a huge amount of misinformation—much more than the hon. Gentleman has given us this afternoon. It is nonsense to suggest that there would be no real improvements for 10 or 12 years—as we have frequently heard during the past few weeks. There is no basis for that claim. No alternative plan would deliver so much so soon. For example, work would start straight away to end the speed restrictions currently causing delays to passengers on the Jubilee and Piccadilly lines. Work would start straight away to tackle the maintenance backlog and improve the reliability of the system. Work would also start straight away on a massive capital investment programme to modernise the infrastructure, covering signalling systems, new trains and increased capacity.

At the end of the third review period, that investment would result in a wholly transformed system and one of which Londoners would be justly proud. However, we need to be sure that the plans for the transformation of the underground are the right ones. No final decisions have yet been taken, but in making those decisions we must consider the issues very carefully. That includes considering the opinions of others. That is why a consultation process is under way.

The Mayor and Transport for London have had access to all the information that they need. The suggestion that they have been denied access to information is not justified. London Transport has extended the consultation period in response to TFL's requests, yet rather than giving credit for that, the hon. Gentleman only makes political capital from it—a typical example of the misinformation and distortion that he has brought to this debate.

London Transport has provided staff not only to help TFL and its advisers assimilate and understand all the information, but to help the hon. Gentleman and others who have visited the bid room. His remarks about the unhelpful attitude of London Underground are not justified.

When the Mayor and TFL respond to the consultation, London Transport will consider their comments very carefully. Only then will a final decision be made. My right hon. Friend the Secretary of State has said that he would also welcome a public debate on the proposals. That is why everyone who is interested can see the financial reports that will inform his decisions. As I said, the Ernst and Young report has already been published, and London Underground has published its evaluation report in full. We are being as open as possible.

The contracts are not yet finalised—of course, they cannot be until all the consultation responses have been considered. However, the Secretary of State has made it clear that if the contracts were to alter materially in a way that means they no longer represent good value for money, the plans will not proceed.

There is some information that cannot be made public until this process has concluded, as we need to protect the public sector's ability to gain the best possible value for money. However, if the final decision is to proceed, the contracts would then be published in full and information would be fully available. Work to deliver a better tube could then begin by the summer.

The plans would bring in new investment and expertise from the private sector, based on long-term commitments not just to provide the infrastructure but to maintain it and so guarantee an agreed standard of service. The contracts provide for the infrastructure companies to he paid according to those results, with incentives to optimise performance and penalties if standards fall as a result of the contractor's failure or inefficiency. That is in line with modern best-practice procurement—designed to ensure that we get value for money and that we get away from the sad experience of underground infrastructure contracts ending up late and seriously over budget time and again.

I am surprised that the hon. Gentleman has not appreciated that the people of London fully understand the difference between the history of past investment— such as the Jubilee line, two years late with a 67 per cent. cost overrun—and the experience of public-private partnerships such as the docklands light railway extension to Lewisham, which was on budget, delivered early and highly successful. This issue is not about dogma; it is about what works. I saw a partnership of that kind work on the DLR and I believe that it would work on the tube.

That is why the Government have made an unprecedented offer of substantial and sustained investment in the tube—£1 billion in each of the first eight years of the contracts—compared with an average of £320 million a year over the last decade. That is another point that was conveniently ignored by the hon. Gentleman in his tendentious speech. We make this offer because we are confident that these plans would deliver the results that passengers want—modern, reliable, attractive, clean and affordable tube travel.

I am sure that the consultations will be worth while, but once they are complete, Londoners will expect us to stop arguing and start delivering a better underground for London.

Mr. Davey


Madam Deputy Speaker (Sylvia Heal)

The Minister has sat down.

Question put and agreed to.

Adjourned accordingly at three minutes to Three o'clock.