London Underground: Funding (Hansard, 16 May 2002)

§ Lord Filkin
My Lords, the Government will ensure that London Underground has sustained and secure funding to meet its contractual obligations to the infrastructure companies for delivering the massive increase in investment under the Tube modernisation plans.

§ Lord Ezra
My Lords, is the Minister aware that there have been recent reports that the funding 425 arrangements could lead to substantial increases in fares to make up the amounts of money that are required by London Underground? Figures of up to 25 per cent have been mentioned. Will he give the assurance that that is unlikely to happen and that if there are to be any fare increases, they will be limited to the rate of inflation? Furthermore, will he give an assurance that, in light of the tragic accident at Potters Bar, increased attention will be paid to the supervision of maintenance by contractors on the Underground?

§ Lord Filkin
My Lords, on the noble Lord's first point, there are many rumours—most of them wrong—about the major PPP for London Underground. The decision about fares on the Underground will be for the Mayor, in consultation with the Assembly. So far as the Government are concerned, we have set the subsidy to go into the PPP for the first seven and a half years at a level that should not require fare rises that are higher than the rate of inflation.
With regard to Potters Bar—we could have had a topical Question on it—it is early days to make judgments about what happened. The Health and Safety Executive and others are rapidly investigating the causes so that we can ensure that any lessons are learnt rapidly. I can report to the House that London Underground has completed an inspection of 80 points on the Underground system that bore some similarities to Potters Bar, but it has found no faults with them.

§ Viscount Astor
My Lords, I take the Minister back to the PPP, which is what the Question on the Order Paper is about. He will be aware that the three members of the consortia that were recently awarded a contract for London Underground have announced that the contract will return an annual profit of £18 million a year, which is £540 million over the lifetime of the contract. That represents a 34 per cent return on turnover. When one considers that 95 per cent of the third party debt is covered by a letter of comfort from the Government, how can the Minister tell the House that that represents good value for the taxpayer?

§ Lord Filkin
My Lords, I am happy to confirm that the Government judge—as do London Underground, Ernst & Young, which advised the Government, and the accountants who advised London Underground—that that did provide good value for money. There are two reasons for that. First, I do not recognise the figures quoted by the noble Viscount, Lord Astor. I do recognise that the infrastructure companies have budgeted for or are hoping to achieve—that is different—a return of 15 to 20 per cent on their capital employed. That relates only to the capital that they put in and not to the contractual value of the contracts that will be let, which are substantially subsidy-funded as well as being funded by equity from the infrastructure companies.
The second point, which goes to the heart of the reason why we believe that the PPP will demonstrate good value for money to the public, involves the 426 appalling cost over-runs on previous infrastructure projects. The noble Viscount will know better than I do, because this happened when his party was in government, that the Jubilee Line was three years late and, I believe, some 60 per cent over cost. Moreover, the Central Line extension—in fact, it was another extension—was several years late and involved substantial over-spend. More generally, there are problems with the public sector controlling such contracts, as we have seen historically. That is why London Underground and the Government believe that the sort of contracts that put pressure on the private sector to perform are much better and are in the interests of the public.

Lord Berkeley
My Lords, does the Minister recall—he probably does not because he was not in this place at the time—that the question from the noble Viscount, Lord Astor, about London Underground, was exactly the sort of question that we used to put to Conservative Members when they were trying to privatise Railtrack? The same comment was made about the disastrous cost over-runs that occurred. Does he agree that the best solution—this has been done in the rest of Europe for many years—is to hand over the metro systems to local authorities as soon as possible and let them and their politicians stand or fail by their records of service?

§ Lord Filkin
My Lords, as I am sure my noble friend knows, that is exactly what the Government are doing with London Underground.

Noble Lords
No!

§ Lord Filkin
My Lords, let me elucidate for the House. The Government are funding the PPP project to the scale of £8.1 billion over the next—

Noble Lords
Oh!

§ Lord Filkin
My Lords, the question will be answered if noble Lords would wail.. We are funding the PPP project to the scale of £8.1 billion over the next eight years. That naturally involves a right to ensure that there is a sound basis for that investment. As soon as those contracts are let and all other clearances are given, London Underground, as part of London Transport, will be transferred to Transport for London, which is the responsibility of the Mayor and the Assembly. It will come directly under democratic, local authority control through the GLA and the Mayor.

§ Baroness Hamwee
My Lords, the Minister will be aware that one of the fears of London's government—I declare an interest as a Member of the London Assembly—and of London's taxpayers is that it will be found that London Underground has many liabilities that are unfunded and not disclosed. There is a concern that London Underground is not even aware of all of its liabilities. When did London Underground 427 last conduct a detailed audit of its assets? Will the Minister assure the House that London Underground's risk register is up to date?

§ Lord Filkin
My Lords, London Underground has a reasonable understanding of its assets, but I do not believe that it has a comprehensive asset register of the depth that one would hope for in an ideal world. I believe that it has a good understanding of the major liabilities, as one would expect, given the amount of survey work that will have been done to let the scale of contracts that are now being let. Enormous contract sums are involved and will have required detailed surveying of the infrastructure.
With regard to any future unforeseen eventualities—given life, one must be certain that they will arrive—clearly there will always be ongoing discussions between the Mayor, Transport for London and the Government, just as there are between other local authorities. But that is not to imply that there is an open door or a blank cheque. The Mayor has a responsibility to make those assets work well, to manage the substantial undertaking that Transport for London is taking on with London Underground, and to achieve value from those assets and from the massive capital investment that the Government have subsidised. We very much hope that he does that well because it will be to his credit and the credit of London if he succeeds in it. We believe that we have given him an enormous start.

§ Earl Ferrers
My Lords, can the noble Lord give an assurance that, as part of his responsibilities for looking after London Underground, the Mayor of London will not introduce traffic-calming arrangements on the Underground as he has done disastrously and inconveniently on the streets of London?

§ Lord Filkin
My Lords, what an interesting question. That is not in my brief. I believe that there will be traffic-calming in the sense of improved safety and automatic train protection, but I suspect that the noble Earl was not referring to that. We shall consider the matter further, and I shall even discuss it with him if I meet him.