London Transport (Hansard, 30 November 1993)

§ Mr. MacGregor

I have today written to the chairman of London Transport in the following termsAs of course you know, Section 16 of the London Regional Transport Act 1984 gives me power to determine financial objectives which I consider it reasonable for London Regional Transport, or any of its subsidiaries, to achieve. This letter sets out the financial objectives which I have, with the approval of the Treasury and after consultation with London Transport, determined for London Underground Limited and London Buses Limited for the period up to and including the 1995–96 financial year. A separate letter from Handley Stevens to Alan Watkins sets out the objectives determined with respect to LT's other subsidiaries and activities.

London Underground Limited (LUL) I do not need to emphasise the view which you and I both share that safety remains LUL's—and indeed LT's—top priority. I have also set objectives, agreed with you and now incorporated in LUL's Customer Charter, for the quality of service on LUL. The financial objectives for LUL complement these measures by seeking to ensure that the costs of operating the Underground system represent value for money and are kept to the minimum consistent with the achievement of your safety and quality of service objectives. In this connection, I greatly welcome the LUL Company Plan and the good progress made so far in implementing the improvements in efficiency and cost reductions that the Plan entails. The objectives set out below are based on achievement of the reductions in operating costs promised in the Company Plan programme in the autumn of 1991, which prompted Government to invest public funds in implementation of the Plan. The objective, I have set for LUL unit costs (defined as operating costs, excluding depreciation and renewals, divided by loaded train miles) is that they should be reduced to no more than £16.20, in 1993–94 prices, for the financial year ending 31 March 1996. I wish to supplement this objective by one in the form of the percentage which revenue represents of operating costs for LUL (for this purpose operating costs include depreciation but exclude renewals). The objective is that this percentage should he at least 105.6 per cent. for the financial year ending 31 March 1996. This figure is consistent with my unit costs objective and with the provision for depreciation for 1995–96 shown in your 1993 Corporate Plan, and the revenue forecast shown in that Plan as amended by your subsequent forecasts. 412W I also attach importance, in the context of the pursuit of value for money and cost reduction, to an increasing proportion of LUL's expenditure being subject to market testing. As you know, my officials are consulting LUL on the basis for setting precise targets in this regard. My intention is that such targets should attract bonus of at least 5 per cent. of salary in the Board Performance Bonus schemes for 1994–95 and 1995–96. I would also wish you to include in LT Annual Reports, starting with that for 1993–94, a report on progress on the LUL market testing programme, including a measure or measures showing as a proportion of the appropriate base the amount of work which has been market tested during the year in question, compared with the equivalent amount for the previous year. Finally with respect to LUL, I would like to see the establishment of a measure, agreed with Government, showing the full economic costs to the public sector of the services provided by LUL. This should include a figure representing the opportunity cost of the asset base. This measure should be published in LT's Annual Report and Accounts for the year 1993–94 and for each subsequent year.

London Buses Limited (LBL) The current objective is that LBL should achieve, for as long as this remains relevant, a 5 per cent. return on those of its tendered operations which are subject to "gross cost" contracts. We will set fresh financial objectives for bus services purchased by LT in the light of our recent announcement on the future of London's bus services. New targets for 1994–95 and 1995–96 will be set by the end of March 1994.

Public Accountability As in previous years, performance and progress against these objectives, and against your safety and quality of service objectives, should be published each year in LT's Annual Reports and Accounts.

As my letter states, objectives with respect to LT's subsidiaries and activities, other than London Underground and London Buses, have been set in a separate letter from my Department to the LT's chief executive and deputy chairman, Dr. Alan Watkins. The following is a summary of these objectives: LT Central Services. Gross costs to be no more than £57 million in 1993–94; a fresh objective for the period up to 1995–96 to be set by 31 March 1994. Victoria Coach Station. Return on turnover to be at least 5.8 per cent. in 1995–96. LT PASS. Total costs in 1995–96 to be no more than 2.6 per cent. of gross ticket sales. LT Museum. Revenue in 1995–96 to be at least 56 per cent. of costs. Dial-a-ride. Operating costs per trip in 1995–96 to be no more than £9.30, at 1993–94 prices. LT Property. Net operating costs in 1995–96 to be no more than £1.6 million at 1993–94 prices. Rental income to increase by 1.1 per cent. in 1993–94. Targets for rental income in subsequent years, linked to an appropriate index of performance in the property market, to be set by 31 March 1994. LT Advertising. Sale of LTA to be completed by 30 June 1994.