Dead Men Left

Monday, February 21, 2005

London Underground and debt relief, somewhat tenuously linked

Oh, for those happy, crazy days when special New Labour privatisation was all set to improve efficiency and save money. Here's Tim O'Toole, London Underground's new boss, on the subject:

The private public partnership, or PPP, under which Mr O'Toole runs the underground was masterminded by the deputy prime minister, John Prescott, with backing from the Treasury. Under the scheme, two engineering consortiums, known as the "infracos" - Metronet and Tube Lines - won 30-year contracts worth £15.7bn to modernise the tracks, stations and tunnels, thereby splitting the tube's infrastructure from its operation, by London Underground. The private sector was to pay 25% towards the work, government grants 60% and fares 15%. From the companies' point of view, the deal was almost risk-free and guaranteed them 30 years' work with reviews every seven and a half years.

One of the reasons I voted Ken Livingstone in 2000, when he stood as an independent, was because like so many others I thought the privatisation of the tube would be a dire mistake. Livingstone was committed to an alternative plan, mentioned in the Guardian article, that proposed the issuing of long-term bonds to finance investment. There were problems with the scheme, not least the long-term commitment it demanded to the loan markets, but it was better than the alternative on offer. This was the Treasury's scheme. They aimed to fundamentally restructure the tube's management to entice in private capital, and bring with it that glorious, enterprising private business acumen - which the "partners" promptly put to good use:

The contract was so complex that it cost the taxpayer £455m in lawyers' and consultants' expenses just to draw it up. The deals are unique, untried and unproven in the world of transport; they are performance- related, so the companies are recompensed according to their success in reducing service delays.

One of the authors, now at Imperial College, is Stephen Glaister, who sits on the TfL board and says of the PPP: "The idea was for a partnership in which we were all going to be best friends, to which we said at the time: 'You've got to be joking.' It was completely naive to talk in terms of partnership."

Cynics will note that not only is London Underground now being urged to, erm, issue long-term bonds to finance investment; but that the idea has spread back to the Treasury on a grand scale in the form of the Chancellor's International Finance Facility. Funny old world.