It’s official: the PPP is bankrupting our Tube

We have, indeed, survived — and, rather more miraculously, England have won a football match. But a surprising number of people do seem to have fallen for the week's other black-hole scare story, about the London Underground.

There are certainly similarities between that allegedly planet-­threatening "Big Bang" experiment in Switzerland and our own dear Tube.

In both cases, things are despatched through long, sub-surface tunnels, at considerable expense to the taxpayer, with no certainty that they will ever reach their destinations.

True, the protons sent around CERN's Large Hadron Collider are travelling at just under the speed of light: not something you could say about the Circle line. But black hole stories are like Edgware trains when you want the High Barnet branch — they just keep coming, one after the other. So on the same day that we were threatened with planetary doom, Londoners were also threatened with Tube doom — a multi-billion-pound "shortfall" in the budget for the PPP upgrades.

To show why this is total baloney, I need to explain what was actually happening. The event which caused the "black hole" headline was a report by the independent arbiter, Chris Bolt, into how much money the remaining PPP contractor, Tube Lines, should charge to fulfil its obligations to its three lines, the Northern, Piccadilly and Jubilee, in the next stage of the PPP contract.

In this stage, or "period", which runs from 2010 to 2017, Tube Lines is supposed to do two vital things: upgrade the signalling on the Northern line and completely renew the Piccadilly, with new signalling and new trains — as well as continuing its existing programme of station, track and escalator renewal.

TfL reckons all this should cost £4.1 billion. Tube Lines says it should cost £7.2 billion. After several months of research and modelling, the arbiter ruled on Tuesday that a fair price for the work is between £5.1 and £5.6 ­billion.
In other words, the real story this week is the fact that Tube Lines, the ultimate cowboy builder, wants to charge up to £2.1 billion more than an independent expert reckons the work should actually cost (and £3.1 billion more than TfL says it should cost). This is no "shortfall", it is a greed and inefficiency premium.

The arbiter review was to some extent a haggling exercise, with Tube Lines probably pitching deliberately high to Mr Bolt and TfL probably pitching deliberately low. But even allowing for the element of artificiality, the arbiter has largely sided with TfL. Seldom before has the ruinous nature of the PPP been exposed so clearly.

And make no mistake, it is Londoners who will be paying. Tube Lines boasts of "spending over £5 billion" in its first seven-and-a-half year "period". Its chief executive, Terry Morgan (paid around £1 million last year in salary and bonuses, by the way), chirrups: ""Does anyone seriously believe that ... our lines would be able to rely on receiving these levels of investment if they were still in public ­ownership?"

Well, yes, Terry — because the great majority of the money that Tube Lines is "spending" does, in fact, come from the public. Tube Lines simply charges it to TfL. Almost all the rest is borrowed, under guarantees which mean that if Tube Lines ever defaults, the taxpayer has to pick up 95 per cent of that, too, just as we did with ­Metronet.

Tube Lines has been held up by a lot of people who should know better as the princess of the PPP, compared with the Metronet turnip. It is better run than Metronet was — that would not be hard — but the truth, as this week's report shows, is that it is all too similar: an unacceptably expensive way to achieve what have been, so far, distinctly modest gains.

Tube Lines brazenly lists its three "flagship achievements" to date — the seventh carriage on Jubilee line trains, the rebuilding of Wembley Park station and the new Terminal 5 extension to the Piccadilly Line — in the full knowledge that none of these things is actually part of the PPP. They are all extras, purchased by TfL separately. (The PPP did promise an extra carriage on the Jubilee, but not until much later in the contract life.)

Tube Lines is also fond of claiming that all its programmes are on budget. Actually, its stations ran £200 million over, and its total proclaimed spend in its first period of "over £5 billion" is half a billion more than it originally said it would spend.

That pattern will almost certainly continue if it gets its way in the second contract period. According to the arbiter's report, TfL thinks that track renewals over the seven years can be done for £364 million; Tube Lines wants £677 million for the same job. TfL thinks that Tube Lines only needs to close lines for 21 million customer hours; Tube Lines wants line closures of 90 million customer hours. In echoes of Metronet, the arbiter also attacks Tube Lines's payments to its shareholders, which he describes as "high" and "potentially outside of market norms."

Yesterday, with her usual instinct for grasping the wrong end of the stick, Val Shawcross, chair of the London Assembly's transport committee, asked the Mayor to lobby ministers for the money to pay whatever Tube Lines asks. "Tube Lines have generally been doing a good job for London," she said. "The next phase of their contract isn't for gold-plating the Tube — it's for vital maintenance and improvement works."

Tube Lines has not been doing a good job; and gold-plating is exactly what it has been doing. Whitehall was quick to make clear that there will be no more money, and that is the right decision. TfL has real black holes, such as the disaster created by Metronet, to worry about.

But if ministers refuse to pay the Tube Lines premium, they are obliged, in all conscience, to offer TfL the only other way out — get rid of Tube Lines, and finally end the costly farce of the PPP.