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London's transport network is approaching bankruptcy and nobody has a clue what to do about it. A £1.4 billion hole has developed in Transport for London's budget of some £5 billion, largely as a result of the chaotic consequences of Tube privatisation. The Treasury, indisputable father of that progeny, has disclaimed parental responsibility and told the Mayor, Boris Johnson, he will have to find the money himself.
This he cannot do. He is already carrying some £3 billion of debt from the Tube subcontractor, Metronet, which went bankrupt in 2007. He could double Tube and bus fares, but they are already the most expensive in any city in the world and passenger numbers are now falling in the recession. He could cut buses and abort his various pledges for Crossrail, looking a more reckless venture by the day. But this is not enough, and he cannot hope to raise his council tax precept by enough to bridge the gap.
London transport is like RBS. Its losses are so gargantuan as to be unfinanceable yet equally the prospect of failure is unthinkable. Hence the lethal game of bluff now being played with the Treasury. The transport minister, Lord Adonis, said no to any refinancing last November. I gather this has since been repeated by the Treasury, as the financial year nears its end.
There is much about London's mayoral finances that can be laid at the door of the former mayor, Ken Livingstone, but not this. Blame for the financial chaos now afflicting the Underground lies squarely with Gordon Brown and the Treasury. Part privatisation was pushed through by Brown after 1997 against bitter opposition from within London and from the rail industry, culminating in Livingstone taking the case unsuccessfully to court.
The so-called PPP scheme involved letting lucrative franchises to private contractors, the essential feature of which was that profit went to them while risk was borne by the state. The first of the two companies, the Metronet consortium, made good profits for its owners, who with Treasury permission happened also to be its subcontractors and could thus fix its own prices.
After five years of chaotic management Metronet went bankrupt but was allowed to shift £3 billion of its borrowing to Transport for London while absorbing less than £350 million in losses itself. Many of its subcontracts remain in being. So much for risk transfer.
There is now ominous talk of the second contractor, Tube Lines, also heading for trouble. It runs the Jubilee, Northern and Piccadilly lines, and its contract review is up this year. Since TfL is bound to impose new service obligations under the act, Tube Lines will be able to declare bankruptcy (or demand large new payments which London cannot afford) and dump another mess on London's plate.
Tube privatisation was probably the most lunatic public sector contract in British history. Had it been crafted by a local authority, it would have been blasted out of existence. As a child of the Treasury, its creators were honoured by the Queen. Its devisor was the Treasury's Sir Steve Robson, who went off to become a director of RBS as the bank lurched towards collapse. He handed over to Shriti (now Lady) Vadera of UBS Warburg, who is now the government minister presiding over the collapse of the entire banking sector. The two of them must together have broken all records for the squandering of public cash.
That the Treasury can turn round and tell Londoners that this financial ruin is not its responsibility is outrageous. In 2001 it point blank refused to allow Livingstone and his transport commission, Bob Kiley, to set up a proper public company for London transport, following the advent of the mayoralty. Brown's belief in privatisation - and his reliance on Vadera - led to sound advice being suppressed in a display of ideological madness and control freakery.
Should this all end up in court, the concession in February last year of the then transport secretary, Ruth Kelly, is significant. She admitted fault in handing over £2 billion from the Government's reserve to pay Metronet's debts. It is difficult to see that a penny of added value was gained by London passengers for that £2 billion, much of which vanished in profits, write-offs and impenetrable banking and consultancy fees. Nobody has taken responsibility for this fiasco.
What to do now? London's transport is drawing down billions of pounds in public subsidy, beyond anything imaginable in the good old days of nationalisation. As a director of London Underground in the Eighties, I must declare an interest: the company had atrocious labour practices and was woefully backward on investment but at least it made money.
Already Johnson has raised fares and abandoned some of Livingstone's zanier projects. The Thames Gateway bridge has gone. So have the cross-river and Oxford Street trams. We can forget the Docklands Light Railway Dagenham extension. There can be little justification for retaining a £600 million subsidy to keep empty buses circulating in central London, let alone buy a new fleet of hop-on-hop-off platform buses in place of the bendies - much as they are craved by Londoners.
Then there is that Mary Celeste of London projects, Crossrail. The Mayor is committed to finding £2.7 billion in borrowing "against future fare revenue" from within his transport budget. There is no such sum available as yet, any more than there is the promised £250 million from BAA or £100 million in "voluntary contributions" from City banks or a special business rate to raise a further £3.5 billion beginning next year. There is not even a statute to permit this.
The resignation of Tim O'Toole as boss of London Underground is believed in part to reflect his despair over the huge sums going into Crossrail at a time when the quality of the core Tube was so in need of attention. I was once told that rush-hour overcrowding on the Central line would be reduced by 30 per cent if someone just made the drivers leave their depots on schedule. The truth of the matter is that when Whitehall seizes control of local government, glamour prestige projects like the Olympics get the goodies while necessities are ignored.
London has a good transport network and one that, by hook and by crook, will survive its impending financial collapse. But the 10 years it has spent under Brown's cosh have been a disaster. He owes a debt to all who have struggled to make the best of his bad job, and that debt starts with a cheque for £1.4 billion, due by the end of next month.
Reader views (11)
Livingstone warned and warned against the part-privatization, even taking it to court to stop it - you MUST remember! We all know why - common sense told us it would deliver NO benefits and HIGHER fares - we seen it happen with the privatization of British Rail under the Tories in the Nineties. Blair/Brown were determined to privatise it to keep it out of Livingstone's hands and out-Tory the Tories - it was all political. And tragic. Take a look at Oxford Circus - come on, HOW LONG does it take to refurbish a station really? They had started work on it in 2005. It is 2009 and they STILL have not replaced all the tiles or lighting. For the "modernisation" of Turnpike Lane, they left most of the cracked and grubby original tiles on the walls! Highgate is now permanently stuck with ugly exposed wires for the booming speakers along the freshly tiled platforms - nice job! And don't start me on Warren Street! The "part-privatisation" was to deliver what - efficiency?? It would be laughable if it wasn't so pathetic.
- David, N10
I suggest they look at the excessive salaries being paid to the TFL management and waste of money in employing people for useless announcements over the PA systems. Of course, Gordon Brown is to blame for lumbering the Londoners with PPP but everybody thought it was bonanza for them as well. Bonuses being paid to people for doing a good job!!!! Isn't that what they are employed to do? Would they do a bad job if they weren't given bonuses? They should be looking at every thing to cut wastage every where!! I am fed up with all these people employed in the public sector who think they should not suffer while the rest of us are having to pay for them. This is an opportunity to slim down and run the services efficiently.
They should also take away the honors from those instrumental in this disaster. It is criminal that they are allowed to go scott-free.
- Caya, London
Brown won't pay up for two reasons: the first is that he'll have to admit that he made a mistake, and second is that Boris is a Conservative. So Brown's arrogance and party political games will screw London once again.
- Ian, London
"Part" privatisation, as Sir Simon shows, is just as expensive and ultimately damaging as the full thing. Perhaps MPs of all parties shoudl remember that when considering Mandelson's prepsoterous idea of "part" privatisation of Royal Mail.
- Graham, Ilford Essex
Gordon Brown always seems to find money for what he wants - an extra £7 billion to the EU, at least £5 billion for unwanted ID cards, the unnecessary VAT cut, bailing out imprudent bankers (etc).
You would have thought that with the Olympics due in 2012, he would have made investment in London a top priority. Perhaps he just wants to leave the biggest mess possible to make life worse for the next government?
- Brian, London
Tom W - Your argument that Gordon brown was not 'elected' and therby, supposedly, has no authority holds no weight.
In this country we don't elect Prime Ministers, we elect MPs. The leader of the party which has the most elected MPs becomes the Prime Minister. That's how Brown has a mandate to rule.
- Nick, London
If you really fancy tracing the route causes of this issue, there's a compelling argument that the blame can be laid squarely at the door of the Tories, who in the 80s and early 90s starved the tube of funding, leaving it in an utterly perilous state - unreliable, slow, dirty.
The tube was in dire need of investment - of course the PPP approach has been executed poorly - but it has at least secured much needed new trains, infrastructure renewal, station refurbishments, and so on. The right course of action here is for the government to recognise that the PPP deal hasn't delivered as much as was hoped, and to bail out TfL. I await with interest...
One thing's for sure - given all the transport cutbacks that Boris has already announced (Cross River Tram, DLR Dagenham Dock, Step-free works...) - I doubt a new Conservative government would be any more generous with their funding that the governments of Thatcher and Major.
- Mark Lee, Vauxhall
Barry, a ridiculous tied supply chain, financial incompetence, mismanagement and greed brought Metronet to its knees. It was a private company, pandering to its shareholders and management, Ken didn't have anything to do with it. He did, however, warn BEFORE the PPP was introduced that it would be a disaster and cost taxpayers a fortune. He was right about that.
- Nick, London
Superb article. I have been travelling on the Underground for years and have never understood why the service is so shabby whilst ticket prices have become very expensive. I guess Gordon Brown has never used the Tube and just does not understand the mess that London Transport (or TfL) has become.
- James Parkinson, London
The real villain was red Ken who brought Metronet down to its knees. if metronet had received the money it was rightfully asking for, all these problems would not have occurred and TfL would not have had to take on all this debt.
- Barry, Redhill
More mess and chaos created by the incompetent Gordy! When will he realise that he is an utter failure and call an election? After all he was never elected in the first place.
- Tom W, London
