The PPP fiasco

In 2003, the Labour government imposed its “Public-Private Partnership” policy on London Underground, in the face of huge public opposition, trade union resistance, and mountains of rational criticism of the policy.

After four years of derailments, cock-ups, late starts to the train service as engineering works overran, the PPP began to fall apart, as Metronet — one of the private Infrastructure companies (Infracos) — went into administration. The other, Tube Lines, would follow it back into public ownership three years later, spelling the end of the PPP.

This extract from Janine Booth’s book, Plundering London Underground: new Labour, private finance and public service 1997-2010, gives shocking figures as to the cost of this disastrous policy to the public.

At first, no-one seemed able to figure the cost of Metronet’s collapse. None of the many witnesses to the Transport Select Committee would name the price, and London Underground Ltd’s Tim O’Toole warned that, ‘I cannot sit here looking at a catastrophe of this dimension and say, “Don’t worry, it is not going to cost anyone anything.”’

Six months after Metronet went into administration, Transport Secretary Ruth Kelly was still “uncertain” as to the cost of failure and how much of the tab would be picked up by tax-payers and fare-payers.1

Eventually figures came out. The direct loss to the public purse of Metronet’s failure was between £170 million and £410 million.2 But there was much more. Transport for London was liable for 95% of Metronet’s debts, so the government gave £1.7 billion to the Infraco’s lenders as part of TfL’s funding settlement in 2008.3

Metronet’s collapse meant that LUL’s legal bill for 2008 was £20.3 million, many times greater than a more typical year, for example £4.3 million for 2005.4 The cost to LUL and TfL of running Metronet’s business during administration was £13 million per week, with TfL advancing £900 million to Ernst and Young LLP. As well as money lost, there was money wasted: TfL paid £1.2 billion for station renovations that Metronet had not carried out. The National Audit Office reckoned that the cost of the debt repayment and loss to tax-payers amounted to up to 10% of the work actually delivered.5

Who should foot the bill? London TravelWatch — the independent, statutory watchdog for passengers — argued that Metronet’s shareholder companies should pay for the losses and the government should fund the extra Arbiter costs. GLA Transport Committee Chair Roger Evans argued that, “because this was imposed on London then the Government that imposed it should be the people who pick the bill up”. Mayor Ken Livingstone agreed, and briefed his publicity machine accordingly, telling staff that “no-one was to say ‘we told you so’. Journalists pressed me to denounce [Gordon] Brown but I just droned on about ‘working together to solve the problem’.”6

Metronet’s shareholder companies lost only their stake of £70 million each, a sum that MPs called “relatively modest”. The companies seemed comfortable: Balfour Beatty plc’s pre-tax profits were up £76 million in the six months to 30 June 2007; EDF Energy made £402 million in the year before Metronet’s failure; Thames Water plc made £256 million7; and Atkins plc recorded an “exceptional accounting gain” of £17.2 million directly from the discontinuation of its Metronet activities.8

Ruth Kelly seemed convinced, however, that “Metronet’s failure has cost its shareholders significant sums”. She argued that it had “damaged the reputation of those companies involved”, and pledged that the “terrible failure” would be taken into consideration should the shareholders bid for government jobs9. Any reputational setback seems to have been minimal though, as Metronet’s former owners between them now hold many government contracts, with Atkins plc, Bombardier Ltd, EDF and Balfour Beatty plc holding several lucrative deals with TfL and London Underground Ltd.10

Dubious Metronet practices now came to light. Metronet manager Ed Maloney — seconded from Balfour Beatty plc — used his position as project director to give work at Oxford Circus station to contractors who many thought were poorly-suited to the work — he had a financial interest with them. When he was convicted of fraud in 2011, his sentence — for cheating and potentially endangering the public — was community service and a suspended jail term.11

Other Metronet managers exploited the public purse without being accused of breaking the law. The Bond Street modernisation project team held routine managers’ meetings during working hours on a hired Thames pleasure boat, with a free bar paid for by the PPP contract. Metronet and its contractors held “golf days” for senior managers, where the player who got his or her ball closest to each hole got a prize such as a DVD player. Hundreds of managers were taken to Premiership football matches, including hospitality suites and private boxes for some. Tim O’Toole had even sent an email asking, “How do we prevent the contractors plundering our stations, by the way?”

He was concerned that Metronet and its contractors were taking heritage features such as roundels, signs and furniture.12

Notes

1. BBC News website, 31 January 2008.

2. Comptroller and Auditor General, The failure of Metronet, HC512, National Audit Office, 2009.

3. BBC News website, 6 February 2008.

4. Evening Standard, 22 November 2010.

5. Comptroller and Auditor General, (2009).

6. Ken Livingstone, (2011), pp.578-9.

7. RMT News, October 2007.

8. WS Atkins, Annual Report, 2008.

9. New Civil Engineer, 20 November 2007.

10. TfL list of contracts, 28 June 2012; LUL awarded the contract for the SSL signalling upgrade to Bombardier Ltd.

11. Mail Online, 13 March 2008; Evening Standard, 22 November 2011.

12. Evening Standard, 18 March 2008.