Mr Livingstone is right: the Government is throwing money down the Tube

`Prescott needed money to save the Channel Tunnel Rail Link, and Londoners are paying the price'

THE ROW over the London Tube, which turned the Labour's mayoral selection process into a much more enjoyable farce than those showing in the West End theatres, is actually a phoney war. The decision over the funding of the Underground was deliberately kept out of the mayor's hands by Labour's leadership and the incoming mayor will have no control over the decision.

When the Greater London Bill to create the mayor and the assembly was being drafted, Tony Blair's Control Freak Tendency won a behind-the-scenes row to ensure that the mayor would not be allowed to determine the future structure of the Tube. Instead of handing responsibility for the system immediately to the mayor's new department, Transport for London, when he or she assumes power in July, London Underground will instead become a directly owned subsidiary of the Department of Environment, Transport and the Regions while its future structure is sorted out.

Ken Livingstone's attempt to turn the Tube into the defining issue of his campaign was a piece of calculated political mischief. He knows that most Labour party members are deeply concerned about the Public Private Partnership deal announced last year and, by making a fuss over it at the selection interview, he found a perfect way of obtaining acres of free publicity for his views. But he also knows that by the time he becomes mayor - for which the odds are rather better than for an English victory in Euro 2000 - the new structure of the Tube will be in place and there will be nothing that the mayor can do about it.

Indeed this process has already started. In September, London Underground was broken up into the four constituent parts needed for the PPP scheme, three infrastructure companies and one operating organisation. The PPP involves handing over these three infrastructure companies - two of which cover the deep tube lines and the other the sub-surface routes - to the private sector, paying them a set level of income for 20-30 years in return for a guaranteed standard of maintenance and agreed levels of renewal. At the end of the contract period, the assets return to the Government.

The contract for the sub-surface lines has already been allocated to Railtrack, without a tendering process. In the summer, the company was given a year to negotiate a suitable package with London Transport and the Government. Invitations to tender for the other two contracts were issued at the same time.

The operation of the trains and the signals will stay in the public sector and this will eventually be handed over to Transport for London once the infrastructure has been privatised, probably in the spring of 2001. Since all the contracts will have been signed, the mayor's only role will be to ensure that the Tube is run properly.

Blair has some good reasons for not trusting Livingstone's ability to run the Tube. Cuddly Ken is close to the unions who, in the past, have blocked many improvements to the system's efficiency and still show a distressing tendency to strike without good reason. But there is also a fundamental dishonesty in the "on-message" camp. The PPP is a flawed scheme, bulldozed through John Prescott's department by the Treasury and No 10 Downing Street. Mr Prescott needed money to save the Channel Tunnel Rail Link, and Londoners are paying the price for his bargain. He may defend it publicly but in private both he and his officials know that it is a scheme whose benefits could be delivered in other ways and which has few advantages.

The big (and, critics say, the only) advantage of PPP is that the deal gets the Tube off the Treasury's balance sheet. In this way, the Underground's massive investment programme - at least pounds 500m per year is needed to create a modern metro system - is no longer included in the Government's annual borrowing. The downside is that this is a very expensive way of borrowing money, as risk is transferred to the private sector and, more fundamentally, the Government can always borrow money at a cheaper rate than companies. Ultimately, these extra costs will have to be met either by taxpayers or Tube-users.

No one yet knows how much the PPP will cost as the bids will not be in for probably another year. The cost of maintaining the deep tube lines, most of which will reach their 100th birthdays during the course of the contracts, is unknown and the consortia may all come up with prices that are unsustainable. John Prescott has been unable to answer the question of what would happen then.

The other problem for the PPP is Railtrack's involvement. Handing over a chunk of the Tube infrastructure to what, in the wake of the Ladbroke Grove disaster, has become - albeit somewhat unfairly - Britain's least popular company is hardly a political coup of the century.

Moreover, the rationale for giving Railtrack the contract has disappeared. Railtrack was given preferential treatment because of supposed "synergies" between its London suburban tracks and the Metropolitan, Circle and District lines. Railtrack's masterstroke was for main-line trains to use a section of the Circle Line between Paddington and Liverpool Street to create a cross-London link. Given that this piece of track is already being used to full capacity, the idea was greeted sceptically within the industry. Moreover, the City has recently revived the idea of Crossrail. This would be a much more comprehensive solution to creating such new links and its return to the agenda destroys the case for allowing Railtrack an uncontested bid for the tender.

Finally, there is really no need for PPP. The legislation to bring in congestion-charging for London is already on the statute book (ahead of the rest of the country, which must await the Bill presaged in this week's Queen's Speech). That money could be used to raise more than enough to pay for improvements to the Tube.

The main justification for PPP now is that it is the only show in town. However, there is no reason why this must be the case. When, as mentioned above, Prescott was desperately trying to save his other megascheme, the pounds 4.5bn Channel Tunnel Rail Link, he managed to persuade Gordon Brown to allow him to back pounds 3.8bn of private- sector spending through bonds, which he claimed at the time would probably never be needed. This optimistic prediction was dependent on the performance of Eurostar, which has shown no signs of growing fast enough to underpin the funding of the link. So the bonds may well have to be issued.

Allowing London Underground the same freedom to raise money would have obviated the need for this whole row. Instead, a start could have been made on modernising the Underground soon after the May 1997 election. But then that also would have deprived us of a lot of laughs at the expense of Labour's control freaks.

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