Byers opens the door to a London Underground bond

The Government has raised the prospect that it might back a multi-billion pound bond issue to finance London Underground if its public-private partnership (PPP) fails to pass the "value for money" test.

Stephen Byers, the Secretary of State for Transport, yesterday stressed that Ken Livingstone's favoured solution for raising £13bn for investment would be considered as part of a consultation process.

Mr Byers told the Commons transport committee that three options would be tabled for consideration: PPP, full public ownership and the bond option. It had been assumed until yesterday only the part-privatisation plan or a publicly-owned and publicly financed network would be considered.

Mr Byers' assertions were the latest in a series of indications the Government might be backing away from PPP in the wake of the Railtrack debacle.

Mr Byers told MPs yesterday: "I'm not coming at this from a dogmatic position. I want to deliver the best for the people of London. If PPP is not value for money, it will not go ahead."

Transport for London (TfL), which is due to assume responsibility for the network, registered surprise at Mr Byers' comments and his assertion there would be a period of consultation before he made his decision.

A spokeswoman for TfL argued there was a "tremendous appetite" in the City of London for a bond issue. She said such a decision could save up to £500m which could be directed towards investment in the ailing infrastructure.

"Bond finance has a proven track record worldwide – virtually every mass transit system in the world successfully uses bonds to finance investment," she said.

Mr Livingstone has argued the PPP system, under which the publicly-owned London Underground would continue to run the trains, but with three private consortiums taking up leases to maintain the system, was "fatally flawed". The mayor has argued the network should be run by one organisation under public control, but outside the strict spending limits set down by the Treasury.

The TfL spokeswoman said: "The bond option would be cheaper, quicker, simpler and safer."

Mr Byers said the details of three bids were received on 4 January and they were being "clarified and evaluated". There would be a meeting of the board of London Transport, which currently runs the network, in the second week of February to consider the options. The details would be published "very quickly" after that so there could be a period of "open debate". He said an independent report into the options by the consultants Ernst & Young would also be published.

The Transport Secretary insisted he – and not the Treasury, which is seen as the driving force behind PPP – would make the final decision on the issue. An announcement is expected in the middle of March.