PPP deal for Tube has cost taxpayers £1bn, MPs say

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Part-privatisation of the London Underground has left the taxpayer almost £1bn out of pocket, a report from MPs revealed last night.

The Commons Public Accounts Committee said there would have been cheaper ways of introducing the Public Private Partnership (PPP) deal for maintaining and improving the Tube. The deal came into effect in April 2003, despite opposition from trade unions and Ken Livingstone, the Mayor of London.

Responsibility for two-thirds of the network passed to the Metronet consortium, which promised improvements worth £17bn during its 30-year stewardship. The rest went to Tube Lines, which said it would spend £4.4bn over seven years. London Underground (LU) retained responsibility for operations.

Edward Leigh, the committee chairman, said: "The PPP deals are inherently complex, given the approach taken, and have led to enormous costs for the taxpayer. It appears to have cost the public purse the best part of £1bn to set up and finance the deals in this way."

The bill has been run up by meeting LU's £180m costs and £275m of bidders' costs. The Treasury has been forced to pay £450m more to protect the private sector investment than repaying government loans would have cost.

The committee noted that a bond financing scheme, favoured by Transport for London (TfL), which now owns the Underground, would have been cheaper than the PPP financing costs. It said it would have saved "some £90m a year" but left more risk with the public sector. It also said the two infrastructure companies were chosen as preferred bidders in May 2001, although financial deals were not concluded for Tube Lines until December 2002, and for Metronet until March 2003.

"The Department [for Transport] had no formal backup plan if the PPP deals were not completed but would have simply turned the running of the Tube over to TfL," the committee said. "A major part of the justification for PPP was LU's inability to carry out major upgrades effectively. Yet much of the infrastructure work covered by the PPP is just ongoing maintenance and renewal work."

A TfL spokesman said: "TfL has consistently said the London Underground PPP deals are an expensive and overly complicated way to manage the maintenance and renewal of the Tube. Nothing has yet encouraged TfL to change that view."