Livingstone bond plan for Tube under fire from LBS

Ken Livingstone's plan to use bonds to fund billions of extra investment in the Tube would be much more expensive than the Government's alternative of a public-private partnership, a report said today.

The key argument in favour of bond financing - that it entails a lower cost of borrowing - is "illusory", the London Business School said.

Professor David Currie said a PPP, under which three private firms would lease a share of the infrastructure but the running of trains would stay in the public sector, would deliver savings of £3.3bn - or 20 per cent of investment and maintenance costs - over the next 15 years.

He said the difference between the two schemes was the role of private sector managers under the PPP options. "A partnership between public and private sectors offers advantages that cannot be matched by other funding solutions," Professor Currie said.

He said the commonly accepted view that bond finance was risk-free and therefore cheaper, because it was backed by the Government, was "naïve". In fact, the taxpayer had to bear a risk that ought to be costed in any analysis, he said.

Professor Currie said the only question was which option would deliver the most efficiently maintained infrastructure. He favoured the private sector, arguing that the use of private money created strong incentives that could not be replicated in the state sector; a greater control over staff and their productivity; and the existence of a clear "bottom line" in the form of profits.

The financing of the £7bn of investment needed for the Tube has become the main issue dividing Frank Dobson, the official Labour candidate, and Mr Livingstone.

Separately, London Underground said yesterday it had short-listed three groups of bidders for a maintenance contract on five sub-surface lines: the District, Circle, Hammersmith & City, Metropolitan and East London lines.

The three are LINC - a consortium linking the Canadian firm Bombardier Prorail, John Mowlem, US-based Fluor Daniel, France's Alcatel and Anglian Water; Metronet - which consists of Daimler-Chrysler's Adtranz, WS Atkins, BICC's Balfour Beatty, Seeboard and Thames Water and an unnamed consortium comprising Amey, Bechtel/Halcrow and Jarvis.