Tube PPP 'would not now pass value-for-money test'

The controversial Public Private Partnership for the London Underground, which was given ministerial sanction in February, would probably no longer be given the go ahead under a little-publicised rule change being proposed by the Treasury for big projects.

According to a new book, Down the Tube by rail analyst Christian Wolmar, the scheme, worth an estimated £17bn over the first 15 years, only passed a government "value for money" test by a hair's breadth. A government-commissioned report by the accountants Ernst & Young compared the cost of the project being carried out in the private sector with the expected price if the scheme had remained under public control.

However, the public sector option was estimated using an expected interest rate of 6 per cent throughout the life of the 30-year scheme. At the time, this was standard procedure according to Treasury rules.

In July the Treasury issued a consultation document suggesting that the interest rate used in such comparisons should be 3.5 per cent, given that interest rates are much lower than when the rules were made over a decade ago. The consultation process ended in October and it is expected that the Treasury will adopt this measure in the New Year.

Had this rule been in force when the value-for-money test was carried out late last year, it is extremely doubtful that the privatisation would have been shown to be cheaper. The change would have made the public sector option appear billions of pounds cheaper over the life of the project.

Stephen Glaister, professor of transport and infrastructure at Imperial College London, said: "These comparisons are often finely balanced. The assumed discount rate is a big factor in how much the projects appear to cost, and therefore a change from 6 per cent to 3.5 per cent might have tipped the balance."

The book reveals that the plan, which was at first expected not to cost any taxpayers' money, will now require £1bn per year subsidy.

'Down the Tube' will be published on 13 November by Aurum Press, £9.99