I am writing to submit the London Transport Users Committee's (LTUC's) response to the questions listed in your sub-committee's press notice of 25 September.

(a)   The desirability of an independent audit prior to signing the contracts to ensure value for money

  The government has repeatedly stated that the public-private partnership (PPP) will not proceed unless it is shown to offer better value than a public sector comparator (PSC). We would expect the government to honour this undertaking. The National Audit Office (NAO) has already reported (at your sub-committee's urging) on the approach taken by the government in formulating the PSC. Given the extreme political sensitivity of the issue, we would regard it as prudent for the government to invite the NAO to revisit the PPP and PSC before finalising any contracts, in order to offer the most credible assurances possible that—whichever route the government finally selects—the choice has been made on the best available advice and the most plausible estimates of cost and benefit.

(b)   How much information about the precise nature of the contracts should be made public before they are signed.

  We accept that the government may wish to withhold some financial particulars until any contracts are signed, in order to protect its negotiating position. But it is not apparent to us why the general nature of the contracts should not be made known, including in particular the outputs which the infracos will be required to deliver and the mechanisms for incentivising them to do so. Indeed, if the government wishes to rebut the welter of criticism now being directed at its proposals by critics of the PPP approach, it would appear prudent for it to publicise as much of this information as possible.

  At present, the propaganda war is being won by the opponents of PPP merely because its proponents do not seem able and/or willing to mount any sustained campaign in its favour. The LTUC has taken no collective position on the merits or demerits of the PPP proposal, simply because it does not consider itself to be in possession of sufficient information to enable it to do so. The case against has been made volubly, while the case in favour has gone largely unheard. If this causes concern to the government, the remedy lies in its own hands.

(c)   The allocation of risk between the public and private sectors.

  This is clearly a delicate issue. Some of the possible risks are difficult to estimate, simply because the true condition of the assets and therefore the cost of bringing them up to an acceptable state of repair is not fully known. If the private sector is required to bear too high a proportion of risk, this will be reflected in the costs which it requires the public sector to meet. If too little risk is transferred, there will be no incentive for the private sector to operate more efficiently. But it is impossible for any body not directly involved in the PPP negotiations, or in a close scrutiny of their outcome, to say with any certainty whether the optimal allocation has been made.

(d)   The opportunities to adjust the contracts after they have been signed, and the role of arbitration in the event of dispute over the contracts.

  Self-evidently, these will be crucial elements in the contracts. But only those who are parties to them can demonstrate that proper arrangements will be (or have been) put in place.

(e)   Regulation following the signing of the contracts and the expected relationship between Transport for London and the infrastructure companies, and how to ensure proper accountability for the Underground system.

  It is not immediately clear what form of regulation the sub-committee has in mind here. Our understanding is that London Underground and the infrastructure companies (infracos) will be bound (if PPP goes ahead) by detailed mutual obligations, set out in legal contracts. Either party could have recourse to law, if it believed that the other was in default. But a system of financial incentives will be put in place to encourage them to meet their obligations and, in extremis, London Underground will have power to terminate the agreement.

  London Underground (LUL) will become a wholly-owned subsidiary of Transport for London (TfL). LUL's relationship with the infracos will be set out in detail in the PPP contracts. On a day-to-day basis, LUL (as the operating entity) will have direct interaction with the infracos. TfL's involvement will be at one remove, as the body responsible for setting LUL's objectives and for controlling its finances.

  Political accountability for the Underground system will rest with the elected Mayor of London, who appoints the Board of TfL (and is currently its chair). TfL, in turn, will appoint the management of LUL. Both the London Assembly and LTUC have (and will continue to have) a role in monitoring the Underground's service performance, and the Assembly may well choose to interest itself in the organisation's financial performance too. Safety regulation is the responsibility of the Health & Safety Executive (HSE). Normal local government audit procedures will apply, including the "Best Value" regime.

(f)   Setting and enforcing performance targets for London Underground.

  Financial performance targets will be a matter for the Greater London Authority, ie the Mayor, scrutinised by the Assembly.

  Service performance targets have been set annually for London Underground for the past decade, as part of the previous government's Citizen's Charter initiative (now known as Service First). Some are based on objective measures of service delivery (such as escalator availability or ticket queueing times) and others on the findings of attitudinal research amongst passengers (such as cleanliness of trains and stations or staff helpfulness and availability).

  Until now, these targets have been formally promulgated by the Secretary of State for Transport, following quadrilateral consultations between the Government Office for London, the Service First unit (part of the Cabinet Office), London Transport and LTUC. In recent years, there has been a tendency for this process to be subject to considerable delay (mainly as a result of uncertainties about the short-term funding of the system, which clearly impacts on its performance aspirations), and rather perfunctory, but it has not been formally discontinued.

  LTUC assumes that, if and when TfL inherits ownership of London Underground, similar arrangements will be put in place. We believe that it is important that all relevant parties should participate fully in this process, not least ourselves as the official watchdog body representing the interests of Underground users. We have to say, however, that we have received no indication that it is TfL's intention to do so, and we must register our disquiet at the fact that performance targets for London's buses appear to have been put in place by TfL without any such consultation or, indeed, any formal notification to this committee. This is not an encouraging precedent.

  It is difficult to know quite what your sub-committee may mean by the expression "enforcing" performance targets. As matters currently stand, the targets represent aspirations. Managers may be incentivised to achieve them by including a performance-related element in their remuneration, but there are no sanctions applied to the organisation for failing to achieve its targets—an outcome which has frequently occurred. In the case of those which are based on user satisfaction polling, it is not immediately clear what form of sanctions would be relevant.

  But the situation is quite different on the national rail network, where a system of financial rewards and penalties is in place to incentivise train operators to (eg) run punctually, not cancel trains, and operate them at their planned length. Fares control includes a performance-related element, so that increases are moderated (or prevented) when service quality has deteriorated. No such linkage exists with Underground fares, though we would be happy to see one put in place. The only material redress currently available to Underground users is a refund of their fare (in the form of a voucher) if they suffer a delay exceeding 15 minutes for reasons attributable to LUL. But oddly, minimising such delays is not one of the performance targets set for the business.

  The question refers to London Underground, a term which we understand to refer to the future operating company (opsco), rather than to the infracos under the PPP. It is not clear to us what performance targets are to be set for the latter, or how delivery against these is to be demonstrated. But this is immaterial to users, who will continue to be customers of LUL. From the passenger perspective, what matters is the ultimate outputs of the organisation, not the internal attribution of responsibility for any shortcomings experienced.

(g)   Increasing capacity within the existing network, extending the network and integration within and between transport modes in London.

  The capacity of the existing network is determined by such factors as the spacing and reliability of signals, the length and internal capacity of trains, the spacing of stations, dwell times at platforms, the ability of the controllers to recover the service after interruptions, the frequency of unplanned incidents (such as train or signal or power supply failures, suicides and "passenger actions"), the availability of traincrew and other key personnel, platform dimensions, permitted line speeds, and the capacity of access routes (including passages, staircases, escalators and lifts).

  Some of these are matters which would, under the PPP, fall within the sphere of responsibility of the infracos. Others would be reserved to LUL. We would expect the infracos' contracts with LT/LUL to commit them to achieving a specified level of enhancement, as part of their overall investment programmes, where it is practicable to do so. But in the absence of published details of the obligations which each infraco is to assume, it is not possible for us to express an informed view as to the extent to which the PPP approach (as distinct from any alternative, represented by the PSC) is likely to achieve this more efficiently, more speedily, or with less disruption to the network. Such disruption, and the manner in which it is planned and managed, itself has significant short-term capacity implications.

  It is our understanding that proposals for extending the network (as opposed to enhancing the capacity of the existing system) are excluded from the PPP arrangements.

  Improving integration is central to the Mayor's transport strategy, and is an objective to which we would expect the Underground to make a full contribution—eg through improved interchanges, and integrated ticketing and information systems. We see no immediate reason why this should be affected by the PPP arrangements, if they go ahead.

(h)   Industrial relations

  In the recent past, industrial relations on the Underground have not been good, partly arising from concerns about the possible effects for staff of the PPP proposals. Similar difficulties affected the London bus network prior to the privatisation of London Transport's bus operating subsidiaries (which involved a much larger proportion of the workforce than would LUL's PPP). Since London's bus companies were privatised, there have been far fewer disputes. It is our belief that the industrial relations climate on the national rail network is now generally better than was the case in the era of British Rail, and that if and when disputes do arise, they tend to be confined to more limited areas of the system.

(i)   Passenger and staff safety

  In common with all passenger railways, LUL is required to operate in accordance with a safety case approved by the Health & Safety Executive (HSE). Failure to do so is an offence. Its compliance is subject to regular HSE audit, and the safety case is subject to regular review and amendment. The safety case regime, and the HSE's role in regulating it, has recently been reviewed and endorsed by the Ladbroke Grove Rail Inquiry (the Cullen report, part 2).

  This situation would not be affected by PPP, and LUL would remain the safety case holder. The government has given repeated assurances that PPP would not proceed if the HSE is not fully satisfied that all foreseeable risks have been identified and appropriate controls put in place.

  LUL has one of the most sophisticated risk assessment models of any railway operator in the world, as a basis for prioritising action and identifying trends. Its safety record stands comparison with any other metro system of similar scale and complexity. LTUC would oppose any scheme which jeopardised this situation. But we are aware of no firm evidence (as distinct from claim and counter-claim based on loose generalisations about the national rail network) which supports the suggestion that the PPP arrangements must adversely affect the safety of either passengers or staff.

John Cartledge

Deputy Director

October 2001