London Underground

Part of the debate – in the House of Commons at 3:30 pm on 25 February 1997.

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Photo of George Young George Young Secretary of State for Transport 3:30, 25 February 1997

With permission, I should like to make a statement about our proposals for the future of London Underground.

London Underground is the last of the traditional transport nationalised industries, and the only major transport operator that is not in the private sector. Since 1979, we have privatised a wide range of transport businesses—for example, British Airways, the British Airports Authority and, indeed, London Transport's bus operating companies. All of them have gone on to prosper, raising money from the market to invest in better services for their customers. Only London Underground remains in the public sector, its status becoming increasingly anomalous.

Most recently, we have of course privatised the national passenger rail network—a process that has now been completed, with the award of the last franchise for ScotRail. The benefits are already becoming apparent: an increase in passenger numbers; and new investment is already taking place or is in the pipeline. Railtrack has plans to spend £4 million a day on maintaining and renewing the rail network, and on stations, depots and network enhancements. By 2001, Railtrack estimates that it will have spent £1 billion more than the regulator expected. In addition, franchisees are committed to investing around £1.5 billion in new rolling stock and more than £100 million in improvements to stations and other facilities.

The decisions to proceed with Thameslink 2000 and the channel tunnel rail link show that major new projects can be undertaken within a privatised railway. Benefits for rail users are being achieved at a decreasing cost to the taxpayer. In seven years' time, the private sector franchisees will require only about 40 per cent. of the support that British Rail estimated it would have needed to run the same services this year. Rail privatisation has shown that the fact that an industry is loss-making is no barrier to its successful transfer to the private sector.

Against that background, my right hon. Friend the Prime Minister announced in October that we would be considering whether the benefits of privatisation could be extended to London Underground. We have completed the initial stages of that work and the Government have concluded that privatisation is the right way forward. The package that I will outline to the House will deliver a higher-quality underground at an affordable cost to passengers and no extra cost to the taxpayer.

Our purpose is to structure the privatisation so as to ensure that the underground is brought up to modern standards as soon as possible. Our aim is to complete the modernisation and improvement programme—that is the elimination of the investment backlog—within five years of privatisation. In recent years, London Underground's management has raised customer satisfaction by a sixth, increased scheduled train services to a level not seen in 25 years, increased the underground's operating surplus from nothing to around £200 million a year, and reduced the investment backlog from £2 billion to £1.2 billion. Despite those great strides, much remains to be done if we are to achieve the standards of service that passengers want, at a cost which they and taxpayers can afford.

We believe that privatisation is the only means of achieving these goals. Privatisation will enable the private sector to invest in the network and respond to passengers' needs, unconstrained by the restrictions of public expenditure controls, and will create the stable financial environment which is simply not achievable in the public sector, with all the other competing demands on taxpayers' money. We want to privatise London Underground as soon as possible so that passengers can start enjoying these benefits without delay.

In deciding on the detailed structure for the privatised underground, we shall need to take account of the network's unique nature and operating characteristics, and to obtain further technical and financial advice. Specifically, detailed work will now begin on three possible models: the sale of London Underground as a single business; the sale or franchising of vertically integrated lines or groups of lines, under which a single operator would be responsible for the stations, track and trains on each line or group of lines; or a structure like the national railways model, with a track authority owning the network and franchisees running trains on individual lines or groups of lines.

We are already consulting London Transport and the railway inspectorate, and we shall now widen our discussions to involve the other key players in the railway industry, and those with an interest in London's transport system, such as the London Pride Partnership and the London Regional Passengers Committee. We also intend to start the process of appointing advisers. Our aim is to publish in the summer a White Paper with our detailed proposals for the best structural option for the future of the underground.

As with previous privatisations, there have been a number of scare stories in the media in recent weeks. I want to set the record straight by giving 10 commitments to passengers and employees. First, safety must always be a top priority. I shall be consulting the Health and Safety Commission in order to ensure that, whichever structural option we adopt, the very high safety standards of the network are maintained.

Secondly, we are committed to a fully integrated network for passengers, including through-ticketing and freedom of interchange between lines. There is no question of breaking up the network. Passengers will be able to use different lines for a journey and to choose the most suitable route, using one ticket in exactly the way that they do now.

Thirdly, the London travelcard will be retained. Regular tube users attach great value to the travelcard, which allows people to use the same ticket to travel by underground, rail or bus, without any restriction on the number of journeys they make. It is used by around a million people a day and accounts for more than two thirds of underground journeys. Our proposals will explicitly safeguard its future.

Fourthly, the existing Londonwide concessionary fares arrangements, which are of critical importance to many elderly and disabled people who rely on public transport, will not be affected by our proposals. Fifthly, on wider share ownership, we shall seek ways of encouraging employees and passengers to acquire a real stake in the privatised underground.

Sixthly, for underground employees, pensions and travel concessions at the time of privatisation will be safeguarded. Again, depending on the option we choose, we will be seeking to encourage employees to participate in management or employee buy-outs.

Seventhly, we shall ensure that the private sector will be required to provide a guaranteed level of service broadly safeguarding the existing level of provision. The regulatory authority supervising the privatised underground, which will be independent of the train operators, will agree to changes in service levels only after carefully considering the benefits to passengers. Again, that is a wholly new safeguard.

The eighth commitment concerns station safeguards. We shall retain strong and effective statutory procedures to deal with any proposals to close stations. The safeguards will be just as rigorous as those that already apply to London Underground and to the national rail network.

The ninth commitment is that we shall introduce controls on fares. The guiding principle will be that, for at least the first four years after privatisation, average fare rises will be no more than inflation. That is a new safeguard; underground fares have not previously been capped.

We also intend to restrain fares in the run-up to privatisation, by capping average fare increases at inflation plus 1 per cent. a year. Again, there has been no such explicit protection in the past, and in practice fares have tended to rise faster than that. The House will recall, for example, that between 1974 and 1979 fares increased by 45 per cent. in real terms.

That brings me to the 10th commitment, on investment. In the recent debate about the future of London Underground, a consensus emerged on two key principles with which I believe that the whole House can agree.

First, it must be a top priority to accelerate investment in London Underground so as to bring the network up to the standards that passengers can reasonably expect for the 21st century. Secondly, that goal can be achieved only if we create a stable funding regime that will enable investment to be planned ahead with confidence.

We are therefore developing a special funding regime for recycling privatisation proceeds into investment, which recognises the unique situation and needs of the underground. Receipts from privatisation will be recycled to ensure that the modernisation of the underground's infrastructure is completed as quickly as possible, building on the work that London Underground is already doing.

Our aim is to achieve that end within five years of privatisation, with the private sector operator committing himself to modernising the assets for which he is responsible, in return for a guaranteed level of Government support to supplement the investment funds that he himself will raise.

After privatisation proceeds hav e been recycled to complete the modernisation of the tube network, most of any remaining surplus will be channelled into additional support for London Underground, or for transport investment elsewhere in London or in other parts of the country.

As for modernising the underground's basic infrastructure, the House will appreciate that there is a maximum level of annual investment beyond which it is not practicable to go. At a certain point, for example, disruptions to services from renewal works across the network would become too great, or the programme would be beyond the capacity of the supply industry. Subject to those practical constraints, we aim to privatise the underground in such a way that the network is modernised as soon as possible.

London Underground estimates that the upper limit for sensible investment in the core underground each year is about £750 million. Of course, passengers are interested in the results of investment—punctual and reliable services—not in the sums spent. I believe that the private sector will be able to deliver the results that passengers want, more efficiently.

Privatisation and the new regulatory regime will focus on the results of investment. But assuming that annual investment would be about £750 million, about £350 million a year would be needed to maintain the network and to renew assets as they became too old. The remaining investment would be aimed at eliminating the results of the under-investment in the underground in the 1960s and 1970s.

Sustained annual investment of about £750 million in the core underground would be significantly above what has been managed before. In real terms, that is more than four times what was achieved in the 1970s, three times the investment made in the 1980s, and 50 per cent. more than the investment made so far in the 1990s. I do not believe that that rate of progress would be possible if London Underground were to remain in the public sector.

The 10 commitments that I have given today show our determination to protect and enhance the aspects of the underground that are valued by tube users and by Londoners generally. At the same time, privatisation will introduce private sector capital, ideas and energy to increase investment and to raise standards.

That is an outstanding package for tube users and for Londoners. I do not believe that anything as attractive would be possible under continued public ownership, and I commend to the House the principle of privatising London Underground.