[Relevant document: The Second Report from the Transport Committee, Session 2007-08, HC 45, on the London Underground and the public-private partnership agreements.]

Motion made, and Question proposed,

That, for the year ending with 31st March 2008, for expenditure by the Department for Transport—

(1) further resources, not exceeding £2,059,473,000, be authorised for use as set out in HC 273,

(2) a further sum, not exceeding £1,859,129,000, be granted to Her Majesty out of the Consolidated Fund to meet the costs as so set out, and

(3) limits as so set out be set on appropriations in aid.— [Liz Blackman.]

I wish to record the apologies of my hon. Friend Mrs. Dunwoody, the Chairman of the Transport Committee, who is recovering from illness.

I am very pleased, Mr. Deputy Speaker, that the House has the opportunity to consider the Transport Committee's report on London Underground and the public-private sector partnership agreements. The PPPs on London Underground are the Government's creation and have always been extremely controversial. This short inquiry centred, however, on the spectacular collapse of Metronet, one of two private sector consortiums that had signed 30-year PPP contracts to renovate and modernise specific parts of the London Underground. The two Metronet infracos went into administration on 18 July 2007 following the failure of an appeal to the PPP arbiter for additional funding through an increase in the infrastructure service charge.

As the Select Committee's report clearly documents, that was a double failure: it was a failure to deliver public services and it was a catastrophic financial failure. Contracts that were supposed to deliver 35 station upgrades over the first three years in fact delivered 14—a 40 per cent. delivery of the requirements. Stations that were supposed to cost Metronet-SSL £2 million in fact cost £7.5 million—375 per cent. over the anticipated cost. By November 2006, only 65 per cent. of scheduled track renewal had been achieved.

If that were not enough, the service delivery failure has come with a £2 billion financial tag—a tag reported tonight in the estimates' request for additional funding—which takes three forms. First, there is a £1.7 billion grant to Transport for London to cover Metronet's debts; and, secondly, a £158 million grant for Transport for London, which is understood to be the first instalment of the costs caused by Metronet's going into administration—and it is believed that the total cost of that is about £630 million. The third part is £150 million of further grant to Transport for London in recognition of the increased costs. I hope that the Minister will inform the House whether that is, indeed, the full bill and what the impact of approving that additional funding will be on other transport projects.

The Committee took evidence from the PPP's arbiter, Unite, the Transport Salaried Staffs Association, Tube Lines, the chairman of the Greater London assembly's transport committee, the former chairman of Metronet, the PPP administrator at Transport for London and the Secretary of State. The report reveals shocking deficiencies in the construction and operation of the failed PPP contracts. Those include a tied supply chain, with most of the capital expenditure contracts awarded to Metronet's parent companies—WS Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water. Risk transfer was minimised with 95 per cent. of lenders' debt guaranteed by London Underground. In short, as the report concluded,

"the Metronet contract did nothing more than secure loans, 95 per cent. of which were in any case underwritten by the public purse, at an inflated cost—the worst of both possible worlds. As with the shareholders, what minimal risk was borne by Metronet's lenders was disproportionately well rewarded, at the expense of the tax and fare payer."

A reading of the Committee's report indicates that what has happened is nothing short of a national scandal.

The report identifies the failings of the PPP in both concept and practice, and makes recommendations for the future, suggesting that the PPP itself might be a flawed model, but indicating the importance of transparency and accountability to ensure efficiency and value for money in future, through a public or private sector vehicle. Following the collapse of Metronet, Transport for London was the only applicant to take over its work. In October last year, a memorandum of understanding was signed between the Department for Transport and Transport for London.

Important questions arise from the report and subsequent events, which I hope the Minister will be able to answer. How will the delay in Metronet coming out of administration affect what is to happen next, and how will it affect costs? It was anticipated that Metronet would come out of administration by 18 January. That has not happened. If finance for the future cannot be secured at reasonable terms, without guaranteeing the vast majority of the debt in the public sector, will loans direct to the Government be considered? Do the Government agree with the Committee's findings that there should be no further PPPs without a comprehensive assessment of genuine risk transfer? It is vital that the Government remember the catastrophic collapse of Metronet when its parent companies next bid for publicly funded work. That is extremely important, as is the future of the repairs and upgrades on the London underground.

The Government entered into the PPP, with great controversy, because of their concern about some inefficiencies in the public sector. However, it is important that they remember that when private companies fail to deliver on large public projects, those private companies can walk away and the taxpayer picks up the pieces. That is, indeed, what is happening with Metronet.

In the light of the powerful analysis in the report, which I warmly welcome having been a long-term and trenchant critic of PPP and its cousin, the private finance initiative, does my hon. Friend feel that there is a serious risk that, at some time in the short to medium term, Tube Lines will go the same way as Metronet? Does she agree that the way of avoiding the catastrophic costs and impact on the public is to take Tube Lines back in-house as soon as possible so that its shareholders cannot meander quietly into the darkness of a tunnel to pocket their profits while we taxpayers have to underwrite their incompetence and veracity?

I share my hon. Friend's concerns. The Committee's recommends constant monitoring and that the requirement for annual reviews be followed to ensure public value for the money spent.

As a representative of the area served by Tube Lines, I am surprised to hear the views expressed by my hon. Friend David Taylor and, indeed, by my hon. Friend Mrs. Ellman, implying an absolute parallel between Tube Lines and Metronet. There is not. Our experience of Tube Lines' management of the Jubilee line has generally been very satisfactory. It has increased capacity and improved efficiency and performed good station updates, whereas the procurement of the Jubilee line under the traditional arrangements produced a serious cost overspend of about £1.5 billion and a much delayed introduction. I hope that my hon. Friend the Member for Liverpool, Riverside will give a more reasoned appraisal of the respective performances of the different PPP contractors, bearing in mind that although Metronet failed, it is not a basis for criticising the performance of Tube Lines.

I can assure my right hon. Friend that the Committee's evidence did not indicate a parallel between Metronet and Tube Lines. However, it would be prudent to take the lessons of what happened with Metronet's failure to ensure that it is not repeated.

As my right hon. Friends the Secretary of State and the Minister look ahead at what should happen now in order to take over from where Metronet failed, I hope that the Minister will give an assurance that the lessons of Metronet's failure have been learned, and that she will ensure that the public benefit from much-needed improvement on the underground and that they get value for money from the investment that goes into much-needed public services.

May I say how collectively sorry we are that Mrs. Dunwoody is not with us? I very much hope that Mrs. Ellman will pass on my good wishes and doubtless those of colleagues on both sides of the House.

There is no doubt that this PPP has been a catastrophic and expensive failure, as the hon. Lady indicated; it has also been an avoidable one. There is no doubt that some of the measures put in place to set up the PPP were flawed from the beginning, and I shall come back to some of them. The consequences are the one or two lines in the enormous tome produced by the Treasury that sets out the billions of pounds of taxpayers' money that has been necessary to deal with the problem that was unnecessarily created. The Secretary of State herself called the measure "a terrible failure" when she gave evidence to the Committee, and the hon. Member for Liverpool, Riverside rightly referred to the failure to deliver stations and track maintenance and to get anywhere near meeting any of the targets that were set for Metronet.

It is worth going back to 1998, when the PPP was rushed through. Hon. Members may recall that at the time there was considerable uncertainty about whether the PPP was the correct course of action to follow. The Mayor, whatever else his faults, was clear that it was not the appropriate measure. He called the PPP "inherently unworkable". He even took High Court action—unsuccessfully—to stop it, whereas the Chancellor at the time, now Prime Minister, talked about the PPP in glowing terms, saying that it would remove the need for public subsidy entirely, which reminded me of the suggestion that nuclear power might be too cheap to meter. Perhaps we should mind the yawning gap between the Government's policy platform and the drain down which public finances roll.

This is the second debate today indicating a failure of the Treasury to get a hold on important financial matters. We had a debate on Northern Rock and now this debate on Metronet. Metronet has plenty of faults, but I want to come on to the Government, because they cannot escape the blame for the situation.

The Government have even managed to alienate some of their supporters who were in favour of PPP or PFI schemes. Jeremy Warner, the respected economic journalist, wrote in The Independent that the justifications for the PPP that needed to be met

"seem to have been largely trashed by the experience of Metronet".

One of them was that

"the private sector is likely to invest the money more efficiently than the state and so achieve a cheaper end result."

It is difficult to see how that has applied in the case of Metronet. Jeremy Warner also spoke of the PPP's sharing the risk of a cost overrun, which is difficult to justify in this case, given that London Underground has been landed with 95 per cent. of the debt.

The Liberal Democrats do not take the dogmatic view that PPP is always the right solution or always the wrong solution. I disagree with the Committee's absolute hostility to it, although I would add that the Government's trust and confidence in it has not been borne out by reality. As late as 18 July last year, the Prime Minister was still saying—in response to a question from my hon. Friend Dr. Cable—

"If Metronet pulls out, another company will be found to take its place".—[ Hansard, 18 July 2007; Vol. 463, c. 276.]

That was clearly the Government's preferred model at that stage, but of course it has not been possible to implement it.

The hon. Gentleman was being uncharacteristically inaccurate and unfair to the Committee when he said that it was totally hostile to PPP. We examined what happened, and it is a sad story, but if the hon. Gentleman reads paragraph 21 of the conclusion he will find that the Committee believed that Metronet's failure should be thought about and understood before a PPP is considered again. I would describe that as a very balanced look at what was going on, not as total hostility.

I agree that that paragraph is balanced, but I would suggest that any reading of the report—and I have spent most of today reading it—leads to only one conclusion, which is that there is hostility to the concept of the PPP throughout. Paragraph 96 states:

"The circumstances of Metronet's end have shown that the private sector will never wittingly expose itself to substantial risk without ensuring that it is proportionately, if not generously rewarded. It is ultimately the taxpayer who pays the price."

I am not suggesting that the Committee was wrong to examine some of those matters. Clearly there has been a significant failure that needs to be addressed, and there are lessons to be learned. One of those lessons is that the private sector will naturally seek to minimise risk and to maximise profit. Of course it will: that is what it is there for. But it is the job of Government to ensure that the rules are set down—the tracks are laid out, if you like—in such a way as to prevent the incurring of disbenefit by the taxpayer, which in this instance the Government have failed to do. That does not mean that they will not be able to do it in future with some other PPP arrangements, but the fact remains that they spectacularly failed to do it on this occasion.

The Government's failure to sell Metronet to the private sector following the collapse means that the costs of operating in administration, and the costs of the overspend, will be picked up by the public purse. It is not clear to me, although it may be to others, to what extent that will be a matter for the Treasury and to what extent it will be a matter for Transport for London. It would be helpful to hear from the Minister exactly where the arrangements lie. Pursuant to that question, we also need to know whether Metronet's spectacular failure will lead to a scaling down or a lengthening of the process by which the improvements to London Underground were planned. Will work that was to be undertaken in, say, 2012 be delayed until 2016 or 2017? What are the consequences of the failure for the planned works? I think that people in London would like to know the answer to that question.

I can certainly tell the hon. Gentleman what is happening at East Putney station. From what I can make out, the modernisation is being put on hold, and at the very least is being delayed.

I fear the worst when I hear the evidence from East Putney. I hope the Minister will tell us that that is not the case.

Does the hon. Gentleman agree with my right hon. Friend Mr. Raynsford that no lessons need to be learned about the supervision of the Tube Lines contract from this spectacular collapse, although the company's only exposure is the £180 million of equity it has invested in the project and although, four years into a 30-year project, it has already made a "profit" of nearly £160 million? That is not much of an exposure to risk, is it?

The original PPP contract with Metronet was clearly very flawed, and the contract with Tube Lines cannot be perfect either. It should be said, however, that far fewer complaints and concerns have been raised about Tube Lines. It is important to look at each company on the basis of its delivery, and Tube Lines appears to be in a rather better state than Metronet ever was.

I apologise for having to intervene in the hon. Gentleman's speech, but I think I should put the record straight, because the interpretation placed on my remarks by my hon. Friend David Taylor simply is not correct. I merely observed that it was wrong to draw general conclusions about the PPP on the basis of the specific failure of Metronet. My own experience, like that of a number of others, is that the performance of Tube Lines in terms of efficient management and improvement of its service is generally satisfactory, and I think that that too should be taken into account in any balanced and non-dogmatic appraisal of the PPP.

I will not try to referee the contest on the Labour Benches. I agree that it is not necessarily possible to draw general conclusions from this or that PPP, although it might be possible to draw conclusions about the Treasury.

What kind of PPP was this? We have heard about the tied supply chain. It is a disgrace that Metronet should give business to its parent companies without any defence, ensuring neither value for money nor the exposure of those companies in the event of a problem. How could that have got past the Government when the project was set up?

On 17 October, Chris Bolt, the rail regulator but also the arbitrator in this case, told the Committee that Metronet saw this as "a cost-plus contract". That was his assessment: Metronet was there to bump up the price. It wanted to add bits and pieces, and to charge London Underground for the privilege of doing so. We learn that Metronet had equity of only £350 million, which was completely inadequate in relation to the cost of the scheme. The main question to be asked is why on earth it was allowed to get away with the tied supply chain, the cost-plus outlook and the inadequate equity. How can the PPP have been set up on that basis? I remind the House that the Government spent £500 million on legal assistance and consultancy fees. I do not know what advice was being given, but it seems to me that the Treasury might have recouped at least some money for the taxpayer by asking for a refund, because it was obviously singularly badly advised.

Might not the Treasury have been trying to find a way of imposing the scheme and the legal advice enabled it to do so? Could it have been that way around?

That might well be so. It is difficult to interpret the position differently. But if that was the way in which public money was being spent, it suggests an improper use of public money—and certainly an unwise and ineffectual one, given how matters turned out. A contract that was designed to last for 30 years lasted only four years before collapsing. That is a terrible racket.

When the Secretary of State gave evidence to the Committee on 7 November, she said:

"There are always going to be costs in trying to get best value for money for the taxpayer."

That is a curious statement. It suggests that getting best value for money for the taxpayer means spending lots of other money. It is a strange way of justifying what was a financial disaster for the Government, for the taxpayer and, I am afraid, for the people of London.

I hope that the Government will learn lessons from this. There are lessons about the micro-management of train matters that they need to take on board. According to an article by Christian Wolmar, Ministers are about to make the same mistake with replacements for high-speed trains on the national rail network. He wrote:

"Instead of a simple purchasing exercise, the Department for Transport is trying to be very clever and wants bids from consortiums involving train manufacturers and finance houses in a 30-year PPP scheme."

Have we heard that before somewhere? According to those in the rail industry to whom I have spoken, the cost of the new high-speed trains on the east coast line will be well above what it should be as a consequence of the process in which the Department for Transport is involved. So look out, perhaps, for excessively priced trains on the high-speed east coast line come 2012-13.

This PPP contract is difficult to defend in any way. It did reward contractors for moving toilets nearer to the drivers' cabs at the end of the line so that they took less time going to the loo. That is, perhaps, one positive aspect that I have managed to find from reading through the PPP contract. It might have saved a couple of quid here and there by that move—or perhaps not when the cost of moving the loos is taken into account. The micro-management in the contract is such that it specifies such matters, yet it is unable to deal at all with the big questions about who Metronet gets its business from, why there were cost-plus contracts, and what would happen if it went into liquidation, which then occurred. No thought was given to that prospect by those who ratcheted up £500 million in bills for the taxpayer in order to give advice—but we did have advice about how near drivers' cabs should be to toilets at the end of platforms.

The Government need to learn many lessons from this, such as how to run their railway policy, not to micro-manage, and not to look at PPP through rose-tinted spectacles and to understand that it might have a role to play but it will not necessarily be the best option for the taxpayer. They also need to be more open about their own mistakes in 1998 and beyond.

I congratulate the Transport Committee on its important report and my hon. Friend Mrs. Ellman on introducing it so effectively, and I also add my best wishes to my hon. Friend Mrs. Dunwoody.

I welcome the debate on London Underground's public-private partnership arrangements, as they are in a bad way. That is in fact an understatement following Metronet going into administration last July. Let us not forget that Metronet had responsibility for two thirds—it was probably more than that in reality—of the maintenance of the London underground network. Despite having money flooding in from the Government, the private consortiums have not given value for money overall, and we now have this debacle.

I was recently travelling in on a District line tube train in the vicinity of Tower Hill station. I advise the Minister to travel in on that line; actually, I do not advise her to do so, as there is a piercing screeching sound for a long way along the route. That was meant to be the responsibility of Metronet, and I suspect that such screeching sounds will affect commuters a lot more now, and give them an unpleasant journey into work and back home.

I thought it was only me on that tube train that day nearly having my eardrums perforated, but the hon. Gentleman was obviously on the same train.

That is proof of what I say. I feel sorry for the London commuters who have to put up with that experience almost daily, and other passengers.

The private consortiums have done the soft work—the relatively easy work—but even much of that has barely been done. A lot of the major work, however, such as new trains and major station rebuilds, has not been done. I suspect that much of the difficult and expensive signalling and the track work is also still outstanding. We should be given some detail on what still needs to be done, and how much of the important signalling and track work that was thought necessary has not been done. That is despite £1 billion of funding per annum from the Government. Metronet was grossly inefficient, and it was brought down by the cost overruns. The independent PPP arbiter deemed that they were Metronet's responsibility, and Metronet's response was to walk away, leaving a bill for the taxpayer.

Norman Baker made a point on consultants, which I wish to repeat. The Government paid them £500 million for this contract, and it resulted in this situation just four years later. Their role has been a rip-off of the taxpayer.

I wonder, therefore, whom the hon. Gentleman blames for the writing of that contract. In his view, there has been a rip-off in respect of the contract. Someone wrote that contract and presumably someone should have been looking out for the public interest. Is it not true that the Department for Transport and the Treasury must therefore be culpable?

They are certainly culpable in a number of respects, and they sign off the contract at the end of the day, but they went to the consultants, who charged them a hefty fee. I remember, by the way, that whenever different expert witnesses gave evidence on other topics, such as the safety aspects of splitting up the maintenance from the operation, all of a sudden more consultants who had been paid by Government came along to put a case in favour. This was clearly a waste of money, and the taxpayer was ripped off.

There is now a colossal waste of money associated with Metronet's administration. I believe the taxpayer is currently paying £14 million a week through Transport for London. If that goes on until 1 April, the total will reach £0.5 billion. In addition, there is the put option guarantee: the Government guaranteed 95 per cent. of Metronet's borrowings from the banks, and the banks have now enforced that, as they had a right to do after six months. That will cost the taxpayer a whopping £1.7 billion. In this context, the repeated position of Treasury and Transport Ministers at the time that those private companies were taking a risk is truly a hollow proposition.

My hon. Friend and I are two of the few public sector accountants in this House. Does he agree that when PPP is at last laid in an unmarked grave somewhere in the City of London, its pallbearers will include Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water, whose avarice and arrogance have broken all previous financial records?

I do agree with that, but there is another point. I have given many speeches on PPP in this Chamber and Westminster Hall, and I am not opposed to a public-private approach provided that the public have control of the situation. That certainly did not happen here. This model was a catastrophe.

Metronet shareholders' risk is far less than that of the taxpayers; it is limited to £70 million for each of its five corporate shareholders. It has in any case already made £130 million over its four years in pre-tax profits. The individual corporations get away virtually scot-free, because they are still able to secure, and make profits from, all sorts of other Government contracts. The failure is not held against them in any way.

My hon. Friend the Member for Liverpool, Riverside said that the tube upgrades are already well behind what was promised, but my concern is that they will be delayed a lot further. The briefing from the National Union of Rail, Maritime and Transport Workers said that the upgrades will be delayed by at least two years. I suspect that the delay will be much longer as the bills bite and the Government look for ways for them to be paid.

I spoke against the PPP model when it was going through this House. I asked countless oral and written questions, and I sponsored and led three specific Westminster Hall debates. I pointed out that PPP was not value for money, that it was risky in cost terms and in dividing maintenance and infrastructure from the operation of the rail network, and that it was front-loaded—a point that still applies in relation to Tube Lines. The contracts are front-loaded, so there is less risk at the beginning; the companies do the less risky work from which they can obtain the profit at the beginning and leave the complex, high-risk work undone. That remains a problem.

I come to the PPP auction. London Underground made 15 proposals, listing them in order according to which it thought could work. It put the one plucked by the Government 14th out of 15. It has not been applied to any other metro system in the world. The choice was foolhardy and we are paying the price for it by not getting the value for money that the Government said we would get.

The assumption that accompanied the PPP model was that the private sector would automatically be better than the public sector. It was an ideological obsession. When the Industrial Society, an independent body headed by Will Hutton, examined the matter, it found that the supposedly more efficient private sector was given performance targets that were 5 per cent. lower than what London Underground was delivering. That is how much confidence the Government had in the private sector's ability to do better. That is the flaw in the ideological obsession with the private sector's ability to run things better than the public sector.

The public sector had run the system for many years with a shortage of money, yet it was still doing a relatively good job in the circumstances. What could it have done with the sort of money available to these private companies? The Transport Committee found that a more than 20-fold increase had taken place in respect of the funding available to the consortiums—we are talking about £44.1 million in 1997-98 as opposed to £1.048 billion in 2004-05. As I said, that was set against a performance benchmark that was 5 per cent. below London Underground's standard. A 2005 Transport for London report stated:

"In short, performance is not good enough and is less than what was promised."

I fear that the taxpayer, the council tax payer and the fare payer will pay for this debacle in years to come. The commuter will suffer as maintenance performance declines and work is left undone. That is extremely serious in my part of the world—east London. It will hold the Olympics, and the Government must get a grip on the situation or there will be a transport safety problem in the build-up to the games. That cannot be allowed to happen.

The Treasury is still exposed to further financial risk from the Tube Lines contract. If Tube Lines is so good, why cannot the guarantee in respect of 95 per cent. of the bank debt be taken away? Why has the taxpayer still got to guarantee 95 per cent. of that debt? Tube Lines deals with Jubilee line maintenance, but that is a new line and loads of money was put into building it, so the job is easy relatively. A lot of investment was also put into the Northern line before it was taken over by Tube Lines. I forecast that the front-loading will mean that when the difficult and expensive work comes up in later years of the 30-year contract, Tube Lines will walk away. The work should be taken fully back in-house. That division between the maintenance and infrastructure, and the operation of the London Underground did not make any sense at the time and certainly makes no sense now. We cannot give any more blank cheques to private consortiums.

Despite that, a briefing issued today by London First, the business community organisation in London, states:

"The modernisation programme is likely to cost more than the funds available—in this situation, the programme will have to be scaled back".

I suspect that that is true, but there is no apology for the failure of the private sector and business, despite a great deal of money having gone in. It also states:

"A private sector client—like Tube Lines or London and Continental Railways—is more likely to bring commercial discipline and accountability, fresh thinking and contract management than a public sector one".

That is almost laughable in the context of the Metronet failure. It is almost as though that never happened. London First's position is unbelievable, and it is peddling the same failed ideology. I repeat that the division of responsibilities is awful, inefficient and potentially dangerous.

The situation is not Mayor Ken's fault. He warned against it and is making the best of a bad job. It is a private sector failure and it was the Government's mistake in choosing the system. Mayor Ken is the best hope of putting it right. The Government should not be seduced a second time by the nonsense of putting the contract out to the private sector. That will not do. They should take the whole lot back in-house and put it under the control of the Mayor and Transport for London.

I agree with my hon. Friend the Member for Liverpool, Riverside that there must be full transparency and accountability. Serious costs have flowed from the Metronet failure, and the matter must be out in the open. The Government must not compound the problem by covering things up and continuing with the failed system of putting unwarranted faith in the private sector.

I have just taken part in the Northern Rock debate, and there seems to be something of a theme today: disasters made in Downing street, shocking mismanagement of public funds and cavalier abandon on the part of the Prime Minister. In the case of Northern Rock, the Prime Minister was very much in the background of the fiasco, which involved the credit boom, poor banking oversight, low savings rates and so on. In the case of PPP, he is right at the heart of the matter. Of course, there is another individual involved. Harry Cohen and I will disagree about the role of the current Mayor, Ken Livingstone, but he is certainly part of the story.

Before examining what has happened with PPP in the past eight or nine years, I shall share with the House some of the experiences that my constituents face daily on the tube. According to the 2001 census, the borough of Hammersmith and Fulham has the highest percentage of tube users of any local authority area in the whole of Britain, but we suffer from some of the worst lines. My hon. Friends the Members for Wimbledon (Stephen Hammond) and for Putney (Justine Greening) are in their places: we share the Wimbledon branch of the District line, which goes from Earl's Court to Wimbledon, and doubtless both of them will say something about it later.

A couple of years ago, the Wimbledon branch of the District line was at 92 per cent. of capacity, which was significantly higher than the District line branches to Richmond and Ealing, which are overcrowded themselves. My constituents generally wait between the hours of 7.30 am and 8.30 am on Monday to Friday at such stations as Parsons Green and Fulham Broadway. By the time the train reaches those stations from Wimbledon and Putney, it is already incredibly, inhumanly full. People often have to wait for the third train—

It is even worse than that. As my hon. Friend knows, by the time the train reaches Wimbledon Park, which is where I get on, the shorter rolling stock is full.

My hon. Friend is absolutely right. I was going to talk about some of the shorter trains on that line in due course. It is already very difficult to get on at the second or third station, let alone the seventh or eighth station on the line.

After lobbying by the three of us in June 2006, Transport for London agreed to put on one additional peak hour train a day. It was taken from the Olympia line, which upset some of my other constituents. Nevertheless, it was not particularly effective in doing something about the inhuman conditions that prevail on the Wimbledon branch of the District line.

My hon. Friend might be interested to hear the statistics that I have pulled off London Underground's website, which show that our stretch of the Wimbledon branch has had the footfall equivalent of three trains-worth of extra passengers joining it in the morning rush hour every single day for the past three years.

I thank my hon. Friend for that intervention. I am sure that her figures are absolutely right. I was going to talk about the overall passenger numbers on the tube and how they have developed in the past couple of years.

Let us consider the population in our part of west London. Just last year, my local borough, Hammersmith and Fulham, had 7,300 foreign national applications for national insurance numbers. That is a huge number of people among an adult population of 120,000. My parliamentary constituency has the second largest population of any in Britain after the Isle of Wight. Most of those people are in employment and a lot of them go by tube, as my reference to the 2001 census showed. There is an enormous crush to get on that branch of the District line.

The story is not necessarily much better for the Piccadilly line. In January, I met Piccadilly line managers, who had some very interesting things to say. I met them in the course of a campaign that we have been running to get the Piccadilly line to stop at Stamford Brook and/or Ravenscourt Park stations in my constituency. The District line stops there, but the Piccadilly line sails through. There seems to be no obvious reason why the Piccadilly line should not stop there and it has done so at various times, on a fairly impromptu basis. That is what the campaign is all about.

The Piccadilly line managers made a strong case against the idea. They said that the sheer number of passengers on the line meant that adding one or two stops would simply compound the overcrowding—the journey would be lengthened by two or three minutes and therefore the number of trains would be reduced. The managers told me that passenger numbers on the whole tube network have risen by 15 per cent. in the past two years. Numbers on the whole network are up by 7 per cent. year on year.

The numbers on the Piccadilly line have increased the most in that time. In the past 18 months, the number of daily journeys on that line has gone up from 540,000 to 680,000. That is a 24 per cent. increase. Each Piccadilly line train, I was told, is running on average seven minutes late.

Let me return to PPP. The amazing thing is that the upgrade of the Piccadilly line is not due to happen until 2014. The District line will be upgraded sometime after 2012, despite being a major route to the Olympic site. Those are some of the problems faced by my constituents.

I shall talk briefly about some of the origins of the situation. We have already heard how PPP was set up. I did some research through some old press cuttings and found the most extraordinary row, which went on between 1991 and 2001 in particular but is still going on to this day, between the current Prime Minister and the Mayor of London over PPP. An article in The Independent, published on 7 June 1999, was entitled "If your train is late, you should blame Gordon Brown". It is an interesting article, especially when we see that it was written by Ken Livingstone. He went on to say:

"We all know that when John"—

Mr. Prescott—

"settled on 'Public Private Partnership'...as the means to raise the resources, it was because it was the only option the Treasury would sanction."

Does the hon. Gentleman recall that at the time, his party time was in favour of a wholesale, unbridled privatisation of London Underground, similar to the privatisation of the railways? Does he still advocate that?

I am glad that the hon. Gentleman mentioned that, because I checked what our party's position was at the time. Archie Norman, then Conservative spokesman on the issue, said:

"Only...Gordon Brown believes that proceeding with PPP would be in the best interests of Londoners."

As I recall, the only mayoral candidate in favour of PPP in 2000 was Frank Dobson, who ironically made a speech earlier today attacking the capitalist nature of the Northern Rock takeover; it was a classic old Labour, socialistic speech.

On 19 January 2000, in response to Ken Livingstone's article in The Independent , the then Chancellor, now the Prime Minister, riposted in the Evening Standard:

"Livingstone must not be London Mayor."

The article said:

"Chancellor of the Exchequer Gordon Brown takes the offensive to argue why 'Red Ken' must not get the job."

In the article, the then Chancellor focused heavily on PPP and attacked Livingstone's opposition to it. He referred to Livingstone's dogma on how to finance the tube, which I find rather ironic, and said that Livingstone was threatening London with the loss of key investment.

My point is that the row has been going on for nine years, while my constituents and many other Londoners have been suffering. They are victims of a row at the highest level between the Prime Minister and Mayor of London, and the row is still going on today. The Prime Minister refuses to back, or even name, Ken Livingstone in any debate in this House, or any press article. He may refer to the Labour administration at City hall, or say that London needs a Labour Mayor—

rose—

rose—

I will not take any more interventions because time is short. In 19 years-worth of Hansard, the Prime Minister has never mentioned Ken Livingstone, either by name or by constituency. The heart of the matter is the row between the Prime Minister and Mayor of London, which has been going on for so long. Unfortunately, it is my constituents who are suffering.

Several hon. Members:

rose —

Order. There is limited time left in this debate before the Front Benchers make their contributions. I hope that hon. Members will reduce their contributions, so that more of them can catch my eye. I call Mr. Graham Stringer.

Thank you, Madam Deputy Speaker. I will try to limit my remarks, although one could easily take the rest of the time available to go through the issues. A number of hon. Members have said that there are lessons to be learned from the financial fiasco. The real tragedy is that the lessons were known and talked about right at the beginning, when PPP was first considered. Before I come on to those lessons, let me say that my position is that if capital is scarce, and if one can transfer risk, fine: introduce PPP, but make it transparent, know what is going on, and make sure that it is the vehicle that works best. The same goes for the public sector: when it is used, one should make sure that it is the best vehicle for the occasion.

On 15 July 1998 and 12 July 2000—right at the start of the process, when PPP was being considered—the Select Committee on the Environment, Transport and the Regions asked all the questions that appear in the recommendations in the Transport Committee's January report. We said that risk must be transferred, that there must be a process for resolving disputes, that the amount spent on consultants must be limited, that there must be an arbiter who can take action, and that the infrastructure companies should not be able to renegotiate their contracts. Those are all issues that came up when we discovered that the process had been a disaster.

What was the Treasury's response? Ministers refused to come before the Select Committee to discuss the issue and refused to release the PricewaterhouseCoopers report on what went on so that it could be properly assessed. If the Treasury had listened to the recommendations, a better method of financing the much needed improvements to the tube may well have been used.

I agree with everything that my hon. Friend is saying, but does he accept that when it comes to vital national institutions such as our railway system and the transport system for our capital, risk is never transferred? It is always ultimately with the Government.

Experience shows that my hon. Friend is right. That was the experience of Railtrack and of Metronet. I am a broad-minded person and I think all issues and processes should be looked at, but it would be surprising to find a vehicle with a major national asset where the risk could be transferred.

I attend many Select Committees and have been doing so for a long time. Sometimes they can be tedious, but the hearings that we had in the Transport Committee on 17 October and 9 November were shocking, startling and in some ways exciting. It was like listening to a case involving embezzlers and fraudsters being described and knowing that they had got away with it. It was an extraordinary process. If Tony Soprano or his ilk in New Jersey knew what was going on with Metronet, they would have left New Jersey and come over to London, where they could have given advice and got hundreds of millions of pounds, risk free. It is an amazing story.

Tube Lines has been mentioned as being better than Metronet. It is undoubtedly better than Metronet, but it is far from perfect. There were problems with the improvements on the Northern Line. There is good management there, but when we look at the basic assessment of the financing, even of Tube Lines, and then look at the public sector comparator and read what the National Audit Office said about public sector comparators, which is the basis that shows that these schemes would be more profitable, we find that the NAO backs away and says, "These comparators are so subject to the assessment of risk that you can't really judge them". That is a way of saying, " There is a fiddle factor in there that we cannot assess, and the experience is that they probably won't save the money that you expect."

With reference to the financing of Tube Lines, where much of the finance was guaranteed because it could not be obtained from the markets, what happened as soon as Tube Lines got the contract? It refinanced on the open market, which was an indication that it could have been financed at a better rate and that what was driving the process, as a number of my hon. Friends said, is ideology. Tube Lines also had a much higher materiality threshold. We heard that no risk was transferred, and that 95 per cent. of the money was secured; not only 95 per cent. but an extra £500 million—I am talking about the consultants—on the cost of borrowing, so there was no risk to the lenders. Those who would normally be expected to exert pressure were exerting no pressure at all.

The results on the ground—my hon. Friend Mrs. Ellman referred to some of these—were that on the Metronet surface lines, 10 out of 18 stations were done. Instead of costing £2 million each, they cost £7.5 million each. On the other Metronet contract, four stations out of 17 were done. Effectively, between two and four stations were paid for and only one was delivered. That is the story that we heard. Although it is difficult to know exactly how much money was overspent, it looks as though it was £1 billion. Nobody can assess it because the funding was available and it is not yet known what the cost was.

As I said, there was no pressure from the bankers because they had the money. Either it was secured or they got extra money for what they were doing. They did not put any extra pressure on. One would normally expect the owners of equity to want to know what was happening with their money, but this is where the real corruption in the Metronet contract comes. The people who were the equity owners and who had £350 million at risk were effectively paying themselves to do the work at those extraordinary prices. It is easy, isn't it? One of the companies—Bombardier, for example—says, "There's my £70 million. I will overprice this contract at twice the rate. I'm already expecting 20 per cent. return on the capital, so I'll get my money back very quickly indeed." When the Secretary of State gave evidence to the Select Committee, I told her that

"real corruption has gone on."

She said:

"I have no evidence to suggest there was corruption."

There is direct evidence of corruption. Those people paid themselves out of public money to do less work than they should have done while taking no risk whatsoever.

The other pressure that normally applies to people who are building things comes from clients, but London Underground was kept out of the matter. Metronet would not tell London Underground what was going on, and the contractors would not tell it what was going on, which was an extraordinary situation. We asked Mr. Pimlott, who was chairman of Metronet for a period, why he did not stop paying the contractors, who were effectively his fellow members on the board, ridiculous sums of money. He said that when he made that suggestion he was threatened with legal action by other members of the board. The story is extraordinary.

If the scheme were publicly funded, there would be direct lines of accountability, and if it were a private sector scheme, the private sector would take the risk and the loss, but we have neither public accountability nor risk. The Mayor is not responsible—he was against the scheme from the beginning. The Government say that they are not responsible in a direct sense, although pressure from the Treasury undoubtedly caused the situation. The companies have walked away with a great deal of money, so they are not responsible. When the Secretary of State was asked what she thought, who was responsible and what should happen, which might have involved an inquiry or someone having to go, she said this about the infracos:

"I do not think that anyone should underestimate the impact on their reputations."

On 6 March, The Guardian stated that Balfour Beatty, which was one of the bad five in this case, had reported a 48 per cent. rise in profits and that it was on the verge of signing a new deal on the underground to carry on doing the work for which it has already ripped off the public sector. If that is not a scandal and corruption, I do not know what is and words have lost their meaning.

What should we do? There should clearly be a public inquiry, because there is no accountability. Who has suffered? We do not know exactly because we do not know the cost. In the end, however, the fare payer will pay and passengers will suffer. For example, Transport for London has indicated that it may not be able to fit cooling systems on the tube. The taxpayer will pay.

Finally—I care about this a lot—when huge expenditure achieves a fraction of what it should produce, it is not only the taxpayer who is affected, because in relative terms there has been a bigger increase in expenditure on transport in the south-east and London than in the regions, so the regions have suffered. The deal has been bad for everybody, and the lessons should have been learned 10 years ago. I hope that we never go into another opaque scheme in which no risk is transferred. The scheme has been bad for the Government's reputation. Ken Livingstone was right and the then Chancellor of the Exchequer was wrong.

At the time of the PPP, I was on the board of Transport for London. I was a virulent opponent of the PPP, which I fought tooth and nail.

I will not repeat the comments that have been made already, but I will try to add to them, because the issue of lessons learned is important. I hope that the Treasury is listening, because it carries a large part of the responsibility for how the negotiations were handled and for the consequences for London's transport system. The whole PPP negotiation was done in a very ideological context. Harry Cohen was right; the Conservatives had taken the position that the PPP did not go far enough—

indicated dissent.

The hon. Lady shakes her head, but I stood on a platform day in, day out with the Conservative mayoral candidate in many venues; I can say that the Conservative party was seeking total privatisation as an answer.

Ken Livingstone had in this House voted twice for the PPP; only later was he converted to the idea that it was a flawed way to manage the future funding and structure of the tube. I am glad that he was converted. In the end, the struggle became one between London and the Treasury, and I was glad to be part of it.

The ideology set a dangerous context. It created an environment in which flawed decision making took place. Ideology overrode common sense and clear, analytical thinking. First, there was no asset register. Teams were trying to negotiate the upgrade of a system when they had no idea of its underlying condition. That automatically meant that there was likely to be a disaster, no matter what the outcome. How does one get value for money in such circumstances?

Then there was the negotiating team. I do not want to point fingers at very fine individuals, but put a fine individual in the wrong place and there is not a successful outcome. All the bidders—not just the successful bidders, Tube Lines and Metronet, but all the original ones—made sure that on their teams were world-class negotiators, whose skill and focus was to negotiate procurement contracts. The team that represented TfL—it was only nominally a TfL team; essentially, it was a Treasury-driven team—was largely made up of and driven by people with good academic and consulting backgrounds. Their skill set was wrong for taking on the kind of hard-nosed challenge involved in bids for which large amounts of money are at stake.

The consultants have been mentioned; the Treasury and the Government will have to think through the selection of consultants far more. The contract depended on successful risk transfer. One cannot discuss such a thing with people from investment banks. Such people know how to do deals; they are not part of organisations that take, carry and hold risk. They therefore do not understand risk transfer, and the same applies to consultants who come out of the various accounting firms. Such people have the wrong skill set—the Government were told that over and again, but never listened.

The hon. Lady is suggesting that the Government had weak negotiators on their side. If they had had tough negotiators, as they should have, would the privateers not have walked away because they would not have been able to make any money and the risk would have transferred to them? Did they stay in only because they knew that they could make cash and eventually walk away?

The structure was fundamentally flawed. If we negotiate with the private sector, we should be aware that it has a duty to its shareholders to get the best from any negotiation. The team that I mentioned was weak not because the individuals were poor but because they did not have the necessary skill set, experience and capability of being a fair challenge. Such negotiations are a gladiatorial contest, and the skill base has to be there.

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I must move on, because others want to speak.

To give a simple example, even the most senior engineers at TfL were consulted only about small aspects of the contracts. The contracts depend totally on engineering requirements—to upgrade track, carry out successful maintenance and rehabilitate stations. The engineers were brought in only on a narrow, need-to-consult basis and that utterly undermined any ability to be effective and powerful in the consultation process. From a very early stage, the negotiation went on to having a single preferred bidder. For a chess player, that would be equivalent to handing over their queen at a very early stage in the game. Once people are dealing with a single preferred bidder, the negotiation goes downhill because there is no ability to have competitive play. That was made clear time and again in the course of this negotiation, and it undermined the ability to move forward.

Underpinning all this was an assumption that one can handle relationships and build long-term dynamic arrangements through contractual and legal documents. The negotiation led to a series of document exchanges, with 135 documents, 2,800 pages, and constant cross-references—completely unworkable on a day-to-day basis. The fundamental philosophy behind these arrangements was that they would be based on legal and contractual relationships. That has proved to be a flawed concept, and that lesson must be learned by Government.

Then came the comparison between the PPP and carrying out the work within the public sector—the so-called public sector comparator. I have no ideological objection to using the private sector, but there must be a level playing field in comparing the work of the private sector and delivery from the public sector. I believe—I am working from memory; perhaps Ministers can remind us—that a cost overrun adjustment of 15 per cent., or perhaps 20 per cent., is automatically added to the costs of any work calculated or estimated in the public sector. In addition, the Treasury went to extraordinary lengths to devise a discount rate to come up with net present values to compare between the two potential providers. The discount rate that was used was 8.25 per cent., or something very close to that, while the cost of borrowing with the Treasury at the time was about 3 or 4 per cent. It was an extraordinary number to use. Nobody who looked at it thought that it was in any way fair or rational but that it was selected, just like the cost overrun number, to bias the solution towards the private sector.

Even that did not get us to a project where one would take the private sector option, so the Treasury came up with one more concept, which was on its website for a while but shortly thereafter abandoned—that of reputational cost, which basically said that if there is major borrowing by a public sector entity, the cost of that somehow reflects the total borrowing capacity of the country as a whole, so there is a pricing impact.

It took all those factors stacked together to come out with a number that suggested that taking the public-private partnership route made more sense in any kind of financial analysis. It was so artificial, and so clearly structured to achieve a specific end, that it lost all sense of the risk involved and of value for money to the public. We ended up with a procurement that was described by one of my colleagues as one that will be taught in American business schools as course 101 on how not to procure. That is not a situation that the British Government should ever get us into again.

We have heard about risk transfer. There has been evidence from the very beginning that risk cannot be transferred in this respect. London cannot see its underground network being strained in capacity and coming to a halt. The risk will always end up resting with the public sector, and that notion must be taken fundamentally into its thinking.

It was evident that the Metronet contract was in trouble almost from day one. In June 2005—there had been many previous comments, but this is the one that I was most easily able to lay my hands on—Bob Kiley gave evidence to the Greater London authority and talked about Metronet's performance as "bordering on disaster". This was a slow train wreck, which people could see happening gradually, but the contractual arrangements made sure that it would not be possible for TfL or anyone else to intervene. The underlying standards embedded in the contract were very much driven by what the banks would finance. The banks were clear that the performance required of the private sector had to be something that a modest company could achieve on a modest day. The targets were low and the mechanisms for intervening were minimal.

I need to wind up my remarks quickly, so I shall make a couple of further comments; I would love the opportunity to share more of the understanding that we developed of these projects on another occasion. We must have some absolute parameters. Cost must not fall on Londoners, and I hope that we will get that assurance. We must have an understanding of where the Government see the contracts going. Will we be using a concession model, which I would favour over taking the process back in-house? London Overground and docklands light railway are excellent examples. We must know what Londoners will lose in the way of upgrades, such as air conditioning and all of the other plans that were laid out.

As the Government will be aware, those who opposed the PPP felt that there should be bond issues based on the farebox and on future streams of grants from Government. That concept of financing would have enabled far lower pricing and far more effective systems—splitting the financing from the concession to carry out the work. It would have put the responsibility on the body that would hold it best, and I would like to hear whether the Government will consider moving to that model in their recovery from the Metronet disaster.

I start by saying how much I regret the fact that the Chair of our Select Committee, my hon. Friend Mrs. Dunwoody, is unable to be here. I wish her all the best, and I hope that she makes a swift recovery and returns to her duties in the House as soon as possible.

It is inevitable in a debate on the failure of Metronet that everyone will repeat the arguments of 10 years ago, when people were raising questions about the public-private partnership, and they have jumped to the conclusion that the entire PPP has failed. I say to Norman Baker that if he reads the conclusions of the report, he will find that paragraphs 21 to 24 all refer to severe failures of Metronet and its internal structures, but they do not condemn PPP. We take a strong position on the failures of the part of the PPP that Metronet was involved with, but the Committee is far from saying that PPP is a bad idea. Many of us in this House come from local government, where public-private partnerships are commonplace. It would be a foolish position to take to say that we were flatly opposed to PPP.

Mr. Hands is unfortunately no longer in his place. I used to share my office with the previous Member for that constituency when it was a Labour seat, and I have to say that he made a lot more sense. At the 1997 general election, the Conservatives' manifesto stated unequivocally that they would introduce proposals to privatise the London Underground. A little later, in 2000, their mayoral candidate, Steve Norris, was cited in The Times on 29 January:

"Steven Norris, the Tory candidate for London mayor, is to support Labour proposals for a public-private partnership for the London Underground."

The article went on to say:

"Campaign aides yesterday made clear that the plans had been drawn up with the backing of William Hague"— some echoes there of what happened to the Liberal party last week. Only a few months later, Mr. Syms reverted to Conservative old ways and said:

"We want fully to privatise the underground".—[ Hansard, 6 November 2000; Vol. 356, c.107.]

Londoners are clearly not protected by Conservative proposals. Conservatives would seek to use the private sector in the PPP in future. Their mayoral candidate already has a hole of £100 million in his budget, so Londoners know what to expect should they elect him.

The calculation was redone at the weekend and the figure of £100 million constitutes a false allegation. How did the hon. Gentleman reach that figure, against the calculation by independent people, which shows that the figure is about £10 million not £100 million?

I would take the hon. Gentleman through the miscalculations—[Hon. Members: "Go on!"] If I am to allow Justine Greening to get in, I cannot go down that route.

We are considering the failure of the unbridled privatisation of the London underground. Tube Lines has a completely different internal structure, containing incentives and higher materialisation thresholds, which encourage it to incentivise, innovate and keep its costs down. Metronet was a cash cow, on which stakeholders and shareholders fed until there was nothing left. It was unable to impose any form of accountability or efficiency on the stakeholders and shareholders. Moneylenders to Metronet did not impose any restrictions and the whole edifice came tumbling down. We finished up with 50 delayed station upgrades and no risk transfer from the public to the private sector.

In the short time available, I want to emphasise to the Government that there are lessons to be learned, as everybody has said. We must not repeat the mistakes that we made in the run-up to PPP 10 years ago. The London underground needs stability and time to plan ahead. We cannot enter into another enforced PPP, whereby a private sector partner is levered in to take over the contracts that London Underground currently runs. The administrators have attempted to introduce the private sector and they have failed. Indeed, they said that pursuing that would be a waste of public money. We need London Underground to retain the management of Metronet's contracts and a period of stability for the benefit of Londoners. Metronet has let Londoners down and we must not put another Metronet in place to repeat that exercise.

I am pleased to contribute to the debate because the performance of the District line and the tube generally constitutes a major part of my constituents' lives. If they have a bad time getting to work on the tube, they generally have a bad day. The debate is important for Londoners because it is about their day-to-day quality of life in this city.

I welcome the report. When Metronet collapsed, a full inquiry was needed and the report makes some valid comments about and has some valid insights into what happened. I was especially struck by the comments of Tony Travers of the London School of Economics, which appear on page 14. He referred to the £5 billion to £7.5 billion spent on the tube network in the past five years, saying that it

"is a huge amount of money to have delivered—at the very best—a train service that's overall no different" from

"when we began."

My constituents, who have to use the tube every day, would agree with that.

I shall spend a couple of minutes considering our experience locally. On our local District line, we need a more reliable service, more capacity and signalling. That was in the PPP contract for Metronet. The work was not going to happen overnight, but it was initially pencilled in for, not today or tomorrow but probably 2012, perhaps lasting until 2018. My constituents are now concerned about the major question mark over those promised performance improvements that the failure of the PPP contract has raised.

As my hon. Friend Mr. Hands pointed out, the backdrop to that is people doing what the Mayor wants them to do—using the tube to get to work every day. As I said in an intervention, in the past three years we have seen the equivalent of three trains-worth of extra people using the Wimbledon branch of the District line every day. That is one extra tube-worth of people every year. Our concern is not that the planned improvements will not happen, but that when they do happen, they will merely catch up with the extra capacity that we needed anyway, so we will not see much of an improvement.

Our daily experience is one of being crushed on overcrowded tubes—certainly not pleasant at any time of the year, particularly not in the summer—delays, being stuck in tunnels, being unable to contact people when late for meetings at work and long waits at Earl's Court station coming home, with thousands of other people waiting for the occasional Wimbledon-bound train finally to arrive. My constituents find it particularly galling that they are never asked what they think about the service, but treated merely as people to be shunted around on it. The report does not cover this, but London Underground has never asked them their views following the Metronet collapse.

I felt so frustrated by the lack of feedback from customers that I set up what I call my MP textline, so that people can rant to me on their mobiles. They sign up on my website, get a mobile number and can text me when services are poor.

Is not what the hon. Lady describing a demonstration that the privateers are simply interested in making money and have no care whatever for the passengers paying their fares or the public purse?

That is one way of looking at the situation, but as we have discussed, what is interesting about the report is the contrast between the performance of Tube Lines, which appears to have prospered in its contract, and Metronet. Clive Efford mentioned the materiality thresholds in connection with the risk borne by the different PPP contracts. With hindsight, it seems that they had a large impact. We shall have to wait and see whether Tube Lines will continue to prosper, but the one thing that we do know is that Metronet has failed. As I said, the report set out some interesting hypotheses on that.

My MP textline is frequently used by people to rant. Here are some typical messages that I can read out in the Chamber:

"To justine. 18 oct. Arrived on southfields platform 07.33, long wait for train. Sardines! Many people unable to get on. Arrive earls court 7.58. A typical journey on the district line."

Here is another:

"Took 30 mins to get from Wimbledon to Southfields on District Line last night"— a journey that normally takes about four minutes—

"because of signal failure. This always seems to happen when it rains hard!"

I could continue for a long time with messages that I have received on my textline over the past few months.

There is no doubt that Metronet's collapse has had a profound effect on my constituents. We are concerned about delays to improvements to East Putney station and to lifts being installed in Southfields station. In relation to accessibility, I am particularly concerned about the impact of Metronet's failure on those who are less able to get into London to work, such as people on incapacity benefit.

Finally, who is culpable? A lot of people are culpable. The Mayor is culpable, because his attitude from the word go was that he was not interested in the PPP being successful. My constituents and many others around London who are reliant on the PPP delivering, however badly it was structured, have been let down by various parties, including the Mayor, who have not done their best to make it work.

Metronet is culpable. When things started to go wrong it simply did not react, and much of that is contained in the report. The way in which London Underground and Metronet worked together when things were clearly going wrong was simply unacceptable.

Finally, as we have mentioned already tonight, the Prime Minister structured the poor contract, within which the PPP collapsed. I have no doubt that my constituents will remember that fact.

Whatever the failings, the people who are left suffering—I will probably be one of them tonight, when I have to use the District line to get home—are my constituents, and there is a real danger that, if we do not secure improvements, through a PPP contract or any other means of attracting investment, London's underground will start to be a serious drag on London's economy. I am concerned that the quality of life of this great city, which we all love living in, will continue to be pulled down by a daily experience of travelling to work that, for many people, is simply becoming unacceptable.

First, I draw attention to my interest as declared in the Register of Members' Interests.

I rise to speak to try to bring a degree of balance back to a debate that, to me, has been disappointing, first, because of a tendency to go from the particular to the general and to assume that the PPP is universally unsatisfactory because of the failure of Metronet, and, secondly, because of a lack of realism in some respects about the context in which the PPP was developed.

Susan Kramer made an interesting series of observations on the negotiation of the PPP, many of which I would concur with, but she did not give us the background of the procurement of the Jubilee line, which was in many respects one of the most depressing and unsatisfactory procurement exercises that we have ever seen. The Jubilee line has a lot of things going for it. I take particular interest in it because it is my constituency's only contact with the London underground. The line was well designed and there are some very fine stations—we have one here at Westminster that many hon. Members use every day and can admire—but the procurement was fundamentally unsatisfactory. The scheme was seriously delayed and there were massive cost overruns—approximately £1.5 billion.

Will the right hon. Gentleman give way?

I will give way very briefly, but I am time-limited.

Does the right hon. Gentleman remember that those who wanted a public sector option also said that good, high-quality management needed to be brought into London Underground?

I absolutely agree, and I would only disagree because the hon. Lady berated the public sector comparator—the assumption of a 15 per cent. cost overrun. Would that it had been only 15 per cent. On the Jubilee line, the cost overrun was massively greater than 15 per cent. and it was therefore absolutely right for the Government to look for alternatives that would bring in good management and ensure that the very considerable backlog of repairs would be dealt with efficiently.

Greenwich and Woolwich has only one link into the underground service—the Jubilee line. We can look at the performance of Tube Lines in the past five years and see a number of areas where very considerable improvements have been made. On completion, the Jubilee line lacked the signalling system that had been part of the original specification and would have allowed a much more frequent service than we have enjoyed. The line opened with a less than satisfactory signalling system, which has been the subject of a great deal of work and will have to be replaced in another year's time. Capacity was not up to the demand. Not surprisingly, the only link into the underground from Greenwich is hugely popular and there is very serious overcrowding.

By 2005, we had seen the first of the upgrades conducted by Tube Lines: the extension of the seventh carriage, to join the six carriages on the original specification, and improvements in the underground access to North Greenwich station. That improvement has already been entirely absorbed by further demand. Therefore, a further upgrade will be required next year, to improve the signalling system and make good the defects of the original scheme, which was specified according to the formula that some of my hon. Friends have been arguing for: public sector control. We should not forget that the failure on some of those previous orthodox contracts was the background that led to the view that we should look for alternatives, such as the PPP.

I am pleased to say that when the signalling transformation is carried out next year—I am confident from my discussions with Tube Lines that it fully understands what is required, and I hope that it will be as efficient in doing that as it was with the upgrade of 2005, which was conducted in an exemplary fashion and completed over the Christmas holiday period, involving minimal disruption to the public—we will see an upgraded line with 40 per cent. more capacity than it had in 2003 when the PPP was introduced. I regard that as a rather important achievement.

I urge all Members, and particularly my right hon. Friends on the Government Front Bench, to take a balanced view. While rightly learning the lessons from Metronet's failure—I make no excuses for its lamentable failure—they must recognise that other parts of the tube service have had a different experience. From our perspective in Greenwich and Woolwich, the improvements in the Jubilee line over the past five years are enormously welcome and I hope that they can be sustained.

The Metronet contract was supposed to deliver 35 station upgrades in three years: it delivered 14. It was supposed to deliver them at a cost of £2 million: delivery actually cost £7.5 million. It was supposed to deliver an extensive programme of track renewals: only 65 per cent. of the work was completed. That lamentable failure is clear from the Select Committee report.

This evening's debate was ably opened by Mrs. Ellman, who had the unenviable job of substituting for Mrs. Dunwoody. I am sure that we all wish her well.

I have been fascinated by all the contributions. Clearly, we are not here to discuss the basic structure of public-private partnerships. Rather, our debate is about the failed Metronet contract, the awarding of the contract in particular circumstances, its operation and its failure to deliver.

As Mr. Raynsford pointed out, the basic structure of PPP or the private finance initiative is that the private sector can undertake infrastructural investment on behalf of the public sector. The exact structuring of the contracts will differ from project to project, but that structuring should transfer risk from the public to the private sector. The failure to do so in this case is a failure of this contract, not a failure of the general. PPP contracts allow the public sector to access facilities—for example, world-class project management and engineering talent—that would not otherwise be available to it; value for money can be guaranteed; and there can be innovation in working practices.

The basic structure of the PPP is that the private sector delivers the best for the public sector when the private sector is told what outputs to deliver and decides how they are to be delivered. That is at the heart of tonight's debate and at the heart of the failure. It is clear that this PPP did not follow that stricture from the beginning.

In 1998, the London Transport board had been informed of the need to investigate alternative methods of financing the London underground, including a future investment programme for the next 25 years. It is worth remembering that at that stage the whole bus system was running at break even and the whole of the London transport system was costing the taxpayer only £130 million. The bus network costs a net £700 million now and a total cost of more than £2 billion.

The hon. Gentleman began by saying what a disaster PPP has been, so I am astonished that he is now saying that it is basically sound. The increase in costs that he mentions coincides exactly with the period of privatisation of both buses and trains.

If the hon. Gentleman will let me continue, I am coming on to that. I am saying that the principle is sound, but that the contract was at fault. I will come on to re-emphasise that, and it is exactly what the Select Committee report makes clear.

Susan Kramer will remember that in 1998 the board and its advisers, KPMG and Lazard, evaluated 15 different financing options. The first was to keep the whole operation in the public sector and use London Transport-backed corporate bonds, secured on future cash flows, to finance the capital investment. The second was to sell a 25-year franchise to the private sector to operate the whole system and to carry out the investment required. Fare levels and service frequency and quality were also prescribed. I think she will confirm that the London Transport board and its advisers suggested that if option 2 had been taken, it would have generated £2 billion for the public purse.

The board presented the Treasury and the Department for Transport with 15 different options. The Treasury started to exert influence for its favoured option. The Treasury Committee in 2001 noted that there was the

"excessive influence of the Treasury...to plump for a PPP scheme for London Underground to the exclusion of all other options."

It further stated that

"the Treasury...has begun to exert too much influence over policy areas which are properly the business of other departments. This is not necessarily in the best interests of the Treasury or the Government as a whole."

What was clear in the end was that out of those 15 options, the 14th best option was selected. The Government at the time said that the PPP would realise more than £16 billion and save more than £4 billion. The London Transport board and its advisers said that on a discounted cash-flow basis, the difference between options 1 and 2 and the 14th was a £3 billion cost to the taxpayer. Let us be clear about this: there was a cost to the taxpayer that could have been avoided right at the outset of the contract. It is also true, as Norman Baker noted, that there was a bill of £500 million for lawyers. Mr. Travers, in his evidence to the Committee, said that the

"PPP is virtually impossible to understand" and that the Government had been naive in believing that nothing could go wrong with the contracts.

At the very heart of what we are considering—at the very heart of the report—is the fact that the PPP was imposed on London Transport against the advice of the board and the financial advisers. It was the man who was in charge of the Treasury at the time who is culpable and responsible for that. This month's issue of Rail Professional magazine says that

"the unravelling of the PPP at such expense to the tax payer is seen as a serious blow to" the Prime Minister. The Prime Minister was responsible and is responsible. In the end, the total cost of the debacle will be much closer to £4 billion.

If the imposition of the structure of the PPP is one of the major causal factors, why did Metronet itself fail? In evidence to the Committee, Mr. Pimlott said that

"it ran out of cash because it spent too much money", and Mr. O'Toole answered, "Metronet lacked control." Both of those may be correct, but they are not exactly insightful or particularly helpful.

As many hon. Members said, there is a clear difference between the two contracts and the two companies delivering them. The significant problem with Metronet was the tied supply chain. The same parent companies of Metronet were allowed to be organised into another company, Trans4M. It supplied the station upgrades and delivered only 40 per cent. of its obligations. What is clearly at the heart of the failure of the contract was conceded by Mr. Pimlott when he said that

"the contractual arrangements were a very negative factor" and that

"it was a contract which gave Metronet very little in the way of leverage."

It was a building-type contract, not a PPP output-based contract. There was an issue that the tied supply chain was a major contributing factor to the failure of Metronet. It was unable to penalise underperformance and lack of delivery and could not hold back funds. Graham Stringer made the point that Mr. Pimlott said in his evidence to the Committee that when he tried to exercise that influence, he was threatened with litigation. Of course, that would be so, given that the contract was structured in that way. However, it is clear that Metronet's shareholders, along with the Government, are at the heart of its failure. Responsibility for the cost overruns and the lack of delivery to Transport for London lies principally with the management and shareholders. But if the tied supply chain is a problem for Metronet, another problem for it is that, as it argued to the Committee with some pertinence, part of its overspend and lack of delivery to Transport for London was due to TfL itself.

If the Mayor can be credited with having opposed TfL at the beginning, he can certainly be culpable for the way in which he acted in the operation of the Metronet contract. The Mayor and Transport for London—the Mayor tells everyone that they are interchangeable—were guilty of continual specification change. Mr. Pimlott gave the example of the upgrade of Lancaster Gate station. Metronet was asked to repaint it three times in different shades of grey because the board of Transport for London could not make up its mind. Mr. Lezala, Metronet's chief executive, said that that was indicative of London Underground's wasteful approach. He also said

"there are lots of examples... where we are spending twice as much as planned."

The hon. Gentleman is making up history, or giving us his own version of it. The PPP independent arbitrator blamed Metronet, not Ken Livingstone or the docklands light railway, for the cost overruns.

Let us be accurate. The arbitrator split the costs, although I agree that he moved the balance of the costs towards Metronet. Metronet claimed £992 million; his view was that an efficient company might have required between £140 million and £470 million. The version of the truth that the hon. Gentleman has just given is not entirely accurate either. There was a splitting of the responsibility and the blame, and it seems to me that Transport for London was happy to play Russian roulette with taxpayers' money. It knew that if the arbitrator did not support its position, Metronet would not bear the costs and the taxpayer would. It is the fault of Transport for London, the Mayor and Metronet that an extraordinary review did not take place earlier. Transport for London and the Mayor can also be blamed for stating that there was no room for negotiation and no chance of a negotiated settlement. It is clear that the extraordinary review, had it occurred earlier, would have involved less cost to Londoners and to the overall public purse.

Is the hon. Gentleman aware that the contracts did not give Transport for London power to give extensive specifications and changes of specification? Perhaps such measures can be proposed, but they must be accepted by the infraco partner.

It is clear to me that at the heart of the problem is an ill judged—on both sides—lack of understanding of what the contract meant. Metronet believed that it was providing a contract that was output based, while Transport for London believed that it was inheriting a fixed-price contract allowing it to respecify continually. The contract failed because Metronet spent too much money and did not deliver. Part of that was undoubtedly due to the tied supply chain, but another factor was the conflict between Transport for London and Metronet.

Metronet went into administration on 18 July last year, which has been described by the Secretary of State as "a terrible failure". A number of people may think that it is a rather spectacular failure. On 6 February the Secretary of State was forced to admit that the cost of the failure to the taxpayer was £1.7 billion, which was paid to Transport for London to cover the 95 per cent. debt guarantee, and £300 million to cover the costs of administration. Those costs are ongoing.

I believe that the PPP principle is sound, although it is not always a universal panacea; but it is not the principle that is being debated tonight, and it is not the principle that is under threat from the report. It is a failure of the network and of Metronet's shareholders and management, but it is at heart a failure of the PPP contract that was set up and those who were responsible for that—and the person responsible for that contract was the Prime Minister.

This has been an interesting debate, and I am sure it would have been even more lively if my hon. Friend Mrs. Dunwoody had been present. We all wish her a speedy recovery, but my hon. Friend Mrs. Ellman did a very good job in leading off the debate in her place. I wish to reiterate what my right hon. Friend the Secretary of State for Transport said to the Transport Committee in November last year: she welcomed the Committee's consideration of the tube public-private contracts and, in particular, of the background to the failure of Metronet. My hon. Friend the Member for Liverpool, Riverside set out the Committee's views and asked that the Government learn lessons from the failure of Metronet. I assure her that it is of great importance to the Government that we understand why Metronet has failed so we can learn the appropriate lessons for the future.

As many Members have said, the underground is central to London's economy, carrying approximately the same number of passengers per day as the entire heavy rail network of Great Britain. Mr. Hands talked about the increase in demand. That is true: since 1993, there has been approximately a 65 per cent. increase in people travelling on the underground, and London Underground expects demand to grow to 1.5 billion journeys a year by 2020.

When this Government came to power in 1997, the underground had suffered from decades of under-investment. As my right hon. Friend Mr. Raynsford said, improvements to the Central and Jubilee lines had run both late and significantly over-budget. Given that backdrop, it was right that a Government committed to sustained investment in the tube should ask what structure was most appropriate to ensure successful delivery of the infrastructure work for passengers, at best value to all taxpayers. In arriving at their solution, the Government were guided by what had been learnt about effective public-private partnerships in others sectors and in other countries across the world.

As Stephen Hammond said, at the core of the tube PPP was the desire for the parties operating, maintaining and improving London's underground network to focus on what they did best. That meant London Underground focusing on operating and setting strategic priorities for the network's development and bringing in private sector project managers to oversee the delivery of essential maintenance and upgrades, with appropriate transfer of risk.

Pointing to the Transport Committee report, Norman Baker and my hon. Friend Graham Stringer asserted that those principles were not tested. However, I can assure the House that those principles were rigorously tested as the PPP proposals developed. Considerable time and effort were expended in understanding the comparative value for money of the PPP versus conventional public sector-led procurement. That work, based on the public sector comparator, was independently scrutinised by KPMG and Ernst and Young, and subsequently the National Audit Office. Both found the methodology to be robust and fit for purpose.

The Government certainly recognise that Metronet has failed and that that has had a very real impact on the underground network and on passengers. They were, however, the corporate failings of Metronet and not failings of the entire PPP concept, as my hon. Friend Clive Efford said. Tim O'Toole, the managing director of London Underground, stated in July 2007:

"This is more about Metronet's structure than it is about the PPP."

Metronet did not deliver satisfactorily on its track renewal and station upgrade contracts, and that failure to control costs is what ultimately led to its collapse.

The Minister is also Minister for Yorkshire and the Humber. Given the seriousness of the Metronet situation, will she tell us what discussions, if any, the Prime Minister has had with the Mayor of London in order to find a solution?

I shall discuss the way forward, but I wish to emphasise that the Government are determined to learn the lessons of Metronet's failure.

The Minister rightly says that Metronet was a failure, but she does not seem to accept the Treasury's failure. What lessons has it learned on letting these contracts?

I wish to discuss the background to the original thinking on PPP and to emphasise that the House should not lose sight of the wider context of the tube PPPs. The hon. Gentleman talks about the Treasury, but it is worth while remembering that the PPP secured significant additional investment at a time of many competing priorities for the public purse, as my right hon. Friend the Member for Greenwich and Woolwich said. The hon. Member for Hammersmith and Fulham would not answer questions about his party's position on privatisation at that time, as my hon. Friend the Member for Eltham said, and I noticed that the hon. Member for Wimbledon did not try to resile from the comments that he made.

It is important to remember that the London Underground PPPs are delivering performance benefits against the background of continuing growth in demand. Justine Greening said that no improvement had been made to the underground, but that is not true. Some 247 stations are programmed to be modernised or refurbished by 2010-11, and work on 91 stations has been completed; Tube Lines was expected to deliver 47 stations by the end of August 2007 and has done so; more than 115 km of track has been renewed, with delivery on some lines ahead of schedule; a fifth train is now in service on the Waterloo and City line during peak periods; a £40 million upgrade on that line has improved reliability and reduced journey times; the extension of the Piccadilly line to Heathrow terminal 5 has been completed; and work on a new signalling system on the Northern line is ahead of the contract date.

As my right hon. Friend the Member for Greenwich and Woolwich, my hon. Friend the Member for Eltham and the hon. Member for Putney said, and as Terry Morgan stressed in his evidence, Tube Lines has delivered the 47 stations required by the end of August and is delivering the required increase in Jubilee line capacity, and not a single programme is running late. That shows that with the right approach to project management and a rigorous pursuit of efficiency, the PPP delivers.

Having said that, major works remain outstanding. My hon. Friend Harry Cohen asked about those. The PPP contracts were always structured so that major capacity improvements to the network were not going to begin immediately. Such major capital works demanded careful planning and preparation, and were scheduled to deliver significant capacity improvements in the PPP's second period—between 2010 and 2017. That schedule remains for Tube Lines, and I can assure him that London Underground will work to ensure that Metronet's work can be put back on track as quickly as possible.

Having set out the improvements made to the network, I reiterate that lessons must be learned from Metronet's failure if we are to secure continued improvements for passengers in the future. The hon. Member for Wimbledon and my hon. Friend the Member for Manchester, Blackley raised the issue of tied supply changes. Those are a common feature of PFI projects in the UK and in international project finance projects, but they demand effective governance. As many hon. Members have pointed out, when Metronet ran into difficulties, it did not have the appropriate corporate governance in place to resolve the situation at a sufficiently early stage. Only when the scale of the problems facing Metronet became apparent to its individual shareholders did serious attempts to restructure the business begin. Ultimately, the changes were then too little and too late to avert the company's collapse.

My hon. Friends the Members for Liverpool, Riverside and for Manchester, Blackley referred to the level of risk transfer to the private sector. At least three of Metronet's shareholding companies have already written off more than £300 million due to the failure of Metronet. Those losses are significant, but I do not dispute the fact that, as my hon. Friend the Member for Leyton and Wanstead and the hon. Member for Lewes pointed out, they failed to motivate Metronet's shareholders to address the company's failings sufficiently early, earnestly or effectively. I assure the House that we will want to ensure that risk transfer is appropriate, meaningful and effective in future contracting arrangements.

However, I remind the House that we are in a very different place from when the contracts were first awarded. Susan Kramer pointed out the difficulty of knowing what assets were available. That is true, but Transport for London and London Underground now have a clearer understanding of the condition of the assets, so they should be able to bring more clarity to the specification and pricing of the contracts. The hon. Lady and the hon. Member for Lewes raised the issue of consultancy. I think that the hon. Lady was questioning not the need for consultants, but the need for different types of consultants.

My hon. Friend the Member for Liverpool, Riverside asked when Metronet will come out of administration. It is for the administrator for Metronet to decide how and when the Metronet business can be transferred out of administration. I can assure her that the Government stand ready to support the early transfer of Metronet's businesses, to ensure that they can be put on a stable footing as soon as possible.

Several hon. Members asked about the next steps. I can tell the House that a joint steering committee, with officials from Transport for London, London Underground, the Treasury and Partnerships UK, has been set up to develop options for the long-term structure of the former Metronet businesses. It will report to the Secretary of State for Transport and the Mayor of London by summer 2008.

The hon. Member for Richmond Park asked about the consideration of alternatives, and the Government are working closely with Transport for London and London Underground to form a view on the best structure for delivering improvements on the network. We have made no presumption about the right structure, nor do we have a predetermined view on the best financing structures to support delivery. However, in making its recommendations, the committee will consider all of the lessons learned from the Metronet PPP contracts, including the Transport Committee's views and today's very helpful debate.

I reiterate that the failure of the Metronet PPPs is a corporate failure, not a failure of the PPP contracts. However, we are working to understand the reasons for this failure and will ensure that the lessons learned from Metronet are understood and incorporated in any proposed long-term structure. That is a significant challenge, but my Department, Transport for London and London Underground are committed to ensuring the delivery of those essential improvements to the tube network is put back on track as soon as possible—

It being Ten o'clock, Mr. Speaker proceeded to put forthwith the deferred Questions relating to Estimates, pursuant to Standing Order No. 54(4) and (5) (Consideration of estimates).