The true cost of PPP is now becoming clear

12 April 2012

The Evening Standard-London First debate showed a surprising degree of agreement between the three parties on a range of issues — cycling, Oyster cards, high-speed rail.

But it was as notable for the huge issue which none of them mentioned: looming transport cuts. Such challenges are highlighted by today's decision on Tube costs.

The ruling by the arbiter of the Public Private Partnership — that the cost of the next tranche of Tube upgrade work should be £4.46 billion — is a blow for Transport for London. The figure is £460 million more than TfL said it would pay contractor Tube Lines.

TfL says it will fight on, pointing out that Tube Lines claimed it needed £5.75 million to do the work: how do we know that the company can now deliver? Its work on the Northern and Jubilee lines is already delayed.

But ultimately Tube Lines is protected by a thicket of contracts. This is PPP's greatest single weakness: while the profits of private-sector providers — in the case of Tube Lines, a guaranteed 26 per cent — are locked in over 30 years, the public-sector customer is subject to politicians moving the goalposts.

Thus costs have escalated since the contracts were signed, yet the public finances have worsened — and there is no realistic prospect of any government stumping up extra cash.

Tube users are the ones who will suffer if TfL has to find the £460 million either by borrowing or by scrapping or delaying parts of the plan.

The Mayor might consider saving the money elsewhere in the TfL budget — his decision to scrap the congestion charge western zone, worth at least £55 million a year, looks extravagant.

But such a U-turn is politically unlikely.

Transport Secretary Lord Adonis is a formidably intelligent policymaker. But he has no more money: we are now stuck with the costly consequences of Gordon Brown's cherished PPP scheme.

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