Scandal of the PPP sell-out

The National Audit Office deliberately minces its words because its reports are shown to the government department concerned. So when the NAO says that there is ‘limited assurance that the price of the three Tube PPPs was reasonable’ that translates as – ‘these are bloody awful deals that the government should never have signed and taxpayers are being ripped off mercilessly’.

The PPP is, in fact, one of the great scandals of our age, underreported because of its complexity and opaqueness. Put simply, the PPP was a crazy notion dreamt up by a combination of rapacious consultants and London Underground executives who thought they could outwit the private contractors, egged on by a government driven by an ideological bent to ensure the private sector took the lead in the massive task of refurbishing the London Underground.

During the long period of setting up the PPP and negotiating with the bidders, the government lost control of the scheme. Ministers became hooked on the notion that the PPP was the only way of investing in the Tube, even though in an early assessment of alternatives drawn up by London Transport in 1997, out of 16 schemes, it was the least favoured bar one. Ministers did not understand the scheme, nor did most of the government and London Underground officials working on it. Not surprisingly, costs soared. It was originally supposed to be entirely funded by the private sector but, in fact, taxpayers are pouring a staggering £1.1bn into the Underground this year under the PPP scheme, so the notion that this is an initiative largely led by the private sector is a nonsense.

The result is that while Londoners will eventually get a better Tube, it will have come much slower and at a much greater cost than it if had been done in the conventional way of simply allowing London Underground to contract out the work. The authors of the NAO report clearly had to restrain themselves when outlining the various extra costs incurred as a result of the complex deal. There is, for example, a table showing how much the various consultants on the deal received – £29.2m to the lawyers, Freshfields, £21.4m to the commercial advisers, PriceWaterhouseCoopers, £13.8m to Arthur Andersen for ‘reorganising operations and so on – £109m in all. Total expenditure on setting up the deal was £455m, three fifths of which went to the bidders to reimburse costs largely incurred by similar teams of advisers.

These consultants thrive on complexity and the schemes which they help devise are incomprehensible to all but a handful of experts. That means there cannot be proper public accountability and so the NAO can only guess at whether the PPP offers value for money, saying that there is the ‘prospect, but not the certainty, that improvements will be delivered.

The sums of money involved in this scandal so staggering that it is quite easy to forget just what these sums of money mean. So, for example, after the bidders were chosen on the basis of a competition, the price of the contract rose by £590m, a sum that could buy quite a few hospitals, even though they are pretty expensive these days, too. Meanwhile, the shareholders will thrive, receiving a return of 18-20 per cent for their money, in return for risk that is minimal.

The PPP was supposed to be the first for a new way of investment in public transport schemes, with contract payments dependent on the output – such as reduction in delays – rather than simply on the work done. In fact, no other country in the world is going to follow this example which will be held up as a way of how not to do things.

Like rail privatisation, the PPP was supposed to reduce government involvement and spending on a key area of infrastructure. And just as with rail privatisation, the result is an expensive mess, a reduction in accountability, an apparent black hole for taxpayers money and few benefits for passengers. The NAO report is entitled – London Underground PPP – were they good deals?. The answer is just one two letter word. In capitals.