By Jared Wood
First published in The Socialist in March 2001
PPP or Public Private Partnership is the government’s preferred mechanism for privatising the infrastructure of London Underground. Under the plan the trains, track and signalling of the tube system will be sold, on 30-year leases, to private companies. Many of the companies bidding already have contracts to maintain the crisis ridden national rail network. PPP will split the tube into three groups of lines and thousands of workers will have their jobs transferred to the private sector. PPP offers huge profits to the private sector but will result in attacks on workers’ pay and conditions, more overcrowding at peak times, higher fares and most worrying-ly of all, the relegation of safety behind the drive for profit.
It is said that New Labour is a party with no principles guided only by opinion polls and focus groups. This view underestimates New Labour who are fighting for PPP, even in the face of overwhelming public opposition, because a principal is at stake and that principal is profit. After Southall, Paddington and Hatfield any rational government would call a halt to the privatisation of public transport. Not New Labour though, they insist on the sale of the underground’s infrastructure with a criminal disregard for the safety of the public. Everyone except the government and rail industry can see that privatisation is responsible for the Hatfield disaster.
The broken track that caused the derailment had been known about for months but between Railtrack and its sub-contractors repairs had been put off with fatal consequences. While transport unions and the public call for safety to be put before profit the government’s response is to invite tenders to maintain London Underground from the same firms that were responsible for maintaining the track at Hatfield.
New Labour is a party funded and increasingly controlled by big business. Blair’s priority is not safety, it is not reliability and it certainly is not the provision of cheap public transport. Their priority is still pouring millions of pounds of public money into the coffers of the private rail firms while the private rail industry has paid out millions in dividends to shareholders.
In a crowning insult to the dead and injured of Hatfield, Railtrack has paid between half a million and a million pounds in ‘compensation’ to former chairman, Gerald Corbett. The families of those killed at Southall and
Paddington still wait for compensation that will be only a fraction of Corbett’s payoff, another testimony to corporate, private-sector priorities.
The government is trying to sell PPP by claiming it will be a more efficient way of funding investment in London Underground. These claims have been rubbished by three independent reports, one by transport experts at University College London, the Industrial Society and more recently, city accountants Ernst and Young.
The reports show that efficiency savings included in government plans are unspecified and are nothing more than figures drawn out thin air by managers and economists. They are assuming that major cuts in costs and increases in revenue will be possible just by privatising the tube infrastructure.
The reports pointed out that private firms will have to pay higher interest charges on borrowing than the government does and make a profit for shareholders on top. The efficiency argument goes against PPP in every way. The rationale for PPP has nothing to do with clever finance arrangements but is simply that New Labour feels a private company is in a better position to cut wages, further intensify the working day and raise fares than an elected government.
Dishonesty has characterised the government’s handling of the tube. The real implications of PPP are hidden from the public and Blair went to extraordinary lengths to rig the ballot for Labour’s mayoral candidate in an unsuccessful and ultimately risible attempt to block Living-stone whose election programme was to oppose PPP.
PPP can be defeated
The two main London Underground unions, ASLEF and RMT took strike action last year because the safety arrangements planned under PPP are totally inadequate. The City loses millions every day when the underground is on strike and this puts enormous pressure on the government to back down.
Tube workers have received enormous support from the travelling public. Transport in the capital and London Underground in particular is an explosive issue, “a poll tax on wheels” as the Observer called PPP. Commuting for three hours a day is commonplace in London.
House prices are forcing workers further and further out of the centre and despite the overcrowding, delays and regular service breakdowns commuters pay the highest fares in Europe, probably the world. A monthly travel-card (season ticket) from the suburbs of Zone 6 to central London now costs over £142.
How are passengers going to react when they find out that for PPP to raise money to carry out a backlog of repairs, fare revenue must increase by 40% over 15 years? What will the public think of the performance target for the private firms being set below the current train service level?
The lucky winning firms in the tube privatisation lottery will get paid their full management fees for running a service 5% below present performance while any ‘improvement’ on this will win them jackpot bonuses! Passengers will be furious and when the full implications of privatisation come out. An eruption of opposition such as we saw over fuel tax could rock the government.
What PPP will mean for:
Underground Staff
The productivity of underground staff (passenger miles per worker) has increased by over 70% since 1985. As a reward workers in the infrastructure sector will have their jobs transferred to private firms. Wages and conditions are not fully guaranteed and new staff will face inferior terms.
Of course, much of the work will be farmed out to the cheapest sub-contractor going. Armed with a specialist hammer from Homebase, unskilled workers on the minimum wage could be sent out to dodge the live rails and maintain our system. Safety is a real concern for staff as well as passengers.
Most staff will, for now, remain employed by London Underground itself. But if the mass transfer of jobs is not defeated at this stage management are likely to come back for more. Station cleaning has already gone outside to private firms who pay as little as £3.70 an hour, Some cleaners are working double shifts every day to try and earn a living. Also the private infracos will have a veto on pay and conditions for all London Underground staff – not just those they employ. The only exception will be the annual pay award for other LU workers.
A significant increase in passenger numbers without an increase in capacity will stretch the tube beyond breaking point. All staff, including those still employed in the public sector, will have to deal with more passengers fainting, complaining, fighting and who knows what else? Most underground workers have a pride in the tube and need resources to expand the system so as more people can travel without unacceptable overcrowding and in clean pleasant conditions. PPP will not begin to achieve this.
Passengers
PPP aims to raise £8.3 billion for investment on the underground. Only £2.44 billion is forecast to come from the private sector. The remaining £5.9 billion will come from increased fare revenues. Independent reports suggest fare revenues must rise by 40% over 15 years. This is most likely to be attempted by a combination of forcing even greater numbers of people onto trains and charging higher fares for the privilege. Yet, overcrowding is already at crisis proportions in central London.
Investment targets for PPP are only enough to renovate the existing network which already runs above capacity at peak times. Any new lines to speed up journeys and relieve congestion will have to be paid for from additional revenue or the mayor’s budget. Higher fares will insult passengers but, for many, safety will be the main concern.
A Socialist Programme for the Tube
The Socialist Party believes that the underground must be fully funded from central government revenue. The entire £8.4 billion investment backlog could be met from the current government surplus.
Many had looked towards London Mayor Ken Living-stone’s alternative bond scheme as a way to stop the immediate transfer of jobs and infrastructure into the private sector. But Livingstone’s appointment of former CIA man Bob Kiley raises serious doubts about what London’s mayor is trying to achieve.
RMT activists have been contacted by workers from the New York Transit Authority who say Kiley spearheaded a drive against union agreements and working conditions on their system. Ken Livingstone is now proposing a freeze on tube workers’ pay.
At an RMT rally last year, Livingstone said he would seek to issue bonds to raise £2 billion, private partners would still be asked to come up with £2 billion and a further £6 billion would still be raised from fare revenues giving £10 bn in all. On this basis the use of private sub-contractors could still increase but they would have contracts with London Underground rather than long-term arrangements through private infracos.
Keeping the system under one single management structure would without doubt be preferable to the government’s crazy fragmentation under PPP but Livingstone’s scheme misses the central point about funding a mass transit system, which is government support. Much has been made of the New York Subway’s bond scheme but. the New York’s subway receives 46% of its budget from local and national government.
The Paris Metro gets 58% of its money from government while London Underground struggles along receiving only 23% of its budget from government, half the level of subsidy in New York. Bonds have to be repaid, interest must be paid on them, where will this money come from?
Livingstone has called for indiscriminate congestion charges and council tax increases to finance his bonds. But socialists should oppose any attempt to increase taxes on working class Londoners when corporations pay the lowest tax in the developed world and Gordon Brown is sitting on a cash mountain accumulated over the last three years.
Summary points from Funding London Underground, Financial Myths and Economic realities
The report was commissioned by ‘Listen to London’ (RMT, ASLEF & TSSA) and its main conclusions were:
• Neither PPP nor bonds provide a source of funding for the underground.
• According to LUL projections only £2.5bn is to be raised from the private sector under PPP. The rest of the £8.3bn investment is to come from fare revenue.
• LUL projects a 40% increase in passenger numbers over 15 years with no additions to the network.
• Bonds can provide finance up front for investment but must be serviced with annual interest payments on the bonds and repayment of the capital sum borrowed at some point.
• London is the only capital city in Europe that currently funds its metro system solely from fare revenue.
• Any shortfall of funds for investment under PPP is the legal responsibility of the mayor and GLA. This risk has not been transferred to the private sector.
• The latest estimates of the costs of PPP indicate a gap of £110m a year between available fare revenue and the infrastructure service charge in the early stages of the contract.
PPP, bonds or government funding?
The bulk of new money for investment anticipated under PPP comes from a 40% increase in fare revenue. As the £8.3 bn figure for the investment backlog does not include resources for any new lines it must be assumed that the increase in fare revenue can only come from either increased passenger numbers on the existing network or fare increases.
Bonds can raise finance but would not be bought by investors unless LUL had a guaranteed increased revenue stream to pay the interest and capital repayments due on the bonds.
The New York Subway receives 46% of its funds from government expenditure from taxation. Without this funding it could not service its bonds. The Paris Metro receives 58% of its funding from government grant. London Underground receives only 23% of its funding from government and the aim is to cut this to nothing. Financial risk remains in the public sector! Treasury guidelines for drawing up public/private partnership contracts call for due consideration of the contractor’s and their financier’s interest in restricting termination to the severest of defaults.
Previous public/private partnerships have shown that in practice financial risks of cost overruns or failure on the part of the private sector remains with the public sector. The passport agency has picked up a bill for £15 million following the collapse of its computer system. Siemens, who installed the system, were fined £250,000 as opposed to the maximum possible fine under their contract of £400,000. Legal responsibility for any funding shortage to LUL will rest with the Mayor and GLA.
What about the workers?
Labour productivity measured by million passenger kilometres per member of staff has increased from 0.247 in 1985 to 0.279 in 1990 and is now 0.423. It has risen strongly every year since 1992.
The report states that “given the already low costs of purchases, the significant loss of jobs over the past 15 years and the reduction in Labour costs, operating costs can only be driven down further by outsourcing the work to corporations whose lower wage costs more than compensate for their profit margins, or by cutting jobs, wages and conditions.”
Cashing in on PPP
The private companies, known as Infracos that are due to take over the tube infrastructure are set to make billions in profit. Metronet and Tube lines consortia are expecting returns of £2.7 billion – five times their original direct investment.
Eight companies are involved in the consortia are expecting a return of £2.7 billion return over 30 years on their original investment of £530 million. The Department of Transport claimed that this was not a lot of money but the rate of return was £1 billion more than the companies would get in top-rate savings account. If the money were invested in the Stock market then it would have to grow by 17% a year to produce the same rate of return for the companies, which has never ever happened for 30 consecutive years.
These contractors have also had lots of other feather bedding in their agreed contracts with the government. For example, the government has agreed to pay £1 billion a year to the bidders from the first day of the contracts, even though significant improvements won’t come on line until 2014.
In the first detailed profits forecast. Tube Lines chairman and Amey chief executive Brian Staples told shareholders he expects Amey to make about £10 million a year on its £60 million investment. Translating that over the 30-year life of the PPP contracts, the three investors in Tube Lines, which include maintenance group Jan/is, are together expecting a return of over £900 million on their £180 million injection.
The five investors in Metronet – including construction group Balfour Beatty, Seeboard and Thames Water – are pumping in £70 million apiece and will be looking for returns of more than £350 million each. Mr Staples has told shareholders Amey will also cash in on “profitable” fees for seconding staff and expertise to Tube Lines as well as selling “services and products” to the Underground.
Tony Travers, Director of the Greater London Group at the London School of Economics said: “The fabulous sums to be made by the PPP companies are proof of just how far the government has been prepared to go to get its won way over the modernisation of the Underground. No matter how much evidence has stacked up to the contrary. Chancellor Gordon Brown and his advisers have insisted that PPP is the only game in town.”
The Socialist Party says:
- Campaign against PPP and any attempt to privatise any part of London Underground. Not one job to be transferred to the private sector.
- Demand full government funding of London Underground.
- Slash fares, make safety and reliability the top priority, not profit.
- Establish one unitary transport authority to coordinate investment, safety and the service.
- Expand in-house maintenance. Take back previously privatised Northern and Jubilee depots under public control.
