Explainer

Feb. 15 2002 1:14 PM

Explainer

Is PPP privatisation or not?

The Government proposes to split the London Underground into two. It will be the private sector's responsibility to apologise for accidents caused by broken tracks. But it will be the public sector's responsibility to apologise when the ticket offices are closed due to staff shortage. The private sector's role—paying £16 billion ($23 billion) for new rails, trains, signals, and stations—does seem to be a pretty big investment. Meanwhile, the running of the trains will stay in the public control of London Underground.

So is this a privatisation or not? After pledging in 1997 not to privatise the Tube, the Labour Government is unlikely ever to accept that it is one. Transport Secretary Stephen Byers denies it repeatedly, and before the 2001 election, John Prescott, Deputy Prime Minister and Byers' predecessor at Transport, did the same. "The PPP is not privatisation," Prescott wrote in a letter to The Guardian. Others believe, however, that leasing the infrastructure for 30 years to the private sector is not far removed from selling it off, though the Government isn't even getting any financial benefit from the deal, apart from not having to spend any money upfront on the much-needed renovation.

For Mayor Ken Livingstone and his transport commissioner, Bob Kiley (whose record for "turning round" the New York and Boston subways always goes unchallenged by the UK media), it is a clear case of repeating the mistakes of rail privatisation (mocked here in a BBC glossary of popular abuse), which entrusted the infrastructure to a single company, Railtrack, and responsibility for running the trains to 26 separate companies (Connex, Virgin, et al.). But with the Tube, the plan is exactly the opposite. The trains will be run by a single body (and a public one at that, with Kiley at the dead man's handle), while responsibility for the infrastructure will be divided among three different private companies.

The government says PPP will guarantee public safety, but Livingstone and Kiley claim that splitting control will repeat the worst mistakes of rail privatisation and lead to such potentially fatal consequences as the Hatfield crash, in which a train owned by one company was derailed because of a faulty track owned by another, which was to have been maintained by yet another. Free market purists are pleased to see private companies—rather than the state—running businesses. But they think they should risk losing their shirts as well as being able to reap profits. In the case of the Tube, the private companies stand to make good profits on their investments. Some analysts say they could make up to 35 percent a year, others about 15 percent. But what about losses? It's true they could be fined if they don't meet agreed performance targets, but the Government has agreed to underwrite 95 percent of any losses they incur. The House of Commons' transport select committee—which has had barely a good word to say about the entire scheme—was damning on this point: "If little risk can be transferred to the private sector, then the rationale for the PPP is seriously undermined."

One thing that is being privatised is the cost of the new investment. Instead of the government paying it off immediately—and thereby increasing public borrowing—the debt will be borne by the private sector, which will gradually be refunded by the state. Incidentally, a fascinating moment in political history happened last week when Livingstone and Byers met in a TV studio. Red Ken, the arch enemy of Thatcher and all she stood for, said a better solution than PPP would have been for the government to opt for wholesale privatisation.