Policy instruments (1) - Transport Policy and Planning in Great Britain - page 194

extensive replacement programme to be achieved (by private investment and leasing
to the train operating companies) on a scale which would not have been open to
British Rail. Network Rail - the successor to Railtrack - was carefully designed so that
technically it remains a private company, and hence - critically - its very large debts
are kept off the public accounts. However the company is only able to sustain these
on the basis of the funding commitments given by the Government since 2002 to keep
it afloat. As this demonstrates, privatisation does not preclude the Government from
contributing to investment in rail or other private industries (although this was not
part of the original Conservative prospectus).
With London Underground the New Labour Government did not pursue full
privatisation but negotiated a public-private partnership (PPP), i.e. a private finance
deal. This transferred responsibility for financing and managing a programme of
maintenance and renewal of trains and infrastructure over a finite period to private
consortia in return for a series of performance-related payments. (The renewed
physical asset is returned to public ownership at the end of this period.)
PPPs generally have the advantage that they enable additional investment to be
secured without increasing public borrowing and do not involve 'selling off' public
assets - indeed adding to their stock over the long term. They also have potential
advantages as a form of procurement in that the design and delivery of the investment
is overseen by specialist companies. Many of the risks which would otherwise fall to
the commissioning public body are thereby transferred to the contracting consortium.
However because at least some of these risks are within the contractor's control there
is a commercial incentive to manage them as efficiently as possible . Likewise the
consortium has the incentive to achieve reliability in the design, construction and
operation of the facility, thereby reducing its liability for maintenance expenditure and
maximising income through performance-related payments.
PPPs nevertheless remain controversial on several counts. From the public
perspective a great deal of their potential 'success' depends on negotiating appropriate
details of the contract, which is an extremely complex and time-consuming business.
If difficulties arise during the period of the contract then the public client may still
find itself having to shoulder the ultimate burden of responsibility (since the facility
cannot be allowed simply to cease functioning). This aspect was highlighted in 2007
when Metronet (the larger of the two consortia running the PPP for the London
Underground) went into liquidation with debts of around £2bn.
There are also doubts as to whether the overall cost to the public sector is higher
- in effect whether the benefits of specialised management, incentives and risk
transfer of privately delivered schemes offset the higher costs of private borrowing,
the contractor's profit element and the costs involved in setting up the contract in
the first place (National Audit Office 1999). In the case of London Underground, Ken
Livingstone maintained that the alternative of issuing bonds to raise the necessary
money would have been cheaper and retained overall public control. It would however
have added to the PSBR.
Aside from arguments about PPPs as a form of financing there is a further dimension
of concern. One of the attractions of private finance to both Conservative and Labour
governments as they struggled with cuts in investment programmes during the mid-
1990s was that it enabled additional publicly funded schemes to be introduced. The
cost of these is not reflected in capital accounts but in annual revenue expenditure
(i.e. as a result of the payments which are made for use of the new facilities). However
taking on additional projects via private finance results in an ever-greater proportion