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Self-finance plan for London Underground

LONDON UNDERGROUND'S £7bn infrastructure maintenance and renewal programme could be kept under public sector control under radical new proposals expected to be published this week.

The plan would allow London Underground to raise enough cash to tackle its £1.2bn maintenance backlog plus the infrastructure upgrade.

It could also bring forward long awaited projects such as CrossRail and the Chelsea-Hackney Line, funded without extra cost to central government.

The proposals are being prepared by Stephen Glaister and Rosemary Scanlon of the London School of Economics. Scanlon is a former deputy controller general of New York State. The plan uses transport in New York as the model for a radical alternative to finance London's Tube system after the mayor takes over in two years time.

Under the plan it is assumed that London Underground will be made part of new London transport authority Transport for London. LU should then be allowed to borrow money, underpinning debt or bonds with a combination of ticket revenue, income from property sales and hypothecated taxes on motorists or local businesses.

This hypothecated revenue is vital to the plan as projects are unlikely to pay for themselves out of LU revenue streams alone.

Glaister has dubbed his plan to combine hypothecated taxes and revenue the 'Fourth Way'. It contracts with the Government's 'Third Way' of using private contractors to raise their own finance to carry out infrastructure improvements.

According to Glaister, the New York mayor sets out specific projects that the city needs in a five year capital plan and decides what taxes will be applied to fund them. At present New York City is $14bn in debt and since 1982 has funded projects worth over $28bn backed by fares, bridge tolls, and dedicated fuel, shopping and telecommunication taxes.

'What we are looking for now is an appropriate way to take this plan forward,' said Glaister. 'Within the Greater London Authority Bill, proper provision should be made to allow these thing to happen.'

A separate Trust would be needed within the Greater London Authority to raise finance, probably in the form of bonds or bank debt. The trust would have a legal liability to define the scope of work to be financed by bonds or bank debt. 'The market must be able to see where the legal liabilities are and that investments are free from political interference,' said Glaister.

Research by Glaister has shown that under the current proposals, even with the Underground's income rising to £450M a year in the long term, servicing private sector debts to put right the £1.2bn backlog of work would cost £100M a year more than it could afford. 'This is only to fund existing repairs and does not take into account projects such as CrossRail,' he added.

Recent changes in Treasury budgeting rules announced this week by Gordon Brown could also make redundant Deputy Prime Minister John Prescott's plan to bring in private contractors to finance and manage the £7bn infrastructure upgrade, Glaister said. Allowing the public sector to plan three year budgets will enable Tube bosses to spend more efficiently.

Glaister said that more significantly, the recent 'one off' deal struck by Prescott for the Channel Tunnel Rail Link using government guaranteed debt has showed the Government can convince the Treasury such commitments should not show up as public sector debt (NCE last week).

'The present Underground solution was designed for a previous age,' said Glaister. 'If government can be persuaded to make a one-off deal, it can perhaps make two-off or three-off deals.'

Glaister had developed his proposal, he said, because he had serious doubts about how Prescott's 'Third Way' plan announced in March will work. 'The March statement is only about getting the backlog sorted out. There is nothing about new investment.'

Antony Oliver

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