An end to PPPs?
The Metronet fiasco raises several very important issues. First, who is going to cough up for this enormous financial black hole? Metronet, which ran three-quarters of the PPP London Underground refurbishment programme, had grossly incompetent management which racked up a projected overspend of £2bn by 2010 plus £2bn in debts. Now they're bankrupt, who pays? As it stands, it will be Ken Livingstone and Transport for London, in other words the taxpayer. That is utterly unacceptable. It should be Metronet's banks and shareholders exclusively who carry the loss - lock, stock and barrel.
Second, why didn't the original contracts spell this out? Some £500m was spent drawing up the contracts, yet they failed to spell out the one single most important point: who pays if one of the contractors goes bust? The contracts were largely the work of consultants on whom the Government spends some £2bn a year, according to the 2005-6 figures just unearthed by the PAC Select Committee. It is a scandal that sums of this order are wasted each year on consultants whose overall net value to the Government and taxpayers, as the Metronet disaster amply demonstrates, is a huge negative.
Third, this is massive warning shot across the bows to Gordon Brown. It was he and the Treasury who went out of their way to ram this PPP through in the face of bitter resistance, even to the point of a High Court action, from the London Mayor. The Treasury paid £860m a year of taxpayers' money to install new tracks, bring in better trains, refit run-down stations, and replace old signalling systems. So who now should carry the can?
Fourth, this should be the writing on the wall for PPPs as a whole. Of course, the argument is that the fault lies with the lax and incompetent Metronet management, not with the PPP system itself. But the whole point is that PPPs are always inherently at risk of collapse like this - the claimed transfer of risk to the private sector is a charade, and in the end the public sector always has to stump up. So after a catastrophe like this, why do we continue with the flawed PPP/PFI system at all?
And fifthly, this sorry saga raises in stark relief yet again the whole antiquated system of company limited liability. A crassly incapable management can bring a huge company to its knees and then walk away with impunity. This exemption arose under the format of the nineteenth century joint stock companies as a way of increasing the power of companies and their managers over their investors. But doesn't the Metronet debacle manifestly make clear that this system of immunity should be drastically revised? A radical overhaul of company law should now be the consequence of this monumental Metronet failure.