Newspaper article The Evening Standard (London, England)

Mind the Gap on the Tube in Gordon's Statement; City Comment

Newspaper article The Evening Standard (London, England)

Mind the Gap on the Tube in Gordon's Statement; City Comment

Article excerpt


CHANCELLOR Gordon Brown has always said he is not in the business of surprises - which may explain why he likes to trail the themes in his Budgets beforehand.

We can therefore safely assume that today's Pre-Budget Report will make little or no mention of one of the areas where Government financial acumen is most in question - the fate of the public private partnership. He is even less likely to comment in detail on the financing of the Tube or acknowledge that the plan to allow three private sector companies to take over management of the infrastructure on 30-year contracts is under so much pressure that some people doubt it will ever happen.

The nub of the problem is that the three infrastructure companies need to raise hundreds of millions of pounds in the bond markets to finance the necessary improvements to the system, but they can only succeed in this if those being asked to lend the money think they will get repaid.

Ultimately, the creditworthiness of the consortia depends on the willingness of the other side to honour the contracts and to resist the political temptation to change the game if the going gets rough.

If people have confidence in their continued financial viability through good and bad times, investors will support the three consortia. If they have doubts, borrowing money immediately becomes very much more difficult.

The Government's problem is that it has created those doubts.

The decision to pull the plug on Railtrack and the way it was done have caused bankers to question the Government's good faith. They fear that if the Tube renovation runs into difficulties, rather than continuing to support the consortia the Government might again seek a short-term political advantage by pulling the plug on them.

Bankers therefore want the Government to stand behind the consortia. …

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