10 DfT's exposure to risk as a result of the PPP contracts resulted in it having to pay £1.7 billion of grant to London Underground. DfT had ultimate responsibility for protecting the interests of the taxpayer and was exposed to policy and financial risk. It considered that it might have to increase grant levels to meet the cost of extra spending under the PPP contracts. It would have had to do so where the Arbiter decided that the extra spending had been incurred economically and efficiently and where the cost could not be borne by London Underground or TfL. Although it did not guarantee Metronet's borrowing formally, the Secretary of State had given assurance to Metronet's lenders. Eventually DfT had to make grant payments of £1.7 billion to help TfL purchase Metronet's debt obligations, a sum that would otherwise have been repaid over the 30 year life time of the contracts.
11 DfT had few formal levers to manage risks to the taxpayer. Under the Greater London Authority Act 1999, strategic and investment responsibility for London Underground was devolved to TfL and the Mayor of London. The Secretary of State could only direct the Mayor to make changes to transport strategy where it would be inconsistent with national policy and have an adverse effect outside London. DfT was not a party to the contracts and had no direct influence over performance. While the payment of grants to cover infrastructure modernisation costs was potentially an important lever, the payments could only be made as part of a block grant to TfL, without conditions, reducing the direct leverage it gave. The PPP contracts were developed in the knowledge that devolution would limit formal levers. DfT therefore relied upon the monitoring of public and private sector parties and obtaining cooperation through influence, assisted by its role as the funder of grant.
This Report does not consider the merits or flaws of the PPP structure, focusing instead on how DfT, and the parties it relied upon, sought to manage the Metronet structure as it stood.