Duel for the Tube

Published 09 April 2001

John Kampfner reveals the bitter personal enmities behind the battle over London's Underground

Gordon Brown cannot abide Ken Livingstone. The feeling is mutual. It goes back a long way - and, unless something happens quickly, it risks ruining London. The latest war between the Chancellor and the Mayor of London is over the Tube. They are not present at the negotiations about who should run the capital's Underground. But, behind the scenes, they are calling the shots. Both sides have been near to a deal, only to find it unravel at the last minute. Now, it is going to the courts.

"It's an impossible situation. Ken knows he has a very strong hand," says a government official familiar with the talks. "He's twisting Gordon's tail and enjoying it. But Gordon won't give in. That leaves the rest of us staring down a barrel."

The animosity began in the wilderness years - Labour's and Livingstone's. After the fame he enjoyed during his first incarnation of running the capital, as head of the GLC, Livingstone never took to being a backbench MP. He felt he had much more to offer the party, especially in economic policy. The trouble was that none of the leadership happened to agree. The more undervalued he felt, the more disparaging he became about his accusers. He used his columns in the Sun, and then in the Independent, to attack Brown at every opportunity, in opposition and in government. "I specialise in how the Chancellor screws up the economy," he once mused, only half in jest. Brown saw Livingstone as a charlatan; Livingstone saw Brown as an old-fashioned machine politician. But Brown takes criticism particularly badly - nobody can remember the two speaking for years.

During last year's bitter dispute over whether Livingstone should be allowed to run as Labour's candidate for Mayor of London, Livingstone was convinced that attempts to stop him were directed by the Chancellor. That is a view some in Downing Street and Millbank share. "Tony was self-evidently opposed to Ken," says one official. "But he was essentially a pragmatist. Gordon was hell-bent on making sure Livingstone would never become mayor, come what may."

After cocking a snook at the leadership with his victory in May 2000, the new-independent Mayor of London tried to mend bridges with Blair. The peace overtures were accepted, and the two have had several perfectly cordial meetings. "I have a friendly working relationship with the Prime Minister and Prescott," Livingstone said last November. The same does not apply to Brown. In a speech to the Local Government Association, early into his tenure as mayor, Livingstone said: "From the end of the Eighties, local government has had no more independence in Britain than the Vichy regime had in France under the Nazis. The Treasury has always had contempt for democratically elected people in parliament, let alone local government. For years, the Treasury has been run by aliens whose objective is the destruction of all life on this planet, and they're just starting with local government services."

Those same aliens, according to Livingstone's world-view, are on an ideological mission to destroy public transport in London. The reason: the PPP, or public-private partnership. The project ended up as a compromise between purists in government who wanted, in effect, to privatise the Tube, and those who wanted to keep as much as possible under a single public control - a typical Third Way resolution. The Tube would be divided into four parts, with the lines run in three groups by private consortia, while train services would remain in the public sector. The two main benefits, according to its advocates, are the introduction of private sector money and the transfer of risk - the private operators would be liable in the event of the cost exceeding the budget, which seems to happen to most transport contracts in the UK. One senior figure directly involved in drawing up the PPP says Brown's motives are purely pragmatic. "Gordon took a mid-position in the Treasury and in No 10 when we set the thing up. There was no politics involved, and no personality."

And yet Livingstone had made opposition to the PPP the main plank of his successful mayoral campaign. It helped that polls showed the public agreeing; it helped that many in the Labour Party, and some in the Cabinet, were uncomfortable with the project. Prescott was doubtful in the early stages, but he went along with collective responsibility and argued the case.

Cue Bob Kiley. The appointment of the man who, in the 1980s, had turned around public transport in New York was a master stroke by Livingstone. On that point, all sides seem to agree. Even people in the Treasury describe him as a "good operator". But there were problems right at the start. Even before he had properly taken over as Transport Commissioner in London, Kiley threatened to take the government to court over its refusal to hand over the PPP contract papers. Once ministers had relented and he and his officials had gone through the documents, he described the plans variously as "fatally flawed" and "nutty". He predicted that safety would be compromised and - crucially - it wouldn't save money.

The first meetings were less than productive. But after the Hatfield disaster, Blair instructed Prescott to meet Livingstone and Kiley - and not just meet them, but to cut a deal with them. The reconciliation took place on 2 February at Prescott's office in the Department of the Environment, Transport and the Regions. Broad parameters were set. Prescott gave a written agreement that the PPP could be modified to ensure Kiley was given "unified management control". Kiley was asked to write back with proposals. In return, he agreed in principle to accept private financial provision, and to drop his and Livingstone's call for a bond issue to refinance the Tube.

Since the start of the year, there have been around a hundred meetings. The lead government department, the DETR, hosted most. Others have taken place at London Underground's St James's Park headquarters.

Representing Prescott have been two of his most senior officials - David Rowlands, in charge of rail policy, and Adrian Montague, a former banker and Treasury official who helped develop the PPP. Kiley brought with him any of three other Americans - Jay Walder, whom he appointed as finance director, Drew Hyde, his acting chief of staff, and latterly David Gunn, who, if he gets his way, would be the main manager of the Tube. Crucially, all of them had hands-on experience of running railway systems, something none of the government (or British) negotiators had.

Whenever the agenda involves funding, which is much of the time, Brown has been represented. His most senior official is John Gieve, the head of finance. But the person who really counted - or so Kiley's team believed - was Shriti Vadera. Vadera is seen as a high-flyer. After 14 years working for the merchant bank Warburg, she became one of Brown's four economic advisers in February 1999, and specialised in third world debt.

According to participants in the talks, neither she nor Kiley excelled in diplomacy. Kiley was suspicious of her, sitting there, taking notes, maintaining strong eye-contact and choosing her moments to signal the Treasury's will. There was also a serious cultural clash. As Livingstone put it: "The PPP was [thought] up . . . by two Treasury civil servants. One has a degree in theoretical economics, and the other in classics. Only in Britain could this weigh more heavily in the balance than the opinions of the men who have run the second- and third-oldest Underground systems in the world."

There were ups and downs in the talks, but by mid-March a resolution seemed in sight. Government negotiators say they made major concessions: the Tube authority (Kiley's people) would ensure that a quarter of directors on the boards of the infracos (the private companies that would run the lines for 30 years) would be non-executives, charged with protecting the public interest and given special voting rights. Kiley would be able to sack the chief executive and veto the appointment of a successor; he could veto budgets, acquisitions and business plans, including maintenance. The government would also agree to a "stable funding regime", in effect underwriting finance for the Tube. It would also pay for unforeseen future safety improvements.

Prescott thought he had done enough. Then things mysteriously began to go wrong. On 16 March, as government negotiators were preparing for a final haul over the weekend, Kiley called Rowlands and told him he had urgent business in New York. When the talks resumed the following Thursday, Kiley told them he wasn't happy, that he wanted absolute control of the tracks and signalling. He had been offered partial control. Prescott and Brown were furious; they accused Kiley of moving the goalposts and inventing new demands. Kiley's people deny this. They say they had always insisted that full operational control was their bottom line. They also accused the Treasury of ordering the DETR to renege on the issues that had been agreed up to that point, something the Treasury says it has not done.

The talks broke up that Saturday. Kiley and Prescott had one final go on Tuesday 27 March, a meeting described by both sides as "funereal". Prescott later accused Kiley of walking out and announcing legal action without telling him of his intention; he also accused the commissioner of misrepresenting the discussions and saying the government was going ahead with the PPP anyway. It spiralled out of control, with Keith Hill, the minister for London, suggesting that Kiley's safety record in New York hadn't been up to much; this led to the New York mayor, Rudolph Giuliani, riding to his compatriot's defence.

Both sides are truly entrenched, but the outstanding differences lie in the detail, not the principle. With good will, a deal could be struck instantly. Blair, who has kept a discreet distance but is regularly briefed, wants a deal before the election. Now, they have five extra weeks, just as the saga is put to the courts for judicial review. Ultimately, Livingstone also wants a deal. He knows that a government with a renewed mandate will play it even tougher. Strangely, throughout this saga, Brown has not found time to see Kiley (let alone Livingstone). The most frequently cited reason is that the DETR is in charge. Brown is not known, however, for his sensibilities to departmental demarcations. Prescott is just as angry, but knows he cannot let matters rest. He and Blair are under pressure from London Labour MPs, who know this is not going down well at the doorstep.

The beneficiary is Livingstone. After all, this is the third time he has been made a victim - by Margaret Thatcher, when she abolished the GLC, by Blair and Brown during the mayoral contest, and now. The only people who are suffering are the three million who take the Tube.

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