Mr Blair has been given bad advice about how best to finance the Tube

`The manifesto was never understood to imply the transfer of track, stations and depots to private firms'

IT'S NOT only in the cinema this week that Bonds are back. Once the dust has settled on the Archer debacle, it will become apparent that the opening up of a real debate about the funding of London Underground has finally begun to have an effect.

Last week, at the reconvened London Selection Board, I was asked to clarify my position on the question of Labour's manifesto. I made it crystal clear that I would stand on Labour's manifesto, which will be drawn up following the mayoral selection after full consultation with the candidate and the membership in London. This commitment was given in writing before the meeting, along with another that I would not withdraw from the race under any circumstances.

The second meeting took four hours because two further commitments were asked of me. I was asked to agree the following statement about Labour's manifesto for London: "You understand that this manifesto will include the party's policy on London underground including PPP, as described by John Prescott [my emphasis]." I argued that it would be better to remove that wording and instead insert Labour's 1997 general election manifesto commitment: "Labour plans a new public/ private partnership to improve the Underground, safeguard its commitment to public interest and guarantee value for money to taxpayers and passengers."

Following an adjournment I was again asked to agree a statement, which this time asked me to accept a manifesto which will include PPP "as set out by John Prescott in the House of Commons on June 15 1999". This was the crucial announcement that Railtrack was to be brought on to the "sub- surface" Tube lines.

If I had accepted either this or the earlier version of the agreement, I would have been unable to argue for my policy on Tube funding. I would have been consenting to the London Selection Board's determining the manifesto of the London Labour Party, killing the debate about the Tube in the London Labour movement. I would have been unable to argue for the internationally proven method of funding such infrastructure investment: the issuing of bonds.

Labour's manifesto commitment was never understood by any commentator or Labour Party member to imply the transfer of track, signalling, stations, tunnels and depots to three private companies, which would then be responsible for the maintenance of the Underground's infrastructure. This package certainly does not constitute value for money. As the LSE's report on the Underground argues: "It is now apparent that the PPP as proposed will meet few of the objectives set out for it when it was announced." On most estimates, PPP would come near to costing pounds 1,000 more for every man, woman and child in London than a bonds issue.

The events since last Thursday have underlined the importance of those four hours with the London Selection Board. This weekend both the Prime Minister and the Deputy Prime Minister weighed in against bonds. In The Observer, the Prime Minister said: "Ken's proposal is that London raise bonds for the Underground. Yet in New York, when the city produced bonds for the subway, the city went bankrupt and central government had to deliver the bonds for New York."

John Prescott, on the BBC, added: "I've looked at New York, I've looked at the proposals, and I've actually used bond financing - that's just another form of borrowing, guaranteed by government." Crucially, he added: "New York went bankrupt doing it."

But by yesterday Whitehall was furiously backpedalling after Rosemary Scanlon, LSE research fellow and former deputy state comptroller for New York City, pointed out that the Government had confused a fiscal crisis in New York in the Seventies with the bond issue by the State of New York Metropolitan Transportation Agency in the Eighties. Ms Scanlon says: "The MTA reinvestment programme, and its bond issuance, is without question a major success story in New York."

The day before, the Tube union leader Jimmy Knapp argued: "It is misleading to make reference to the bonds issued to modernise New York metro and then devalue the idea with reference to the federal government intervention when New York City went bankrupt. It was in no way related to the issue of bonds for funding capital investment in public transport."

And this week The Economist argues: "The New York Metropolitan Transportation Authority is a good example. Since 1982 it has financed more than $14bn in investment for the city's transit authority by issuing bonds backed by city revenues." It concludes: "Financing a monopoly business [such as] London's Underground in this way would make a great deal of sense."

This onslaught led to a rethink by a Downing Street spokesperson yesterday: "Neither the Prime Minister nor the Deputy Prime Minister implied in any way that the MTA had been in any financial trouble," he said. But this position has had common currency amongst Labour politicians for months. In September at Labour Party conference, Glenda Jackson launched her manifesto for London mayor. In it she argues: "A bond issue was attempted on the New York subway, and on three separate occasions the federal government was forced to intervene to prevent the city from defaulting."

At Labour Party conference, Trevor Phillips and I pointed out that bonds had worked in New York. But someone, somewhere, deep in the bowels of the Treasury, has been briefing Labour politicians, including John Prescott and Tony Blair, with very bad advice indeed.

If Labour is to win the election in London it now has to do two things. It has to respond to the public revulsion at the prospect of Railtrack being given responsibility for anything on the Underground. Second, Labour must come out clearly for a bonds issue to finance the Tube, which is the system preferred by most serious economic commentators. It would send a clear signal to the business community that we are prepared to run our public transport network on tried and tested lines, and it would remove Labour's most unpopular policy from the mayoral election next May, which is the Government's last big electoral test of this Parliament.