By Richard Johnstone | 7 September 2011
The government’s decision to award a contract to construct 1,200 new train carriages to a German factory has cost the Treasury £20m in tax receipts and the economy up to £100m, MPs have been told
The Commons transport select committee is conducting an inquiry into UK rolling stock procurement after the £1.4bn contract was awarded to Siemens, over Bombardier’s Derby factory, in June, resulting in 1,400 job losses.A report submitted to the committee says the Derby bid was ‘destined to lose’ to the German firm due to the type of contract chosen to purchase the trains. The contract, which covers the cross-London Thameslink route between Bedford and Brighton, was an agreement to both build and then lease the trains, according to the Centre for Research on Socio-Cultural Change at the University of Manchester said.
The centre’s report states: ‘The contract which Bombardier lost was not an old-fashioned one for supplying 1,200 carriages’. Instead, it was a Private Finance Initiative style contract that covered the building of the carriages and their maintenance for 30 years.
Crucially, bidders were required to arrange the initial finance to construct the trains.
This meant that Bombardier’s lower credit rating put it at a disadvantage against Siemens. Siemens has an A+ rating, compared with Bombardier’s BB+, meaning that the Derby factory lost out as it would have had to pay an extra 1.5% in interest rates for borrowing.
However, the research concludes that a broader calculation of the costs and benefits of the two bids, including income tax paid by British workers, would have made the Bombardier bid more financially attractive.
The director of the centre, Professor Karel Williams, gave evidence to MPs this morning. He has estimated that around 1,000 jobs would have been saved by the award of contract to Derby, providing the Treasury with tax receipts of almost £20m per annum, and with a total benefit to the economy of over £100m.
He has also criticised as ‘inappropriate’ the bundling of the train building and rolling stock finance.
The Department for Transport has said that it had no choice but to award the contract to Siemens due to European Union procurement laws, which state that a bidder’s location or nationality cannot influence contract awards. However, Transport Secretary Philip Hammond has admitted that the UK is not ‘making best use’ of the EU rules.
