We are not saying think again. We are saying think

Jeremy Colman, National Audit Office

A report by the National Audit Office (NAO) said the case for the government's "public-private partnership" (PPP) intended for London Underground "is clearly not proved".

The doubts cast on the scheme by the NAO provide a further boost to London Mayor Ken Livingstone's campaign to block Deputy Prime Minister John Prescott's preferred option for the Underground's future funding.

Mr Livingstone, following a long-running war of words on the issue between himself and Mr Prescott, welcomed the report in conciliatory tones that signalled a compromise deal could be in the offing.

More work required

According to the NAO, London Underground (LU) and the Department of Transport had inadequately considered all factors and were therefore not yet in a position to decide on the future structure of the Tube.

The government clearly wanted the National Audit Office to endorse the PPP. It has refused to do so

Ken Livingstone

The NAO had examined the financial analysis carried out on the proposed PPP.

Under the government's plans the operation of Tube trains would remain in public ownership but tunnels, tracks, signals, stations would be split into three and leased for 30 years to private firms which would invest �8bn into the network.

In October the mayor appointed American Bob Kiley as his chosen head of the capital's transport system. Mr Kiley has condemned the PPP plans as potentially unsafe and "fundamentally and fatally flawed".

John Prescott: Has previously vowed to see the PPP through

Mr Kiley, credited with having turned round the ailing New York subway, has unveiled his own plans for a �10bn funding package which would leave the Tube in public hands but see money invested from both private and public funds.

Commenting on the report, Mr Livingstone said: "The government clearly wanted the National Audit Office to endorse the PPP. It has refused to do so."

The mayor added that the "way out" of the present apparent impasse between his administration and the government's wish to see the PPP through lay in the talks that had taken place between Mr Prescott and Mr Kiley.

"I am greatly encouraged that, after two meetings this week, they have agreed to meet again in January," said Mr Livingstone.

'Think...'

Although the NAO verdict concerned LU's own financial analysis and whether a public sector option for the Tube would provided more value for money, the watchdog did not look into Mr Kiley's scheme - which was only published on Wednesday.

Sir John Bourn, head of the NAO, said LU should continue to examine wider factors, including the strategic risks and benefits of the PPP, and which option would best ensure effective risk management and safety.

Mr Prescott and LU "should not take a decision solely on the basis of the numbers emerging from their financial analysis," he said.

London Mayor Ken Livingstone pledged to block the plans

"There are other important factors that need to be considered alongside the figures to assess the best value for money option."

Mr Prescott, who heads the Department of the Environment, Transport and Regions, retains control over the Underground until the PPP is put in place. He will then hand charge of the system over to the mayor.

Speaking at the report's release, NAO's assistant auditor general Jeremy Colman said: "We are not saying think again. We are saying think."

He added that given the financial analysis presented so far, "the case for PPP is clearly not proved".

Asked if the NAO report was bad news for Mr Prescott's PPP, said: "I don't think it's bad news for PPP for us to say people should think very carefully before entering into a 30-year commitment for an enormous capital programme."

'A question of management'

Mr Colman added: "I'm not sure finance is the big issue here. It's a question of management.

"The question is whether it's better to have public sector managers in the public sector or private sector managers in the private sector."

A spokesman for Prime Minister Tony Blair later said the government still regarded the PPP as the best way forward for the Tube, saying: "It remains our favoured option."

But the scheme would be judged against a "rigorous" public sector comparator in order to ensure it offered value for money for the taxpayer, the spokesman added.