House of Commons Welsh Affairs Committee
The Severn Crossings Toll: follow up
Oral and written evidence
18 June and 11 July 2013
Ordered by The House of Commons to be printed 18 June 2013
HC 356-i Published on 3 March 2014 by authority of the House of Commons London: The Stationery Office Limited £7.50
The Welsh Affairs Committee
The Welsh Affairs Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Office of the Secretary of State for Wales (including relations with the National Assembly for Wales).
Current membership David T.C. Davies MP (Conservative, Monmouth) (Chair) Guto Bebb MP (Conservative, Aberconwy) Geraint Davies MP (Labour, Swansea West) Glyn Davies MP (Conservative, Montgomeryshire) Stephen Doughty MP (Labour, Cardiff South and Penarth) Nia Griffith MP (Labour, Llanelli) Simon Hart MP (Conservative, Carmarthen West and South Pembrokeshire) Mrs Siân C. James MP (Labour, Swansea East) Karen Lumley MP (Conservative, Redditch) Jessica Morden MP (Labour, Newport East) Hywel Williams MP (Plaid Cymru, Arfon) Mr Mark Williams MP (Liberal Democrat, Ceredigion)
The following Members were also members of the Committee during this Parliament
Stuart Andrews MP (Conservative, Pudsey) Alun Cairns MP (Conservative, Vale of Glamorgan) Jonathan Edwards MP (Plaid Cymru, Carmarthen East and Dinefwr) Susan Elan Jones MP (Labour, Clwyd South) Owen Smith MP (Labour, Pontypridd) Robin Walker MP (Conservative, Worcester)
Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk
Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/welshcom
The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in printed volumes.
Additional written evidence may be published on the internet only.
Committee staff The current staff of the Committee is Marek Kubala (Clerk), Anwen Rees (Committee Specialist), Alison Mara (Senior Committee Assistant), Baris Tufekci (Committee Assistant), and Jessica Bridges-Palmer (Media Officer).
Contacts All correspondence should be addressed to the Clerk of the Welsh Affairs Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 3264; and the Committee’s email address is [email protected]
List of witnesses
Tuesday 18 June 2013 Page
Stephen Hammond MP, Parliamentary Under-Secretary of State, Department for Transport, and Chris Pope, Highways Agency Project Sponsor for the Severn Crossings Ev 1
Thursday 11 July 2013
Jane Hutt AM, Minister for Finance, Claire Bennett, Deputy Director of Transport – Policy, Planning and Partnerships and Andrew Jefferys, Deputy Director of the Strategic Investment Division and Financial Reform, Welsh Government Ev 9
List of written evidence
1 Letter from Mr Stephen Hammond MP, Under Secretary of State, Department for Transport, to the Chair, dated 25 April 2013 Ev 16 2 Letter from the Chair to the Rt Hon David Jones MP, Secretary of State for Wales, dated 11 September 2013 Ev 20 3 Letter from the Rt Hon David Jones MP, Secretary of State for Wales, to the Chair, dated 30 September 2013 Ev 20 4 Letter from the Chair to the Rt Hon Carwyn Jones AM, First Minister for Wales, dated 11 September 2013 Ev 20 5 Letter from the Rt Hon Carwyn Jones AM, First Minister for Wales, to the Chair, dated 21 November 2013 Ev 21 6 National Alliance Against Tolls Ev 21 7 Gloucestershire County Council Ev 22 8 Welsh Government Ev 22
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Welsh Affairs Committee: Evidence Ev 1
Oral evidence
Taken before the Welsh Affairs Committee on Tuesday 18 June 2013
Members present: David T. C. Davies (Chair)
Geraint Davies Simon Hart Stephen Doughty Mrs Siân C. James Jonathan Edwards Jessica Morden Nia Griffith ______
Examination of Witnesses
Witnesses: Stephen Hammond MP, Parliamentary Under-Secretary of State, Department for Transport, and Chris Pope, Highways Agency Project Sponsor for the Severn Crossings, gave evidence.
Q1 Chair: Good morning, Minister, and thank you something that we have discussed over the years—the very much indeed for coming along this morning. As concession extends and the toll payer again has to pay time is a bit short, I am just going to ask the more. My constituents are very keen to see some light Committee to start asking questions, but first I am at the end of the tunnel. What is your current given to believe that you might want to make a short understanding of when the concession will end? opening statement. Stephen Hammond: The current estimate of when the Stephen Hammond: With your permission, Mr concession will end—as you are aware, it is a fixed Davies, it might be helpful if I make an opening price concession—is when the concessionaire has statement, which I hope will clarify one or two points. recovered £1.029 billion. The current estimate is I reiterate that the Government are committed to the 2018. continued successful operation of the Severn crossings. I want to make the point that no decisions Q3 Jessica Morden: Over the last few years, it has have yet been taken on any future arrangements for moved from 2014 to 2018. Can you give us the time the crossings or after the end of the current of year in 2018 when it will end? concession, and that is still five years away. We made Stephen Hammond: That is reflected in some of the those points to the Committee during its inquiry into movement in terms of tolls and the costs of motoring, cross-border road and rail links in May, and also and one or two other things, but our best estimate at during evidence that I gave the Committee last the moment is the summer of 2018. Of course, there October. will be a period thereafter, as I said in my opening What is clear is that any future regime will need to statement, when tolling will continue while the recover the outstanding Government costs incurred Government recover their costs. that relate to the crossings. They will need to make provisions for maintenance of the crossings to reflect Q4 Jessica Morden: Who is responsible for the interests of road users, both in England and in monitoring the end date of the concession? Is Severn Wales. For many years, the Government have been River Crossings required to forecast its own revenues, clear that there will be some costs falling outside the and do you think that we should have some concession; those will need to be recovered following independent scrutiny of that? the end of the concession, and that was a key part of Stephen Hammond: Severn River Crossings produces the 1992 Act. The Department’s written evidence to a report and accounts. It is on those that you can see the Committee in September 2010 reflected that point. some of its cash-flow history. You can also see in them I hope that we have been transparent. We have tried some of the estimates as to why 2018 has been taken. to be very transparent in terms of the current costs and the current estimates. As you know, in a letter in April Q5 Jessica Morden: In general, we have had a this year I provided you and the Committee with a number of inquiries into the Severn bridge tolls, and full breakdown of the current costs falling outside the we are very grateful that you have come back again concession, in terms of the estimates. I hope that my today. In the past, Ministers have said that they are officials have been helpful to the Clerk by giving him committed to providing regular updates regarding the some of the information that you may require for future strategy of the Severn crossings and will today’s session. discuss this with interested parties. However, it seems Chair: Thank you very much indeed, Minister. I now that every time we ask any questions about when the call on Jessica Morden to begin. concession is going to end and what the date will be, we are met with a “No decisions have yet been made” Q2 Jessica Morden: In south Wales, we pay the answer from the Department for Transport. That is not highest tolls in the UK on the Severn bridge, and really very transparent, and for constituents in my area every year they go up because of the very restrictive who want to see light at the end of the tunnel it is not concession that we have. If there is any slight glitch— providing them with anything. cobber Pack: U PL: COE1 [E] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG01 Source: /MILES/PKU/INPUT/034892/034892_o001_steve_CORRECTED transcript - WAC 18 June 2013.xml
Ev 2 Welsh Affairs Committee: Evidence
18 June 2013 Stephen Hammond MP and Chris Pope
Stephen Hammond: I take issue with that. Where Chair: We will be coming back to that point later in your criticism probably extends is that we have not this session. yet made any decisions on what is going to happen in terms of the future management and future tolling Q10 Nia Griffith: Minister, the real concern for arrangements, post the end of the concession and post motorists is the costs that they face, and the worry the period when the Government recover their about increases in the toll and how long it is going to outstanding costs. last. In terms of getting rid of the debt—the To be fair, the Department for Transport over the last outstanding money that the Department will owe three or four years has been consistent in giving this when the concession comes to an end—how do you Committee estimates of what the final cost might be. see it working out? Would you pay it off as soon as I accept that they have moved, but that is because you could, or would you be able to keep the toll rates we have had better evidence available. We have been comparable to those that we have now? That is what relatively consistent in terms of the end date for the people really want to know. last year or so, and we have been open with you about Stephen Hammond: Let me be clear that it is money the costs outside the concession period that the owed to the Government as a result of works that have Government will need to recover post the end of the been done and costs outside that. In April, I provided concession. you with a detailed breakdown of our current estimate of that and why it had got to £88 million. Q6 Jessica Morden: When you are formulating your On tolling arrangements post-2018 to 2020, again we policy for the future strategy of the crossings, who have made no firm decisions as to what exactly those will you consult and when? will be. Stephen Hammond: The key thing will be that there will be a continuing and ongoing discussion with the Q11 Nia Griffith: You are obviously looking to get Welsh Government about that. rid of the £88 million that is owed. Will you be looking at making a profit margin, at current levels, Q7 Chair: Have you already embarked on an of about £30 million to do so? exploration of the list of options? Stephen Hammond: No; the £88 million is the cost falling to the Government, which we need to recover, Stephen Hammond: No. It is five years away yet, and and we will recover that in a period. The estimate, as no firm conclusions are under formulation. We have I indicated in a previous answer, is that that would be the workings of the concession to provide evidence in met by 2020. terms of revenues and what that might do if there were, but at the moment no decisions are being made Q12 Nia Griffith: Yes, but we have been given or formulated. It is five years away. figures today suggesting that you would make £30 million in profit. You would have revenue of £81 Q8 Chair: Is there not a paper somewhere in the million and operating costs of £51 million, so it would Department listing what the possible options are, and presumably take longer than two years. giving explanations of the pros and cons of those Stephen Hammond: I am not sure that I recognise options? those numbers. I have laid out to you why there are Stephen Hammond: This is a very formative stage. costs. Our current cost estimate is £88 million, and Inevitably, we will have evidence from the concession that is what we are recovering. of what the traffic volumes are at the moment and evidence of what tolls revenues are. There could be Q13 Nia Griffith: May I clarify that? If there is a any list of options potentially available post-2020, choice between keeping the toll rates at comparable which is the best estimate of when, post-2018, the levels to what they are now—in other words, not amount of costs that the Government need to recover having any increase—and having to take longer, outside the concession will finally be over. It is very would you be trying to take less time by putting those early even to start making any arrangements about toll prices up or would you keep the toll prices lower that or even to think about it. and take longer? Stephen Hammond: It is five years away, and we Q9 Geraint Davies: Would you accept that future have not made any decisions about that at this stage. tolls are a considerable factor in inward investment for south Wales? As the margins change in terms of Q14 Jonathan Edwards: What is your success with revenues versus costs, with the time span changing the Welsh Government to seek ownership of the year in and year out, do you accept that it undermines bridges following the end of the concessionary confidence in inward investment for south Wales and period? What discussions have you had with the it would be better to say something more certain? Welsh Government recently about these ambitions? Stephen Hammond: I think, Mr Davies, that we have Stephen Hammond: We have had continuing been as certain as we can be. You know as well as I discussions with the Welsh Government about do that it is a fixed price concession and that when the ownership post the end of the concession. There will money is paid up it will be the end of the concession also be the period when the Government debt has to period. We have given you a consistent estimate for a be repaid, and during that time they will need to while that it could be 2018—I certainly have; I said reflect the importance of that debt being repaid as well in response to a previous question that we expect it to as the costs of maintenance, and the interests of both be mid-year in 2018. English and Welsh users of the Severn river crossings. cobber Pack: U PL: COE1 [O] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG01 Source: /MILES/PKU/INPUT/034892/034892_o001_steve_CORRECTED transcript - WAC 18 June 2013.xml
Welsh Affairs Committee: Evidence Ev 3
18 June 2013 Stephen Hammond MP and Chris Pope
As for post-2020, when the debt will have been crossings, we are apprehensive about further increases recovered, we are still in discussions with the Welsh and so on. Government about the structure of ownership, but it Stephen Hammond: As I have said to a number of will need to reflect the interests of both English and members of the Committee, there will be tolling and Welsh road users, and it will need to reflect the ability the Government are entitled to recover that cost. That to ensure that the costs of maintaining the Severn river was made clear in the Act of 1992, but we have not crossings can be met. made any decision about what the tolling arrangements will be. Q15 Jonathan Edwards: Mr Byron Davies AM, who is shadow transport spokesperson, is quoted by Q19 Geraint Davies: The figures that we have say that fine Welsh newspaper the Western Mail as saying, that the revenue is £81 million a year and the cost is “The Severn crossings are a hugely significant £51 million, which suggests a margin of £30 million. economic lever that I believe should rest firmly in the The operating costs are about 63% of turnover, but in hands of the Welsh people.” Does he speak for your previous hearings we heard that the operating costs party? Is that Conservative party policy? were something like 25% of turnover, which is why Stephen Hammond: This is the first time I have heard we thought that the tolls could go down from about that quote. I have just given you the Government £6 a car to £1.50 a car. Given that the margins are position. squeezed so dramatically, can you explain why the costs have gone up, and what it means for the Q16 Jonathan Edwards: Has Mr Davies had any likelihood of your forecasts being reliable? discussions with you about launching that policy in Stephen Hammond: I understand, from advice that Wales? has just been given to me, that those two numbers Stephen Hammond: He is not the only person in reflect some of the SRC’s operating costs but do not Wales to have made those comments. He is entitled to reflect depreciation. Depreciation will be in that £30 his views, and he obviously wants to speak up for his million as well. I think that that is correct, but if you constituents with his views. But let us be clear. I have want more detail on that, Mr Pope will be happy to just stated what the Government’s position is. No give it. decisions have been taken on those future Chris Pope: Certainly. As you say, the cost of sales arrangements, but we have been clear that any future in SRC’s accounts is £50 million, but that includes regime must make provision for maintenance and its internal financing costs and depreciation. We can reflect the interests of road users in England and provide more detail on that. Wales, because both use the crossings. Going forward, there will clearly be ongoing maintenance costs and operating costs, depending on Q17 Mrs James: Minister, I want to go back to the what the tolling regime might be, but they are not of accumulated deficit. You have written twice to the the order of £50 million. They are much less than that. Committee, once in December 2012 and again in April 2013, and you have revised the figures. You Q20 Geraint Davies: When we were looking at 25% mentioned this in your introduction, and you have costs, they were basically for the operation and covered it somewhat in the answers that you have maintenance of the bridge. Are you saying that the given to my colleagues, but why are the latest difference between 25% and 63% is depreciation and estimates so much lower, and how confident are you management costs? That is an enormous increase. It that they will be recouped in one to two years, by is fixing the figures, in some sense. Who is suddenly 2018? putting in these massive depreciation and management Stephen Hammond: The April letter explained the costs on top for the car payer to cough up? difference between the £112 million and the £88 Chris Pope: The depreciation within that £50 million million figures. The £112 million was in the report is £38 million for 2012. Obviously, within SRC’s and accounts, and it was the estimate of the debt accounts, they are depreciating the asset throughout outstanding as of the end of the period to 2012. The the life of the concession. £88 million number is an estimate, which represents what we think the Government will be entitled to Q21 Geraint Davies: I see. Of the £51 million, £38 recover through tolling, assuming that the concession million is depreciation, so you are depreciating the ends in 2018. That explains the difference between the value of the bridge down to nothing over the next few two figures. years on the accounting presumption that the bridge I hope that I have laid out with clarity, in the second will not be worth anything; but obviously it will. It page of the annex to my letter of April, exactly what will be a bridge generating loads of revenue, so surely those numbers are. I accept that they are an estimate, those depreciation figures are wrong and should be and, as with all estimates, it is likely that the final recalculated to get a fairer toll for the passenger and number will change somewhat, but I would not expect a quicker paydown for the taxpayer. a huge change. I am reasonably confident that we have Chris Pope: I think that you are confusing two things. the right number in terms of the estimate, and I am The figures you were quoting were from Severn River reasonably confident of the time scale in which we Crossings’ own accounts, but obviously at the end of can collect that money. the concession Severn River Crossings will cease to exist. Q18 Mrs James: It is dependent on tolling. Forgive Stephen Hammond: They do not have any value. At me, but, as people who regularly use the Severn the end of the concession, Severn River Crossings has cobber Pack: U PL: COE1 [E] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG01 Source: /MILES/PKU/INPUT/034892/034892_o001_steve_CORRECTED transcript - WAC 18 June 2013.xml
Ev 4 Welsh Affairs Committee: Evidence
18 June 2013 Stephen Hammond MP and Chris Pope to give the bridges back in an acceptable state of relationship—I know that you have touched on it— maintenance, which is to be certified by the HA, into between the Welsh Assembly and the UK Government the ownership of the Government. At that point, they in the context of the numbers in the question that I will obviously have no value to Severn River originally asked. Crossings, because they no longer operate the Stephen Hammond: As I said—I shall be absolutely concession. clear about it—we have not yet taken any cost-benefit analysis on future tolling arrangements, and we have Q22 Geraint Davies: There will still be a value to not taken any firm decisions. Of course, I am aware the bridge. that the Welsh Government produced a report last Stephen Hammond: Yes, of course, but that will be November, which talked about a £107 million boost one of the HA’s assets. to the economy of south Wales. I assume that you are concerned about even greater Q23 Geraint Davies: Why then should it be benefits. I would say, however, that even the report’s depreciated down to zero value? authors describe that as a tentative conclusion, and Stephen Hammond: Because it will have no value at there are some pretty heavy caveats to it. Although I the end. was aware of it, it would be inappropriate to comment Chair: We might return to that point in a minute. on the depth of that, given how heavily caveated those numbers are. Q24 Simon Hart: Going back a couple of steps, notwithstanding the fact that this is all five years away, Q27 Stephen Doughty: Are they in the right have you or your Department done any cost-benefit ballpark? Are they getting there with their analysis as analysis into what the likely advantages would be to something you would recognise? Wales as a result of dropping the tolls altogether? The Stephen Hammond: As I said in answer to Mr Hart’s reason for the question is that others have looked into question, when we do our cost-benefit analysis we will this. I wondered whether the Department has and, if have a clear view of what it is, but, as we have not so, what figures it has come up with. done that, it would be inappropriate for me to Stephen Hammond: As I said earlier, Mr Hart, the comment. reality is that we can see the operating costs and operating revenues, and we know the debt Q28 Geraint Davies: The impact will be £107 outstanding, but we have made no decision about the million, as you said. You will be aware that when they tolling in that period. We are having ongoing took the toll off the Forth bridge, which I think was discussions with the Welsh Government about the only £5, traffic increased by 13% almost immediately. future. The Department is assembling evidence, but Some economists are saying that these are we have done no firm cost-benefit analysis. underestimates of what we could expect. If there was no toll, you would presumably expect there to be a Q25 Simon Hart: If you do not mind my asking the significant increase in tourism, trade and inward same question again, at what stage will the investment, would you not? Department will do that? With respect to my Stephen Hammond: I assume that, if a road is colleagues in the room, the reason that I ask is the provided for free rather than being charged for, it is feeling that the Severn bridge affects only a small likely to see an increase in usage. The exact elasticity radius of activity in the vicinity of Newport or perhaps of that is difficult to judge, but prior to the a little further west, but those of us in the far west are construction of the Severn bridges some people used just as fascinated at what is coming down the road, if to travel an extra 50 miles on their journey. I can use that expression, because we have hauliers leaving west Wales and coming through Fishguard Q29 Geraint Davies: There is much more traffic now and Pembroke Dock every day for whom this is a than there used to be. serious long-term planning issue. At what stage do Stephen Hammond: Indeed, and I agree with you that you think you will be able to pull the sheet off some it is economically likely that if you provide something calculations, some figures, to allow us to plan a bit for free more people are likely to use it. As for the ahead? total number, I reiterate that we have not yet done any Stephen Hammond: I should have thought within firm work on the cost-benefit analysis, and we have three years of the concession ending would be a time made no decisions about future tolling arrangements. when the Government would have firmed up those I note that the report is heavily caveated and that it is numbers. described as a tentative conclusion.
Q26 Simon Hart: Right. The Welsh Government Q30 Geraint Davies: At a time when the have come up with some figures. It always makes life Government are planning HS2, a north-south link for more complicated if you have one political institution England, they are still charging tolls, which is a tax bandying numbers about and our Government, the UK on the economy of south Wales. Do you not accept Government, being a little more coy about what the that inward investors are now being driven towards future may hold. not going to south Wales and staying in England? In the context of the discussions that we have had Stephen Hammond: It has the benefit of the bridge, about who is going to take ultimate responsibility for so I do not think that you can necessarily make that the bridges, I am not sure how helpful that is. It would claim. Also, the structure of the toll has been clear be quite handy to hear some indication of the since the 1992 Act, and it is also clear that the bridge cobber Pack: U PL: COE1 [O] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG01 Source: /MILES/PKU/INPUT/034892/034892_o001_steve_CORRECTED transcript - WAC 18 June 2013.xml
Welsh Affairs Committee: Evidence Ev 5
18 June 2013 Stephen Hammond MP and Chris Pope is used for the benefit of both English and Welsh Q36 Chair: I am sure that toll payers are grateful that road users. they did not have to pay the extra 20% in VAT. The point that I am making is that, on the one hand, you Q31 Jessica Morden: You give the impression in are saying that you want back the £88 million that you your answers that either you do not understand or you accrued for repairs to the old bridge, which I do not really care how hard commuters, particularly understand; but at the same time, as you said, the those in my constituency, and also businesses, Treasury or the Government received £121 million, a especially the haulage industry mentioned by Simon sum greater than the £88 million, in a windfall that Hart, are hit by these tolls. Do you understand how you were not expecting because the Government hard it is for businesses to absorb costs that other opposed the imposition of VAT and fought the case in businesses across the bridge do not have to absorb, the European courts. You have received a windfall— and how hard it is for motorists at a time when a sum greater than the unexpected £88 million that motoring costs are very high? you had to pay out in repairs. Stephen Hammond: We received £120 million in Stephen Hammond: Of course I do, partly because I VAT, yes, and there are other costs that we have am a Minister and I see it all around the country and gained throughout the lifetime of this concession, but partly because there are the same pressures for some of that £120 million, although the money is not businesses in my constituency as well. hypothecated, will have gone to the maintenance of the bridge. Q32 Geraint Davies: You haven’t got a bridge. Chair: Order, order. Q37 Chair: There was money going to the Stephen Hammond: Either I am going to answer the maintenance of the bridge anyway, and that was all question, Mr Davies, or I am not. taken into account. This £121 million is extra money Chair: Please answer, Minister. that you received as a result of a European decision Stephen Hammond: Thank you. I reject that that the Government opposed. suggestion entirely, but it has always been clear that Stephen Hammond: The Government certainly the Government will have costs falling outside the opposed being forced to levy VAT on private toll concession that the Government need to recover and operators. are entitled to recover. I dare say that, if we were not doing so, you would be hauling me in front of the Q38 Chair: As a result of losing the case, the Committee to explain why I was not getting the Government ironically received £121 million that they benefit back for the taxpayer. were not expecting. Stephen Hammond: That is correct; but so that that Q33 Chair: I am not sure that we would, Minister. did not result— Stephen Hammond: Certainly, Mr Davies, another Committee would. Q39 Chair: I am not questioning what they did. I am very glad that you did that. Q34 Chair: Perhaps the other Committee would Stephen Hammond: Even with that £120 million, Mr understand that you want to receive back the £88 Davies, there will still be costs outstanding at the end million, which, in very simple terms, you have of the concession. accumulated for repairs that had to be done to the old bridge. I understand that. Q40 Chair: The Government have received £121 Perhaps a reasonable question would be this. You have million that they were not expecting, and they paid out £88 million that they were not expecting, so the accumulated an increased and unexpected debt of £88 Government have actually made a profit of £30 million, which you want back for the taxpayer. At the million. Therefore, many toll payers will find it unfair same time, as a result of the decision to levy VAT on and unacceptable that they are going to have to pay the bridge, you have received about £121 million, back the £88 million, when the Government have maybe £141 million in today’s money, minus, already received more than that in an unexpected perhaps, 25% that would have been claimed back by windfall. businesses—I do not have the exact figure—but Stephen Hammond: That is confusing stock at the certainly a sum of money that was much greater than end against a flow of income coming in. the £88 million that you are receiving back. That is correct, is it not? Q41 Chair: I turn to the additional revenue from the Stephen Hammond: My estimate of the total VAT Industrial Buildings Allowance changes. I must admit payable or received up to 2012 was, as you say, £120 that I was not an expert in this, either, before any of million. You will, of course, appreciate that to this. As a result of the withdrawal and phasing out of minimise the impact of that, Ministers agreed not to IBA, SRC estimated that it would have to pay the increase the tolls. That was achieved by renegotiating Government about £21.2 million in extra taxes. Again, the concession agreement. that represents another windfall for the Government, does it not? It is an extra £21 million that the Q35 Chair: That means that toll payers will be Government were not expecting as a result of a tax paying the toll for longer. change that they made. Stephen Hammond: Indeed, because it was set up in Stephen Hammond: Again, you are right that 1992 as a fixed price concession. abolishing Industrial Buildings Allowance meant that cobber Pack: U PL: COE1 [E] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG01 Source: /MILES/PKU/INPUT/034892/034892_o001_steve_CORRECTED transcript - WAC 18 June 2013.xml
Ev 6 Welsh Affairs Committee: Evidence
18 June 2013 Stephen Hammond MP and Chris Pope there was an increase in revenue to the Treasury. Q48 Chair: No, but it would be in future. However, you and I both know that the Treasury does Stephen Hammond: The Government would not be not hypothecate sums against anything; that is not allowed to do that, Mr Davies. It is explicitly set out how public finances work. in the Act. Chair: Thank you very much. Q42 Chair: No, but I would put it to you that people paying those very high tolls have been told by the Q49 Nia Griffith: I turn to the M4. In responding to Government that they must find an extra £88 million our March report “Crossing the Border”, your from their own pockets in the tolls that they pay to Department said that it “continues to work with the cover costs that the Government were not expecting, Welsh Government to explore funding options for and yet, at the same time, we can say that the improving the M4.” Will you tell us about progress Government have received £140 million—£120 on those talks, and what options you will be taking million from VAT, and another £20 million through forward to fund that M4 relief road? the tax on industrial buildings—that they were not Stephen Hammond: The responsibility for funding expecting. The Government are doing very well and managing the highways in Wales has been the indeed out of all this, are they not? responsibility of the Welsh Government since Stephen Hammond: Be clear also that some of that— devolution. The M4 is obviously a road of strategic certainly the VAT—will not have affected business importance; everybody, including the Government, users, who did not see an increase in VAT. recognises that. Therefore, the Government have been working with the Welsh Government to explore Q43 Chair: No; it is about 26%. funding options. Stephen Hammond: You and I know, Mr Davies, that You mention tolling. Again, I say that the Government no Government have hypothecated revenues in that have a clear policy not to toll existing road capacity way. They allocate them across the economy. in the UK. The Prime Minister has said that, and the Department has reiterated it. If there were to be any tolling, it would be as a result of an infrastructure Q44 Geraint Davies: The whole nature of this is upgrade. The Government have no plans to toll hypothecation. This is hypothecation. The existing roads. We are working to assess the Government are saying that the cost of the bridge recommendations of the Silk Commission, and we needs to be recovered through hypothecation, but you will respond to that as soon as possible. are now saying that there should not be hypothecation. As the Chair pointed out, we have had these windfall Q50 Nia Griffith: Do you actually see it as a viable gains. possibility using some of the toll money from the Stephen Hammond: There is a difference between bridge to fund those improvements to the M4? taxation and tolling revenues. Stephen Hammond: As I say, no decisions have been made. The fact of the matter is that provisions at the Q45 Chair: Minister, do you agree that the tolls moment allow us to set a toll on the bridge that looks ought to be brought down in the long term? at operating costs, maintenance and some proportion Stephen Hammond: Again, I start by saying that the of an estimate of future needs. That is set out in the Government have made no future decision on tolling Act. and tolling levels. Of course, people would like to see I am not sure whether we would need to extend the tolls brought down. I would like to see taxes brought Act if we were looking at how far the tolling revenues down as well, Mr Davies. from the bridge could be used in terms of funding the M4, but I reiterate that no decision has been made Q46 Chair: I shall make this my last question, or it on the future regime of the crossing. We are still in will not be fair on other members of the Committee. discussions with the Welsh Government, first, on the In the long term, do you think that the toll ought to future regime of the Severn crossings and, secondly, be levied at a rate that covers the cost of maintenance, on the M4. and perhaps even a sinking fund for a future bridge, or do you think that the toll represents a good way for Q51 Geraint Davies: Would you be prepared to the Government to raise extra money for the press the Treasury to do a cost-benefit analysis akin Treasury? to the one that the Welsh Government did on the Stephen Hammond: It clearly is not a good way, nor impact of the different tolls on the tax take in south was it ever intended to be. If you look at what the Act Wales? Obviously, if the tolls went down, there would sets out, the toll has to be set at a level that covers be more business and more employment, with less operating costs, maintenance and future provisions for benefits being paid to people on the dole because there upgrade. That is what that level of toll does. It is to would be more jobs. We have been pressing the be hoped that, if those costs decline over a period, Government to do that. Are you prepared to press the then the tolls will. Government so that we can have the facts in front of us in order to have a more realistic discussion about Q47 Chair: As a principle, it would be wrong for the this? Government to use it to raise extra money for the Stephen Hammond: As I said in response to Mr Treasury. Hart’s question, the Government and the Department Stephen Hammond: The Government have not used will do that, but it would be appropriate to do it at a it to raise money. time closer to the end of the concession. cobber Pack: U PL: COE1 [O] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG01 Source: /MILES/PKU/INPUT/034892/034892_o001_steve_CORRECTED transcript - WAC 18 June 2013.xml
Welsh Affairs Committee: Evidence Ev 7
18 June 2013 Stephen Hammond MP and Chris Pope
Geraint Davies: But not now. but we have also looked at estimates of what happens when there is exceptional congestion at the Dartford Q52 Jonathan Edwards: On the M4 relief road, is crossing, with the tolling being taken off for a short there not a danger here that, essentially, we have the time. We have been able to make an assessment and UK Government deciding what the transport priorities take evidence to inform the models from a number of the Welsh Government should be? If you are going of places. to make a one-off capital investment, would it not be better just to give the money to the Welsh Government Q56 Stephen Doughty: On the credit card payment so that they could perhaps develop an alternative system that has been introduced, what is your estimate strategy, such as a south-east Wales regional metro of the impact that that has had on both flows and system? revenues since its introduction? One of the biggest issues with the M4 in Newport is Stephen Hammond: In terms of flow, if I am right, that it serves as an inner link road and the M4 the system is now operational on all but one of the motorway. If you take the local traffic off the lanes. In terms of actual numbers, I might ask Mr bottleneck in Newport, you would not have the traffic Pope to pick up on that. problems that we have today. Chris Pope: In terms of revenue, it has had no impact Stephen Hammond: You made a huge number of other than the additional transaction costs, which we hypothetical jumps there, if I may say so, Mr have talked about before in terms of the recent Edwards. agreement with SRC. I make the point again that, since devolution, it has been the responsibility of the Welsh Government to Q57 Stephen Doughty: Has it helped with flow? It maintain and invest in roads in Wales. Because of its is certainly quicker when I go through. strategic importance, the Government are talking to Chris Pope: The PIN-less system that now operates is the Welsh Government about the M4. much quicker than the previous system, where you had to enter your PIN. Yes, at peak times it has helped Q53 Stephen Doughty: I have some technological flows. It is debatable whether cash is still quicker than questions. In response to the 2010 report—which was card payments, but it is obviously a convenient facility before I came into Parliament—the Government said for the motorist. that they were going to consider amendments to the 1992 Act to bring forward free-flow technology. What Q58 Jessica Morden: I don’t want to be crass, but steps have you taken towards that and what constituents have asked me whether you can do discussions have you had with the concessionaire anything about car sharing so that people who want about potentially introducing that technology before to share cars could share the TAG, but that seemed the end of the concession? impossible to sort out. Stephen Hammond: As you know, we intend to Stephen Hammond: Haven’t you done that already? introduce it in Dartford in 2014. I still expect that to Chris Pope: That has been introduced as part of the be done in October 2014. That will very quickly give card payment system, but it is not yet up and running. us a clear assessment of the benefits, to show whether our estimates are true. We then intend to have a SRC expect it to be later this year. discussion with the concessionaire about future arrangements at Severn as well. Q59 Jessica Morden: If you could give us a likely date, that would be helpful. Q54 Stephen Doughty: You have not had one to Chris Pope: They told me September, but I am saying date yet. that it will be the end of this year. Stephen Hammond: No. We can make some estimates of the benefits that we will see at Dartford; Q60 Jessica Morden: Businesses repeatedly ask for we have laid those out. We are committed, and we are some kind of help with off-peak travel, which would absolutely on time, to delivering that in October 2014. make a great deal of sense in terms of traffic flows. At that stage, it will be very clear whether our Has any thought been given to that? estimates of the benefit in terms of traffic flow and Stephen Hammond: I am not sure whether it has, but less congestion, and therefore benefits to the economy, I am happy to meet you and other members of the will be correct or not. Because of the models that I Committee off-line to discuss the advantages of that, have seen, I anticipate that they will be. At that stage, and to have a look at what might be possible. it will therefore be appropriate to have a much firmer discussion. Q61 Jessica Morden: Would you also include representatives of particularly logistics businesses in Q55 Stephen Doughty: Have you not looked at other south Wales? international examples? It is not as if free-flow Stephen Hammond: I would be happy to undertake technology will be used for the first time at the that meeting. Dartford crossing. I saw an example myself in Vancouver the other month. What examples have you Q62 Simon Hart: Who comes up with the £6.20, the seen internationally? £12.40 or the £18.60 figures? As a road user, I find Stephen Hammond: One of the reasons why we are that most annoying. I would rather pay £6.50 or £13, doing Dartford is that we have looked at a number of but these multiples are clearly dreamed up by examples internationally. We have experience of that, somebody who does not drive a car. cobber Pack: U PL: COE1 [E] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG01 Source: /MILES/PKU/INPUT/034892/034892_o001_steve_CORRECTED transcript - WAC 18 June 2013.xml
Ev 8 Welsh Affairs Committee: Evidence
18 June 2013 Stephen Hammond MP and Chris Pope
Stephen Hammond: Well, Mr Hart, I am not sure prevented from doing so because of the toll. I wonder whether they drive a car or not. what more could be done. Nia Griffith: May I come in here? It particularly Q63 Simon Hart: Not over the Severn bridge, they affects small businesses. If you are a regular don’t. commuter, then you can clock up perhaps 22 journeys Stephen Hammond: I take the point that those are a month, but if you have a job here, a job there and a inconvenient numbers. My understanding is that it is job somewhere else—the typical classic small builder the concessionaire’s decision to set those prices. that Geraint describes—then it is obviously much more difficult to benefit from that. Q64 Mrs James: My husband recently bought a van, and every time we cross to visit relatives or to do Q67 Chair: Minister, you will be aware, of course, errands we have to pay double the price. I have to say that the portfolio of transport in the Welsh Assembly that, if I find it onerous as someone just travelling is now being undertaken by Edwina Hart AM. Have across, the effect that it must have on small businesses you had many meetings with Ms Hart? and people with vans who are doing small commercial Stephen Hammond: I have had no meetings, but I journeys must be absolutely horrendous. have had three telephone calls. As a regular user of the bridge, we are paying double the price. Apparently, if we had two seats in the back Q68 Chair: You are discussing the future of the of the van, we could go through as a car, but we do Severn bridge with her and feel that you can do so not. I really cannot overemphasise the effect it is whenever you wish. having on small indigenous businesses. Stephen Hammond: I have no doubt that we will be Stephen Hammond: I hear that point, and, as in my able to have a discussion whenever we need to. We response to Ms Morden’s question, I am happy to have discussed other transport issues in Wales so far, have a meeting with members of the Committee and and we have also had a discussion about two representatives of the freight businesses. particular issues that she wished to raise.
Q65 Geraint Davies: On the point specifically about Q69 Geraint Davies: You will be aware that the vans and small businesses, Minister, if you imagine Welsh Government have bought Cardiff airport. Have yourself as a small construction businessman—for there been any discussions about the toll, particularly instance, tiling roofs—the economics of going across in relation to reducing it and stimulating air traffic to Bristol and tendering for a bid to tile somebody’s from the airport, or not? roof is very much undermined by having to go back Stephen Hammond: I am aware that they have bought and forth many times in a van. Will you consider the the airport. The Welsh Government have not raised possibility of some sort of multi-buy for those who that issue with me. have to go across the bridge many times? If the unit cost came down, we could encourage small businesses Q70 Chair: Minister, given that the VAT is payable in Newport and elsewhere. only because SRC is a private company—I never Stephen Hammond: There is already a multi-buy thought that I would hear myself say this—I urge the facility, but I shall ask Mr Pope to detail it. Government to look at nationalisation or state Chris Pope: There is a season TAG that you can ownership of this piece of infrastructure, so that at purchase, and if you are a regular user you get a 20% least my constituents can enjoy the 20% discount. discount; I believe that it is based on 22 trips per Stephen Hammond: I shall obviously not make any month, so if you are doing a regular commute— comment on your initial remark, Mr Davies, but don’t forget that this crossing will revert to HA ownership Q66 Geraint Davies: What I am getting at is this. If as of the end of the concession. you took a job that took a month, you would want to Chair: We look forward to a windfall. I see that there go over many times. The point that I am trying to are no further questions. On that note, Minister, thank make, Minister, is that there is a whole community of you very much, and thanks also to Mr Pope, for small businesses in Newport and elsewhere that could coming along to answer our questions today. offer better value to people in Bristol but are basically cobber Pack: U PL: COE1 [SO] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG02 Source: /MILES/PKU/INPUT/034892/034892_o002_steve_CORRECTED transcript -FINAL - WAC 11 07 13 Severn (3).xml
Welsh Affairs Committee: Evidence Ev 9
Thursday 11 July 2013
Members present: David T. C. Davies (Chair)
Stephen Doughty Simon Hart Jonathan Edwards Jessica Morden Nia Griffith ______
Examination of Witness
Witness: Jane Hutt AM, Minister for Finance, Claire Bennett, Deputy Director of Transport—Policy, Planning and Partnerships and Andrew Jefferys, Deputy Director of the Strategic Investment Division and Financial Reform, Welsh Government, gave evidence.
Q71 Chair: Welcome, Minister. Thank you very looking at this—of the importance of the crossings to much for coming along this morning to talk about the Wales and the Welsh economy. There is recognition Severn bridges. We have a number of questions on that we are the highways authority for Wales and that them, and I wish to begin with Jessica Morden, please. we are responsible for our trunk roads system and the Jessica Morden: I will kick off. Welcome, Minister. M4. Also, you will know that some of our discussions Could you set out the Welsh Government’s position at have been around the opportunities of using toll the moment regarding the Severn bridges? income, particularly in relation to our discussions on Jane Hutt: Thank you very much. I thank you, Chair, early access to borrowing and the enhancement of the for inviting me to give evidence to this committee as M4, which I am sure you will want to ask me some part of the very important inquiry that you are questions about. undertaking. As far as the Welsh Government is We have done a great deal of work. You will be aware concerned, the Severn crossings are of huge that we have looked at, and done some work on, the importance to the economy of Wales. I know that you impact analysis and, if we took responsibility, what have been looking at that very strong perspective. we would do in terms of tolling. We have also That point has been made clear in the independent acknowledged—and I am sure that we will go on to research, of which you are aware, looking at the this—issues around the debt. You have had a letter on economic impact of the Severn crossing tolls on the that, I see. Perhaps we will return to that. We want to Welsh economy. You will see from our written look at this from the perspective of the responsibility evidence that, in principle, we would wish to own that we would be taking on. Clearly, this would be both crossings, subject to due diligence. as a result of constructive negotiations with the UK Going back to the 2012 economic impact study, you Government. As Minister for Finance, I would say will be aware that it clearly demonstrates that the tolls that this is about the infrastructure for the UK, is it impact disproportionately on businesses on the Welsh not? It is about the importance of a major road—the side of the border, thus mainly affecting the Welsh M4—for England, Wales and Ireland, in terms of economy. having a trans-national route. We are seeing this very much as an important, inter-governmental Q72 Jessica Morden: Do you think that having responsibility that we need to sort out as soon as control of both bridges, once they return to public possible. From our perspective, it is important, in ownership, is practicable, given that one of them is order for us to boost the Welsh economy, that we have entirely in England? control of those tolls, to reduce them and to look at Jane Hutt: I think that that is a bit of a red herring. ways in which we can incentivise, perhaps in terms of You cannot get off the bridges unless you come into smart tolling, for the benefit of the economy. Wales; the motorways across the Severn come into Wales. This is about goodwill and constructive Q74 Jessica Morden: We have pursued this quite a negotiation. I would say that we have been involved lot as a committee, and the response from the UK in very constructive discussions about the future of Minister for transport is often to say that it is quite a the crossings. This gives me the opportunity to say long way in the future and that there are lots of things that those inter-governmental discussions have to work through. Do you feel that it is very important included the Prime Minister’s office and the that we nail these things down now, because it is about Department for Transport, as well as Welsh people making decisions about investment in Wales in Government representatives. I do not think that the the future, and that we need to be very forward- issue of which part of which bridge is in England or thinking, rather than leaving it to the last minute? Wales is going to stand in the way of a constructive Jane Hutt: You and the Chair have stressed conclusion to the negotiations. repeatedly the importance of coming to a conclusion on the future arrangements for the crossings. We are Q73 Jessica Morden: During those negotiations with all clear about where we are on the concession. We the UK Government, what has its response been to can question and debate the issues around the debt, your desire to have control of the bridges? how it should be repaid and whether it should be Jane Hutt: I think that there is recognition—and that repaid. It could be written off by the UK Government, is why it is so important that your committee is as was the case with the Humber bridge. However, we cobber Pack: U PL: COE1 [E] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG02 Source: /MILES/PKU/INPUT/034892/034892_o002_steve_CORRECTED transcript -FINAL - WAC 11 07 13 Severn (3).xml
Ev 10 Welsh Affairs Committee: Evidence
11 July 2013 Jane Hutt AM, Claire Bennett and Andrew Jeffreys need to get on with this. It is linked to the the committee to look at that because it should not be enhancement of the M4, is it not? The very first any reason or excuse for delaying the consideration of discussion that the Prime Minister and the First how we come out of the concession and move forward Minister had relating to the M4, going back at least to what we seek, namely the transfer into public two years, was focused on that. We followed on from ownership, with the Welsh Government taking on the that with inter-governmental discussions, because this responsibility. is clearly linked to the prospects of the Severn We are doing as much as we can in terms of the crossings. analysis. We have also done an analysis on the bridges themselves, because we recognise that, if we took Q75 Jessica Morden: I have one final question. This responsibilities as the highways authority for Wales, is obviously linked to the enhancement of the M4, but our first responsibility would be the operation and do you also think that it should be linked to reducing maintenance of the crossings. That has to be done— tolls for businesses and people who live locally, who that is clear in legislation—and that would be our are very much affected by them? responsibility. Thereafter, we would have to look at Jane Hutt: This goes back to the very important not just levels of tolling, reducing and varying tolling economic impact assessment that we carried out. It for different circumstances of usage, but also at the was independent and it showed the adverse impact on fact that we may then need to seek the use of that Welsh businesses and it looked at—and we may go tolling income for other purposes, such as enabling us on to this—what the impact would be if the tolls were to pay off the debt on borrowing. That links back to reduced, for example the impact that that might have the enhancement of the M4. We believe that we are on raising the gross value added of Wales and on the on top of things, as much as we can be as a disincentives of the toll levels, in terms of the negative Government, but, obviously, this is inter- impact that the current arrangements have. So, we governmental. It will depend on goodwill and have the evidence, have we not, to say ‘something negotiation, which my officials and I, as the Minister needs to be done’? That could include reducing the for Finance, are already engaged in. This is crucial to tolls, incentivising ways in which, perhaps, we could the infrastructure of the UK, not just to Wales. provide relief for heavy goods vehicles, for example through some concessions, and recognising the impact Q77 Chair: I do not feel, frankly, that we have had on tourism. We are at the early stages of deciding what a lot of clarity from the UK Government over what is we would do, but reducing the tolls is, clearly, pretty going to happen when the concession ends. Do you much a prerequisite—if we are going to have tolls feel any better informed than the committee is about at all. what the Government is planning? Has it had discussions with you, perhaps, and given you any Q76 Nia Griffith: Even in the couple of years since indications that we are not aware of? we visited the Severn crossings, we have seen that the Jane Hutt: I have certainly had constructive goal posts seem to be constantly moving. We heard discussions with the Chief Secretary to the Treasury from Stephen Hammond recently that it was too early on the financial prospects, for example, of early access to consider what was going to happen after the end of to borrowing for the purposes of funding the M4 the concessions. How do you see it all? Do you feel enhancement. However, my officials, Andrew Davies that you have a real grip on the figures? There is all and Claire Bennett, on behalf of the Minister for this business about how much debt should be paid Economy, Science and Transport, Edwina Hart, have back, whether it should be written off, whether it been involved in those discussions with the Prime would take longer to finish the concession with lower Minister’s office and the Department for Transport. tolls or vice versa. What is your assessment of when There has been an exchange of correspondence with the concession will come to an end? Do you believe the Secretary of State for Transport. We are pressing this 2018 date? Have you had any indications from on this and we are engaged. Your support for that the Department for Transport about what it intends to constructive dialogue would be very helpful, but, do with what, supposedly, is the outstanding debt? clearly, you need to have the transparency that we How would you like to see things go forward from seek in terms of planning. However, it seems to me the Welsh Government’s point of view? that we have the opportunity to present to the UK Jane Hutt: As I referred to in response to Jessica Government the proposals that are on the table. earlier, we are aware of and have been trying to explore this debt of £88 million—and, helpfully, you Q78 Chair: Obviously, one proposal that the have had the letter now from Stephen Hammond— Government might be considering is some kind of which we have questioned over time in terms of how agreement with the Welsh Government. Do you think that has been made up. Interestingly, if you look at the that the UK Government is at the moment considering attachment to that letter from Stephen Hammond—I in detail what will happen post concession? do not know whether the committee has looked at it— Jane Hutt: I would hope so— you will see that one of the things that it refers to is the fact that there are also the costs of the debt to Q79 Chair: I am not clear that it is. This is not a Government that Severn River Crossing plc is trick question; I am genuinely not clear as to whether responsible for. It is interesting when it is said that it is or is not. Perhaps it is, and it does not really want there is a £88 million debt, but that a £274 million to spell out exactly what it is doing. So, I wonder payment should be repaid by the SRC at the projected whether you have any impression as to whether it is end of the concession agreement in 2018. I would urge considering this or not. cobber Pack: U PL: COE1 [O] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG02 Source: /MILES/PKU/INPUT/034892/034892_o002_steve_CORRECTED transcript -FINAL - WAC 11 07 13 Severn (3).xml
Welsh Affairs Committee: Evidence Ev 11
11 July 2013 Jane Hutt AM, Claire Bennett and Andrew Jeffreys
Jane Hutt: This is part of what we embarked upon in because, with all due respect, Minister, if you are 2010, which is the respect agenda in terms of the talking about major-road infrastructure, that could inter-governmental responsibilities that we have. mean anything in Wales—it would, effectively, mean Clearly, we have seen this from an early stage as an the money going into the Welsh Government and important inter-governmental responsibility, on which being spent in some way without being directly the UK Government needs to engage with us in order hypothecated to an improvement on that particular to deliver the best outcome for the Welsh economy stretch of road. and for the maintenance operation of strategic routes Jane Hutt: I mean, in particular, the enhancement of from England into Wales and on to the Republic of the M4 around Newport. Clearly, in terms of what we Ireland. So, I urge the UK Government, as I am sure could do with a source of income once you have dealt that you do, to treat this as a priority. It is not just a with the tolls—and if you were reducing or varying priority for the Welsh economy—I believe that it is a them and taking responsibility for maintenance and priority for the English economy as well. Also, time operation—that income stream towards the cost of a is running out, David, and I think that you recognise major road would really be for the M4. There would that. not be enough of an income stream to go beyond that. Chair: Absolutely. However, you can be assured of our commitment to Jane Hutt: In terms of extending it to 2018 because this if, as I said, we took ownership. It is a matter of of this historic debt, we know that that is not far off maintenance, operation, reducing the tolls, and then a and we want to get on with enhancing the M4 and the possible source of income in terms of the M4. important strategic road improvement. However, we want to take responsibility for it, as far as possible. Q83 Chair: I will make this my last question. Are So, we would urge you to urge the UK Government, you giving a commitment here that any money over as we are, to regard this as a priority. and above the cost of maintenance would be directly hypothecated towards an M4 relief road and not Q80 Chair: Do you think that the UK Government simply ploughed back into general road maintenance is serious about having discussions with you and is projects, which may well have had to have been paid serious about a proposal? I see a nodding of the head, for anyway by the Welsh Government’s transport so I take that as a ‘yes’. directorate? Jane Hutt: Perhaps one of my officials will want to Jane Hutt: That would not be appropriate. That is the comment on that. responsibility of the Welsh Government in terms of Mr Jeffreys: I think that there is genuine engagement, road maintenance. but there is no indication that the UK Government has reached a conclusion or is anywhere near reaching a Q84 Chair: So, any money from tolls would be over conclusion on this. I think that you are right that it is and above your transport budget. seeing this as quite a long-term decision to be made, Jane Hutt: I do not know whether ‘hypothecate’ is but we think that it is perhaps more urgent than that. quite the right word, but it would be used specifically to fund a project. The M4 enhancement is the project Q81 Chair: I feel that there has been a lack of clarity that it would fund. from the UK Government over the future, post Chair: Right. Excellent. Thank you. I now call on concession. If there were to be a proposal for the Nia Griffith. Welsh Government to take over the Severn bridge and the Severn bridge concession, post 2018, would the Q85 Nia Griffith: When you talk about the idea of Welsh Government come out with a clear and it funding the M4, presumably you are talking about transparent set of proposals regarding what the tolls funding the borrowing for the M4. would be and perhaps seek to make money out of Jane Hutt: Yes. motorists or simply pay the maintenance of the bridge Nia Griffith: So, it is funding for the interest and possibly put money aside for a sinking fund or payments. There is a real difficulty here in the sense perhaps an M4 relief road? that we understand the difficulties for the south Wales Jane Hutt: Our written statement lays it out clearly economy of having the tolls there in the first place, that we would like to take responsibility and that we particularly those of us who have haulage companies are prepared for that. We think that the decisions about in our constituencies and those who are involved with future tolls should be made by the Welsh Government small businesses, so you are stuck between how low at the end of the concession, and we are willing to you can keep it for them and, at the same time, take responsibility for both crossings, subject to due wishing to use some revenue from it. Proportionately, diligence. Our priorities would be maintenance, it will be more significant to the Welsh Government reducing the tolls, alleviating the burden on the than it will be as part of the UK budget. How will you economy and providing a possible source of income, approach that rather difficult dilemma? which is important, but on the grounds that that should Jane Hutt: These are difficult decisions that we would be to support major road infrastructure. That goes have to make, but we have done some financial back to the enhancement of the M4. So, hopefully that modelling already in terms of what this could mean is clear. in terms of an income stream towards an M4 enhancement. So, we have done some modelling. Q82 Chair: Do you mean ‘major road infrastructure’ These are very early days in terms of looking at what or ‘a major road infrastructure’, which I would take we would consider in terms of tolling. I know that to mean the M4 relief road? There is a difference, you have looked at the issue and that you have seen cobber Pack: U PL: COE1 [E] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG02 Source: /MILES/PKU/INPUT/034892/034892_o002_steve_CORRECTED transcript -FINAL - WAC 11 07 13 Severn (3).xml
Ev 12 Welsh Affairs Committee: Evidence
11 July 2013 Jane Hutt AM, Claire Bennett and Andrew Jeffreys evidence of smart tolling elsewhere, which, of course, Q88 Jonathan Edwards: [Translation.] What would we would draw on. I am glad, in a sense, that you are be the intention of the Welsh Government’s use of moving the argument on, because I do not think that tolls once that M4 had been built? Would you retain we need to make the case at all with you as a tolls, or would you abolish them once you have committee. However, we have to listen to businesses, actually paid for that new road? in terms of what they feel is the impact, as well as Jane Hutt: Following up on earlier questions, we look at the evidence that we have provided on the need to look at the role and use of tolls. We have to tolls. We must also recognise that you could have maintain and operate the crossings. Obviously, that is more traffic as a result of reducing the tolls, and there the first call on the use of the tolls. That is a very could be a balancing out. The business case is being important question in terms of the future and in terms analysed in terms of those different toll arrangements. of whether we can access an income stream from the A 50% reduction of tolls will translate into an increase tolls towards the M4 enhancement. However, the in the annual GVA of around £53 million, a 25% cut commitment to reducing tolls and the impact of that, into a £26 million increase and so on. Of the which would not only be beneficial in terms of businesses surveyed, 50% considered the crossings to business, but also in terms of being able to have an be either ‘important’ or ‘very important’ for their income stream, is something that we would have to business. So, the productivity model that has been look at very carefully when we come to that point. It done in our research is very helpful in terms of goes back to the Chair’s point—it is almost like, if looking at the impacts and is a guide. However, I think you are borrowing, you have to borrow for a purpose, that we have done quite a bit of work on this already, do you not? You have to pay it back, too. We are have we not, Andrew? We need to move on in terms waiting eagerly for borrowing powers. of getting a decision on giving us the responsibility. At the end of the day, this is about a negotiation, and, Q89 Jonathan Edwards: [Translation.] We will be with goodwill, we think that we could succeed, having a discussion later on regarding those issues, because we now have the evidence and the planning perhaps. In your written evidence to this committee, to take this forward. you raise significant concerns about the mathematics of the department for transport in London in terms of Q86 Jonathan Edwards: [Translation.] Minister, the deficit that it has outlined. You said earlier that you have made quite an important revelation today, I you had raised questions with it, but what negotiations feel, in saying that, if the bridges were held by the are you having with it at an inter-governmental level Welsh Government, you would use the revenue from in terms of its mathematics and the accumulated tolls to fund the building of a new M4 around the city deficit of the bridges? of Cardiff. If that were to happen, and if the Welsh Jane Hutt: This goes back to the points that I made Government were to take ownership of the tolls, how earlier on, and to the letter from Stephen Hammond long do you think that it would take to build that to David Davies that you have received in terms of new M4? the debt. I think that it would be very useful if the Jane Hutt: You will have seen Edwina Hart’s written committee looked at what we presume will be a repayment to the Government by Severn River statement a couple of weeks ago about the next stage Crossing, as a result of the Severn crossings in terms of consultation on an M4 relief road—a arrangement. We need to progress that, if we are to southern route around Newport. In terms of the have a serious negotiation with the UK Government business planning for the M4, it is important that we about who takes responsibility for the crossings. As make a start on the next stage. It is very important you said, in our evidence to you on the policy that we look at the opportunities as a result of that background—we have had a great deal of discussion consultation, but I think that the written statement about this, which included the concession period and really sums it up in terms of where we are. We have the fixed sum of money we could collect from the already done a lot of consultation anyway on previous tolls, and this is where we have reached, namely the M4 corridor enhancement measures, and the understanding that the concession would end in 2018. consultation over the summer does lead us, I think, to However, the response from the Secretary of State for a pretty sound business plan for the M4 enhancement. Transport, as far as this is concerned, has been a We have been looking at 2018 as being a possible moveable feast. He has powers to levy tolls for a starting point for the work, but a lot of work needs to minimum of 35 years under the Severn Bridges Act be done before then. 1992. So, that means that tolls could be levied and they could be levied for a further five years after the Q87 Jonathan Edwards: [Translation.] Do you have longest period that the concession could last. You are an estimate of how much it would cost to build that aware of that and, clearly, this fluctuation of debt is new M4? of concern to us, as you know. Jane Hutt: This is an issue for the Minister for Economy, Science and Transport, Edwina Hart. That Q90 Jonathan Edwards: [Translation.] On that is her responsibility, but I am very happy for Claire point, it was a huge surprise to this committee when Bennett to respond, as her official. I think that that is the new Minister for transport appeared before us to something that you need to raise with her. outline that there was a deficit and that it wanted to Claire Bennett: If the committee wants to write to the continue with the tolls once the bridges returned into Minister, she would be happy to provide the public ownership. How much of a surprise was that information that you are asking for. for the Welsh Government and how much confidence cobber Pack: U PL: COE1 [O] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG02 Source: /MILES/PKU/INPUT/034892/034892_o002_steve_CORRECTED transcript -FINAL - WAC 11 07 13 Severn (3).xml
Welsh Affairs Committee: Evidence Ev 13
11 July 2013 Jane Hutt AM, Claire Bennett and Andrew Jeffreys do you have in the figures that the Department for toll level. I know that you have pursued the fact that Transport in London uses? that perhaps should be repaid. However, it is not; it is Jane Hutt: It goes back to the detail that we have going into the coffers. been given in the letter. We can carry on disputing that. I feel, as I have said already, that the UK Q93 Jessica Morden: Going back to Jonathan’s Government should consider writing off that debt. It question, you mentioned that you are quite far down has written debt off for the Humber bridge, and it the line in terms of M4 enhancement, so do you have would be helpful if this committee could express a a preferred scheme or route in mind? view on that. This has to be about moving forward for Jane Hutt: You will, I am sure, be very involved, with the benefit of the economy and for business. That has your constituency hat on, in the consultation. You will come across clearly to us in the Welsh Government. I have seen the written statement from Edwina Hart. It am sure that this committee will have taken evidence was only published a couple of weeks ago, and from business and the Confederation of British consultation will now commence. Industry particularly. The CBI, not just in Wales but at a UK level, has said that the M4 is a key priority. This is something that should cross party political Q94 Jessica Morden: Is the Assembly bearing in lines. This is a key priority. If the Government in mind that, while improvements to the M4 are much London as well as our Government subscribe to a needed, the level of tolls hits my constituents, and budget and to an infrastructure plan for growth and any change or enhancement will hit my constituents? jobs, the M4 enhancement has to be a key priority. I Those things need to be borne in mind in the round. urge the committee to support my call to write off Jane Hutt: Very clearly. the debt. Q95 Chair: Minister, the reason we are paying 20% Q91 Jonathan Edwards: [Translation.] On that of those tolls is because the bridge is operated by a subject, and this is my final question, not that I am private concessionaire. If the Welsh Government were encouraging the Welsh Government to go down this to take over the running of the Severn bridge, could route, but how eager is the Welsh Government to you give any commitment as to whether you would assist the British Government to pay off that debt? get a private company to do it or take full Jane Hutt: It would be difficult for us to take on that responsibility yourselves, and therefore deliver a 20% kind of responsibility in terms of our funding base. discount to motorists? We are awaiting the results of the Silk commission Jane Hutt: We would take responsibility. We would report, we are at a low level in terms of the funding be the highways authority. I think I have already stated base—our capital budget has been cut by 40% over very clearly that one of the first things we would do the last three years—and we face a challenging would be to look at reducing the tolls. settlement in the spending round. So, I urge the committee to go back to the £247 million debt to Q96 Chair: So immediately, if you took Government that the SRC is responsible for, which responsibility, there would be an automatic 20% I mentioned. discount, would there not? Chair: We are covering quite a lot of detail, which is Jane Hutt: You have made a suggestion, David. good, but we are probably not doing quite as well on time as I had hoped. So, I ask everyone to be a bit Q97 Chair: Is that a commitment that the Welsh more concise. I think that you wanted to come in on Government would run it itself? the back of that, Jessica. In fact, you have another Jane Hutt: The fact is that the Welsh Government is question anyway, so carry on. the highways authority for Wales, so it is responsible for the M4 and trunk roads, and we believe that we Q92 Jessica Morden: Do you think that the should and can take responsibility for the crossings. Government is doing quite well out of the bridges? In a recent evidence session, we discovered that, on today’s prices, the Government had got in about £160 Q98 Chair: So, it is not a suggestion—no VAT million, which was partly to do with VAT payments would legally be payable. on the bridges and partly to do with the industrial Jane Hutt: On the VAT issue, which I raised and you buildings allowance. Therefore, to recover the £88 have been dealing with, in terms of responsibility, I million after tolling ends, do you not think it should am not sure how we would extract ourselves overnight be paying that down with the £160 million it has from that. Perhaps you could comment, Andrew. taken in? Mr Jeffreys: It is certainly not an issue that we have Jane Hutt: You have done the sums, Jessica. As far looked at in great detail. You will not be surprised that as I am concerned, it is making money. That is the Treasury quickly alighted on the potential loss of VAT kind of transparency where we are being held to income if the crossings were transferred into public account, as the UK Government is. I think business ownership. Treasury is aware that it is an issue. We would question—and not just business, but tourists, certainly have not looked in great detail at what the visitors, the people of Wales, and the people of transition would look like. However, you are right— England visiting Wales—where that money is going. public authorities that operate tolls do not pay VAT. They just see the tolls going up. I know that you have Jane Hutt: Another good reason for public done some good work about VAT in this committee, ownership. and the fact that that has been absorbed into a rising Chair: Indeed. I am becoming converted to this idea. cobber Pack: U PL: COE1 [E] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG02 Source: /MILES/PKU/INPUT/034892/034892_o002_steve_CORRECTED transcript -FINAL - WAC 11 07 13 Severn (3).xml
Ev 14 Welsh Affairs Committee: Evidence
11 July 2013 Jane Hutt AM, Claire Bennett and Andrew Jeffreys
Q99 Stephen Doughty: I have a specific question on I have a separate question, if I may. I know that this the airport. Obviously, the Welsh Government has a is not, strictly speaking, a Severn bridge question, but particular interest in the profitability of Cardiff Airport it is an M4 upgrade question. Do you have any serious in the future, and I was wondering whether any proposals about an extension of the M4 in a westerly estimate or consideration has been given to the impact direction? Can I get away with that, Chairman? that lowering tolls could have on potential passenger Chair: I think you have. [Laughter.] numbers and traffic to Cardiff Airport. Jane Hutt: It would be a dereliction of duty, Simon, Jane Hutt: It is a fair question. It may be something had you not asked me. I know that Paul Davies would that the new managers of the airport—the new have expected you to ask that question. company running the airport on our behalf—will be I just want to go back to your first point. We see this, looking at. Certainly, we would see that this is looking west, as a trans-European network route, and opening the doors to Wales in a very proactive way, that is very important. It is part of the TEN1 routes so I am sure that it could have a bearing. It is scheme, and it is to the Irish Republic, west Wales something that we could look at. and onwards. That gives it a very powerful force in Chair: Nia Griffith, did you want to come in? terms of the argument that we are making that this has Nia Griffith: I think we have covered everything, to to be settled now by the UK Government with the be honest. Welsh Government. As with the electrification argument, we needed to get to Swansea. We know that Q100 Simon Hart: May I ask a quick question? transport is critical to the economy, but if you cannot Sorry I was not here at the beginning—I had traffic get into and past Newport—sorry, Jessica—then there problems, not unrelated to the M4, actually. I have is not much of an incentive in terms of business, is two points. Did you cover the cost-benefit analysis there? So, we have to sort it. before I came into the room? The point about the M4 and the investment is that we Jane Hutt: If you are talking about the economic will have to borrow, and it will be costly to enhance impact assessment, yes. the M4 around Newport, but that is the first major scheme before we can think beyond that in terms of Q101 Simon Hart: I do not know whether this was the next stage westwards. So, let us get on with the explained, so, forgive me if it was, but when we first step. questioned Stephen Hammond on this topic, we were—or I was at any rate—a little bit frustrated that Q103 Simon Hart: That is great. We have lost a the UK Government did not see any urgency in factory and 120 jobs in Pembroke Dock, which were looking at a cost-benefit analysis of the effect that a relocated to Cwmbran simply because transport reduction or cancellation of tolls would have on the infrastructure was not up to twenty-first century economy of Wales, whereas your office, I think, made standards. If there were more certainty about what the some tentative suggestions in that direction. I think Government’s plans ultimately would be, then we you gave the figure of a positive £107 million. Are could encourage businesses that might be considering you confident in your figures? locating to the area to do so in a positive way. Jane Hutt: Yes. This was an independent Jane Hutt: I think that this gives me the opportunity investigation and an independent inquiry undertaken to say that, if your committee can support and on our behalf by the University of the West of recognise the independence of our economic impact England and Arup. It was independent; we assessment of the tolls, it would be very helpful to us commissioned it, and it is well respected, so we have in recognising the responsibility that we are taking as no concerns at all. It is a very clear figure and, as we the Welsh Government to improve the transport have said and as the report has said, economic network right across Wales—in the west and in the modelling shows that, if we were to remove the tolls, north, obviously, as well as into Wales. Obviously, I productivity would increase by around 0.48%, which have said this against the backdrop of a very translates into an increase, as you say, in annual GVA challenging and reducing capital budget and a in south Wales of around £107 million. It is important situation where we are waiting for, hopefully, good to put that on the record again today. news about opportunities to borrow. We are using very innovative financing options now for our infrastructure, but it is a challenging time. However, Q102 Simon Hart: Thank you. There is always this is something that we can sort, that is not going to frustration for people like Jonathan and me in west cost the Governments, with a bit of goodwill. Wales that, sometimes, in conversations about the Severn bridge tolls and upgrading the M4, the focus tends to be on Newport and Cardiff, and yet, we Q104 Stephen Doughty: I have a brief technical would argue, I suspect, that it is every bit as important question. Earlier, you mentioned technology improvements enabling the changing of tolls during to business and industry in west Wales as anywhere off-peak periods, and various things. There is also the else. A degree of certainty in the medium to long-term issue of free-flow technology. What discussions have planning is always useful. So, a message from me to you had with the Department for Transport about you, which I suspect I do not need to transmit anyway, potential plans to introduce free-flow technology on is that there are a lot of hauliers based in the Fishguard the bridge? Also, why do you think that it is doing and Pembroke Dock areas who are looking with a that with the Humber bridge and Dartford, but it has very keen interest and a keen eye at the proposals not yet brought it into play on the Severn crossing? that you make, because of the long-term investment consequences that they might have. 1 TEN Trans-European Networks cobber Pack: U PL: COE1 [O] Processed: [28-02-2014 16:46] Job: 034892 Unit: PG02 Source: /MILES/PKU/INPUT/034892/034892_o002_steve_CORRECTED transcript -FINAL - WAC 11 07 13 Severn (3).xml
Welsh Affairs Committee: Evidence Ev 15
11 July 2013 Jane Hutt AM, Claire Bennett and Andrew Jeffreys
Jane Hutt: It took a long time to get credit card use, to change, when you look at the big battle over even did it not? We think that we need to look at all forms getting credit card payments, as it took years to move of smart tolling. We have not started to have to that, and that there is a bit of a lesson, really, for discussions about it. That is probably for the next the Government in the future over that? stage. However, it could be done now, before we Jane Hutt: I can definitely completely agree. Let us move forward, by the UK Government. So, I certainly move on and change it for a sustainable future. hope that that will be a part of your submission, in Chair: Thank you very much indeed, Minister. You your evidence and your report. We will be looking have answered all of our questions. We thank you for at it. coming along here today. We will now suspend the meeting for 15 minutes in order to prepare for the next Q105 Jessica Morden: I have one last question. Do one. So, I will say ‘Order, Order’, and we will you think, with hindsight, that the concession that was suspend. agreed in 1992 was incredibly inflexible and difficult cobber Pack: U PL: CWE1 [SE] Processed: [28-02-2014 16:54] Job: 034892 Unit: PG03
Ev 16 Welsh Affairs Committee: Evidence
Written evidence
Letter from Mr Stephen Hammond MP, Under Secretary of State, Department for Transport, to the Chair, dated 25 April 2013 When I gave evidence to the Committee on 16 October 2012 covering the Severn Crossings I explained that there would be certain costs that the Government has incurred relating to the Crossings that will need to be recovered following the end of the current concession period. The ability of the Government to continue tolling after the end of the concession is a key part of the Severn Bridges Act 1992 and was made clear during the passage of the legislation. The Department’s evidence to the Committee’s Inquiry on Severn Crossings tolls in 2010 also noted that there would be debts that would need to be recovered after the end of the concession. The Highways Agency has published the Severn Bridges Act 1992 accounts annually since 1992. These include the amount falling outside the concession each year, including a high level breakdown of the costs. In December last year I wrote to the Welsh Affairs Committee offering to provide a more detailed breakdown of the costs the Government has incurred relating to the Crossings that will need to be recovered following the end of the current concession. My officials have prepared a note including a more detailed breakdown and I have enclosed it with this letter. It has taken some time to prepare this breakdown as officials have undertaken some more detailed work to forecast the costs falling outside the concession at the projected end of the concession and to breakdown the costs in more detail than provided in the annual Severn Bridge Act accounts. The latest estimate of the costs that will need to be recovered following the end of the concession is £88 million, although the final amount will vary depending on factors such as the final level of costs falling outside the concession agreement. Based on a continuation of the current system and current financial performance, the Department expects it to take around one to two years to recover these costs following the end of the concession. The Department will continue to monitor the level of these costs as the end of the concession approaches. My officials have also shared the attached note with colleagues in the Welsh Government. I have seen the Committee’s recent report on Crossing the border: road and rail links between England and Wales. The Government plans to respond to it shortly. Yours sincerely Stephen Hammond
SEVERN CROSSINGS—GOVERNMENT DEBTS AND COSTS RELATING TO THE CROSSINGS The Severn Crossings are currently managed by a private concessionaire, Severn River Crossings Ltd (SRC). Under the concession agreement the concession will end when a revenue target collected from tolls is reached.1 Current forecasts are that the concession will end in 2018 but the exact end date will be affected by factors such as traffic volumes and any relevant government changes in taxation.
Types of government debt/costs relating to the Crossings There are two types of government debt/costs that relate to the Crossings: 1. Debt to government that SRC is responsible for- under the concession agreement SRC became responsible in 1992 for most of the existing deficit from the operation and maintenance of the first Severn Crossing. Current forecasts are that the amount to be paid by SRC at the projected end of the concession agreement in 2018 is £274 million. 2. Costs government has incurred that fall outside the terms of the concession agreement—under the terms of the concession agreement certain costs fall to the Government rather than SRC (known as the “accumulated deficit”). Under the Severn Bridges Act 1992 the Government is entitled to recover costs falling outside the concession agreement through tolling after the end of the concession. On current forecasts the Department expects these to be £88 million at the projected end of the concession in 2018.
1. Debt to government that SRC is responsible for At the start of the concession period SRC became responsible for £122 million of the existing government debt for construction and maintenance on the first Severn Crossing. SRC repaid £62 million of that debt to the Secretary of State on the first day of the concession period and the remaining £60 million became a subordinated loan facility that the government invested into SRC. Under the existing terms of this loan the Secretary of State will be repaid at the end of the concession once all the senior lenders have been repaid. The total repayment to the Secretary of State will be a sum of all of 1 £1.029 billion in July 1989 prices. This figure is likely to be revised again as a consequence of the changes to the rates of Corporation tax in Budget 2013. cobber Pack: U PL: CWE1 [O] Processed: [28-02-2014 16:54] Job: 034892 Unit: PG03
Welsh Affairs Committee: Evidence Ev 17
the rolled up interest incurred on the loan and the full principal amount plus indexation that has been incurred on the loan. Current forecasts are that the total amount due will be £274 million at the projected end of the concession agreement in 2018. This is a forecast and the final amount will depend on factors such as the end date of the concession and the level of the Retail Prices Index (which affects the indexation payable).
2. Costs government has incurred that fall outside the terms of the concession agreement As explained above, at the end of the current concession it is expected that there will be outstanding costs outside the concession agreement that the government has incurred that will need to be recovered through tolling (these costs are known as the “accumulated deficit”).2 The accounts of this deficit are presented to Parliament each year following an audit by the National Audit Office. The concession agreement and Act was structured so that certain risks were borne by Government rather than SRC, for example, costs relating to latent defects on the first Severn Crossing. By bearing these risks the government was able to finance the construction of the second crossing and maintenance of the crossings at a much lower cost. If these risks had been included in the concession arrangement the end date of the concession would have needed to be extended to allow the concessionaire to recover its costs or the tolls would have needed to be set at a higher level. It is also likely that a private company would have required a substantial risk premium in order to take on these risks. The Highways Agency has undertaken some detailed work to estimate what the accumulated deficit is likely to be at the projected end of the current concession in 2018. On current forecasts it expects the accumulated deficit to be around £88 million at the projected end of the concession agreement in 2018. In late 2012 the Department for Transport provided the Welsh Affairs Committee and the Welsh Government with an estimated figure for the accumulated deficit of £112 million. This was based on the accumulated deficit in the draft Severn Bridges Act Accounts 2011–12.3 The £112 million figure represents the amount that would have needed to be recovered through tolling if the concession was to end on 31 March 2012 and SRC were able to fulfil all of its obligations to the Secretary of State for Transport in regard to the subordinated loan. The estimate of £88 million represents the amount that the Government would be entitled to recover through tolling, assuming the concession ended in 2018 as currently projected. The deficit is expected to reduce between 2012 and 2018 as the income due from SRC on the subordinated loan (interest and indexation) is forecast to exceed the costs incurred by the Government (operational costs and notional interest charges). All calculations used to develop this forecast have followed the process outlined in the Act. The £88 million figure is made up of the following costs: (i) £8 million pre 1992 deficit—this relates to existing debt on the first Severn Crossing that was not included in the concession agreement. (ii) £14 million of capital expenditure incurred from 1992 to 2012. This includes the cost of freehold land, plant and structures, and machinery. (iii) £40 million of operational expenditure incurred from 1992 to 2012. This includes costs relating to latent defects and a large number of agreed additional works not covered by the 1990 concession agreement. As shown in Annex A, £16 million was paid for additional operational items in the first six years of the concession. These include costs for works on the Severn Bridge that were left outstanding after the major strengthening work that was completed just before the concession. Items include weld defect repairs, completing painting contracts and replacing high mast lights. In the 20 year period there have also been £2 million of payments to Gloucester Harbour Trust for mitigations works, including installation and maintenance of a radar system for the navigation rights that have been affected by the Second Severn Crossing. (iv) £12 million of other expenditure incurred from 1992 to 2012. It is estimated that over 90% of this is for professional engineering services.4 The small remaining element relates to legal, audit and other professional fees. (v) £9 million of ongoing capital and operational expenditure projected between 2013 and the end of the concession in 2018; (vi) £8 million of projected costs associated with the resurfacing of the M48 before the end of the concession in 2018; (vii) (£3 million) reflecting the benefit of the interest paid by the concessionaire/SRC exceeding the interest payable to the consolidated fund. See Annex A for detailed breakdown of costs incurred between 1992 and 2012. The £88 million figure is a forecast and there are a number of factors that will affect the final amount: 2 The detailed methodology for calculating the “accumulated deficit” is outlined in section 7 and schedule 4 of the Severn Bridges Act 1992. 3 These accounts have subsequently been laid before Parliament in January 2013 and this figure has been confirmed. See Severn Bridge Act 1992 Account 2011–12, Income and Expenditure Account p13 http://www.official-documents.gov.uk/document/ hc1213/hc09/0938/0938.pdf 4 Based on spending between 2003/04 and 201112 cobber Pack: U PL: CWE1 [E] Processed: [28-02-2014 16:54] Job: 034892 Unit: PG03
Ev 18 Welsh Affairs Committee: Evidence
— The exact level of costs falling outside the concession agreement incurred between 31 March 2012 and the end of the concession. These could vary, for example, as a result of a requirement to carry out unforeseen works relating to latent defects on the crossings. — The length of the concession. The concession is a variable length concession that will expire when a revenue target is met. Should the projected performance of the crossing either be exceeded or not met the length of the concession could be shorter than forecast or longer than forecast. Under each of these scenarios the accumulated deficit to be recovered through tolling is likely to vary. — Any change to the level of income received by the Secretary of State regarding the subordinated loan. This could be impacted by the financial performance of SRC in meeting their obligations or through actual inflation differing from forecast inflation which would affect the indexation on the subordinated loan. The Government has always been clear that it needs to recover the accumulated deficit incurred by UK taxpayers following the end of the concession period. The ability of the Government to continue tolling after the end of the concession is a key part of the Severn Bridges Act 1992 and was made clear during the passage of the legislation.5 The Department’s evidence to the Committee’s Inquiry on Severn Crossings tolls in 2010 also noted that there would be debts that would need to be recovered after the end of the concession.6 Based on a continuation of the current system and current financial performance the Department expects it to take around 1–2 years to recover the £88 million of costs that are projected to fall outside the concession arrangement in 2018. These might therefore be expected to be recovered by 2020. The Department and Highways Agency will continue to monitor the level of accumulated deficit to be recovered through tolling as the end of the concession approaches.
5 See http://hansard.millbanksvstems.com/commons/1991/ian/14/severn-bridqes-bill See http://www.publications.parliament.uk/pa/cm201011/cmselect/cmwelaf/506/506we10.htm 6 See Severn Bridge Act 1992 Account 2011–12, Income and Expenditure Account p13. cobber Pack: U PL: CWE1 [O] Processed: [28-02-2014 16:54] Job: 034892 Unit: PG03
Welsh Affairs Committee: Evidence Ev 19 - 20 421 562 Annex A - 342 450 158 536 8 523 170 443 - 966 86 257 57 454 763 22 326 575 (69) 1,623 1,320 1,087 1,719 357 643 682 3,748 4,239 7,049 2,706 3,961 565 669 ACT 1992, 1992–93 TO 2011–12 (£000s) 82 642 112 288 362 146 919 1,583 2.282 244 477 173 4,267 2,104 3,252 1,641 2,662 2,058 1,742 1,056 1,035 1,192 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 1992–93 1993–94 1994–95 1996–96 1996–97 1997–98 1998–99 1999–00 2000–01 2001–02 COSTS FALLING OUTSIDE CONCESSION AGREEMENT AND RECOVERABLE THROUGH TOLLING UNDER SEVERN BRIDGES ACT 1992, 1992–93 TO 2011–12 SEVERN BRIDGES EXPENDITURE—COSTS FALLING OUTSIDE CONCESSION AGREEMENT AND RECOVERABLE THROUGH TOLLING UNDER SEVERN BRIDGES Operations Type Capital Type Capital Other Other Other Operations Other April 2013 cobber Pack: U PL: CWE1 [E] Processed: [28-02-2014 16:54] Job: 034892 Unit: PG03
Ev 20 Welsh Affairs Committee: Evidence
Letter from the Chair to the Rt Hon David Jones MP, Secretary of State for Wales, dated 11 September 2013
I note reports in today’s media that the UK Government and Welsh Government are negotiating a deal to borrow the estimated £1 billion required to finance the M4 relief road against future income from the Severn Crossings toll.
As you aware, the Welsh Affairs Committee has taken a close interest in the future of the Severn Crossings and has consistently argued for the reduction or removal of the tolls once they return to public ownership in 2018.
I would appreciate a response from you concerning the accuracy of these reports and the detail of discussions between the UK Government and Welsh Government on whether the Severn Crossings tolls would fund the construction of the M4 relief road.
I am also writing to the First Minister for Wales on this matter. September 2013
Letter from the Rt Hon David Jones, MP, Secretary of State for Wales to the Chair, dated 30 September 2013
Thank you for your letter of 11 September regarding recent media reports about the future of the Severn Crossings tolling regime.
As Stephen Hammond MP made clear to the Welsh Affairs Committee in June, the UK Government is committed to the continued successful operation of the Severn Crossings. The crossings are of vital strategic significance as the main gateway to south Wales, and we fully recognise the importance of the crossings to the communities on both sides of the Severn Estuary. Traffic flows on the crossings are growing, with traffic volume increasing at a faster rate than across the national motorway network.
Whilst the Welsh Government has raised the issue of the future of the tolls on the Severn Crossings, I would like to reiterate that no decision has yet been taken on the level of tolls when the current concession with Severn River Crossings plc ends. The Government has always been clear that the significant debts incurred by the UK taxpayer in relation to the crossings need to be recovered following the end of the current concession period, estimated to be 2018. Based on a continuation of the current system and current financial performance, we would expect these debts to be repaid by the early 2020s, although clearly the exact timing depends on a number of factors.
Any future tolling arrangements must make provision for the repayment of all outstanding Government debt on the crossings, and appropriate provision must be made for future maintenance including the possibility of major structural work on the original bridge. In addition, any future operating regime must appear legitimate on both sides of the crossings, taking account of the interests of both English and Welsh motorists. As regards borrowing for the M4 improvements which the Welsh Government is now consulting on, the Government is finalising its response to Part 1 of the Silk Commission’s report and is committed to continuing to work with the Welsh Government on the funding solution for the M4 improvement scheme. September 2013
Letter from the Chair to the Rt Hon Carwyn Jones AM, First Minister for Wales, dated 11 September 2013
I note reports in today’s media that the Welsh Government and UK Government are negotiating a deal to borrow the estimated £1 billion required to finance the M4 relief road against future income from the Severn Crossings toll.
As you are aware, the Welsh Affairs Committee has taken a close interest in the future of the Severn Crossings and has consistently argued for the reduction or removal of the tolls once they return to public ownership in 2018.
I would appreciate a response from you concerning the accuracy of these reports and the detail of discussions between the Welsh Government and UK Government on whether the Severn Crossings tolls would fund the construction of the M4 relief road.
I am also writing to the Secretary of State for Wales on this matter. September 2013 cobber Pack: U PL: CWE1 [O] Processed: [28-02-2014 16:54] Job: 034892 Unit: PG03
Welsh Affairs Committee: Evidence Ev 21
Letter from the Rt Hon Carwyn Jones AM, First Minister for Wales, to the Chair, dated 21 November 2013 I am writing in response to your letter of 11 September, where you refer to recent press speculation on the future of the Severn Crossings toll. It is no secret that the Welsh Government would like to come to an arrangement with the UK Government on the Severn Bridge tolls, once the current concession ends in 2018. I want to ensure that any future toll revenue is used in the interests of the people of Wales, and the Welsh Government is clearly the best placed to make that decision. Our first priority, were we to be given powers to determine the value of the tolls, would be to ensure the effective maintenance and operation of the Severn Crossings. After that, we would look to reduce the toll levels paid by users of the Crossings and alleviate the burden on Welsh businesses and our economy. I am sure you will have noted that the UK Government’s recent announcement of financial reforms for Wales includes early access to borrowing to help fund an enhancement to the M4, although of course that will be subject to the outcome of the current consultation. November 2013
Written evidence from National Alliance Against Tolls (SCT 01) Introduction 1. The National Alliance Against Tolls is a loose alliance formed in 2004 by local groups protesting against tolls in England, Scotland and Wales. The group in Wales that formed part of our alliance in 2004 was the “Campaign Against the Severn Tolls. In September 2010 we made a submission to the Committee’s Inquiry into the Severn tolls, and in November 2010 we made a supplementary submission. 2. Our view is that the tolls should be removed as soon as possible for the reasons that we gave in 2010. In the Committee’s report (Third of Session 2010–11) it was clear that the Committee did not agree with our views though the Committee did suggest that when the concession ends “the current tolling prices should be reduced and concessions for those who depend on the crossing for their livelihood could be introduced.” 3. We have seen the Committee’s Report on “Crossing the Border: road and rail links between England and Wales” published on 6 March which said that “We renew our call for tolls on the Severn Crossings to be reduced when the Concession ends in 2018.” We have also seen the Government’s response published on the 22 May. 4. The general understanding used to be that the tolls on any road or crossing would ultimately be removed. If Governments and authorities had not followed that practice there would still be Turnpike Trusts and about 30,000 miles of tolled roads and many hundreds of tolled crossings. Over the last few decades, Governments and authorities have adopted a position where they want more tolls and don’t want to give up any existing tolls. The most obvious example of this has been the Dartford Crossing where the tolls should have ended ten years ago but have been extended and increased using powers under the Transport Act 2000 (powers which were increased in the Local Transport Act 2008). Exceptions to this tolls policy are Northern Ireland which has not had tolls for many years and Scotland where the last toll was removed five years ago. 5. Ii is evident that the UK Government have no intention of ever removing the tolls on the Severn Crossing, though there still is some point under the present law when that must happen even if the tolls are immediately replaced by tolls using the Transport Act powers.
The End of the Concession 6. The date when this invisible transition from tolls to tolls is expected to happen is apparently some time around 2018 which is the year when it is forecast that the Company that runs the concession will have collected their billion pounds or so (the Concession was not for a fixed period). As we pointed out in 2010, the Concession would have ended by about now, but following a European Court ruling the then Government introduced VAT from February 2003 on privately operated tolls. For most of those crossings a scheme was introduced to reimburse the VAT. A notable exception was the Severn Crossings, where instead of reimbursing the Company, the Government decided to keep the VAT; this meant that the Concession had in effect been extended. We have not got the figures available to do a precise calculation but estimate that for the period from 2003 to 2018, the Government will have pocketed £150 to 200 million in VAT. Perhaps the Committee could ask the Minister for a more accurate figure. 7. The Seven Bridge Acts does allow the tolls to be operated by the Government for a short time after the Concession ends. In part this is to recover any costs that the Government claim that they have had to pay rather than the Company. We note that the Government say that this amount is currently expected to be around £88 million. By 2018, 2019 this amount could probably be collected in about 12 months. Though this is of course just playing with figures, the £88 million might as well be Monopoly Money as it includes things like the “pre 1992 deficit” and of course it ignores the VAT windfall that was not expected when the Severn Bridge cobber Pack: U PL: CWE1 [E] Processed: [28-02-2014 16:54] Job: 034892 Unit: PG03
Ev 22 Welsh Affairs Committee: Evidence
Acts were passed. And given that the Government takes one billion pounds EVERY week from drivers and has no intention of giving up a single penny from the tolls, it hardly seems to matter what figure the Government say is owed them.
Reducing the Tolls 8. The Committee seems to be operating on the assumption that when 2018 or some other arbitrary date is reached then the tolls could be cut and this would have a major benefit to the economy. That is so, but the benefits of say halving tolls are nowhere near half the benefit of removing them. This is partly because tolls have a psychological impact which deters drivers no matter what the level of tolls. A recent illustration of this is the Humber Crossing where amazingly the Government wrote off a large part of the debt (albeit that it was only a paper debt) enabling the tolls (which had been at about the same level as the Severn tolls) to be halved from April 2012. This reduction was certainly most welcome, but the effect on traffic of this, as it were 50% off offer, has been a lot less than forecast. The annual traffic increased from 6.44 million to 6.95 million. 9. The other effect of not removing tolls is of course you still have the cost of collecting them and the increased accident risks that are associated with tolls particularly where they cause queuing such as at Dartford. Perhaps the Committee could raise with the Minister what is the annual cost of toll collection on the Severn Crossing and what assessment has been made of accidents at the Severn Crossing caused by the usual problems at tolls. May 2013
Written evidence from Gloucestershire County Council (STC 02) It is GCC’s view that the county would benefit from reduced traffic, particularly reduced medium goods and heavy goods lorry movements, on the A48, A40, A4136, A417 and 84215 if the tolls at the Severn Bridge were reduced or eliminated. This would be welcomed by GCC and the communities along these routes that have suffered from increased traffic avoiding the tolls at the Severn crossing. GCC has been monitoring traffic, particularly lorry traffic on the main routes through the Forest of Dean since before the introduction of tolls on the Severn crossings. Traffic data on these routes consistently shows an imbalance of movements with 55% to 60% of traffic travelling into the Forest of Dean from the Gloucester direction where pre-tolls a 50/50 balance was in place. Other origin and destination studies carried out over the last 10 years have also clearly indicated a higher percentage of traffic travelling through the Forest with Welsh destinations demonstrating the affects of toll avoidance. It is our hope that your committee will take into account the positive affects a reduced or eliminated toll regime could have on Gloucestershire’s roads. June 2013
Written evidence from the Welsh Government (SCT 03) Summary 1. This paper outlines the Welsh Government’s position in relation to the future of the Severn crossings.
Current position 2. The Severn crossings and the associated tolling regime is not devolved. 3. The contract to design, build, finance and operate the Second Severn Crossing was awarded to Severn River Crossings plc in April 1990. The concession agreement between the UK Government and Severn River Crossings, which governs how the two bridges are managed, operates subject to the provisions of Severn Bridges Act 1992. 4. The concession period is limited to a maximum of 30 years, although the actual end date will be achieved when and Severn River Crossings has collected a fixed sum of money from tolls. That fixed sum is £1,028.9 million (in July 1989 prices), following an amendment to the agreement by the UK Government in June 2012. 5. On the basis of current receipts, it is anticipated that the concession should come to an end in 2018. 6. The UK Government has identified a “debt” of £88 million, the details of which it has shared with the Committee. The UK Government has indicated that that their intention is that this should be paid off by requiring up to a further two years of tolling. 7. The Secretary of State has powers under the Severn Bridges Act to levy tolls for a maximum of 35 years. Essentially this provides for tolls to be levied for a further five years after the longest period that the Concession could last. cobber Pack: U PL: CWE1 [O] Processed: [28-02-2014 16:54] Job: 034892 Unit: PG03
Welsh Affairs Committee: Evidence Ev 23
Welsh Government Position 8. The Welsh Government published research last year that set out the economic impact of the tolls. The Impact of the Severn Tolls on the Welsh Economy report demonstrated that the Severn tolls costs the Welsh economy around £80 million a year. 9. Recognising the impact of the tolls on Wales, the Welsh Government is clear that, following the end of the concession, decisions on future tolls should be made by the Welsh Government. 10. It is unacceptable that tolls should continue to be set by the Secretary of State in England, when the negative economic impacts fall on Wales. It is inevitable that there would be a strong perception that drivers coming into Wales would continue to be charged for no obvious benefit when the bridges have been paid for. It is equally unacceptable that money levied from motorists coming into Wales might be used, or be seen to be being used, to support the wider roads programme in England. 11. The Welsh Government’s first priority for the revenue raised would be to ensure the effective maintenance of the Crossings. With that secure, the Welsh Government’s intention would be to reduce the toll and the burden on the economy. We would also consider introducing “smart tolls” which could, for example, be used to encourage freight to travel off-peak. 12. The Welsh Government does see a role for toll income in supporting major road infrastructure enhancement, in particular to support the strategic enhancement of the M4 around Newport. 13. In relation to the outstanding debt that the UK Government has reported to this Committee, the Welsh Government is concerned about the way in which the reported debt has fluctuated so significantly. The wildly differing estimates do not give us confidence that the final figures can be relied upon. Furthermore, although we have seen the breakdown of the components of the debt, we are looking for further detailed explanations of how the figures have been derived and a clear justification as to why these sums remain outstanding or to be repaid. 12 June 2013
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