Select Committee on Environment, Transport and Regional Affairs Twelfth Report



38. A significant change in expenditure has taken place under the National Roads heading. The provision sought for this category in the current financial year is £1,349m, which is 10 per cent less than the final net provision in the last financial year and 15 per cent less than that in 1996-97. The DETR acknowledged that while there has been "a gradual tailing off" of the National Roads programme expenditure, it has been partially offset by higher levels of spending on network control and local network management schemes. The Highways Agency expected to spend £21m on the former and £46m on the latter in the last financial year. The 1998-99 figures also contain an increased element for roads and bridges maintenance, but the precise split is not shown.[61] The Department subsequently told us that in 1998-99 £562m would be spent on new roads, including £114m on payments for PFI roads. £650m would be spent on road and bridge maintenance: £285m on capital maintenance, £175m on routine maintenance, £150m on the renewal of bridges and £40m on miscellaneous current expenses such as electricity for streetlights. In addition £140m would be spent on small capital schemes.[62] The Department should provide a detailed breakdown of spending on National Roads in future editions of its Annual Report.


39. The latest National Road Maintenance Condition Survey (NRMCS) published in April 1998 found that the structural condition of trunk roads in England and Wales showed "a relatively minor" deterioration, while there was a "more marked" deterioration in the condition of motorways.[63] The 1997 NRMCS visual survey of all roads (except motorways) found that their condition was "the worst recorded". Furthermore, the structural condition of local authority principal roads "deteriorated sharply".[64] The Department accepted that it was important to make the most efficient use of the existing infrastructure and to maintain existing roads properly.[65] Following the announcement of the results of the Comprehensive Spending Review the Department said that an extra £700m would be spent over the next three years on "well targeted maintenance" as a way of "ending the decline in the condition of our motorways and trunk roads, and beginning to restore previous cuts in the maintenance and strengthening of local authority principal roads and bridges".[66] Current expenditure by local authorities on highway maintenance was expected to be £1.767bn in 1998-99, in line with the provision made in the Standard Spending Assessment set by central government.[67] The Department did not agree with the methodology used by local authorities to calculate the backlog of road maintenance,[68] and believed that they sometimes applied "unnecessarily high" standards to the maintenance of lightly-used roads.[69] The proper maintenance of the existing road infrastructure is essential if new road building is likely to be limited. The additional money to be allocated for this purpose is most welcome. The Department should set out its view of the backlog of trunk and local road maintenance in future editions of the Annual Report and set targets for the elimination of this backlog over ten years. Priority should be given to the maintenance of the more heavily used roads.

National Air Traffic Services

40. The Department said that in its discussions with the Treasury it had been estimated that the partial sale of National Air Traffic Services (NATS) would raise around £250m.[70] It expected that transport provision following the Comprehensive Spending Review would be higher than it would otherwise have been without the decision to sell NATS.[71] The Transport Sub-committee has decided to study in detail the Government's proposals for a Public Private Partnership for NATS.

Rural public transport

41. In the Budget in March 1998, the Chancellor announced new funding for rural public transport of £50m per year for three years.[72] £41.7m would be given to rural bus services and community-based transport schemes in England. Of that, £32.5m would be given to local authorities to provide additional bus services; £5m would be allocated to encourage innovative local authority bus schemes; and £4.2m would be provided for community-based transport initiatives.[73] The money for additional bus services would be disbursed according to a 'formula of rurality' reflecting the number of persons living outside settlements of 3,000 or more people within any given area.[74] This formula would be different from the 'sparsity factor' used for standard spending assessments, as under that formula urban areas with low population densities would qualify for grant ahead of some rural areas.[75] The £5m for innovative local authority bus schemes would be distributed to the local authorities who submitted the best proposals.[76] The Department should ensure that the additional funding for rural transport announced by the Chancellor is used in ways which provide long-term benefits for users of rural public transport rather than mere temporary service enhancements that are withdrawn after the end of the initial period of funding.

European night stock

42. European Night Services Ltd, comprising Eurostar (UK) Ltd and the national railways of France, Germany and the Netherlands, was formed to operate a network of sleeper services between UK and mainland European cities via the Channel Tunnel. Following a decision not to proceed with these services, the lease on the partially built rolling stock was terminated. As Eurostar (UK) Ltd was unable to pay its portion of the termination costs, it was necessary to call on the guarantee given by the previous Government. On 1 June 1998, the Government paid almost £109.5m to the lessors of the rolling stock.[77] Provision was made, however, for the Government to recover some of that money in the event of the rolling stock being resold: for any subsequent profits from sales of the stock in excess of £14m, the Government would receive half the profit.[78]

43. The Department said that the assessment of the business case for night services had been made by the BR Board before privatisation, which had considered that they would be marginally profitable. This had proved to be over-optimistic and Eurostar had since concluded that there was no prospect of such services being operated profitably.[79] The Department could give us no evidence that the former Department of Transport had properly assessed the business case for itself before underwriting the leases. Although the relevant decisions were made a number of years ago, we believe that the Department was negligent in guaranteeing the leases for the European night stock without a proper examination of the risk that the service might never operate. The Department must publish a full account of this fiasco and prove that its procedures are now robust enough to ensure that nothing like it is ever repeated.

Channel Tunnel Rail Link

44. The Department told us that of the £5.8bn total cost of the Channel Tunnel Rail Link under the scheme announced by the Deputy Prime Minister on 3 June, £3.8bn would be financed by Government-guaranteed bonds. The repayments on these bonds would be financed from Eurostar revenues. The Office of National Statistics had, we were told, decided that these revenues were secure enough to make the risk of the Government's guarantee being called "not significant". It had therefore agreed that the guarantee should not be included within the Public Sector Borrowing Requirement (PSBR).[80] The Treasury had concurred on the basis also of the unique nature of the project which reflected an international obligation under the Treaty of Canterbury to provide infrastructure for Eurostar services to Paris and Brussels.[81] The risk of the guarantee being called would increase if the traffic forecasts for the Eurostar included in the assessment were to prove to be optimistic.[82] In that case the Office of National Statistics might wish to reconsider its decision not to place the Government guarantee within the PSBR.[83]

45. We welcome the mechanism which has been devised to fund the Channel Tunnel Rail Link. There are, however, other capital projects with insignificant revenue risk for which finance via Government-guaranteed bonds might be appropriate, and it would be regrettable and anomalous if this project were to receive uniquely favourable consideration. The Government should therefore confirm that the same funding mechanism would be allowed in the case of other capital projects, and for future reference should set out the precise features of the Channel Tunnel Rail Link scheme which meant that the guarantee should not count against the PSBR. It should further undertake to consult the Office of National Statistics for its view on the level of risk that would apply in future cases where a Government guarantee of this sort might be possible.

Thameslink 2000

46. Thameslink 2000 is a £580m project to provide additional capacity on the existing Thameslink route under central London and to expand the range of destinations served. As part of the project, a new station is to be built under St Pancras station to replace the existing one at King's Cross Thameslink. London & Continental Railways (LCR) were to build the new station as part of the work for the Channel Tunnel Rail Link (CTRL). Work on Thameslink 2000 had been planned to start in 2000 with the new network operational by 2004. Under the terms of the revised agreement for building the CTRL, the construction of the Thameslink 2000 station at St Pancras would now be included in the second construction phase of the CTRL project which was expected to last from 2001 to 2007.[84] Until these works were done the plans for the remodelling of the King's Cross St Pancras Underground station could not proceed.[85] However the Department said that Railtrack was keen to build the station box as quickly as possible, possibly before the second phase of the CTRL went ahead, and discussions were proceeding between the Department, the Office of Passenger Rail Franchising (OPRAF) and Railtrack.[86] The Thameslink project is an important means of increasing the capacity of the railway in the congested London area. It is also necessary to allow improvements to King's Cross St Pancras Underground station. The Department and OPRAF should give Railtrack every possible encouragement to proceed with the Thameslink station at St Pancras as soon as possible.

Railway land

47. The Committee's recent Third Report, The Proposed Strategic Rail Authority and Railway Regulation, noted the concerns that had been expressed about the sale of 'non-operational' railway land by the British Railways Board. Plans to increase the amount of freight carried by rail had meant that land classified as non-operational in 1994 could now have an important role to play, particularly in the expansion of rail freight facilities. The Deputy Prime Minster acknowledged those concerns and believed that the pressure for land sales would decrease from the end of the last financial year. However, we were told that the British Railways Board still had a target of £57m of property sales in the present financial year.[87] The Department expected that the Board would separate its remaining land into two categories: that which could never be used for operational purposes, and that which might be of use for the railway after all. It would then concentrate on selling the former land and hold back the land that might be of use.[88] The Department would have to accept that this approach might mean that the annual sales target would not be achievable.[89] In the White Paper on Transport which was published after our meeting, the Department said that it had "agreed with the British Railways Board that it should suspend land sales immediately while it conducts an audit of the remaining sites. The Board will discuss with key players in the industry its plans for the future and, in the light of that, report to the Government on any sites which have a realistic prospect of use for transport purposes in the foreseeable future. We shall then ensure that Railtrack, the rail businesses and relevant local authorities have ample opportunity to bid for those sites".[90]

48. Our inquiry into housing policy has made clear that, where possible, development should take place on brownfield sites. It would be most regrettable, however, if developments on small areas of former railway land prevented rail operators from being able to build the facilities needed to accommodate increased passenger and freight traffic. The supply of brownfield land is not so scarce that this should be necessary. We therefore welcome the decision by the Department that there should be an immediate halt to the sale of British Railways Board land which could be useful to rail operations in the future.

London Transport Buses

49. London Transport Buses' (LT Buses) gross operating loss rose from £3m in 1997-98 to an expected £20m in the current financial year. This rise is explained by LT as being largely a result of "an adverse movement" in the prices tendered by contractors to operate routes on LT Buses' behalf.[91] LT Buses subsequently told us that 40 per cent of the increase in its losses could be attributed to rises in tender prices, 40 per cent to extra resources being put into service development and mitigating the effects of congestion, and 20 per cent to increased revenue protection, marketing and maintenance.[92]

50. Until 1996 LT Buses offered route tenders on a 'gross cost' basis, under which LT assumed the passenger volume risk, and hence the revenue risk. Since 1996 it has tendered routes on a 'net cost' basis, under which revenue risk is transferred to the operator. It told us that "Net cost tendering should provide the necessary commercial incentive to the private sector to deliver good quality services at minimum cost to LT Buses, and hence the taxpayer." However after two years' experience of net cost tendering, "there are no indications that service quality is better on net tendered routes compared with gross cost contracts", although congestion and a small sample size made comparisons difficult. As regards tender prices, LT Buses told us that "there were indications of market hardening at the end of 1996 and this was confirmed in the first half of 1997. Prices increased rapidly at around the time contracting switched from Gross Cost to Net Cost". The main reasons were:

  • An element of the revenue risk that was transferred to operators had been built into tender prices;
  • The volume of tendering had quadrupled since 1994, putting pressure on management time within bus operators, "resulting in less predatory bidding". Operators were much less likely to bid on a marginal cost basis than before;
  • Merger activity had reduced the number of bus companies bidding for route tenders;
  • Increases in operators' costs, for example wages, against a background of "severe staff recruitment and retention problems, particularly during 1997"; and
  • Uncertainties about fuel prices in 1996-97.[93]

51. The DETR said that the upturn in tendering prices was in part due to the risk-averse nature of operators in net cost tendering, and in some instances because of a reduction in competition. It supplied figures showing that between January and June 1995 LT Buses had received an average of six bids per tender, but that since the second half of 1996 this had dropped to an average of just over two bids per tender.[94]

52. LT Buses said that it:

"has continued to play a proactive role in developing the market for tendered bus services in London. This is being done by encouraging operators to compete and also by attracting new operators to enter the London market. Market testing of different contract types is also taking place in order to make LTB contracts more attractive to bidders. These include variations in the length of contracts and the opportunity to tender both on a Gross and Net Cost basis".[95]

53. The Department attributed the increased losses principally to an increase in the cost of staff employed by the bus operating companies to whom the route tenders are awarded.[96] It said that the level of subsidy to LT Buses would have to be addressed.[97] Although only six major groups operate 92.8 per cent of London bus routes under tendered contracts, the Department did not have evidence that the increase in costs was because of anti-competitive practices by these companies.[98] However it adduced no evidence of any investigation of this possibility, telling us merely that no-one had written to the Department to claim that the companies were acting as a cartel.[99]

54. A six-fold increase in LT Buses' operating losses, when bus travel in London is increasing, is grounds for a thorough examination by the Department. The reduction in the average number of bids for each route tender is also a matter of concern. The Department should satisfy itself as to the reasons for the increase and whether the tendering process is genuinely competitive and ensuring value for money. LT Buses has confirmed that the move from gross cost tendering (where LT bears all the revenue risk) to net cost tendering (where operators bear a revenue risk) has contributed to the increased operating losses without any increase in service quality. The Department should encourage LT Buses in its tests of different types of tender contract which are aimed at achieving better value for public money. In line with the practice of local authorities outside London, London Transport should publish the range of tender bids it receives and the conditions of the bus route contracts it awards.

55. The Government sets a range of quality of service targets for LT Buses covering matters such as reliability, regularity and vehicle cleanliness. Only two of the 11 targets are being met and there has been no overall improvement in service quality during 1997-98.[100] The Department pointed out that the achievement of some of the targets, for example punctuality, was to some extent outside the control of the operators because of traffic congestion or other factors.[101] The targets were demanding and in some cases, such as cleanliness, had only narrowly been missed.[102] LT Buses said that "Without more bus priority schemes and, more importantly, effective enforcement against illegal parking by car, van and lorry drivers, there is little prospect of LTB meeting the ever-tightening service delivery targets set by government."[103] It is not acceptable that the cost to the taxpayer and the passenger of providing bus services in London should be increasing significantly while bus services are failing to meet most of their quality of service targets. The Department must discover whether this failure is the fault of the operating companies' management, of London Transport Buses for failing properly to monitor compliance with the contracts it has let, or of factors such as traffic congestion that are outside their control. It must then explain how it proposes to address the problems that exist. We were also disappointed to learn that the level of bus emissions was not one of the bus operators' performance targets;[104] we recommend that it should be.

Consultancy fees

56. The Government has already said that up to £65m may be spent by London Underground on professional fees in connection with its proposals for a public-private partnership. The Department told us that it would in addition be spending £5m itself on consultants' fees for the same purpose.[105] Hundreds of millions of pounds were spent on professional fees in connection with railway privatisation. This extravagance must not be repeated. The Department and London Underground will together be spending more on consultants in connection with the public-private partnership than the additional money that will be spent on rural public transport. The Department must publish full details of which professional firms it and London Underground employ, the work each firm performs, the fees paid to each, and the reason why the work could not have been performed in-house.

Marine and Coastguard Agency

57. The DETR's two marine agencies, the Maritime Safety Agency and the Coastguard Agency, were merged on 1 April 1998 to form the Maritime and Coastguard Agency (MCA). The MCA is largely responsible for implementing the Government's policies for improving marine safety and pollution control. Estimated expenditure by the MCA (or its predecessors) fell from £50m in 1996-97 to an estimated £44m in 1997-98 and is planned to rise to £46m in 1998-99.[106] The Department said that an important reason for merging the two Agencies had been that it would "open the potential for using the Coastguard, who have the presence on the coast, to reinforce and supplement the work of the surveyors, for example, who did not have that presence".[107] This would, it was hoped, improve shipping safety: the safety record of fishing vessels, for instance, was extremely poor and was worsening.[108] No decision had yet been taken by Ministers on whether to close any Coastguard stations, although there had been consultation on a proposal for the closure of four out of the 21 stations and for the 'co-location' of two others on the south coast.[109] It is too early to assess the benefits of combining the two agencies in the new Marine and Coastguard Agency. We are anxious, however, that nothing should endanger the maintenance of a constant watch from all Coastguard stations. The professionalism of coastguards must not be undermined, and we will take a continuing interest in the work of the Marine and Coastguard Agency.

61   Annual Report, Chapter 8 and EST 98A. Back

62   Q 392. Back

63   DETR Press Notice 326, 28 April 1998. Back

64   DETR Press Notice 326, 28 April 1998. Back

65   QQ 413 & 423. Back

66   DETR Press Notice 581, 14 July 1998. Back

67   Annual Report, para 9.24. Back

68   Q 338. Back

69   Q 344. Back

70   Q 388. Back

71   Q 382. Back

72   Annual Report, para 9.26. Back

73   DETR Press Notice No. 330, 28 April 1998. Back

74   Q 432. Back

75   Official Report, 3 July 1998, column 285; EST 98F. Back

76   QQ 427-8. Back

77   Official Report, 16 June 1998, column 126. Back

78   Q 461. Back

79   Q 455. Back

80   Q 470. Back

81   Q 473. Back

82   Q 475. Back

83   Q 480. Back

84   Official Report, 15 June 1998, column 47. Back

85   Q 468. Back

86   QQ 464-5. Back

87   Q 490. Back

88   Q 487. Back

89   Q 491. Back

90   A new deal for transport: better for everyone, Cm 3950, para 4.35. Back

91   London Transport Business Plan 1998-99. Back

92   Memorandum from LT Buses, EST 98E. Back

93   EST 98E. Back

94   EST 98F, paras 28-9 . Back

95  EST 98E. Back

96   QQ 506-7. Back

97   Q 508. Back

98   Q 509. Back

99   Q 514. Back

100   Annual Report, para 13.18, EST 98F para 32 and Q 524. Back

101   Q 523. Back

102   Q 525. Back

103   EST 98E. Back

104   Q 528. Back

105   Q 493. Back

106   Annual Report, paras 15.6 and 15.7 and figure 15.a. Back

107   Q 530. Back

108   Q 538. Back

109   Q 544 and 546. Back

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