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Session 1999-2000
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Delegated Legislation Committee Debates

Local Government Finance (England) Special Grant Report (No.59)

Third Standing Committee on Delegated Legislation

Monday 3 April 2000

[Mr. Nicholas Winterton in the Chair]

Local Government Finance (England) Special Grant Report (No. 59)

4.30 pm

The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Mr. Keith Hill): I beg to move,

    That the Committee has considered the Local Government Finance (England) Special Grant Report (No. 59) on Metropolitan Railway Passenger Services Grant 2000–01 (House of Commons Paper No. 361).

It is a pleasure to serve under your renowned chairmanship, Mr. Winterton. This is my first opportunity to do so but, given the rate at which I participate in delegated legislation Standing Committees, I am sure that we can look forward to many more happy hours together.

Passenger transport executives and their authorities play an important role in securing transport provision in the metropolitan areas outside London. In particular, they have a major statutory role in specifying local rail services and in acting as joint franchisers with the franchising director. That role gives them funding responsibility for local rail service support in the metropolitan counties. The railway services special grant report sets out the measures that we are taking to ensure that passenger transport executives obtain financial support in 2000–01 for the cost of the local rail services that they secure under the terms of their franchise agreements with the franchising director and franchisees.

The special grants will continue the approach used in the past financial year in applying the formula that will support expenditure on rail services by PTEs, including some expenditure on rail-related administration. We consulted PTEs and other parties on the reports before they were tabled earlier this month. Payments under the report are to be made to the PTEs through their passenger transport authorities. The special grant—known as the metropolitan railway passenger services grant—has three purposes. First, it will pay for the services secured by the PTEs under franchise agreements. Those agreements will secure local rail services in PTE areas that reflect broadly the levels of service prior to franchising. The bulk of the grant will be paid for that purpose.

The second purpose of the grant is to pay the PTEs for some £7 million of direct costs that they will incur in securing the rail services. Those costs include expenditure on administration and the advertising of rail services in the PTE areas. This year, we have again included under that heading £500,000 for additional self-financing, operating expenditure proposed by the West Midlands PTE, Centro, mostly on marketing schemes, but also on a closed-circuit television monitoring centre. That additional grant is expected to be offset by increased revenue flowing to the Government. The final purpose of the grant is to provide support to Tyne and Wear passenger transport authority to pay for the deficit of the Tyne and Wear metro and for other public transport services. That support will total some £9.8 million.

We estimate that special grant in England covering those three purposes will cost about £204 million this financial year. That is a cash reduction compared with the 1999–2000 provision, which was set at £214 million. It reflects the reducing franchise payments and the increasing revenue from passengers. As for the calculation of the grant, the franchise agreement sum payable by a PTE to an operator, referred to in the report as the PTE's relevant expenditure—subject to calculations—will be met by a special grant. Added to that sum will be another figure representing a PTE's direct costs.

We then deduct from that total the PTEs' deeds of assumption receipts of some £17 million and, in the case of those PTEs retaining revenue risk on rail services, the estimated revenue from rail services that we have calculated that a PTE will obtain in this financial year, together with an adjustment to actual revenue for 1998–99 from the estimated figures included in the equivalent special grant report for that year. Deeds of assumption repay to the PTEs and remunerate the outstanding written-down value of their past capital grants to the British Railways Board and Railtrack.

In the case of those PTEs transferring revenue risk to the franchise operator—Greater Manchester PTE and West Yorkshire PTE—the PTE will not obtain service revenues, so the calculation will be the relevant expenditure, plus direct costs, less deeds of assumption receipts. An adjustment will be made for PTEs that retain revenue risk to grant in 2002–03, to provide for the difference between estimated and actual revenues in 2000–01. I hope that that explanation of the calculation of the formula is helpful to members of the Committee.

The report sets out the purposes for which grant is to be paid. The first annexe sets out the calculations that the Department will make to ensure that PTEs received the correct sums of money to pay for the costs of the franchised rail services. The final PTE bills will be subject to audit by the Audit Commission. The second annexe details the conditions surrounding the payments, including the provision of relevant information to the Department and to auditors. The Secretary of State may withhold grant if a PTE has not used the grant for the intended purposes. The final annexe describes the PTEs' role and the method for the grant calculation.

There is a first and last aspect to this year's debate—the first being that in past years the report has been debated alongside the equivalent report for Scotland, and this is the first year that the Scottish report is being considered by the Scottish Parliament; the last being that the need for these annual special reports arises because there are currently no permanent powers for payment of this grant. Subject to Parliamentary approval, the Transport Bill will fill this gap by providing permanent powers for the future payment of this grant to PTAs by the Strategic Rail Authority so there will be no further need for special grant reports to approve the grant to English PTAs. The report covers the financial year 2000–01 and ensures that the English PTEs will continue to receive support for the rail services that they have secured under the franchise agreements signed last year.

4.36 pm

Mr. Robert Syms (Poole): I, too, find it a pleasure to serve under your chairmanship, Mr. Winterton, on a Committee debating such an important subject. It is important because the grants paid to PTAs, and for rail, mean that people can travel, which will result in fares. According to the Library, in 1997–98, the metropolitan railway passenger service grant was £256 million, and the total support was £281 million. Again according to the Library, the plans for 2000–01 are for the MRPS grant to be £192 million and the total support to be £217 million, which in both cases is a substantial reduction. This is adjusted using the gross domestic product deflator and taken from the 1999 report of the Department of the Environment, Transport and the Regions. This means that the amount of support given to authorities is falling considerably. Will the Minister confirm the figures, agree that that is so, and give the Committee the total figures for this year? He said that we would all be pleased at not having to debate statutory instruments in future because local transport plans would take care of funding. But Opposition Members would be disappointed if there proved to be a falling trend in funding for authorities and we did not have an opportunity to discuss the reason. It would mean either that these organisations were becoming more efficient, or there would be greater pressure on them to increase fares. As the objective of all members of the Committee is to encourage people to travel by public transport and use the facilities in many of the conurbations, it would be a great pity if the Government said one thing but did another in terms of grant to these areas.

The issues are therefore grant, the total support and the trend, and the latter seems to be downward. The Library paper states:

    The level of MRPS grant has fallen in real terms in each year; this is planned to continue to 2001–02. By this time the real value will be . . . 25 per cent. less than in 1997–98. The revenue support for national rail services paid via the Shadow Strategic Authority is planned to fall by a large amount over this period.

That is an important matter about which the Minister must answer various questions. The report is technical. I should be grateful if he would say something about payment under deeds of assumption, as detailed on page 8, which refers to

    the amount of any unrelieved surplus ACT which is, in the financial year 2000–01, set against the corporate tax liability of that authority's executive or any other company which is in any part of that financial year a member of the same group as that authority's executive under regulations made under section 32 of the Finance Act 1998.

How will that impact on local passenger transport authorities?

4.40 pm

Mr. Tom Brake (Carshalton and Wallington): I too am pleased to serve under your chairmanship, Mr. Winterton. I wish that Government transport funding for London were set out as clearly as the grant in the report.

I have three questions for the Minister. First, do the grants contain an allowance for additional costs that might be incurred as a result of safety improvements that may be made as a result of the Paddington inquiry? Secondly, I believe that train operating companies will make an effort to standardise by having a common set of tickets. Do the grants contain an allowance for additional costs that those companies may incur and pass on when they do that? Finally, will he explain how, against the background of falling grants mentioned by the hon. Member for Poole (Mr. Syms), the metropolitan authorities can expand services and help meet the Government's stated aim of reducing traffic and carbon dioxide emissions?

4.42 pm


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