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Fourth Standing Committee
on Delegated Legislation
Wednesday 19 March 2003
[Mr. Win Griffiths in the Chair]
Draft Vehicle and Operator Services
Agency Trading Fund Order 2003
The Parliamentary Under-Secretary of State for Transport (Mr. David Jamieson): I beg to move
That the Committee has considered the draft Vehicle and Operator Services Agency Trading Fund Order 2003.
May I say what a pleasure it is to sit under your chairmanship this afternoon, Mr. Griffiths? I have not had that pleasure for quite a long time. I am sure that it is something we shall want to repeat in the future.
I would like to say a few words to explain the order. A trading fund is a means of financing trading activities undertaken by Government and funded by fee income from customers. It would previously have been financed by annual appropriations from Parliament, in the form of vote funding. A trading fund permits the establishment of a self-accounting unit. Although it remains under the control and management of Ministers—and is accountable to Parliament through them—it has greater freedom to manage its financial affairs.
In July 2002, the Government announced that the Vehicle Inspectorate, a long-standing trading fund, and the traffic area network would merge from 1 April 2003. The new agency will be called the Vehicle and Operator Services Agency. Bringing together the work of the VI and TAN is sensible because both organisations share a similar aim of promoting safe, fair and environmentally responsible road haulage and bus industries. VOSA will combine the expertise of inspecting individual vehicles—currently a key VI responsibility—with regulating operators of vehicles, which is the purpose that TAN serves. There will be a single management board for the combined agency.
The draft order will establish VOSA as a trading fund from 1 April 2003. It will achieve that by amending the Vehicle Inspectorate Trading Fund Order 1991. Schedule 2 provides a new list of funded operations covering both VI and TAN. Schedule 1 appropriates additional assets and liabilities attributable to TAN. Those assets and liabilities relate chiefly to TAN's properties, IT equipment and operator licence fees paid up to five years in advance. Article 6 provides that 50 per cent. of the additional net asset value should be treated as public dividend capital. The remaining 50 per cent. will be treated as if a loan had been made on which VOSA will be required to make loan repayments. Article 7 increases the fund's borrowing limit from £40 million to £70 million. Article 8 changes the name of the fund to the Vehicle and Operator Services Agency trading fund.
The new agency will carry out the functions currently undertaken by the TAN and VI. The principal functions will be: supporting traffic
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commissioners in carrying out their licensing and compliance functions for lorries and buses and for registering bus services outside London; operating and administering vehicle testing schemes; carrying out spot checks on cars, light goods vehicles and commercial vehicles at the roadside and elsewhere; and monitoring bus services outside London.
Ministers believe that bringing TAN and the VI together will be a positive, practical demonstration of the Government's commitment to promoting road safety and joined-up delivery of modern services to the commercial operator industry. The independence of the traffic commissioners is unaffected by the creation of VOSA. The chief executive will undertake work to ensure that the separation of roles between traffic commissioners and VOSA is made clearer. Very similar work would have been undertaken even if the merger of the VI and TAN had not taken place.
The VI is an existing agency of the Department and already operates as a trading fund. It was the first ever Executive agency to achieve trading fund status. TAN is not an Executive agency. It operates as a division within the centre of the Department. Its potential for Executive agency status has long been recognised. It is paid fees by commercial operators, which are intended to cover its costs, and under its existing vote-funded financial regime, it surrenders such fees to the Department. With an annual turnover of some £15 million, TAN will be the smaller partner in the new agency. Nevertheless, there will be a genuine merger of the two long-standing organisations. The aim is to take the best of both and make something better.
In accordance with the provisions of the Government Trading Funds Act 1973, a consultation paper on the proposals contained in the draft order was issued to interested parties. A report of the representations received has been laid alongside the draft order. The Department received eight responses to the consultation. None opposed the proposal to establish VOSA as a trading fund. Five respondents fully supported the proposal, including the Freight Transport Association and the senior traffic commissioner designate.
As a demand-led and essentially fee-financed body, the operations of VOSA will be ideally suited to a trading fund regime.
Mr. Christopher Chope (Christchurch): Is it not right that one of the organisations consulted, the Road Haulage Association, was rather concerned about the possible impact on operator licence fees? Will the Minister expand a little on the arrangements for cross-subsidy between the two organisations, and the implications for operator licence fees?
Mr. Jamieson: Perhaps I can finish my remarks before I pick up on those important comments.
A trading fund is better able to respond to fluctuations in customer demand than vote-funded organisations, because trading funds use fees paid by customers directly to meet their costs. If demand changes, trading funds are able to react positively and flexibly to the needs of their customers. That is not always possible for vote-funded organisations
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operating on a fixed budget. VOSA will be required annually to lay before the House a copy of its annual report and accounts. Its assets will remain vested in my right hon. Friend the Secretary of State for Transport and its employees will remain civil servants working in the Department for Transport. In other words, trading fund status will not alter the constitutional or legal position of the new agency. I reiterate that Ministers will continue to be accountable to Parliament for VOSA.
The establishment of VOSA as a trading fund will be in the interests of the improved efficiency and effectiveness of the management of its operations. No objections to the proposal were received in the public consultation exercise, and five of the eight respondents fully supported the proposal. The issue of fees would have to be addressed anyway, whether or not the merger took place. That would be done entirely separately. There were some concerns from a number of organisations involved in the consultation, but most of those concerns have been addressed. If hon. Members have further questions, I am happy to respond to them as best I can. I commend the order to the Committee.
Mr. Chope: This is the first time that I have had the pleasure of serving under you chairmanship in a Committee, Mr. Griffiths, and I hope that it will not be the last and that it will be a pleasurable, but quite brief, experience.
The Minister has helpfully said that he will respond to some of the questions that we will put to him. As with all such measures, at the end of the day most people are concerned about whether this will mean that they have to pay extra charges. The Opposition have no objection to the establishment of a trading fund; in principle, trading funds have been part of Conservative party philosophy, and Conservative Governments have introduced and promoted them. We think it important to promote as much efficiency as possible in the Departments and agencies.
We have concerns, however, that where there is inefficiency, the burden tends to fall on those who are regulated. That is the syndrome of the self-financing regulatory authority. We have seen that, through some regulatory authorities, fees and charges have increased way beyond the rate of inflation and that the authorities have kept on recovering from innocent customers the consequences of their own failure to manage themselves efficiently. Although I shall not go into detail, the Committee will be familiar with the example of the Passport Agency. At one stage it received an award for excellence, but it then got into tremendous difficulties, and since then fees for passports have increased far in excess of inflation. We can now say that increases in passport fees are an additional stealth tax.
People who are dependent on the traffic commissioners and have to obtain operator licences to sustain their livelihoods are worried that this measure may open up an avenue for yet another stealth tax. We know from the consultation paper that the operator licence system is already in deficit. I hope
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that the Minister can explain a little further what would happen if this measure were not passed. What would happen to that deficit? How much would fees and charges then have to be increased, and by how much less will they have to be increased as a result of having a trading fund, with all the additional efficiencies that will flow from that? Although the Road Haulage Association did not object to the measure in principle, it expressed strong concerns about the burden on its members through the cost of operator licences.
I am pleased that the Minister has guaranteed that the independence of the traffic commissioners will not be compromised in any way by the measure. Can he confirm that no pressure will be put on the operators of the trading fund to increase the amount of their activity simply to gain additional revenue? Again, that is a practice in which several self-financing regulatory authorities indulge. They think that they have the freedom to go out and maximise their income. As we have heard from the Minister, part of that income has to be returned to the Treasury in the form of, essentially, a dividend income. The burden on those who are regulated can increase significantly as a result.
I hope that the Minister can allay the concerns of those who will be the customers of the combined agency and assure them that it will be a benevolent and efficient organisation, which will result in the imposition of lower fees than would otherwise have been imposed. If he can satisfy us on that, we shall not vote against the measure.