Examination of Witnesses (Questions 180-199)
MR MIKE
SHIPP
12 JANUARY 2005
Q180 Mrs Ellman: What
provision will you have to deal with the contractor who is not
successful once the scheme starts to operate? Will you be able
to get rid of them?
Mr Shipp: Yes, we will be able
to. We are pursuing model contracts which, I am advised, draw
on the lessons from some difficulties that we have encountered
previously in government. So our model contracts are consistent
with the latest good practice that comes out of the Office of
Government Commerce. Our contract management capabilities that
we are developing now, well ahead of contract award and well ahead
of when the system goes live, are being developed very much with
an intelligent customer in mind, who can interact effectively
with contractors—and doing that now, rather than waiting
until the contract is sealed.
Q181 Mrs Ellman: So you
are confident that the scheme will be successful?
Mr Shipp: From a programme management
point of view, there are many things that could yet impact on
the programme; but in terms of delivering this contract, yes,
my confidence is high. I would not suggest that this is not challenging.
It is a hugely complex and challenging task, but we have assembled
a very high-capability programme. As I mentioned earlier, we are
tested quite regularly. I have had positive feedback from those
independent testers, and my confidence is high. We have a good
team working on this.
Chairman: There are a number of wry smiles
round the Committee table, Mr Shipp, but I would not want you
to misinterpret them.
Q182 Ian Lucas: Are there
plans to use the Lorry Road User Charge to tackle congestion problems
in the future?
Mr Shipp: We do not have an objective
that is about congestion management. What we are trying to provide
for in our solution, though, is some element of anticipating wider
road pricing, should ministers decide that is a sensible thing
which they wish to introduce. On the feasibility report which
was published in July we had quite a bit of discussion with DfT
colleagues—the same colleagues who work with us on this
programme anyway, which made that process much easier—about
the extent to which it was possible for us to anticipate what
that scheme might look like in the last few years of the LRUC
contracts. We agreed between Treasury and Transport ministers
how our objectives would be framed with that in mind, and adopted
contractual flexibilities with that in mind. I made a particular
point when we launched our preliminary invitation to negotiate
document to our prospective bidders. We had a presentation to
them and we explained that government were thinking jointly on
this issue, and this was the way that we were approaching the
problem.
Q183 Ian Lucas: Is it
part of the specification?
Mr Shipp: No, it is not. The specification
for LRUC is just to deliver the objectives that have been set
for LRUC. There are some very distinct differences between the
two schemes. However, ministers were concerned that, should road
pricing be introduced around the dates that have been postulated
in the feasibility study, it would be a bizarre situation if that
applied only to cars, coaches and other vehicles, and if the lorries
that are within LRUC were in a completely different system and
were not in any way affected by those measures. So we sat down
and thought hard about the extent to which we could give ourselves
some flexibility towards the end of the LRUC contracts, to accommodate
some changes that we were not able to anticipate at the current
time.
Q184 Ian Lucas: Are you
satisfied that the solution that you have come up with will resolve
the difficulty of not having it included in your specification?
Mr Shipp: I am satisfied that
the specification will deliver the objectives we have been set
today. One of the difficulties on the road pricing debate—and
Transport colleagues know much more about this than I do—is
being able to look that far into the future and to specify with
any degree of precision, which the market would respond to in
an intelligent way, exactly how that might work. As the study
makes clear, the technology does not really exist today to do
that. Consequently, it is extremely difficult to include, in a
specification that you are going to procure, elements which we
know cannot be delivered today and, moreover, we cannot specify
them terribly clearly even if they could be delivered today.
Q185 Ian Lucas: Going
back to the Lorry Road User Charge specifically, what factors
will you use to determine the level of the charge?
Mr Shipp: I think there will be
a whole host of issues that will come to bear on that. These are
issues we have yet to come to in terms of setting the rate, and
I imagine that this will be a decision the Chancellor will take
on the Budget that precedes go-live—so consequently a little
way over the horizon yet. Our presumption is that, in order to
deliver a level playing field, we will need to have a fuel duty
refund that is broadly analogous to average EU levels of taxation.
The charge would then be set to put that into equilibrium. That
itself provides a boundary for the charge. Within that, however,
there are a whole host of factors that will need to be weighed
before we are in a position to take decisions on that.
Q186 Ian Lucas: Can you
give us an example of a couple of those types of factors?
Mr Shipp: As I indicated earlier
to the Chairman, the haulage sector pays about £4½ billion
or £4 billion per year in road fuel duty, and our road fuel
duty rate is about 47p per litre. If we wished to produce a rate
that the hauliers saw as at average EU levels, there is a lot
of debate to be had. Do you go for the rate? Do you go for the
pump price? Do you take a weighted average? Do you deal with just
the Member States that are in close proximity to the UK? There
are a whole host of issues that need to be weighed there. For
the sake of argument, if one said, "Let us present them with
a rate that is broadly at EU average levels", that would
mean we would have a road fuel refund of approximately 23p per
litre. That, in turn, would produce an overall refund of about
£2.3 billion. To recoup that, in terms of a charge—and
this is where the data gets a little softer—the statistics
we have from the Department for Transport suggest that about 28
billion kilometres per year are travelled by lorries that would
be within the scope of the charge in the UK. So if you wish to
recoup that in that way, it would produce roughly an average rate
of about 8.5p per kilometre. That takes no account of lots of
other issues that will have a bearing on that; nor does that average
take any account of how you may set the charge to take account
of lorries of different weight, different emissions classes, number
of axles, and so on. However, I hope that gives the Committee
a feel for the sorts of numbers that we are working to.
Q187 Ian Lucas: The haulage
industry has called on you explicitly to rule out of the scheme
premium rate charges at peak times of the day. Have you ruled
this out?
Mr Shipp: That is essentially
a policy issue rather than one for me. In terms of the scheme,
Ministers have been very clear that they want the capability within
the scheme to be able to vary the charge by different times of
day. We have therefore specified for our bidders that we are looking
for potentially two time slots. Exactly how that will be configured—whether
it be peak, off-peak, night, day, whatever—has yet to be
determined. Ultimately, it would be for ministers to determine
whether they wish to take advantage of that ability. The analysis
that would need to be done to inform them on that is still a little
way from being prepared at the moment. However, they have been
clear that they want that facility. I understand that the haulage
industry has these concerns. They have also represented them to
me. Part of the equation that needs to be understood here, however,
is that if ministers were in the position of being able to have
a time differential that they applied to wider road traffic, they
would not wish to be inhibited from being able to do that for
lorries as well.
Q188 Ian Lucas: Are ministers
wanting to differentiate between a charge on motorways and not
on motorways?
Mr Shipp: They want the facility
to be able to do it. Leaving aside the arguments in the feasibility
report on road pricing and about congestion management, there
are other arguments for encouraging lorries to use motorways as
opposed to other roads. So, again, ministers have been keen to
have the flexibility within our solution that would enable them
to do that.
Q189 Chairman: Mr Shipp,
I do not want to be the cold water at your party, but the experience
of this Committee is that when systems of this complexity have
something that is called "flexibility" built in, they
do have enormous capacity to fail. I am not quite clear—and
I hope that I have listened carefully to what you have said—whether,
if what you are specifying now is a system that will do exactly
what you want in relation to lorry road charges, you can also
give a specification which is sufficiently flexible to take account
not only of the possibility of exemptions but also of the general
shape of a completely different system that we have been talking
about—which might be there at the end of the Lorry Road
User Charge scheme. Possibly that is because I am of very little
brain, but this Committee has seen, time and time again, government
schemes where the difference between the original specification
and the final result has, in brutal terms, been something like
millions of pounds worth of taxpayers' money. Can you assure us
that you are sufficiently focused? What I am really saying to
you is this. Are ministers saying, "Just do us a lorry road
user charge" or are they saying, "Produce a system that,
if needs be, can be adapted at a certain point to do something
else"?
Mr Shipp: I think that ministers
are saying both to us. I think that you can justify the distinction
on the motorways on the basis of influencing lorries to use motorways.
You can make a case for that, leaving aside the wider road pricing.
On your point about very sophisticated systems, Chairman, we have
been acutely conscious of mission creep being the fatal flaw in
large contracts in government. This is why we have been very focused
from the very early stages on articulating and then validating
our policy requirements and the technical specification with our
colleagues in Treasury and Transport, and with their ministers,
at successive stages through the programme. We have made some
very deliberate decisions at certain milestones to revalidate
that, including paring back to some degree some of the functionality.
As I was explaining a little earlier regarding the discussions
we had in the summer, in some of our earlier material that we
published on LRUC, at one stage we were looking ahead at the prospect
of being able to differentiate by more than two types of road.
We were doing this partly on the basis that the equipment would
probably need to be refreshed during the lifetime of the contract.
Given the analogy with mobile phones and so on, technology becomes
more capable and cheaper over time, and ministers are very keen
for government to be able to avail itself of these opportunities.
So we had postulated the possibility that we may have rates for
A and B roads at some point in the future. During the summer,
however, we thought long and hard about that. How would we articulate
that requirement? Could it be delivered today? What would we use
it for? We concluded that we would draw back from that somewhat,
and we specified only two rates—motorways and other roads—for
the purposes of the procurement launch. I would therefore like
to reassure the Committee that the requirements that were specified
for LRUC are regularly tested and assured as being fit for purpose
for LRUC and for wider policy developments, should they occur
in the lifetime of that contract.
Q190 Chairman: I want
to ask you about enforcement. Are you expecting to be able to
produce a system that can be enforced? How are you going to enforce
it, and how much will that cost?
Mr Shipp: The short answer is
yes, we do expect to have what we regard as a compliance model.
We have a compliance model within the programme at the moment
that we are developing.
Q191 Chairman: That may
be the difference between "pretty please" and my saying,
"You have got to do it". Can you actually enforce it?
Mr Shipp: Yes, we believe that
we can, but it is a mixture of a number of things. In order to
produce a level of enforcement that will command the confidence
of the haulage industry—and that is very important in order
to give them confidence that the playing field is being levelled,
but it is also very important to Treasury ministers in terms of
revenue leakage—there are a number of component parts that
have a bearing on it. One, and perhaps the most obvious, is how
much effort and manpower you put into policing it—assurance
and investigation-type activity, which my department undertakes
for other taxes. Another element is what physical infrastructure
might be appropriate which would detect apparently non-compliant
hauliers, perhaps akin to what you see in Transport for London
with its congestion charge, with cameras and so on. Another component
will be how secure in itself is the system that detects and calculates
the charge. How robust is that? That is a very important ingredient.
Last but by no means least is the regulatory framework in which
that operates. What sorts of penalties exist for non-compliance?
What sort of value will that have in deterring the non-compliant?
What sorts of education and information programmes do we have
to help people to comply? There are a number of component parts
there which interact on one another, and we have an embryonic
compliance model that anticipates some of that. We will not be
able to conclude it until we have completed our discussions and
we know what the technical system looks like, but I would then
expect to be in the position of going to ministers with this analysis
and, effectively, offering them some choices. Where do they wish
to be firmer? Where do they perhaps wish to relax a little? I
have given a commitment to the haulage associations that I will
also be expecting to talk them through those proposals, because
they will undoubtedly want to make representations to ministers
on the subject too.
Q192 Chairman: We have
had raised with us the whole question of dealing with foreign
hauliers, which might require expansion of existing facilities,
physical facilities, quite apart from the enforcement you have
been talking about. I assume that is part of your planning.
Mr Shipp: I am not quite sure
I understand what that proposition is, Chairman.
Q193 Chairman: In the
sense that we do have a limited number of ports through which
foreign hauliers are likely to appear and, with an existing system
that may be somewhat complex to administer, will this constitute
a physical barrier at the ports, in the sense that you will have
the physical presence of large numbers of foreign hauliers wanting
to sort out their situation—and presumably you would want
to sort out their situation as well?
Mr Shipp: The solution that we
are looking for, the steer we have given to bidders, is that we
do not want high dependency placed upon a physical intervention
at the points of entry to the UK. It is not only logistically
extremely difficult; it is arguably open to challenge by the EU
Commission in relation to free movement, the abolition of fiscal
frontiers, and so on. Although there will undoubtedly be some
possibility of intervention at the frontier—because that
is the natural choke-point for some lorries that enter and leave
the UK and, as Customs, we already have a presence in some of
those locations—our presumption is that the scheme will
not depend on that and that the bulk of the enforcement activity
will take place inland, away from the frontier. We are very seized
of the difficulties that we would face if we had lorries queuing
to avail themselves of registration facilities, or whatever, trying
to get into Dover and so on. We know that just will not work.
Q194 Chairman: Did the
EU authorities object to a simple system like the one that is
being proposed to us by Professor McKinnon?
Mr Shipp: We have had informal
discussions with the EU Commission about our plans, and I have
written to them on a number of occasions. We have not had a great
deal of feedback from the Commission on this issue, and I am not
aware that we have had any discussions with them about Professor
McKinnon's proposals.
Q195 Chairman: But you
have looked at that?
Mr Shipp: At Professor McKinnon's
proposals?
Q196 Chairman: Yes.
Mr Shipp: Yes, we have been aware
of those for some time.
Q197 Chairman: I am not
asking you to comment on them. I am just saying you have looked
at them.
Mr Shipp: His proposals? Yes.
We have invited him in and he has visited some of my colleagues,
and indeed we have invited him to join an advisory group that
we have recently set up. So, yes, we are very familiar with Professor
McKinnon's proposals.
Q198 Chairman: Do you
have any estimate of whether there would be a common EU standard
right the way across the board for electronic tolling?
Mr Shipp: The Commission have
already succeeded in having adopted an interoperability directive.[1]
Q199 Chairman: That is
not quite the same thing, Mr Shipp.
Mr Shipp: No, it is not, but it
lays down standards. If a Member State tolls electronically, it
lays down some standards by which those tolls should be applied.
At the moment that is at a fairly high level and there is a Committee
that is continuing to work, to come forward with more detailed
proposals in due course.
1 Note: This is a reference to Directive 2004/52/EC
of April 2004. Back
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