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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 378-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE transport committee
the future of light rail and modern trams in britain
Wednesday 23 February 2005 MR KEVIN HOLDEN and MR STEWART LINGARD Evidence heard in Public Questions 1 - 138
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Transport Committee on Wednesday 23 February 2005 Members present Mrs Gwyneth Dunwoody, in the Chair Mr Brian H Donohoe Mrs Louise Ellman Ian Lucas Miss Anne McIntosh Mr Graham Stringer ________________ Witnesses: Mr Keith Holden, Director, and Mr Stewart Lingard, Audit Manager, Transport Value for Money studies, National Audit Office, examined. Chairman: May I welcome you most warmly to the Committee. It is good of you to come. You are very welcome. We have one or two little bits of housekeeping which we have to perform before we start. Members having an interest to declare. Mr Lucas: I am a member of Amicus. Mrs Ellman: I am a member of the Transport and General Workers' Union. Chairman: I am a member of ASLEF. Mr Donohoe: I am a member of the Transport and General Workers' Union. Mr Stringer: I am a member of Amicus. Q1 Chairman: Thank you very much. I wonder, gentlemen, if you would be kind enough to identify yourselves for the record. You know how Select Committees work, so you will know that my friends in front of you will record but not project your voices. If you just remember this is a room which absorbs sound. Mr Holden: Thank you, Chairman. My name is Keith Holden. I am the National Audit Office Director responsible for Transport Value for Money studies. Mr Lingard: My name is Stewart Lingard. I am an Audit Manager in the National Audit Office with the responsibility for transport studies. Q2 Chairman: You can tell we are your greatest fans, otherwise we would not have asked you to come along so we can pick you brains. Mr Holden, did you have something you wanted to say about context or are you quite happy to go ahead with the session? Mr Holden: Chairman, I am more than happy to answer any questions you might ask. Q3 Chairman: Thank you very much. Can I ask you, your report says all the old tram systems were closed down because they could not compete with motorised buses and cars, why do you think we have a light rail revival? Mr Holden: There has probably been a recognition at the local authority level that there has been an increasing problem with regards to local traffic congestion, as well as a recognition in terms of social exclusion, which may be associated with access to public transport where there was a degree of under-investment over a period of years in the early part of the 20th century and, also, probably a recognition that something also needed to be done at a local level in terms of regeneration. Against those sorts of issues, there was a recognition at a local authority level, and this was manifested also at the central government level, that there was a need to improve public transport and light rail could be one way of doing that. Q4 Chairman: In other words, it is one of a package? Mr Holden: At least it should be one of a package. Light rail is not a panacea in itself. Q5 Mr Stringer: You are both experts in cost benefit analysis, are you not? Mr Holden: Yes. Q6 Mr Stringer: If you look at page ten of your report, paragraph 17, you talk about assessing value for money and then you move straight on to comprehensive evaluation of the costs and benefits. Can you explain to the Committee what the differences are between value for money and cost and benefits and why you have not made that distinction clear in your report? Mr Holden: In the Department's approach to investment appraisal they will use what they now call the new approach to appraisal, and that came out of some work which civil servants in the Department did around road schemes. Traditionally, benefit cost ratios and investment appraisal have been around hard numbers, for example in terms of a public transport system, be it building a new road, a new train route or light rail. It is very much around issues to do with, for example, reduced journey times and putting a cost on the amount of time which is saved, then multiplying that up by a million or so passengers, whatever it might be and arriving at a figure at the end of that and then accumulating those benefits and comparing it with the cost of the construction or operating. That is only as far as those quantifiable benefits can go. Value for money goes beyond that where it will take account also of some of the externalities, some of the by-products, which may come from a particular spending programme which may be negative or positive. The Department's new approach to appraisal tries to do that, so at its core it will have investment appraisal and benefit cost ratios, for example, but it will take account also of some of the factors to do with, for example, tackling social exclusion, economic factors with regards to regeneration and, in particular, accessibility, helping to connect people in a particular locality, linking them to jobs and, also, providing them access to public transport. All of those things are also relevant in the transport sphere, they are all adding up to what you might consider to be a judgment about VfM, but above and beyond the straightforward investment appraisals which tend to manifest themselves in terms of business cost ratios and that type of thing. Q7 Mr Stringer: That is very interesting. Can you answer the second part of that question of why you did not make that clear in the report? Mr Holden: I think we do make it clear in the report that there are issues to do with costs and issues to do with hard benefits with regard to patronage numbers, revenues and operating losses or profits for these schemes. Q8 Mr Stringer: All those issues are touched upon, there are quite clear definitions. I do not want to go too far down this path because I want to get on to the cost issue. Do you not think it would have been helpful if those issues had not been used interchangeably because you could have something of a positive cost benefit ratio which is not value for money, I suppose, you could have that the other way around? Do you not think it would have been useful if you used those terms to explain that to readers? Mr Holden: On reflection, yes, it might have been. At the time, I think what we were trying to focus on was what were the actual costs and benefits which were anticipated for particular schemes, have they been delivered to cost, to time, and have the benefits been delivered associated with those particular schemes. I do not think we considered that we then needed to arrive at some sort of overall judgment about business or is it not VfM, which, I think, at the end of the day, is quite difficult, you cannot drill down to a particular number that says, "This adds up to VfM", but you can obviously assess whether or not it has been delivered to time and cost and, also, whether or not the benefits are being achieved as they were planned. Q9 Mr Stringer: The costs of the proposed light rail schemes have gone up and you list some of the reasons for that. What you do not do is compare the order of magnitude of the different parts of the reasons for the costs going up, whether it is the diversion of utilities or whether it is the transfer of risk or whether it is a non-standardisation of vehicles. Do you think you can give us some idea of what the balance of those factors is in the costs going up? Mr Lingard: We did not analyse the reasons for the cost increases in that way, in the exact monetary term which you say. Q10 Mr Stringer: Would that not have been useful for us to know? Mr Lingard: Yes, it might well have been. I think we did identify the causes even if we did not put a figure on them. For example, as we understand it, the private sector has been putting a premium on for accepting all the revenue risks and, certainly, that has been a big factor in the cost increases. Q11 Mr Stringer: Would you say it is half the increase of costs? Mr Lingard: I would not like to put a figure on it. As I say, we did not analyse that, so I cannot say. Mr Holden: This particular issue came up when our report was taken by the Committee of Public Accounts in the autumn. One of the Members of the Committee asked us this particular point about whether or not we could quantify each of the cost drivers which were associated with the escalation in costs and, in particular, around the issue of revenue. Some of them are quite difficult to quantify because to some extent, for example with regard to revenue risk, you are trying to get inside a contract between the private sector body and a local authority and trying to get inside that private sector organisation's view of risk and the extent to which it has tried to build a premium in. We know it is there, but it is quite difficult to quantify it if obviously those organisations want to keep that sort of information commercially sensitive. Also, there is an issue to do with some of these other issues, for example, lack of standardisation or the application of heavy rail standards for light rail systems, where, in order to identify the additional cost, you would have to know what the opposite would be and you would have to know the counter-factual. That is really rather difficult if they do not exist. Trying to say: "To what extent does lack of standardisation drive up costs?", we know that it does, but how you measure that is rather difficult if you then do not have another control set of light rail systems where they are, for example, yielding or being able to take the benefit of coming in to scout this organisation, you do not have a comparator to work out the quantification of additional costs. Q12 Mr Stringer: What is your understanding of why all the bodies that are procuring light rail systems have used the Design, Build, Operate and Maintain process? Mr Lingard: Hither to most of the schemes existing schemes have used that model. Q13 Mr Stringer: Yes, why? Mr Lingard: Yes, why, quite, when it has not proved too successful. Q14 Mr Stringer: Is that not because the Department for Transport have insisted on that? Mr Lingard: It would seem to be the Department have encouraged that approach. As you will be aware, one of our recommendations is that it should rethink this and investigate which is the best model and advise promoters to use that model. Q15 Mr Stringer: It is not that the Department for Transport have advised, they have insisted, have they not? Mr Holden: I do not think we have any evidence to say that is the case. Q16 Mr Stringer: Did you try to find that evidence? It seems pretty extraordinary, if this is the process the Department has strongly advised or insisted on and is responsible for the costs, that you have not bothered to find out whether that was Government policy or not. Why did you not find that out? Mr Lingard: It has not been the universal approach to these because we know for the Docklands Light Railway scheme, for instance, they have used a different approach there, so there are alternatives. Q17 Mr Stringer: For the modern tram schemes, there are a lot of different things about them, like the light rail, that have been universal for the modern tram schemes as opposed to the light rail schemes in Tyneside and Docklands. I ask the question again, if this is a major driver of the costs, because of the risk transfer and various other factors, why did you not find that out? Mr Holden: Taking it to its logical conclusion, if it is Government policy, then obviously the NAO cannot question Government policy. Q18 Mr Stringer: I was not asking you to question government policy, I would have thought it was your job to find out what the cost of Government policy was and to do that you would have to know whether it was Government policy or not? Mr Holden: As far as I am aware, it is not Government policy that they would insist they would have to use that particular model because, as my colleague, Stewart Lingard, said, there are other examples of light rail systems which have not used that particular model. Indeed, we point out the consequences of this particular model in the report and we make a recommendation that the Department should consider other models, the best way or alternative ways in which we can procure light rail systems, which we think is the way forward. Q19 Mr Stringer: In terms of the extra cost of the utilities, did you have or find any evidence that the utility companies were taking advantage of the 1991 Act in putting extra charges on? You made the recommendation that this should be looked at, but did you find they were ripping off the public sector? Mr Holden: I do not think we did. Mr Lingard: Not ripping off the public sector, but I think what has happened is that on the advice of the utility companies, the promoters of the schemes have gone along with their advice that utilities should be diverted in every case. We do not think that is necessary in every case, there are alternatives to wholesale diversion of utilities which we think should be investigated by the promoters more assertively than they have done in the past. Q20 Mr Stringer: The 1991Act gives the responsibility to the utilities, does it not, to insist on higher cost? Would you recommend that the 1991 Act be amended? Mr Holden: We do not make any recommendation of that sort. The key issue here is to consider whether or not the utilities need to be diverted in the first place. Q21 Chairman: Mr Holden, I am sorry, I am not finding it easy to hear. Mr Holden: Sorry, Chairman. I think the key thing for the promoters to consider is, first of all, whether or not the utilities need to be diverted in the first place and, if so, to what extent and then to question who is best placed to carry out that particular set of work in order to help make sure that the costs are being contained where reasonable. Q22 Mr Stringer: Your belief was the utilities were piling on costs to the public sector? Mr Holden: There is a table in the report which obviously sets out a set of comparisons between the UK experience and abroad. I think in this country the utility diversion costs are in the region of 92.5 per cent, which is significantly higher than in Germany and France. Q23 Mr Stringer: I have two last questions, if I may. One of your recommendations is that like systems in Karlsruhe and Freiburg, light rail should be allowed to use heavy rail lines. What is your understanding of why light rail cannot use the same lines as heavy rail at the present time? Mr Lingard: I was going to say, in this country there are technical reasons being put forward as to why they cannot. Q24 Mr Stringer: By the Health and Safety Executive? Mr Lingard: Yes, by the Health and Safety Executive, the engineers and whoever. There are constraints about where the lines go in terms of whether they go to the right places and to what extent the light rail vehicles would have priority on the rails vis-à-vis, the main heavy lines. There are all sorts of issues being put forward as to why they cannot be used here. We think all of those are surmountable, they can be got round. Q25 Mr Stringer: What was your understanding of the Health and Safety Executive's position on this matter? Mr Holden: Her Majesty's Railway Inspectorate within the HSE is responsible for regulating health and safety on the railways and Network Rail is the owner of the track. Obviously the key thing is to make sure that any changes which take place to the heavy rail network do not involve an increase in the risk associated with using that particular network. Quite clearly, there is a set of hurdles for any light rail promoter who wants to use track share, for example, to get over before it can demonstrate, both to Network Rail and HSE, that the risks are manageable and containable. There is an issue around managing risk being imported to the network. If I can add to Stewart Lingard's comment, in some cases there is also an issue around the existing capacity of the network as well, because there are parts of the country where the existing heavy rail network is reaching full capacity. It is not necessarily the case that where there is any degree of slack that would coincide with a route which could be used by light rail. Q26 Mr Stringer: You mentioned the Greater Manchester system where that was applied in terms of the subsidies to heavy and light rail. Is not the real issue, which the Health and Safety Executive put forward, that the standards of construction of rolling stock on heavy rail are higher than the standards of construction in light rail and, therefore, they are saying no? Is that your understanding? Mr Holden: No, our understanding is heavy rail standards still apply to light rail. There are no specific standards to light rail to differentiate them from heavy rail. That is one of the key cost drivers that we point out in the report where there are no tailored health and safety standards for light rail compared with heavy rail and that adds cost to light rail systems. Q27 Mr Stringer: The final point, if I may, is you make the point that there is better integration between bus and tram systems in France and Germany - which is undoubtedly true - you do not make the point, and I wonder why not, that it would be easier to integrate bus and trams if buses were regulated. Why do you not make that point? Mr Holden: Because that is questioning Government policy and Government policy is to have deregulated buses. It would be questioning Government policy to make a recommendation that they should reconsider re-regulation. Q28 Mr Stringer: Even though the co-ordination that takes place, which you recommend, is regulated? Mr Holden: In the report we did point out that local authorities have the powers to introduce quality bus contracts and quality bus partnerships. There are mechanisms they can use without requiring change in the legislation. Mr Stringer: The Committee has been down that track, so I will not go any further. Q29 Mrs Ellman: On the question of the utilities, the risk factor for diverting utilities is 29 per cent for Mersey tram. Why do you think it is so high? Mr Holden: I have no idea. I do not know enough about the Mersey tram case. I have not examined that so I am not really in a position to comment. Q30 Mrs Ellman: Do you have any comments about high costs like that and where the responsibility for that should lie? Mr Holden: As I said earlier, the key thing that we point out in the report is that utility diversions are costly and there is an issue about the extent to which promoters question and challenge the utility companies on the basis of their cost estimates and what they are going to charge them for the diversions, whether they are needed, the extent to which they could be reduced perhaps, either in terms of reducing them in terms of their scope but also in terms of who actually carries out the work. I cannot comment specifically on the case that you are giving me. Q31 Mrs Ellman: Who actually carries out the work when the utilities are diverted? Mr Holden: The utility companies. Q32 Mrs Ellman: Always? Mr Holden: Yes. Q33 Mrs Ellman: In terms of assessment of light rail schemes, it is suggested that a full evaluation would cost between £10 million and £15 million. Is that an accurate figure? Mr Holden: That is the figure that David Rowlands, the Permanent Secretary and Accounting Officer of the Department for Transport, gave to the Committee of Public Accounts in the autumn. I have to say I think that was explained by Mr Rowlands on the basis of, in particular, trying to assess the regeneration effect of light right which can take many years to come through after the system is opened. Obviously at first glance £10 million to £15 million seems a great deal of money to evaluate a light rail system. Q34 Chairman: It is a very hefty amount. Mr Holden: It is. Q35 Chairman: It is not that it seems to be, it is. Mr Holden: I cannot really comment beyond recognising that that is a lot of money. That was the first time we had heard the Department mention that particular potential cost. Obviously we pointed out limitations and various deficiencies in the evaluation of existing light rail schemes, but in terms of how the Department arrived at that sort of figure, because we did not know about it until at the hearing, I cannot really comment in terms of whether or not that is a reasonable and accurate figure. Q36 Mrs Ellman: Are you satisfied with the Department's plans for evaluation? Mr Holden: I think they have recognised that they do need to improve their framework for evaluation both in terms of capturing all of the costs and benefits associated with the scheme over a period of years, starting with some of the more prosaic and rather straightforward issues to do with the tangible assets, the number of stops, stations, the number of vehicles that were supposed to be procured, the quality of service, frequency and punctuality of the services as well, and there have been weaknesses in the Department's approach in conjunction with local authorities in terms of evaluating across all of those particular measures and across all of the systems which are currently in place. Q37 Mrs Ellman: What are the most important changes you would like to see? Mr Holden: Generally or in terms of ---- Q38 Mrs Ellman: In terms of evaluation on either criteria, how assessments are made. Mr Holden: I suppose would like to see a few things. First of all, we would like to see clear criteria and a common framework from which the Department and also its local authority partners and operators can work. From that framework you can then tailor your evaluations over a period of time, perhaps issue interim evaluations where you can quite easily evaluate tangible benefits of the services in the first few years after operation, for example, and then thinking about some of the longer term effects with regard to social inclusion and regeneration further down the line. At the moment that is missing, there is not a common framework. One of the key things that we point out in the report is that the evaluations that have been carried out have not been carried out against a common framework using the same evaluation criteria and that makes it quite difficult to compare one system against another, certainly through the eyes of the evaluators. Q39 Mrs Ellman: Is the Department going to make those changes? Mr Holden: We understand so. We understand that the Department has recognised that there is an issue here as to how they go about evaluating ---- Q40 Chairman: What was their explanation, Mr Holden? Mr Holden: I seem to recall that they told the Committee that they had commissioned some work by some consultants to develop a framework but it had not been successful so they wanted to revisit this particular area, if my memory serves me right, within the context of the Manchester Metrolink, if that were to go ahead. Q41 Mrs Ellman: How long do you think it would take to assess regeneration benefits? Mr Holden: Partly it depends on to what extent the system itself has regeneration as a key part of its rationale. We point out in the report that regeneration features more in some systems than in others, for example it is in the Manchester and Croydon systems. If regeneration is a key driver or a key factor in justifying the scheme then obviously to start with, therefore, you need to think about how you are going to evaluate regeneration. Regeneration is a very difficult area to assess more generally, it can take a great deal of time and over that period of time it may not just be the light rail system that is contributing to regeneration but all sorts of other factors as well. The case of Manchester is a case in point where obviously we had the Commonwealth Games there only a few years ago and that obviously had an impact upon the regeneration of Manchester and the locality around. Isolating the effect of light rail over a period of years also creates challenges. It may be perhaps five to ten years down the line before you see regeneration bearing fruit. Q42 Mrs Ellman: Would you say that passengers are more attracted to light rail systems than they are to buses? Mr Holden: I do not have any information or any evidence to say yes or no to that particular question, I am sorry. Q43 Mrs Ellman: Is it something that you would find of interest to investigate? Mr Holden: I think what I would say is that one of the key things that we would want to draw as messages from the report is that when we talk about things to do with integration through ticketing, ease of access, both physical and also in terms of finding out information about routes and timetables, what we are really saying is that you have to make public transport - light rail is no different - attractive to people because what you are really trying to do is change their behaviour, trying to encourage them out of their cars and on to public transport, in this case on to trams. What you need to make sure is that light rail is at least as attractive, if not more attractive than, using your car. In terms of frequency, punctuality, fares, it is going on the right route, it is taking you from where you are to where you want to be and back again, and integration, for example, with buses so you can hop from a bus to a tram and then back on to a bus, all of those issues are important for promoters when they think about designing their light rail systems. They must think in terms of the passenger and how it will appear to the passenger and what factors will attract a passenger to use a tram. Q44 Mrs Ellman: How important would you say integration with buses is? Mr Holden: Obviously there are only seven existing light rail systems in England so buses dominate, they are overwhelmingly the largest form of public transport beyond heavy rail, so I think integration is very important between buses and light rail. I think there is an issue here for the operators of buses and trams both to benefit and for the passengers also to benefit, and ultimately the taxpayer will benefit in terms of getting a return on public money that is invested in light rail. We do not see it as a zero sum gain, we see it potentially as a win-win, where if it is, and is seen to be, well integrated and seamless it is more likely that you will encourage an increase in patronage for both bus operators and also light rail operators, so you can actually grow the public transport provision within a particular locality and everyone wins. Q45 Mrs Ellman: What about the contribution of light rail to reducing congestion and pollution? Has any work been done on that? Mr Holden: Yes. We do touch upon it in the report. Obviously, one of the key things here is that tackling congestion and reducing local air pollution is all about reducing car use and that is all about modal shift, getting people out of their cars to use trams, and the key driver there is patronage, it always comes back to the passenger. There is some information in the report which points out the impact that light rail has had in Croydon and some other places on local congestion and air pollution. The problem with any public transport system is to do with backfill, in other words generated traffic, so if passengers leave their cars behind at home and they use light rail, that creates more space on the roads for other motorists then to fill. There is a real complication around the extent to which modal shift can be sustained. That is why we also touch on the need for complementary measures, for example park and ride or parking restrictions and those types of measures, to go alongside light rail in order to help discourage car use, for example, where there may be that backfilling or that generated traffic. Light rail by itself without complementary measures, such as park and ride, will not succeed to the extent that it should. Q46 Ian Lucas: What are the advantages of light rail over motorised buses? Mr Holden: We do not do any work in the report. It is not a comparative VfM study so we are not comparing light rail as a mode against buses as a mode. I could speculate but it would be no more than speculation. Q47 Ian Lucas: Can you put on record the way that light rail schemes are funded in Britain? Mr Lingard: They are funded through a variety of measures: central government grant and borrowings from central government, local authority funds, European funds and private monies. Q48 Ian Lucas: Is it right that the French and German light rail systems are much more heavily subsidised than systems in the UK? Mr Lingard: It is correct that generally systems in the UK are not subsidised and systems in France and Germany are subsidised to a heavy extent, yes. Q49 Ian Lucas: Where does the subsidy come from in France and Germany? Does it come from local government? Mr Lingard: It comes from local government, local taxes. Q50 Ian Lucas: You say there is no subsidy at all in Britain. Mr Lingard: I believe that the Tyne and Wear Metro is subsidised to some extent. Q51 Ian Lucas: The revenue of the Tyne and Wear Metro? Mr Lingard: Yes, it is subsidised on an annual basis. The loss that the system would otherwise make is subsidised by the local PTE. Mr Holden: Chairman, can I just clarify that our understanding of subsidy, I hope, is the same as your understanding of subsidy where we are talking about operating subsidies. Once the system has been built, and obviously the Department will have given quite significant grants to help construct the systems, when we are talking about subsidy I think we are talking along the same lines in terms of operating subsidies subsidising, for example, or underpinning, underwriting the income that an operator may have in running the light rail system. Q52 Ian Lucas: If we look at the capital costs in, say, France and Germany, to what extent are those provided by government? Mr Lingard: Again, they do receive government grants. I cannot recall the exact proportion of grant that they make. From recollection, however, I do know that they were reducing the amount of central government grant that their local schemes were going to get in the future, but from what to what I cannot tell you. Q53 Ian Lucas: Is there an increasing use of the private sector in France and Germany in terms of funding capital schemes? Mr Lingard: If the central government grant is going to be reduced then I would expect they are hoping for greater private monies. Q54 Ian Lucas: Are there schemes being taken forward on private funding in France and Germany? Are you aware of any? Mr Lingard: I do not know. Mr Holden: No. Q55 Ian Lucas: Is the diminishing input in terms of grants from government leading to a lack of development of the light rail sector in France and Germany? Mr Holden: Our work did not extend to looking further ahead in terms of future developments in France or Germany. Obviously what we wanted to do was to look at how they have got to where they are at the present moment in time and the report does point out that Germany has over 50 systems, France has 11 main systems and obviously within the last year we have just opened up our seventh, so we are little bit behind them in that regard. We did look ahead to look at any changes that are in the pipeline with regard to funding the French or German systems. Q56 Ian Lucas: What are the main lessons that we can learn from the French and German systems? Mr Holden: Primarily they revolve around the design of your system and the services that you can provide in terms of better integration, choosing your route carefully to make sure that you connect the centres of economic activity, like hospitals and universities and shopping centres and business districts, obviously the extent to which you can potentially make savings with regard to standardisation or driving down utility diversion costs. I think those are the main things. Mr Lingard: Can I add one thing to that? They also give priority to their light rail vehicles on the roads at traffic lights - always - and here we do not always do that. Of course, that reduces the reliability of our systems. Q57 Ian Lucas: Mr Rowlands claimed that light rail was more successful on the continent because of higher population densities there. Would you agree with that? Mr Holden: From my understanding there is an issue around your patronage base. You still have to have a critical mass of people along that route, or at least within a fair catchment area, that you can attract to light rail. I am not too sure that we have any direct evidence which would suggest that you need a densely populated town or city for light rail to succeed necessarily. You still need the people there and I think a case in point in the report was the case of Sheffield Supertram that had projections of patronage and it did not succeed because the city council knocked all the housing down during the development of the scheme and those potential passengers moved elsewhere. Obviously I do know that there were issues associated with travel-to-work patterns where people may see the advantages of light rail travelling in to a town or city centre, for example, and being prepared to divert from their normal route, perhaps go a little bit further than their normal route, in order to obtain the benefits of light rail, for example driving to a park and ride site, hopping on to the tram and being in the city centre quicker than you would be able to achieve if you drove there directly. There is definitely an issue in population densities in terms of having enough people out there to attract but I am less convinced that it has to be highly densely populated; I think it is more to do with the hinterland and the general population around the edges to attract patronage. Q58 Ian Lucas: Do you think in view of the much lower number of light rail schemes we have in the United Kingdom that we have a lack of expertise in developing projects here? Mr Holden: It is not something that we necessarily identified within the report as such. Obviously until most recently there have only been six systems and some of those have come on stream in the last five or six years, so there are not many of them, so the industry is really quite small in this country. Having said that, we do point out in the report that local authorities do not necessarily have the information or the knowledge to know where, for example, a light rail system may be successful. There has not been a great deal of good practice sharing and lessons being learned from the position of the Department because obviously the Department oversees everything and is in a unique position to see all of those systems as well as systems abroad. Obviously the promoters of systems can also go abroad to see how it works over there. There is definitely an issue about the maturity of the industry in this country and you could speculate that over time if there were more systems then obviously you would build up that degree of technical as well as managerial expertise as well as perhaps generating economies of scale. Q59 Chairman: Yet, in fact, this Committee went to Munich to see the tram system which is entirely managed on the assumption that it will be heavily subsidised and it does the job not only of renewal but of the efficient movement of jobs precisely because it is controlled by the local authority. You say on the one hand that you are convinced there is a very heavy level of subsidy and you say you do not know exactly how, but you must have made some inquiries because fares are subsidised by 70 per cent in Grenoble and 40 per cent in Freiburg. That information must have given you some clear indication of what the local taxpayers or ratepayers were paying, must it not? Mr Holden: No. Q60 Chairman: The 70 per cent did not just come out of the Alps, did it? Mr Holden: We cannot audit the French systems and we cannot audit the German systems. Q61 Chairman: No. I think you would be very rich, Mr Holden, if you found a way of doing that. Mr Holden: Absolutely, yes, I would, I agree. Q62 Chairman: You would be an unmitigated success and offered jobs all over the world. Mr Holden: We did not drill down to find out what impact that has on local taxpayers but obviously we do flag up and give an indication of the extent to which there is that subsidy abroad compared with the Department's position which is that these systems should be self-financing and require no operating subsidy. Chairman: I think we want to ask you about some aspects of that. Q63 Miss McIntosh: Can I just declare my interest, it may be relevant. I am doing a placement with Network Rail on the industry and Parliament, plus I have interests in First Group. You gave some responses to Mr Lucas as regards the density of population and I think you do conclude that one of the reasons for the success, particularly in France and Germany, of light railway is specifically because they do have more densely populated areas where they have chosen to put their light rail. Obviously you stand by that conclusion. Mr Holden: Absolutely, it is in the report. If there are more people in your particular area, densely populated, then you have got a greater chance of attracting higher patronage figures. I think what I was saying to your colleague was that it is not necessarily the case that you actually need that. It does not necessarily mean that if you have an absence of highly densely populated areas that light rail would necessarily fail. Q64 Miss McIntosh: You go on to say that: "Poor financial performance of some existing light rail systems is discouraging interest in supporting light rail and the costs of new systems are increasing partly as a consequence". Presumably that is a feature that has been ongoing for some time? Mr Holden: Yes. One of the key issues here is that the industry recognises, for example, where operators are generating financial losses, so they therefore consider whether or not they want to be part of future light rail systems, and if so what sort of premium they would want to build into their costs to take account of the risks that they may be operating systems at below break even. Q65 Miss McIntosh: You also say: "It takes too long for local authorities to be granted the necessary legal powers for light rail systems and whether schemes will be funded is uncertain." Do you have any solutions to speeding that along? Mr Holden: There are two things there. We point out in the report that on average it has taken about two and a half years for a new light rail system to be granted powers by the Department after a public inquiry. They have all gone to public inquiry and generated an inspector's report. It has its own target to turn these decisions around within six months and has not achieved that. We do know the Department has taken action by trying to beef up their team and increase the number of people that they have got working on those applications. At the same time, I think the report also fairly points out that there are issues there for the promoters themselves to make sure that their cases do stack up and do stand up to scrutiny so that when they do provide their proposals to the Department they are giving the Department exactly what they want. The other issue more generally is about lack of a strategy. The Department envisaged back in the 10 Year Transport Plan in 2000 that there might be an extra 25 new lines running by 2010. That was its vision but it did not have any strategy whatsoever to help achieve that particular vision. It has had a very arm's length approach to light rail and what has come along with that is a degree of uncertainty on the part of the promoters in terms of whether or not, for example, their proposals are likely to be received positively by the Department and whether or not after a very long period of time, where promotion can take perhaps ten years, plus a great deal of money - I think we have a figure in the report of something like £1 million a year to develop their proposals - and going through all the steps that are required, at the end of it they will satisfy the Department and receiving the funding they want to build their systems. There is clearly a lack of strategic leadership by the Department and we make recommendations to address that particular problem. Q66 Miss McIntosh: You also make a recommendation that I understand at the moment there is no specific commitment from the Government to develop energy efficient light rail savings and you do make a recommendation that: "The Department should bring this report to the attention of the Department of Trade and Industry and the Energy Savings Trust, for them to consider the case for including the developers of light rail technologies as eligible recipients of grants for energy saving technologies". Has there been any further development since you published your report because it seems to be happening very slowly? Mr Holden: After we publish our report we then have a PAC hearing, and that happened back in November, and the PAC report will then be published, and I understand that is likely to be published quite soon. We are then in a position, armed with both our report and the PAC report, to go back to the Department to find out exactly what they have done against our recommendations. This report was obviously published back in April last year and it is round about now, about a year later, that we are wanting to go back to the Department, and we will be doing this, to find out what action they have taken against this set of recommendations and how they are proposing to take this forward. Q67 Miss McIntosh: You say that it is for the Department to adopt a more strategic approach. They seem very wedded to the concept of regional transport policies now. Do you believe that they should be using the Regional Development Agencies for developing this kind of strategic thinking? Mr Holden: That may be one way through. We did not consider that within this report. Whether it is national or regional or a mixture of the two, or one or the other, the key thing is to have a clear strategy coming from central government so that it is closer to the industry, closer to promoters, and it can actually strip out some of the uncertainty and, therefore, some of the risks associated with promoting the scheme or for a private sector consortia to actually be involved in that scheme where there is uncertainty as to when, if ever, it is likely to bear fruit. Q68 Miss McIntosh: You say in your final recommendation: "The Department should indicate the types of area, in terms of transport need, population density, likely usage, and urban layout where it would be most receptive to local authorities' proposals ...." What you have written there seems to be coming very close to setting departmental policy. Mr Holden: I think what we are trying to say there is in terms of implementing policy you can be clearer. At the moment there is no strategy or implementation plan to deliver against its policy, to deliver against its particular vision set out in its 10 Year Transport Plan. What that recommendation is doing is taking that particular policy and that vision and saying how it can be implemented better. Q69 Miss McIntosh: I understand there are no specific safety legislation requirements specific to light rail, and infrastructure and rolling stock safety are assessed for light rail through the same process as used for heavy rail. Do you believe that there should be separate standards for light rail? Mr Holden: I think that is an area in which the Department should work closely with the HSE to assess whether or not that would be appropriate and the extent to which you could gain economies. We do point out that there is an anomaly between segregated and non-segregated light rail systems which also needs to be ironed out. Q70 Miss McIntosh: An anomaly? Mr Holden: Yes. Q71 Miss McIntosh: Are your conclusions that it is less safe when it runs on the streets mixing with other traffic? Mr Holden: There is an issue as to whether or not a light rail system which is running on an existing cutting segregated from traffic has to meet heavy rail standards but another light rail system which is running on-street with pedestrians and other vehicles does not, which commonsense might suggest to question where the risks would lie in those two different ways of delivering light rail. Q72 Chairman: I am interested that you think there was no policy. By default there was a policy if you look at the extraordinary story of the Sheffield Supertram because it was the Government's insistence on privatisation which raised £1.15 million instead of £79 million. It made a material difference there, did it not? Mr Holden: I am not too sure that the policy itself made the difference. I think the issue was all around the over-optimistic forecasting and certainly changes in the patronage base in Sheffield. It might have been that that particular policy could have been successful if they had got their sums right in the first place. Q73 Chairman: Forgive me, Mr Holden, I am not an accountant but it would seem to me that if I have an asset and I am forced in effect into a fire sale, which does not get the sum of money it had been assessed as being worth, it gets me one per cent almost of what it is actually worth, then that must be someone insisting on a particular policy otherwise why am I, as the owner, being forced to get rid of assets at what is an unacceptably low rate? Put it the other way round, in what private industry would somebody be forced into that kind of a fire sale by a bank and not be raising Cain? Mr Lingard: I am not here to defend this particular policy. Q74 Chairman: I am not asking for an opinion, Mr Holden, I am saying that you are saying there was no strategy. You specifically said that one of the things you had drawn to the attention of the Department for Transport was they have not got a strategy. Mr Holden: Yes. Q75 Chairman: I am saying to you that by default they have got a strategy because they said, "You will take responsibility, we will assist you with the capital costs and when it comes to the crunch we will insist on you following certain tenets, one of which is a fire sale of your assets", leaving everybody, the taxpayer and the ratepayer, with one hell of a debt. Stagecoach got all of these assets for £1.15 million for a 27 year concession, £79 million less, and after all this the Executive has got an outstanding debt of over £100 million, £12 million a year to service. Is that not a policy or are you telling me it just came out of the air? Mr Holden: I would agree that it is a policy but it is not necessarily a strategy. If you have a vision to develop light rail over ten years and to see more light rail systems in place you really want a strategy to achieve that particular vision. I think there is a distinction to be made between policy and strategy. Q76 Chairman: £79 million worth in this instance. Mr Holden: I do not think there is any suggestion in this report that the Sheffield Supertram was a fire sale. Q77 Chairman: What would you call the sale of something worth that amount for £1 million? A bargain! Mr Holden: The requirement for the concession to be sold once the system was built and up and running was obviously taken at the time of approval based upon what they considered were patronage figures which would build up over a time which would generate revenues and, therefore, valuing that particular concession. That was all very clear at the time. There was a sort of fire sale after that in terms of something has required that this be done which was not previously known. The key problem with the Sheffield system was that they got their sums wrong in the first place, over-optimistic forecasting and, in addition to that, subsequent events, for example, with regard to housing in the city centre had a major impact upon the patronage base. There were some early operational problems as well which obviously did not help the reputation of the system. Q78 Chairman: You still come back to the fact that the privatisation was expected to write off vast amounts of debt for the ratepayer as well as the taxpayer. You are saying because right at the very beginning they took a decision, therefore that decision was maintained all the way through even though it was manifestly not really in anybody's interests. All I am saying to you is that may not be a strategy but it most certainly is a policy. Mr Holden: Yes, I agree with that, Chairman. Because it is a policy we cannot question it. Chairman: I am beginning to be filled with admiration for you, Mr Holden. You are almost coming up to the David Rowlands' school of how not to answer. No, I must not be unkind. We are very grateful to you for coming. Q79 Mr Donohoe: In the report you say that the whole question of light rail had not brought all the benefits expected. What ones did it not bring? Mr Lingard: It has not delivered the patronage estimates that each proposal was required to deliver. There are substantial shortfalls in the numbers of people using the systems. That has been the main shortfall but it is not realising the rest of its benefits in terms of reducing pollution, reducing accidents, reducing congestion. It all follows that those have been less than they might have been had the original patronage estimates been met. Q80 Mr Donohoe: Why is that the case? Why were there certain expectations that were not achieved? Who was to blame for that? Were you partly responsible for that? Mr Holden: It is a combination. The promoters make their own estimates of patronage, the private operators make their own estimates of patronage and the Department have vetted those figures as well. Q81 Mr Donohoe: You do not play any part in that at any stage? Mr Lingard: We do not play any part in that at all, no, we just comment upon what has happened. Q82 Mr Donohoe: In the past tense. You do not look at anything in any way, shape or form? Mr Lingard: No, we do not intervene at any stage. Q83 Mr Donohoe: If you are looking at it past tense, do you look at the investment and see if it has been value for money? Mr Lingard: That is right. Q84 Mr Donohoe: In this instance have you looked at it and seen that it is not value for money? Mr Lingard: What we have done is said that the systems have realised quite a lot of benefits. They are fast, reliable, frequent, comfortable, and they have attracted people out of their cars. They have delivered lots of good benefits, it is just that their full potential has not been realised and that is where the value for money has been lacking. Q85 Mr Donohoe: In terms of earlier questioning, it is based on the fact that in the main there have not been the numbers that they predicted there would be as passengers on a weekly basis. That is the main reason that these schemes outside, say, the Croydon one, which is highly successful ---- Mr Lingard: And the Manchester one. Q86 Mr Donohoe: And the Manchester one. There are others that would not and could not be successful and should not be allowed to be considered, is that what you are saying? Mr Lingard: We are not saying that, we are saying that their full benefits have not been realised. If they had been able to increase their patronage levels then they may have been entirely successful, they would have made profits, it would have been advantageous to all the local people and so on, good value for money. Mr Holden: If I could add to that. Obviously one of the key things is when promoters put together their proposals they will set out not just the anticipated patronage but also the other benefits that are supposed to go with the light rail system with regard to regeneration, the frequency of the services, improvement in accessibility, those types of benefits which are supposed to accrue to passengers and the local communities. What our report is saying is using that as a base, using their anticipated benefits, we have come along after the event to say what has been achieved and there is a significant shortfall and the key driver for that is the shortfall in patronage. We go on in the report to explain why that is, why they have not attracted the number of people on to these systems that they anticipated. Q87 Mr Donohoe: In these circumstances when some provincial authority anywhere in the United Kingdom puts a proposal together to have one of these things introduced for whatever reason and it does not come up to the levels of expectation in terms of numbers, would you say the Government would be remiss to allow such a scheme to go ahead? Mr Holden: One of the key things is that the Department is accountable for the monies, the grants, that it will give to the promoters. There are key lessons here for the Department because it agreed to fund systems that eventually did not deliver the benefits that they anticipated. There was definitely an issue around what we call optimism bias that is all around forecasting of patronage beyond a level that could actually be achieved in practice. Q88 Mr Donohoe: That would be the main barrier, would it? We are looking at barriers to the whole question of investment and development of light rail and that would be a major barrier to any possibility of those schemes in those provincial areas being allowed to be developed and we should take account of that fact. Mr Holden: The lifeblood of any tram system, the lifeblood of any transport system, will be attracting passengers because that is the be all and end all really. That is what will drive all of the other benefits. That will drive your fare revenue, that will drive modal shift from car to tram. Mr Stringer: You came perilously close to making some value judgments earlier on. Chairman: I thought Mr Holden skipped rather rapidly away from value judgments. Q89 Mr Stringer: Let me continue. You seem to have an almost Stalinist belief in central planning. Whatever drove you to the conclusion that the Department for Transport would be better at making decisions about local matters rather than local people and local authorities? Mr Holden: I do not recall saying that. Q90 Mr Stringer: Those were your precise words. Mr Holden: In the report I do not think we said they would make the decisions. What we are trying to say is that there will be some areas that they will be receptive to where it may be from their own experience they know where light rail is likely to be effective, where it may deliver benefits which are consistent with national transport objectives as well as local needs and local transport objectives. At the moment that has not been in place, it has really been left to the local authorities to come forward without a central framework from the national government level to help guide their deliberations. Q91 Mr Stringer: I think you said that the Department for Transport would have more information and more international information about what was working and, therefore, would be in a better position to decide where trams went rather than local people. If that is a recollection you agree with, can you tell me on what evidence you base that conclusion? Mr Holden: Just to confirm, I do not think I did actually say where trams should go, I think it was more in terms of the localities within which they may be successful on the basis of the fact that obviously the Department has now had experience of seven systems over several years, some decades, and has an opportunity to look at systems in operation elsewhere, such as France, Germany or the US, and is better equipped, I think, to bring that knowledge to bear to support local authorities in the development of their proposals. Q92 Mr Stringer: You are saying that the Department has more knowledge than Passenger Transport Authorities of tram systems on the continent, for instance. Mr Holden: What I am saying is that the Department has an opportunity because it is the only body in this country, because it is obviously funding these systems, to be in a place where it knows the real details of each of those seven systems in operation in this country. Therefore, from our perspective it would make sense for the Department to share that experience and that knowledge with local authorities. Q93 Mr Stringer: I can accept that it collates information from the seven existing schemes but you said rather more than that. You said that it is in a position to decide whether they will be successful, partly by international comparisons. I ask you again what evidence you have that the Department actually has that information and has been able, or would be able, to use it better than local people. It strikes me as being a centralised view that the world would be better if things were controlled centrally. Mr Holden: I think what we are saying in the report is that they have not been doing that and our recommendation is that they should be doing that. The report points out that they have adopted this arm's length approach and what we are saying is at the centre, because it is accountable for hundreds of millions of pounds of taxpayers' money in grants that they give to local authorities to construct their systems, we think it is in a strong position to identify the do's and don'ts, the particular characteristics and factors that make light rail systems successful or not and to help the industry in that regard. It is not choosing the routes, it is not going down to the micro-level, it will still be for the local authorities, in consultation with their partners and the local electorate, to work out what are the best routes but there will be factors associated with those routes, as I pointed out earlier, with regard to making sure you make connections with centres of economic activity and so on and so forth. There will be factors that they could bring to bear in consultation with local authorities when they come to assess their proposals. Q94 Mr Stringer: Do you believe that they have got the information on international schemes already? Mr Lingard: Certainly it has some information about international schemes. Q95 Mr Stringer: That is not very precise, Mr Lingard, is it? You are saying that they are better placed than local authorities. Mr Holden: Yes. Q96 Mr Stringer: Every time I ask you for evidence you go back to theory. Give me some evidence. Mr Lingard: Can I just say where I think our recommendation on this comes from? Q97 Mr Stringer: Yes. Mr Lingard: It comes from promoters and local authorities telling us that they were dissatisfied with the Department being equivocal and being uncertain as to whether they are going to fund their schemes and the length of time that it was taking both to give them approval for their funds and for the Transport and Works Act Orders and everything the Department has to do in terms of looking at the business cases and approving that. It is the number of years that schemes have taken to get going and to get these approvals through the Department. Our thinking was in order to remove some of that uncertainty about the Department's position, perhaps it could give a lead in terms of those sorts of schemes that would get approval in terms of funding and the locality and so on. It is strategy in that sense. That is where it came from and that is where our conclusions came from. Mr Holden: I think you were asking what evidence we have that the Department is better placed. Q98 Mr Stringer: I asked that about five times. Mr Holden: What we are labouring to say is that they have not been doing that. They have not gone out actively to get that information, whereas they should have been doing that and then disseminating it, even on the basis of the evaluations of the systems, bringing together some key lessons and disseminating those to the industry. In that regard, the direct evidence is there is not any, they have not been doing that. Q99 Mr Stringer: We have got there at last. Mr Holden: That is the key issue. We are not saying that the Department is sitting on a heap of knowledge somewhere in a cupboard and is not prepared to share it. We are not saying that. We are not saying that we have found evidence, what we have said is ---- Q100 Chairman: You did not find the Rowlands' secret of transport planning? Mr Holden: We did not find anything to show that the Department were proactive in terms of supporting the industry. Q101 Mr Stringer: This is even more curious, if you do not mind my saying so. You do not have any evidence that they have this information but you do have the evidence that they are inefficient and ineffective at doing it, so you want to give them more responsibility for carrying it out. Explain. Mr Holden: Chairman, I think we are probably going round in circles here. The key thing is that the Department had a vision to grow light rail over the period 2000-10, did not have a strategy but was in a unique position through its valuations, through seeing how proposals had developed working with local authorities over a ten or 15 year period of time, looking at how those systems actually operate once they are up and running, to help support local authorities in developing their proposals for future systems and they have not been doing that. We think that is something that they should be doing. Q102 Mr Stringer: On page seven under "Light rail systems in France and Germany have higher reported patronage levels..." in the block there "Systems connect centres of social and economic activity", you make the point that some of the systems in this country are running on old railway lines and I think you conclude, therefore, that is not necessarily a good thing and that is one of the reasons why patronage is lower, but the system that has outperformed its original projections was precisely a system on old railway lines, was it not? Mr Lingard: The situation is more mixed than perhaps we have laid out here. Q103 Mr Stringer: It is the exact opposite of it, is it not? Mr Lingard: I was thinking of the Midland Metro scheme which, of course, is built on an old railway line and has not met its patronage levels and probably will not do. Q104 Mr Stringer: Would it not have been better, rather than to give a biased view, to have explained that this is rather a complicated situation and sometimes old railway lines have performed better than any other areas and in other places their performance has been worse? Why did you not do that and then we would have had a clear objective report as opposed to a biased conclusion? Mr Holden: We do not think it is a biased conclusion. What this particular box is pointing out is the practice in France and Germany where they do connect most extensively with these centres of economic activity. The issue around whether or not you actually utilise existing or perhaps under-used heavy rail or obsolete heavy rail obviously depends upon what the local authority wants from its light rail system. For example, it can provide you benefits with regard to reduced construction costs. Obviously, potentially it can help you in terms of the speed of the services if that is taking you into a centre. One of the key things we point out in the report is where these existing lines may not actually be the best solution because it is a question of whether or not they go into the city centre. I think the case that Stewart is pointing out with regard to Midland Metro is down through an old railway line and stops short of New Street Station in Birmingham. The key thing there is to say it can take you so far in some cases but it might also then need on-street running just for that final 500 metres, or whatever it may be, to the centre of the city. We are not saying that old railway lines are necessarily always bad, we are not saying that they are necessarily always good, the key thing to do is to consider how your light rail system connects with where people live and work and where they travel. Q105 Mr Stringer: I think it would have been helpful if you had said it in those terms rather than the terms that you said it in. What savings would you expect from the substitution of the commuter heavy rail system, say in Greater Manchester or Leeds - I know there is not a light rail system in Leeds - with light rail? Mr Holden: Do you mean the standards or is that in connection with your previous question about using old railway lines or is it around the specification of the vehicles? Q106 Mr Stringer: You made the point that in Greater Manchester there is a 70 million subsidy a year to heavy rail, light rail is running into profit. I just wondered if you had done any studies that showed what the savings would be if you substituted those local heavy rail routes with light rail routes. Mr Holden: We have not done any work of that nature. Q107 Mr Stringer: Just one last question. You also made the point, and it is an accurate point, I think, that where there has been modal shift from cars to trams, that capacity on the railway is taken up by other cars but you seemed to see that as a negative whereas I would see it in terms of regeneration activity in a city centre creating that extra capacity as a big positive. Do you not see that that is part of the regeneration process of many areas, getting more people into the centre? Mr Holden: Yes, it can be. We have recognised in other reports, and indeed we had a report out in the autumn which was looking at issues with regard to road congestion, road congestion can be seen as a sign of a successful economy. Where you have got increasing prosperity, when people get prosperous they want to buy a car, or a second or third car. It can be a sign of success. The problem is that it causes all of these other by-products in relation to local pollution and local congestion. It is a question of whether you see it as a plus or a negative. I think in the context of light rail, these systems were set up specifically to help with the congestion, so if those systems have not been able to do that for whatever reason then obviously that is an issue for future promoters to consider when they come to design their light rail systems, the extent to which congestion can be tackled by light rail. Mr Stringer: Thank you. Q108 Ian Lucas: I was just going to ask about the relationship between integration and competition. We had an interesting submission from Tramtrack Croydon. We heard from them that they felt one of the reasons their level of patronage has gone down is because of bus competition from Transport for London effectively competing with their services and reducing the level of patronage. In France and Germany, how do they manage the tension between competition from other forms of transport, such as bus services, and integration? Why is it that they are able to be so much more successful in terms of reaching the levels of figures that are projected? Mr Lingard: Of course there is a greater regulated market on the continent and they are able to direct bus services to a far greater extent than we are here. Bus services are used as feeders for the light rail systems and the buses go directly to the tram stops. Q109 Ian Lucas: Without trying to push you towards a policy pronouncement, if you are suggesting a level assisting companies in achieving the projections that light rail schemes initially project then a regulated bus market might assist. That would be a logical conclusion, would it not? Mr Holden: Yes, you could make that conclusion. One of the other things we point out in the report is the other measures which may be available to local authorities without needing to resort to changes in the regulation or deregulation of buses around the use of quality bus contracts and quality bus partnerships which have not been taken up, but they are based in statutory powers, the Transport and Works Act, and there is an issue where local authorities and promoters could take up these powers to help improve the co-ordination. Chairman: Mr Holden, you must read the very interesting report we did on quality bus partnerships. Q110 Mrs Ellman: Do you think that the Department for Transport should promote a clearer strategy for light rail schemes? Mr Holden: Yes, that is what we are recommending in the report. Q111 Mrs Ellman: Do you see any evidence that they are doing that? Mr Holden: As I said earlier, we will be following up during the spring the recommendations we have made in the report to see whether or not they have actually formulated a strategy and we will be looking at that strategy to see the extent to which it addresses the issues that we wanted addressed. Q112 Mrs Ellman: Have you made any assessments at the moment? Mr Holden: No. Q113 Mrs Ellman: Do you think the Department still want to have up to 25 new lines by 2010? Mr Holden: I think we do say in the report that the Department now recognise that this is unlikely to be met. I do know that they have told the Committee of Public Accounts that light rail does have a future but obviously they are concerned about affordability and VfM driving down costs and achieving benefits, so it is really down to the promoters to convince the Department that their proposals will deliver those particular things and gain final approval from the Department. Q114 Mrs Ellman: Do you think that the Department will still have the same objectives or do you think they are moving away from them? Mr Holden: As far as I know they have not actually withdrawn that aspiration. You may be aware that they also have a Public Service Agreement, a PSA target now, which has been changed and they want to increase the use of public transport, primarily buses, by 12 per cent by 2010, so the contribution that light rail can make towards the achievement of that target is obviously rather less if you only have seven systems in place and all of the growth really will come from buses. Q115 Mrs Ellman: You think that is the policy now? Mr Holden: I think that is probably a recognition that if they want to try to bring about some kind of improvement in terms of tackling road congestion that, therefore, it is likely that buses are going to carry the burden of that because of the lead times, for example, in terms of getting these light rail systems in place. Q116 Mrs Ellman: Are you concluding that that is now the department's policy? Mr Holden: On the basis of that PSA target, yes. The onus between now and 2010 will be looking for growth from buses both in London and outside, and if promoters come forward with viable proposals the department will consider them on their merits and may take them forward. Q117 Chairman: I want to bring you back to the business of the cost of diverting utilities. You have made it very clear that you think the rise is very considerable but why do you think it is so high? It was 29 per cent for the Mersey tram, more than double the general project cost risk of 12.5 per cent. Why? Mr Holden: We did not unpack it to that extent. We did not do any detailed work around what were the drivers specifically of the costs of utility diversion. Q118 Chairman: Yet you did target this. You pointed out that the cost of the diversions was enormously high, that you were not sure it was always necessary? Mr Holden: Yes. Q119 Chairman: As far as I can see, there does not seem to be any compulsion on the utilities to hand over or even to put this work out to tender or any incentive, even when they are walking away with another asset. You have made all that clear and yet you drew no conclusions from it. Mr Holden: We do draw conclusions from it. We point out that, one, it is expensive; two, it compares unfavourably with France and Germany and it is obviously an area that the department and the promoters need to look at in terms of questioning whether or not the diversions are necessary and ultimately who should carry them out. We do make conclusions on utility diversions as a problem, driving up the costs of light rail, making it more expensive, and an area for attention. Q120 Chairman: You also look at the delays. You highlight the fact that the department itself is frequently responsible for the delays. Mr Holden: Yes. Q121 Chairman: Are we not coming back to the series of questions Mr Stringer asked you about what sort of contracts you are expecting the department to produce? In effect, if you are saying to us that there are these extra costs, you know they are very complicated and you are not at all sure how you got to this point but you think the department should produce a standardised contract, it is quite clear from what you have said this afternoon that it should look at certain areas like catchment areas, size of population, movement of employment inwards and outwards. Are you saying that in spite of all these things, in spite of the difference between the seven different schemes, in spite of the fact that local authorities are the people who normally would be the obvious ones to take these decisions on the way schemes should go, nevertheless you believe the department should be producing standardised contracts and standardised schemes for this sort of development? Mr Holden: We are not saying they should develop standardised contracts. We are saying that they and the industry have recognised that revenue risks are a key component in driving up the costs of light rail. Q122 Chairman: Inevitably in any transport system if you do not use it it becomes even more expensive. Mr Holden: Right. Therefore, what we are recommending is that the department should assess and evaluate what might be the different merits of different methods of procurement and the extent to which local authorities are aware of those and apply them in their local circumstances. Q123 Chairman: You are not saying that at the centre you can produce the template and say, "Fit your scheme to our template or you are not going to get any money"? Mr Holden: No. One size will not fit all but it may be that particular models of contract may have particular advantages over others which could then be applied in different circumstances by different local authorities. We do know at the moment that the way in which these contracts are structured is that there is a problem about the private sector having to take on all the revenue risk. The department has recognised that that is probably not the best way forward. It probably needs to move towards risk share. What that risk share will look like in practice is obviously something we are recommending the department should go off and do some work on. Q124 Mr Stringer: Did you ask Mr Rowlands or the department whether they have done any assessment of the cost compared to the design, build and operate scheme of the whole public sector system? Mr Holden: No. One of the members of the committee of public accounts did ask a question in this area, around trying to quantify the revenue risks associated with the particular types of contracts that these existing systems have primarily been built under, but in terms of the counter-factual, as it were, that is quite difficult because unless you have one which is wholly publicly financed you are in the realms of ---- Q125 Mr Stringer: That was not the question I was asking. Mr Holden: We have not done any work in that area. Q126 Mr Stringer: I was not asking if you had done any work. I was asking if you had asked the department whether they would share with you their assessments of the publicly funded systems. Mr Holden: We did not ask so I do not know whether or not they have done any work of that nature. Q127 Mr Stringer: Were you aware that when the first system was set up in Manchester such an assessment was done? Mr Holden: No. Q128 Mr Stringer: Are you happy with the department's methodology in their cost benefit analysis? Mr Holden: Yes. The cost benefit analysis that I mentioned earlier on is a standard template which is used for transport projects. It is used by the department, the Highways Agency and by the Strategic Rail Authority. That has been built up over several decades. Q129 Mr Stringer: You do not think it is pseudo scientific mumbo-jumbo? Mr Holden: It is very complicated. It involves the capture of a great deal of data and information. There are issues around some of the assumptions that are contained within that particular example and the unit costs of the prices that are attached to any particular practice within that model. It is highly complex. Q130 Mr Stringer: Would you recommend a better or simpler system of doing a cost benefit analysis? Mr Holden: We have not done any direct work to see the extent to which that could be simplified or whether or not there is a better way of doing it abroad. No, I cannot answer in the affirmative or otherwise. I do not have the knowledge to form a view. Q131 Mr Stringer: You are not completely satisfied with it? Mr Holden: The key thing is that some of the figures that go into that particular model around estimating forecasts of patronage have quite clearly been deficient. There has been optimism bias which the department has clearly recognised, over-optimistic forecasting, and that will drive the numbers inside the investment appraisal model. Q132 Mr Stringer: There is a difference between putting inflated numbers into a particular method and the method being flawed? Mr Holden: Yes. Q133 Mr Stringer: Is it just optimism bias or is it that the method could be better or is flawed? Mr Holden: I definitely think there is optimism bias. In terms of the method, we did not cover that issue within this particular report. I do know from previous experience about the method and how it works but I have not done any particular work to pull that apart, to identify whether or not it is flawed or otherwise and the basis for it in comparison with other countries. Q134 Chairman: Do you think the department's recent change on the technology front so that it says it will look at schemes under five million is going to meet your recommendation that the department do more to promote innovative light rail technology? Mr Holden: I think David Rowlands told the committee of public accounts that they were going to be setting up a pilot or a demonstration project as a way forward on this. The five million threshold has so far been an obstacle to the development of cheaper technologies and seems rather nonsensical. Removing the threshold and saying the department would welcome proposals is definitely a positive step forward and we would be interested to see when these other pilots and demonstration projects get off the ground and the extent to which they bear fruit. They have recognised that there is an issue there and there is an opportunity perhaps for cheaper technologies to come through. Q135 Chairman: Was ultra light rail being considered by the authorities you visited in France and Germany? Mr Lingard: Not as far as I am aware, no. Other technologies we know were being considered by the French in certain cities. Q136 Chairman: It is not easy for people who do not have a government support research system operating to evaluate these different technologies, is it? This Committee has seen at first hand the enormous amounts of money being spent by both the Koreans and the Japanese on railway technology, innovation and research. It seems slightly quixotic to suggest that they should be able to evaluate these accurately. Mr Holden: Yes. Q137 Chairman: Did you at any point do any kind of comparison across the different schemes that said not just that this did not hit its ridership but that this particular scheme was not completed in a number of ways which affected the numbers of people using it, or did you simply take the existing figures? For example, if in order to stay on budget promoters cut some of the facilities that they expected to offer which would directly affect the numbers of people using the system, did you have any way in which you could isolate those instances and put a cost on them? Mr Holden: The short answer is no, but we flag those up within the report. Figure five on page 20 gives a high level summary across a number of systems in terms of delivery of their benefits -- is it half full, half empty or completely empty? - and throughout the report by summarising what was coming out of the evaluation studies by the department, local authorities and also from our own visits. We identify where there are good things and bad things in terms of maturing particular benefits and where, for example, there have been false economies, where they have cut back on particular things during construction to save construction moneys and that has impacted upon ridership and therefore operating revenues once the system is in operation. I do not think in the report we have gone to the extent of quantifying the saving. Q138 Chairman: It would be an interesting point because it might materially affect this whole question of numbers which make the scheme viable or non-viable. Mr Holden: Yes. Chairman: Gentlemen, you have been extremely interesting and helpful. Could I say thank you to you personally and also say that not all of us are naturally against centralist planning. You must not be too disheartened if we appear to be cruel from time to time. Thank you very much. |