Supplementary memorandum submitted by
the Association of Greater Manchester Authorities and Greater
Manchester Passenger Transport Authority
This evidence, submitted by the Association
of Greater Manchester Authorities (AGMA) and Greater Manchester
Passenger Transport Authority (GMPTA), provides a combined response
to the letters dated 20 June 2006 to AGMA and GMPTA.
Direct grants are allocated specifically for transport
in London. Would you like to see revenue for transport services
ring-fenced in the same way for metropolitan transport authorities?
GM Authorities would like to see greater equity
with London in terms of the amount of money spent on transport.
Local authority budgets are always under pressure, hence simply
ring-fencing money for transport is likely to cause problems in
other priority areas. It would be preferable to enable transport
authorities to raise additional funding which was ring-fenced
to transport, for example by allowing authorities to receive fares
from public transport, allowing supplementary business rates along
routes which are to receive significant transport improvements.
These issues need to be linked to the wider review of city region
governance and the Lyons review into local authority funding.
See also the response to the question concerning prudential borrowing
against TIF resources below.
Does the authority feel that the LTP was permitted
to concentrate on areas felt to be important locally? If not,
why was there a feeling that the "National Shared Priorities"
were to dominate over other local objectives? The Department states
that the guidance encouraged local authorities (and partners)
to identify local priorities within their LTP—what more
steer did local authorities (and partners) need to develop local
priorities?
The shared priorities were developed at a national
level, linked to the delivery of the Department's PSA targets.
Whilst GM authorities do not disagree with the priorities chosen
we consider that they are very transport focussed and don't adequately
reflect the local need to secure economic regeneration and growth.
Because LTPs are marked on the delivery of the shared priorities,
authorities naturally focus resources on them in order to secure
the best chance of maximising future settlements. Whilst the Department
does allow local priorities it is not clear what weightings these
are given, if any, in the LTP assessment. What would be useful
to LTP authorities is for the Department to publish the details
of the scoring methodology, including what weightings are applied
to national and local priorities.
We would be grateful for an assessment of the
cost of the interaction between the local authorities and the
central Department for Transport, if this is possible.
It is difficult to accurately establish what
costs are directly attributable to the LTP process as authorities
would have to undertake most of the work anyway in order to operate
a good planning regime. For Greater Manchester the production
of LTP2 included local authority and PTA/E staff time and use
of consultants to develop the strategy and programme of schemes,
and then to develop targets and use transport models to test and
refine them. This is estimated to be somewhere around £500,000.
There was also the cost of document production and distribution
of both the provisional and final LTP2 which totalled around £30,000.
In addition to this GM authorities currently spend around £500,000
per year on monitoring.
Another area where significant costs do arise
as a direct result of interaction with the Department is when
developing and promoting major schemes. The process of developing
a major scheme business case can be unnecessarily expensive when
the Department keeps coming back to ask for more and more information
following submission of a business case. Not only does the extra
work cost more money, but it also adds further delay. This compounds
the problem as construction industry inflation is running at around
twice the level that the Department accepts in business cases.
Furthermore, as costs increase, the Department can require further
work to be undertaken to review the benefit to cost ratio of the
scheme, resulting in further delays and costs, which could result
in yet more assessment being required, and so on. It would be
far more cost effective for the Department to make early decisions
on schemes, and once accepted, work in partnership with scheme
promoters to enable early delivery. The Department has a history
of trying to micro manage projects to try to keep control of costs,
however to date this approach has tended to have the reverse effect.
A better approach is to use the current gateway review process
to ensure that the scheme promoter understands the risks of the
project and has the structures and project management resources
in place to deliver the project effectively.
How has the Transport Innovation Fund been used
to secure prudential borrowing?
To date the TIF has not been used to secure
prudential borrowing. It is however something that the authorities
would like to explore. The aim would be to replicate the longer
term funding arrangements which government has agreed with Transport
for London (TfL) which has enabled the latter to use prudential
borrowing, within agreed limits, as a source of finance for its
investment programme. TfL is in effect able to borrow against
a forward resource stream provided by the DfT from within its
total budget. This provides TfL with the flexibility to decide
whether it uses the resource stream it receives from government
to purchase services (eg an expanded bus network) or to service
and repay debt raised to finance infrastructure investment. This
is not possible for us, or local authorities generally, because
we do not receive resource funding from DfT (the Regional Funding
Allocation and the funding we receive through the Local Transport
planning process is all capital) and we do not have the benefit
of a longer term budget deal with DfT. TfL is, therefore, the
only authority which can currently prudently borrow against a
forward resource stream with which DfT has agreed an extended
funding agreement.
We have discussed with DfT the potential for
the resource/revenue element of any funding made available to
us from the TIF to be used to facilitate TfL type funding deals
with Greater Manchester and other local authorities. The Transport
Innovation Fund does not become available until 2008-09 and although
DfT has published indicative headline figures for the size of
the fund through to 2014-15, it has not said how much of the fund
will be resource and how much capital. If the TIF followed the
wider split between capital and resource within DfT's budget,
then as much as 40% of it would be resource funding.
In practice both the size of the TIF and the
split between capital and resource will be a function of other
pressures on DfT's budget. If however a significant resource element
can be secured, it could allow DfT to enter into TfL type deals
with other authorities.
This would involve DfT making a forward commitment
of a proportion of the resource element of the TIF out over time—eg
as a budget agreed over a period of years against delivery of
an agreed set of outcomes. Such a deal could allow GM and other
authorities to borrow to invest to deliver those outcomes. This
key benefits of this approach would be:
— a significant increase the buying
power of the TIF in terms of the early delivery of the infrastructure
necessary to support the objectives behind the fund;
— that it would provide a powerful
incentive mechanism for authorities to deliver the outcomes specified
as part of the budget deal, since any failure on their part would
be reflected in a reduction of the budget and an increased call
on local resources to service the debt they had taken out; and
— it could be expected to assist local
authorities in gearing in additional sources of revenue to help
secure investment, with the resource TIF complementing farebox
and other potential sources of revenue such as supplementary business
rates, work place parking levies and congestion charging revenues.
Again this would significantly enhance the ability of local authorities
to deliver the combined investment and demand management strategies
which the TIF is in part designed to promote.
Although the above provides powerful arguments
in favour of this approach, it needs to be recognised that such
forward commitments of resource would significantly reduce DfT's
room for manoeuvre in the future and unless off balance sheet
procurement (ie private finance) offered better value it would
be likely to increase total local authority prudential borrowing
with implications for total public debt and thus the sustainable
investment rule.
Q268 The transport Minister Dr Ladyman stated:
"We can keep it under review, but actually the £5 million
threshold is widely misunderstood. The £5 million is not
the maximum that a local authority can spend: it is the threshold
under which we are unlikely to consider giving additional grant.
If we increased it to £6 million local authorities would
actually be worse off because it would mean that they would have
to have a £6 million scheme before we would consider giving
them additional grant. Local authorities would be better pressuring
us to bring the level down rather than to bring it up." What
is your response to this statement? Have local authorities misunderstood
the issue?
GM authorities consider that it is sensible
to keep the current £5 million threshold, however there are
a couple of issues. Firstly that the level of detail required
for a major scheme business case is substantial and costly, therefore
we would suggest that the Department considers developing a simpler
system for schemes costing £5-10 million. Secondly, the regional
funding allocation process focuses resources on schemes of regional
significance, which can be at the expense of schemes of local
importance. It is therefore suggested that a proportion of the
major scheme funding be set aside for those smaller scale, locally
important schemes.
It has been suggested that whole life costing,
good asset management and strategic transport planning is not
helped by having separate (revenue and capital) funding streams.
CIPFA, the public sector accountancy body, has suggested that
integration could be achieved by supporting capital schemes through
the revenue account, by paying the full cost of depreciation plus
an interest or opportunity cost of using capital. What would be
your view on this?
The CIPFA suggestion has clear parallels with
the ideas discussed above in respect of borrowing against future
resource streams from the TIF.
The GM experience is that the current approach
does hinder genuinely strategic planning and introduces distortions
in terms of the consideration of procurement, funding and financing
options.
Ultimately all forms of infrastructure procurement—conventional,
off balance sheet PFI, on balance sheet PFI and revenue support
(eg to bus services) translate into the same kind of fiscal impacts
over time and thus the same kind of impact on the Golden Rule.
The ideal system would reflect this fundamental reality in the
budgetary constraints placed on local authorities. This would,
as CIPFA have identified, mean replacing capital budgets with
revenue support. It would also mean reform to the current PFI
credits regime, which ring fences a significant amount of potential
buying power to a particular form of procurement.
The new prudential borrowing regime and the
potential to extend the TfL long term budgeting model offer possible
mechanisms for addressing this, with the potential to generate
a genuinely level playing field in term of investment and procurement
decision making.
The key however to any reform would be the nature
and terms of the supporting long term revenue deal and the restrictions
placed on the scale of local authority borrowing. If local authorities
are being expected to borrow significant sums against a forward
income stream provided by central government then they will need
certainty on the terms on which that income stream will be provided.
As noted above, however the scope for attaching conditions on
delivery of outcomes for an element of a forward income stream
could provide a powerful incentive on local authorities to deliver.
July 2006
| 
