Examination of Witnesses (Questions 460
- 477)
MONDAY 23 APRIL 2007
BARRY GARDINER
MP
Q460 Chairman: Did you ask them to
do that assumption?
Barry Gardiner: No. We asked them
for their assumptions, we did not say, "You ought to use
that as the basis for it".
Chairman: It is the first public body
I have ever known that puts a worst case scenario instead of something
they would be almost prepared to face up to.
Q461 Mr Jack: Let me ask you a simple
question, Minister. When your Department made its submission as
part of the Comprehensive Spending Review to the Treasury, what
figures did you put in?
Barry Gardiner: I will certainly
write to you about whether I can give you that. I cannot tell
you with certainty what that was. Let me be clear: RPI minus 5%
has certainly been discussed between my Department and BW but
not agreed.
Q462 Mr Jack: Whilst these figures
illustrate from your standpoint a lack of transparency and, to
a degree, accuracy from British Waterways, the hard reality is
over this time period there are assets which require to be maintained.
Barry Gardiner: Yes.
Q463 Mr Jack: There is income to
be derived and there is a gap. Part of that gap is made up from
your Department and the other part of the gap is made up by the
income derived from property and other transactions which British
Waterways indulge in. I think from our point of view we are going
to have to ask British Waterways perhaps to try and give even
greater clarity as to exactly where they see the situation because,
as you rightly point out, this is a projection on RPI minus 5%
but the real question is what is going to be the actual income
coming from your Department, which was why I asked the question
as to what number you put in in terms of the Comprehensive Spending
Review. What is equally interesting is that they have shown a
projected increase in their commercial income compared with planned
2002. It is an interesting question to ask where they are getting
that additional income from. The other thing I am intrigued with
is I am assuming the line where on these sets of data "operating
and administrative costs" are, these are in fact the projected
figures for the costs of running their organisation and maintaining
the organisation, is that right?
Barry Gardiner: Sorry, could you
just say that again?
Q464 Mr Jack: The line which says
"operating and administrative costs", I am assuming
that is the total cost of operating and maintaining the canal
network and running British Waterways, is that right?
Barry Gardiner: Yes, indeed.
Q465 Mr Jack: It is just the Defra
figure which is the RPI minus 5%?
Barry Gardiner: Indeed, and only
then from 2008-09 onwards.
Q466 Mr Jack: Let me ask this question
for my clarification. On the line "operating and administrative
costs" in the revised forecast figures there does appear
to be on the face of it year-on-year from 2006 through a reduction
effectively in the actual operating costs of the system, is that
right? Year by year, apart from 2006-07 when it goes up by about
five million and then it is about six million down and—
Barry Gardiner: No, sorry, that
is not correct. If you look at the middle line, the middle line
shows 173.848—the middle of the three blocks—it is
that figure there.
Q467 Mr Jack: £173.848 million
is roughly—
Barry Gardiner: It goes down to
£168.281 million in the following year, up to £175.815
million the following year and up again in 2010-11 to £181
million. So it does not go down in the way that you suggest. The
point is that the black figures, the figures under "operating
and administrative costs" under the block that says "difference"
is actually the saving over their original 2002 projections.
Q468 Mr Jack: Yes, you have made
the point that I was trying to make. What I am intrigued to know
is why these costs have in actual fact come down.
Barry Gardiner: Because of the
savings of the restructuring plan that BW have now brought in.
Q469 Mr Jack: Those are purely restructuring
savings, right?
Barry Gardiner: Absolutely.
Q470 Mr Jack: They have nothing to
do with the amount of maintenance on the system. Let me just ask
this question: in the light of these revelations, a figure of
around £95 million of work still to be done has been projected.
Is that a figure that you recognise and is it still valid?
Barry Gardiner: If I can give
you the latest update, because I tried to bottom it out before
coming to the Committee today. In his letter to me the chairman
had used a figure of £107 million where previously it had
been £97 million. The response that we received was this:
"At the start of 2006-07 our remaining arrears were calculated
at £119 million. We originally planned to spend £25
million. This would leave £94 million but you have to add
back inflation at 3% which results in £97 million remaining
at the start of 2007-08. However, we will have only spent £15
million on arrears in 2006-07 leaving £104 million plus 3%
equalling £107 million at the start of 2007-08". That
would imply that although they had a budget of £25 million
available for the maintenance backlog in the past year, 2006-07,
they only spent £15 million of it.
Q471 Mr Jack: Are you able to help
the Committee? If £107 million is the backlog figure, against
these revised numbers how much of the backlog is going to be achieved
over the forward five year period?
Barry Gardiner: The point is the
reason the 2012 target has moved is not grant, it is not commercial
income, the reason is due to the change in the estimate of the
costs to get to steady state and the arrears that one has to include
and the maintenance one has to include in that. This is the first
time that either you or I have had those assumptions clearly presented
and financially tabulated in this way. It is now incumbent on
me and BW to sit down and work through precisely that question
that you have posed because, of course, at the end of the day
it is not whose projections were right or wrong or whether they
have got more or less money than they thought they were going
to have that actually matters. What matters is do they have enough
to do the job that Government has set them and which they have
got a statutory obligation to do, that is the important matter,
but we could not begin establishing that until we had this clarity.
Mr Jack: Does it not raise in your mind
a question mark about the effectiveness of Defra before your watch
to be able to monitor the activities of BW?
Chairman: Are there daily phone calls?
One would love to be a fly on the wall to see what actually happens.
Q472 Mr Jack: It comes as a bit of
a surprise that year-on-year you have all been agreeing the annual
accounts, I notice that they are all supposed to be certified
by the accountants and everything is accepted as bona fide,
when all of a sudden you come along and say, "I'm not getting
the clarity I need".
Barry Gardiner: Let us be clear
here. Nobody is questioning the annual accounts that were previously
signed off. What we are talking about here is how one progresses
on a structured business plan to a desired end point or stability
point for the network. That was what I queried. I did not go back
and say, "I think the figures you gave us in such and such
a year were not the correct ones", I said, "I do not
see, given the money that is going in, how it is that you are
not able to get to steady state as a result of effectively a £3.9
million grant being cut mid year". You have to remember that
the context in which this came to the fore was that suddenly at
that imposition of what is effectively a 3% cut in the annual
budget, albeit midway through the year, it appeared that
the whole system had gone into meltdown. I did not believe that
for a moment because I have worked in organisations and had to
budget in situations where you have had to cope with a lot more
than 3% budget pressures in-year. To me, that was what seemed
unrealistic and that was why I pursued the issue to try and establish
what other assumptions had actually changed here, and ultimately
we found that quite a lot had.
Chairman: Can I just call David Lepper,
who has been very patient.
David Lepper: It has been fascinating,
Chairman. The Chairman started earlier this afternoon by saying
this was the final session of this sub-committee but I am beginning
to think it might not be the final session.
Chairman: I fear not!
Q473 David Lepper: It was just a
point of detail I wanted to pick up. Minister, you quoted from
the accompanying letter, which we have not seen yet but you are
going to make available to us, specifically about the project
that we saw last week when we were in Gloucestershire.
Barry Gardiner: The Cotswold Canal.
Q474 David Lepper: We will discover
this in the letter ourselves but all I wondered was does that
letter deal in a similar kind of detail with other projects of
British Waterways other than the one you have told us about?
Barry Gardiner: No, it does not.
Q475 David Lepper: That clarifies
that point.
Barry Gardiner: I do not know
whether that is helpful or unhelpful.
David Lepper: There may be those in the
public gallery who, having heard those particular comments about
the scheme in our Chairman's constituency, might begin to wonder
about some projects that are dear to their hearts and what British
Waterways' new judgment on those projects might be. At least it
is helpful to know that there are not further revelations about
other projects, we assume anyway.
Q476 Chairman: Just to follow on
from that, the fact that there are not revelations today does
not mean that there are not revelations to come. I do think that
one of the issues that some of us would like to take up with BW,
given in the evidence we were given, unless I misunderstood it,
is that there was not a longer term fear, there was a temporary
revenue problem, unless Stroudwater is the sacrificial lamb there
may be some other problems coming elsewhere and perhaps Defra
would like to know about that.
Barry Gardiner: With respect,
Chairman, I think that would be to misinterpret the words of the
chairman in relation to the Cotswold Canal. I take from his words
and my understanding, and this is my gloss on what he says rather
than what he does say, would be as follows: that the original
risk assessment of the project was clearly one where they believed
it was a reasonable risk to undertake in relation to the return
that they were due to get from it. Perhaps because of issues of
planning or other factors that may have delayed the project in
one way or another they have revised their view about the reasonableness
of the risk accruing to BW because, of course, BW will not be
getting the bulk of the return on the investment and they have
therefore sought, I believe initially, if I am correct, to approach
their partners to underwrite elements of about £8 million
worth of risk which they believe need underwriting here and now
in their discussion with Stroud District Council to reallocate
that risk. That is something which it may be a very reasonable
thing for them to do, I do not know, I make no judgment on that,
but the point the chairman makes himself, in fairness to him,
is that knowing what they now know they would have been reluctant
to carry the risk in the current scheme with or without the grant
cuts. What he said was actually the 3.9 million and their projected
RPI minus five% does not make a difference to their judgment of
the balance of risk and return in this particular development.
To me, that would indicate that they do not believe that this,
as you suggested, is a precedent for problems arising in other
places. It is a localised assessment given what has happened,
given the delays that have happened on this project as to where
the proper balance of risk and return lies. I hope that is a fair
interpretation of what he said.
Chairman: I could say more but I think
it is inappropriate at this time. Peter, I do not want to extend
this any longer because we need to do some re-examination of our
own inquiry, to put it no more strongly than that.
Q477 Sir Peter Soulsby: To take note
of what you have said, Chairman, there were a lot of areas of
questioning we might have gone into this afternoon. I just want
to try and draw together what you have said to us, Minister. Is
what you are saying to us that on the basis of the information
you have got now from British Waterways in broad terms you are
now convinced that they have more than enough resources to do
the job properly?
Barry Gardiner: No, it is not.
I believe that what we now have is a basis to examine exactly
how we can get to a point of putting the waterways into that steady
state if we can, but what is now clear is that the belief expressed
in Waterways for Tomorrow and in the 2002 plan that that
was a clear possibility with a delineated timescale through to
2012 was mistaken. I do not believe it was falsified, I just believe
it was mistaken. We now need to revise everybody's understanding
in the light of the revision of their assumptions that BW have
made which we have now been able to share.
Chairman: I propose to end it there because
although, as Peter said, there were other lines of inquiry we
would have liked to have pursued, such is the change in our financial
understanding of what is going on, at the very least the Members
would like to re-examine what they have been told and where they
go from here. Minister, rarely have I had a session where a minister
has come and completely changed the nature of what our inquiry
was about. You have been helpful but I am not going to let you
come back and have the last word. I think it is useful that you
have been frank with us. As was alluded to, it is unlikely that
this will be the last session because at the very least we have
to think about what report we write and if the Chairman of this
particular Select Committee's investigation is anything to go
by, I am not quite sure what report we will write until we have
taken other evidence, whether that be in oral form or, indeed,
in written form. You did tell us that you were willing to disclose
both the letter from the chairman, which would be useful, but
more particularly some of the correspondence to see how we have
got to where we have got to. If we can have that fairly quickly
that could give us the opportunity to move on with this because
this Committee sometimes does get stymied by the fact that events
overtake it and we would like to push on and come to a conclusion,
if for no other reason than we can get some clarity as to what
is going on and how we might help that rather than hinder it.
I thank you for your evidence. As I have said to every previous
witness, what you have said certainly cannot be unsaid and what
you have presented to us cannot be unpresented. We will almost
certainly be asking for further information but, given what we
have been told today, that is not at all something that you will
be surprised to hear. I am sure that some people will be reading
the Select Committee findings with great interest because it has
been a revelation to us, if not to anybody else. Thank you, Minister.
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