Further supplementary memorandum submitted
by the Department for Environment, Food and Rural Affairs (BW
47c)
1. What is the Government's view about the
most appropriate long-term financial framework for British Waterways?
Longer-term funding contract
In the Westminster Hall debate of 27 March
2007, the Minister for Waterways, Barry Gardiner, said:
We are working with [British Waterways] to
develop a long-term future funding model, and to give it the flexibility
to engage in more commercial activity to help it to improve its
income stream and enable the Government's grant-in-aid to be reduced
over time. That has always been its intention. We are awaiting
its proposals for a regulatory reform order to that effect.10[16]
Defra has asked British Waterways (BW) to come
forward with a range of scenarios and workable proposals for changing
its framework. We will take a view once we have received these
proposals. The supplementary memorandum by Defra of 24 April on
commercial freedoms and the extract of the meeting on 14 November
submitted on 2 May refer.
2. What is the "long-term future funding
model" currently in development with British Waterways, referred
to in the recent Westminster Hall debate?
As above, BW is currently considering a number
of proposals and strategic options on their status in order to
deliver wider freedoms. We have also been considering with BW
the scope for a longer term contract which would give more certainty
to BW on the level of grant they can expect related to the outcomes
we would expect to see on the state of the network (see below).
3. What problems are there in granting British
Waterways a longer funding contract, such as one of seven years?
In the Westminster Hall debate of 25 April
2007, Barry Gardiner said:
...I was not prepared to sign up to a long-term
settlement with BW, as I was urged to do so, until I could see
clearly the way in which such a settlement would bring the network
to a gradual, timetabled conclusion in steady state.11[17]
There are three issues in granting BW a longer
term funding contract.
First it would need to be affordable to Defra
taking into account possible other pressures that might arise
and any contract which is for more than one CSR period carries
greater financial risk. The contract therefore would have to be
attractive enough for Defra to believe it is worth the risk.
Second, implications for the longer term beyond
say the seven years suggested need to be understood as delayed
funding for asset maintenance can lead to increased pressures
over time.
Third, therefore, such a longer term contract
should be set in a context where there is sufficient total income
planned to deliver an appropriate condition of the network. We
do not yet have enough certainty that BW can use its income growth
to deploy sufficient funding into the network to achieve this.
4. Was a long-term settlement previously offered
to the Minister which he refused to sign, as suggested in the
Westminster Hall debate of 25 April? What were the terms of any
such settlement, why did the Minister refuse to sign it, and when
did this occur?
This refers to discussions within Defra. The
2004-05 review recommended that the Government should commit to
longer term funding on a contractual basis. Defra and the Shareholder
Executive have been discussing with BW for some time an appropriate
and realistic amount of public funding that could be made available
under such a contract. This would be in the context of a funding
and accountability framework that would provide for the measuring
and monitoring of operational performance and appropriate audit
of contractual performance.
As part of these ongoing discussions, officials
met the Minister on 6 February to discuss a possible four-year
funding contract based on 5% year-on-year real term reductions
in grant which had been discussed in detail with BW. Following
discussion, the Minister asked for more transparency on the income
and expenditure figures including efficiency savings. He asked
for a business plan showing years beyond 2010-11 towards achieving
a steady state for the network. He also asked for details of changes
that might be made to boost BW's own income. He asked for a "complete
picture" that showed what state of the network would be achieved
in return for a given public investment. It was then decided not
to pursue this funding contract until more assurance on these
matters could be achieved.
The prospect of further capital following the
CSR settlement could not be part of such a contract proposal at
that time as decisions had still to be taken (autumn 2007) but
it was not ruled out.
COMMERCIAL FREEDOMS
5. At what stage are the discussions to allow
British Waterways greater freedom in the areas in which it can
operate commercially? What constraints exist from preventing this
occurring?
The Supplementary Memorandum submitted by Defra
on BW Action on Commercial Freedoms on 24 April and the Extract
from the Meeting with BW on Tuesday 14 November submitted on 2
May to the Committee again refer. The action rests with BW at
present.
BORROWING POWERS
6. What would have to be done to allow British
Waterways more borrowing powers, and what progress is being made
to achieve this?
An increase in commercial borrowing powers would
require a change in status. BW is undertaking a strategic options
review which will consider what changes to status might allow
BW to raise commercial debt in its own right rather than through
joint ventures. It is theoretically possible to amend legislation
to increase BW's borrowing limit from Government but any such
increase would need Defra Departmental Expenditure Limit cover.
However, the current fiscal restrictions requiring Departments
to live within their existing budgetary control totals, mean an
increase in the near future is highly unlikely.
BRITISH WATERWAYS'
ARREARS BACKLOG
7. When did British Waterways first confirm
to the Department that it would not meet its 2012 maintenance
arrears target, and what did it say were the reasons for this?
When did British Waterways first tell Defra about the need to
take account of non-principal assets, as well as principal assets?
There has been some confusion between the terms
maintenance arrears target and what assets are included in that,
elimination of the backlog and steady state.
We believe the first reference was when BW told
the Quarterly Shareholder Meeting on 22 June 2006 that any cut
in grant would mean the target date of 2012 for elimination of
arrears would not be achieved. An extract is included in the papers
sent to the Committee on 2 May. These papers also contain BW's
July 2006 CSR submission which set out BW's new approach to asset
management, the consequences of which were developed subsequently
and confirmed in later correspondence as provided. There is mention
of moving away from the concept of arrears. During this period
the scale of the backlog in relation to non principal assets and
the implications of the change to the steady state approach began
to emerge as more work on different assumptions was completed.
The first time we were made aware of a rise
in D and E assets from 10-15% was in 22 December 2006 CSR submission
(also included in the papers sent to the Committee). Latterly
it became clear that this rise to 15% D and E would only be achieved
by 2016 rather than 2012.
8. When did British Waterways first inform
the Department about its new 2016 maintenance arrears target date?
Whilst the Department had seen projections that
might under certain scenarios deliver D and E assets at 15% by
2016 in the 22 December 2006 CSR submission, we had not seen this
expressed as a new target date before the Chairman's letter of
20 April.
Department for Environment, Food and Rural Affairs
May 2007
16 col 387WH. Back
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