UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 345-vi

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

ENVIRONMENT, FOOD AND RURAL AFFAIRS committee

british waterways SUB-COMMITTEE

 

 

BRITISH WATERWAYS

 

 

Tuesday 8 May 2007

MR ROBIN EVANS, MR TONY HALES and MR JIM STIRLING

Evidence heard in Public Questions 478 - 564

 

 

USE OF THE TRANSCRIPT

1.	This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
2.	Any public use of, or reference to, the contents should make clear that neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.
3.	Members who receive this for the purpose of correcting questions addressed by them to witnesses are asked to send corrections to the Committee Assistant.
4.	Prospective witnesses may receive this in preparation for any written or oral evidence they may in due course give to the Committee.

 

Oral Evidence

Taken before the Environment, Food and Rural Affairs Sub-Committee

on Tuesday 8 May 2007

Members present

Mr David Drew, in the Chair

Mr Michael Jack

David Lepper

Sir Peter Soulsby

David Taylor

Mr Roger Williams

________________

Memorandum submitted by British Waterways

 

Examination of Witnesses

 

Witnesses: Mr Robin Evans, Chief Executive, Mr Tony Hales, Chairman, and Mr Jim Stirling, Technical Director, British Waterways, gave evidence.

Q478 Chairman: Good afternoon everyone. Welcome to this afternoon's session of the Defra Select Committee investigation into BW. It seems like old times. We are grateful that you have come back and given us evidence for the second time, but it was obviously an interesting session with the Minister and it was only appropriate that you did come back again. Can I ask you some very simple questions to start with that I think are at the core of all this. Robin, it would probably be best if you take the lead on this, although I am sure Tony and Jim will jump in. Can you, for the benefit, if nothing else, of the public record, explain to us exactly what you mean by "steady state"?

Mr Evans: Certainly, Chairman, and, if I may, I may use an analogy which I hope is helpful. First of all, I will explain all the words. We have 11,000 odd principal assets, and those are engineering structures and structures which are essential for the proper functioning of the waterway, like aqueducts, large bridges and loch structures. We also have about 12,000 non principal assets, and those are smaller structures, like bridges, small pedestrian bridges, information signs, tow paths, which are not essential for the working of the waterways but certainly make it a more pleasurable, enjoyable and worthwhile experience. If I can use the analogy of a house, if you have a rather old house which is in very poor condition, you may, first of all, look to repair the house by making sure it is wind and water tight. So, the first thing you do is repair the roof, repair the walls and make sure the windows are not rotten and do not let in water - that really is our principal assets. The first thing we do is try and make sure that for the principal assets the structure of the house is in good order. Inside the house are the non principal assets. They are not essential, because you can still live in the house, but it certainly makes it worthwhile if the water runs and there is heating and the floorboards are secure. So, when we come to what we used to do and how we used to look at the state of the network, the first thing back in the early 1990s we said was: what is the state of the principal assets? What is this wind and watertight bit, the essential structures to keep the waterways going? That is when we articulated the £300 million of arrears that we had, and that was arrears in the principal assets. We have now got that down to around about 100 million. We have spent 200 million. So the network is in substantially better order than it was, and what we have done is say, is it not time to reappraise where we spend our money now? We could carry on spending it on the outside, on the principal assets, but actually we have stopped the roof leaking, we have repaired the cracks in the walls. Yes, there are still some windows that are rotten, yes, there are some tiles that could be replaced, but essentially we have improved it, so is it not now time to balance the money we spend and not just carry on spending on the outside and do the principal assets only, should we not spend some money on the inside on the non principal assets to try and ease the spread and improve the network generally? That is what we are doing by not being so aggressive and solely concentrating on the principal assets but spreading it between principal and non principal. So, that is the principal and non principal assets. "Steady state" comes in when we say: we want to know what it really costs to run the network when we have done all the arrears, when we have got the non principal assets and the principal assets in good condition. When we achieve that level, what will it cost to run the network? That is assuming that we have a planned maintenance programme to keep it all in good order so it never again gets into the condition where we have an arrears build-up. What we are trying to do is say: let us repair our principal assets and our non principal assets in a sensible order, making judgments all the time about where we get best value for money, and "steady state" is when all of those are in good condition and "steady state" is the money we need when they are in good condition to keep them in good condition. At the moment we reckon that to be about 124 million.

Q479 Chairman: That is a very helpful explanation. I shall come back to that in a minute. Obviously, you are back again because of what the Minister said last time. How would you describe your relationship with Defra currently?

Mr Evans: Good. We have a very good relationship with the civil servants. They are very understanding.

Q480 Chairman: What about the Minister? He was not very complimentary about BW?

Mr Evans: The Minister has lots of things to do and when I see him he is always approachable.

Q481 Chairman: You must have been taken aback, when you came back from holiday, to have put in front of you a transcript of what he had to say. He basically fired so many brick bats at you we could not cope. We were trying to catch them and it was just impossible.

Mr Evans: When I came back I was very disappointed to read the clear lack of understanding of what we had done, what we were doing.

Q482 Chairman: Whose fault is that?

Mr Evans: I was taught very early that communication is about transmitting and receiving and you have got to be responsible for both. I reckon I have been transmitting; there has not been the right level of receiving; and, if I have got to do better at that, I hold my hand up, I have got to do better at that.

Q483 Chairman: But you said to us that you talked pretty daily with civil servants. There must be some problems with the old radar if your daily conversations have not actually manage to transpose some of the problems that the Minister then points back in your direction - a quite intriguing select committee hearing?

Mr Evans: I am pretty confident that the civil servants that I was dealing with had a very good grasp of what we were doing, where we were spending our money, how our money was allocated and where our priorities were. I think there has been an issue where there has been quite a change within Defra, and most of the people (and I have already said this) that we were dealing with throughout the last six months have now moved on and that information and that knowledge probably may have gone with them.

Q484 Chairman: If we can go back to the issue of what is at the core of this disagreement, which, hopefully, we can at least understand from the perspective of BW, we found it very difficult to understand the why the Minister in his evidence seemed to think that you were not transparent in the way in which you changed your analysis of the arrears situation. I do not know, and we will go on to this in terms of Peter Soulsby asking you exactly the perspective from some dates, but let us not worry about dates for the moment. Where do you think things went wrong in terms of what you were portraying as the original picture of the arrears and what we now understand "steady state" to be, as against what you then brought forward latterly, which was at least a changed position of where the arrears would be?

Mr Evans: I do not think there was a change. You asked the very question: where did it go wrong? We had put a lot of emphasis on £300 million worth of arrears to capture the attention of the Government and to explain that the network needed very considerable amounts of money, and my predecessor was very successful in making that case and he got government to recognise that the waterways needed serious investment and it was accepted that £300 million needed to be spent on these principal arrears. I think, looking with hindsight, if we went wrong, we probably went wrong right back then in saying, first of all, it is the principal assets that need £300 million and, when you have done those, let us go on to the non principal assets. So, you could go all the way back there. I am not trying to blame anyone in the past. Why did it go wrong? I think what has happened is, as we have developed our steady state model, as we have reduced the arrears from £300 million down to £100 million, we began to say, "Hold on, let us not just blindly do the work to these principal assets, let us look also at these non principal assets to make the network more attractive, more usable to everyone who wants to enjoy it." I do not think perhaps, quite clearly we did not---. No, I do not think that is right. I think that whereas I explained that, and explained it very clearly, to the department that that was our change of emphasis and that was our change of judgment of allocation of resources, it seems to have stuck there and that knowledge has transferred elsewhere.

Q485 Chairman: Can I be absolutely clear in my own mind. There is obviously a feature here of the impact of the cuts of grant-in-aid. Firstly, did those cuts have a direct impact on the arrears situation or was the arrears situation outwith that? They would have had to have been re-examined and reprogrammed in terms of this later date when you would have fully reached steady state, or did those grant cuts have a quite significant influence and, when you re-did the numbers, it became clear to you that they were going to have a greater impact than you first saw?

Mr Evans: We have always been very clear on this. We have said, right from the start, that the grant cuts in 2006/2007 and 2007/2008 were disappointing, but not, for the long-term, disastrous. The impact they had in those two years was for us to make some immediate cuts, 5.6 million in 2006/2007, to our major works and arrears expenditure. The grant cuts did not influence us in our decision to rebalance between principal assets and non principal assets, to change from ten per cent D and Es to 15 per cent, because that is what we were discussing and thinking delivers best value anyway. What we have always said is important is the future. It is not the cut in 2005/2006, it is not the cut in 2007/2008, it is the direction of travel. We are a £200 million turnover business, we are spending £20-25 million on major works every year. If for two years those have to be delayed, that cannot be said to be a disaster. What is a disaster is if those cuts are not reinstated and the grant continues to reduce thereafter. That will affect in the future how well we can keep the network in good repair and where the D and E assets end up. I hope this is not confusing. It depends entirely what our CSR settlement is as to whether we meet the 2012 target. If government wants us to meet the 2012 principal asset arrears target, it can be met.

Q486 Chairman: Why did you then talk to us in terms of self-sufficiency? Self-sufficiency may be some dream, some futuristic wonderment that you can talk about, but that was quite an important piece in your evidence. I accept that you never date-lined that, but we had the impression that the grant aid was going to be less important, that this was something that could, over time, run back, but you are now going back and saying, "CSR is absolutely crucial. We need some grant money. We need it now, because otherwise the arrears situation will be as bad as we now portray it to be and could be even worse"?

Mr Evans: We have always said "largely self-sufficient", never self-sufficiency. We have never accepted, never believed, we could be self-sufficient; we have always said largely self-sufficient. What we have said, and what I passionately believe, is that as a public corporation we have a duty to maximise the income we can get from our assets, and I was trying to galvanise British Waterways and all the people in British Waterways to say we cannot rely on government for hand-outs every time we need more money, we have got to be more self-sufficient, less dependent on the state. So, my vision is for us to become largely self-sufficient, more self-sufficient, and we must drive that. We have been incredibly successful. In the last five years we have almost doubled our earned income without that drive for self-sufficiency, without that need, because if I said, "It does not matter, we do not have to earn money because the Government will always come up with the pay in the end", that would be disastrous. Self-sufficiency is the drive within the organisation to realise that being more self-determined is a real asset and benefit for us.

Q487 David Taylor: How do you assess your degree of self-sufficiency in this year, 2007/2008. What figure would you put on that? You are aiming for more self-sufficiency. What would you put on that and what would you hope for ideally in ten years' time?

Mr Evans: I think in about 2002, about 60 per cent of our income came from government and 40 per cent came from earned income.

Q488 David Taylor: This year?

Mr Evans: This year, I think probably 55 per cent is earned (ours) and government grants down to 45 and, depending on the settlement we get, but if it is the much talked about RPI minus five, by 2011 government grant will be about 35 per cent and we will be earning the rest, 65 per cent. So it is quite a transformation from 2002 to 2011 on current assumptions.

Q489 David Taylor: So two-thirds meet your definition and hope and expectation of "largely self-sufficient"?

Mr Evans: I do not think it meets my expectation.

Q490 David Taylor: It is in that area?

Mr Evans: I think my expectation is to carry on and reduce as far as we can, but the condition of the network is paramount. All those predictions and statements were made at a time when our grant was above 60 million and all the talk from ministers and government was that we were very successful and they wanted to continue supporting us. So they were never made in a climate where our grant took a sudden nose-dive one year and kept at that level and went down. We were always talking about a glide-path from which we would gradually reduce our income down and down as we earned ourselves more income.

David Taylor: Thank you.

Q491 Chairman: To conclude from me before Peter takes over, are you clear where the Minister's confusion comes from?

Mr Evans: No, I do not know where the Minister's confusion comes from.

Q492 David Lepper: On that point, from what you were saying a little earlier, am I right that you are telling us that British Waterways communicated very clearly to the officials of the department the processes of its thinking in relation to its principal assets, its other assets, the notion of a steady state but it seems as though the officials did not communicate that information on to the Minister sufficiently clearly? That was the impression I had from what you said earlier?

Mr Evans: All I can say is the first part of your assumption is absolutely correct. We explained in detail, and answers to question ten of the Committee's question sets it out, that we began that process last year, there was a very detailed letter in December going to the department which sets it all out, and so I certainly communicated to the department. I have no assumptions at all as to what happened thereon within the department and between the department and the Minister.

Q493 David Lepper: You said whenever you have met the Minister he has been perfectly approachable, in answering the question about your relationship with the Minister. Over that period of time that you have just described to us, how frequently did you or other senior officers of British Waterways meet the Minister - I do not mean at social functions or whatever but at official meetings about the business of British Waterways - rather than meet with officials of his department?

Mr Hales: We have had two office meetings prior to the previous week, and we have had a couple of meetings outside the office.

Q494 David Lepper: That is over a time span of about six months?

Mr Hales: Yes.

Mr Evans: Since the Minister was appointed.

Q495 Mr Jack: Gentlemen, you have been musing over Mr Gardner's difficulties and you express uncertainty as to how he has not been able, in spite of copious communications with his department, to form a clear view about some of the concepts that he put in front of the Committee. Let me get back to what the Minister said to us by way of evidence. He said, "I have been asking for many months for the projections of steady state and looking back to the ten-year programme for 2002 with a plan for the future, and on Friday evening, in my office, I eventually got a complete breakdown of that from British Waterways." You have maintained a close level of liaison with the Minister's officials. We have been given letters and information, for example to see how you responded to Sabine Mosner's request. The letter starts off, "You asked me to pull together a number of statements and email exchanges that we have had over the past few months." If a minister starts jumping up and down, for whatever reason, with his civil servants, the civil servants' job is to interpret those questions to the people who can give the answers, and that is you. Let us wind the clock back. When did you first find out that the Minister was agitated and asking these questions?

Mr Evans: Can I wind it a little bit further back. We met the Minister in November and he said he wanted figures that looked forward, not just for the CSR period.

Q496 Mr Jack: Can you refresh my memory. When in this saga had the Minister's department announced the in-year cut? When was that made public?

Mr Evans: The in-year cut in 2005/2006 was made public in about June, July.

Mr Hales: When you were on holiday.

Mr Evans: When I was on holiday.

Q497 Mr Jack: June, July 2006. Just before you answer that question, when the department was deciding internally how much that cut was going to be, was there any discussion between officials and your good selves about what the number might be that you could live with?

Mr Evans: I do not recall that. I think it was much more that the department was finding some serious financial difficulties. There were options of cuts across the board, or cuts more in one place and less in others, but our civil servants seemed to have---

Q498 Mr Jack: There must have been something that guided the department in deciding that the number they chose, some three odd million pounds, was a number you could cope with?

Mr Hales: Yes. We were asked what we would do with that cut, which was, therefore, going to be a cut on the significant repairs.

Q499 Mr Jack: When that conversation took place, were you probed about any of the definitions which hitherto had underpinned the basis of the financial information which Defra had about British Waterways, the future maintenance plans, where you were going? Was that part of those exchanges?

Mr Hales: No, those literally took place over about three or four days between what is the implication of the cut, and then it was clear what they were going to be.

Q500 Mr Jack: So it was not a definitional discussion, it was about numbers?

Mr Hales: Yes, and we also did make it quite clear, as Robin has said, that a one-year cut, we do not like it, but we will get on and manage within that.

Q501 Mr Jack: So, in the middle of last year you roughly came to an accommodation: they understood what the number was going to be and what the implications were. Right, Mr Evans, take us forward about what happened thereafter?

Mr Evans: In November when we met the Minister we were talking about the future. Of course, we knew there was the Spending Review 2007 coming up and we were talking about what the future was likely to be, because at that stage we were still hoping the grant cuts would be restored. It was a one-year cut, and the Minister wanted sight of figures going beyond the SR 2007 period. He wanted to see them going up for another ten years. In my letter to Sabine Mosner, which you have, those projections got to 2016/2017, so we provided those. You asked when the Minister became agitated. My understanding is that there was a meeting between civil servants and the Minister some time in February when they were discussing possible future funding for BW, and the Minister then asked for some further analysis of income and expenditure. Just as you say, I heard this but I asked for that to be put in writing so I knew exactly what was being asked of us, and I think in our evidence that came from Martin Hurst, a senior civil servant to the Chairman, in March and we responded to that in April - so a direct request. Then there was a second time when on, I think, 20 April the Minister asked for some very specific analysis matching the 2002 plan for the future with our current projections, and that we answered within six days, I think.

Q502 Mr Jack: The impression I am gaining is that you provided the answers to the questions you were asked and you were not getting any feedback from the civil servants you dealt with that there were definitional problems from the ministerial perspective in terms of understanding what the information was that you were supplying?

Mr Evans: That is correct.

Q503 Mr Jack: Can you explain why the Minister seemed still to be unclear when he came before us? If there was that degree of clarity by the time you had replied, particularly with your six-day letter in March, why the Minister should come before this Committee giving the impression that there had been barriers placed in the way of him finding out new, and hitherto unrevealed, information about the state of your finances?

Mr Evans: The only explanation I can give is what I have given previously. Certainly Sabine Mosner, who was the person I dealt with primarily, I think had an excellent grasp of what the issues were and she, unfortunately, or whatever, has moved jobs and been taken away, and her immediate line manager has also changed jobs, so I think the Minister was probably struggling to find someone to interpret the wealth of information that we had given within the department. I cannot say that; that is my assumption.

Q504 Mr Jack: You have said it now. You cannot withdraw the fact.

Mr Evans: I am not withdrawing it; I cannot say that for certain because I obviously was not there.

Q505 David Lepper: When did that change of personnel happen?

Mr Evans: Goodness. March, I think, mid March, early March.

Q506 David Lepper: Thank you.

Mr Evans: I would certainly be able to give you those dates.

Mr Hales: I think one of the key documents was the one on December 22, which set out in considerable detail in the annexes the implications of different levels of funding and, indeed, referred to the principal assets, the steady state and so forth. I think one would recognise, if you come at these things very quickly from a first pass, they are quite difficult to get hold of, but there are many points in that document.

Q507 Mr Jack: One last question that intrigues me is that the Minister gave the impression when he put the numbers before us that suddenly additional income had been discovered. Do you think that that was a proper representation of the facts, bearing in mind, as you have subsequently reminded this Committee, any additional income in any one year has to be spent in order that your books be balanced?

Mr Evans: Can I correct the last thing. I think we have probably got two, maybe at a stretch three years to balance the books; it does not actually have to be done in each year. I do not think that is a fair representation of the information. Certainly from the period 2002 to 2006/2007 we had ended up with more income than we had planned to have in 2002, and we had spent that money in the full knowledge, full understanding and full approval of the department. If they had instructed us to spend it differently, we would have spent it differently. So, we shared our corporate plans, we shared our annual budgets with them and they were entirely happy. What is spent is spent, is gone and everyone was happy. In fact, we were praised and everyone seemed more than happy, up until now, about where our expenditure was. Going forward, we have very considerably less money than we had planned to have in 2002, and that is despite very considerable increases in our commercial income. The reduction, or the potential reduction in grant (because we have still not had our CSR settlement) is considerably more than the increase in income, but that is money that we have now got to decide how not to spend. So, I think you could put the two together and say there is more money overall, but that is not a fair analysis because half of the period the money is spent, it has gone. We are talking about the future from now on, where we have considerably less.

Q508 Chairman: Before call in Peter, can we be absolutely clear. Do you think that the Minister is still under the apprehension that you have had more money than he thought you had had and that is the basis of this current disagreement, friendly as it may be?

Mr Hales: We actually agree on the facts. The facts of the money are the same; there is an interpretation issue. The Minister has particularly pointed out that over the period 2002 to 2012 there is, in total, more income has gone into the waterways and that has come from two sources: one is from the extra commercial income and the other is from 8.9 million of extra grant income, which is entirely from the Scottish Executive and it has entirely got to be spent in Scotland to meet very specific projects that they set in those years. The interpretation then is about whether you look at the period from 2002 to 2012 as a whole or whether you divide it into two parts. What Robin has set out is the importance of dividing it into two parts. What has been spent cannot be unspent, it has been spent with the agreement of the department, and then there is the future, where there is a 40 million gap on the previous assumptions.

Q509 Sir Peter Soulsby: We have not got it yet, but the Minister has promised to let us have a full trail of correspondence and notes, where they exist, of telephone conversations which should perhaps help us in judging what was asked and what was supplied and, indeed, when, but, looking back at his evidence to us, he repeatedly (and it obviously was not a slip of the tongue because he did say it several times) accused British Waterways of lacking transparency in dealing with the department. When we do get that correspondence are we going to find that you were not transparent with them or are we going to find something very different?

Mr Evans: I would hope that the evidence that we have already submitted to the Committee in reply to your last set of questions amply shows that we have been very transparent with our figures for a considerable period of time. We have been talking with the department and we mention here correspondence, and I think correspondence has been given to the Committee showing that this is something that we talked about from June, July 2006; so I am very confident that the Committee will see that we have been transparent throughout.

Q510 Sir Peter Soulsby: What about his evidence where he said that he had to apply greater and greater stridency in his approach. Is that what we are going to find when we look at the correspondence?

Mr Evans: Certainly not with British Waterways, and not in correspondence to us.

Q511 Sir Peter Soulsby: Can I clarify the numbers of meetings you have had with the Minister, because obviously, if he had become as concerned as he has suggested, he might have met with you on occasions. You said you met in November and, prior to that---. He has been involved now for the best part of a year, has he not?

Mr Hales: July 19, and Robin met with the Minister on September 5 in Penkridge.

Q512 Chairman: Can we be clear. The original date that everyone seems agree on where information was requested was actually before this Minister was in post, if the date of June 2006 means anything, or does it mean nothing?

Mr Evans: June 2006 was when we first started to talk to the department about the way we spend our arrears and the mix between principal assets and non principal assets.

Q513 Chairman: Who initiated that? Was that ministerial or was that---

Mr Evans: That was the debate and discussions and correspondence between myself and the department officials.

Q514 Chairman: But the Minister, as an incoming member of the Government, would have been knowledgeable of that surely? It is fairly important stuff.

Mr Evans: I do not think that is, in my relationship with the department, what happens within departments.

Q515 Sir Peter Soulsby: Can we pursue the relationship with officials. You mentioned a particular official. Can I get it clear, that was your main point of contact with the department, and can you clarify at what level in the department that person was?

Mr Hales: Grade five. May I make a comment on the transparency? I think the British Waterways Board would strongly insist that we have acted in good faith. I think if there is any lack of transparency it is because some of the concepts are complex and need detailed investigation and time spent on them.

Q516 David Taylor: I think this steady state is some sort of Shangri La that is never going to be achieved. Nevertheless, going back five years, in 2002 (and I know we have talked around this and I am trying to clarify something in my mind), you set a target date of ten years beyond that for the arrears on principal assets to have been cleared. That is correct, is it not? Why did you not include the 11,000 non principal assets in the forward plan from that 2002 starting point.

Mr Evans: I think that is a fair question. The Chairman asked me: "Where did it all go wrong?" I said, looking back, I think our absolute concentration on the principal assets, and that was still a huge task ahead of us at the time. I cannot remember what the figure was in 2002 and what we got it down to - probably 200 million or something - so it was still a massive task ahead of us.

Q517 David Taylor: No-one denies the huge progress that has been made.

Mr Evans: I am not talking about the progress, I am saying I think our concentration was saying, "That is enough to concentrate on at the moment" - that is such a big task, to get £200 million invested into the network. What goes beyond that, what happens next is some time in the future, our concentration is on that 200 million, and I think it is a very fair question to say, if we had started talking in 2002, the understanding would have been much better. However, I have to say that it is always easy to look back. If you had begun to say there is 200 million, and then there is probably another, whatever, and then there is probably another, I think people would begin to worry whether there would ever be a viable network.

Q518 David Taylor: The point I am going to make may spring from the fact that the parallel you drew with the structure of a house and its decoration and so on, principal or non principal, is not a perfect one, but if I can continue with that analogy, would you not accept that if you neglect non principal assets within the house - the floor boards, decoration and other aspects - at some point those things, which are aesthetic and comfort and convenience driven, become structural and safety issues? Is that not also true of non principal asset work within the British Waterways network: some things which may be marginal at the moment in terms of core responsibilities can, if neglected for a long period, become part of the problem?

Mr Hales: I think your point is entirely correct. Ideally, one would have had that information and it would have been in the public realm and in front of the department in 2002. It was not because life moves on and we are getting better all the time. I think one of the other reasons would be that we have very much better information systems in 2007, with better computer systems and a more structured organisation which is feeding information to the centre, than we had in 2002. So it was the best figures put up in 2002, but they were not as good as they would be now or perhaps could have been then.

Q519 David Taylor: Can I paraphrase your answer to check that it is an accurate paraphrase. Five years ago you were aware of the issues connected with arrears of maintenance on non principal assets, but you thought you had more than enough on which to obtain the resources to tackle the core concerns which you had and the public would have to be left in the state that they were at that time without any significant work happening to them. Is that roughly right?

Mr Evans: That is fair. I became Chief Executive in December 2002, so effectively 2003, and one of the first things I said to our engineering department was: "I must understand the condition of the non principal assets. There is a vast amount of work on the principal assets. We must begin to understand inside the house." Jim was appointed some 18 months later, and the first task I gave Jim was to be very clear about getting the non principal assets understood and scheduled so we knew exactly. I was in the privileged position of being able to do that because so much work had been done on the principal assets to make me comfortable that the network was not going to fall down, the network was operational, and we could afford to divert some of our engineering thinking time, some of our engineering inspection time to those other assets. Before that it was all hands to the pump to tackle the vast backlog of arrears on principal assets.

Q520 David Taylor: We have got these 11,000 extra non principal extra assets. What is your new target date for those arrears having been cleared as we sit here?

Mr Evans: Our judgment at the moment is that we could live with 15 per cent of principal assets being in condition D and E forever. We think that that is an acceptable condition. It is not ideal, but given that we have got less resource and all the other demands on our resources, 15 per cent D and E is liveable with and we think we will hit that, on current grant assumptions (and I still do not know what grant we will get this CSR period) of RPI minus five, in 2016/2017.

Q521 David Taylor: That is principal assets?

Mr Evans: Principal assets.

Q522 David Taylor: Non principal assets is the question?

Mr Evans: I am sorry. We have not graded all the non principal assets yet. That is work still under way to grade them and have the same grading structure as we have with our principal assets. It is a massive task to do that and it is not something that we can quickly do.

Q523 David Taylor: So the four-year delay from 2012 to 2016 is at least partly attributable to the grant reduction. What proportion of that four-year delay, approximately, would you say it would lead to? I am now back to the principal assets.

Mr Evans: The change from ten per cent D and E assets in 2012 to 15 per cent D and E assets in 2016/2017 is partly due to our decision and advice that we should spread some money into non principal assets, but the target date of 2016/2017 is dependent on what grant we get in the CSR settlement, and if the grant cuts of 2005/2006 are not restored and, indeed, we get a further grant cuts of RPI minus five, then---

Q524 David Taylor: That 2016 will float off even further?

Mr Evans: No, we think 2016 is what we will get.

Q525 David Taylor: On RPI minus five.

Mr Evans: On RPI minus five.

Q526 David Taylor: How much work was done on actually designing this very simplistic model of (a) principal and non principle assets and (b) the allocation of necessary work to one or two of those categories? It seems to me simplistic and I would have thought, in the world out there with the network that you have, that the projects that are crying out to be done do not just nicely and neatly just land themselves to either (a) or (b), it is a more complicated world than that. To me it is deceptively simple and, therefore, I am concerned by that?

Mr Stirling: It is worth reminding ourselves how our asset management process has developed from when we really got started with it in seriousness in about the 1990s. Our current approach to asset management started in about 1996, or thereabouts, and at that time we had a monumental problem with principal assets and that was the focus. We had a safety issue in 1996, which we have dealt with. As we were dealing with that we were also learning, improving and growing our asset management approach. That has progressed into what we now are calling the "steady state model". The steady state model brings us a number of advantages from the point of view of managing and budget allocation, as well as a headline figure, because what steady state has allowed us to do by developing that model is look at everything: look at hard assets, look at issues of service and look at issues that we call agriculture, such as trees, hedges, grass cutting and such like. All of that is encapsulated in the new model. That model was developed from about 2004 onwards because we felt the pressure reducing. We had removed what we were calling the safety backlog, basically a sigh of relief, and that we could now start to broaden our horizons on other things, and this development of steady state allows us to see a much wider picture. Just as you have said, everything is important - tow paths are important for all our visitors, the waterway walls are important because its affects the channel depth and such like. We are now able to see all of that in one big picture.

Q527 David Taylor: That is fine. One final observation: do you in your planning build in assumptions about the responsibility which you will be taking on for the predicted expansions to the network - re-watering of the Ashby Canal in my own constituency, for instance, or parts of it? Do you build those in?

Mr Stirling: Yes.

Q528 David Taylor: Do you make some assumptions about whether or not those expansions will occur, or not?

Mr Stirling: In technical terms, the model uses the functional location that we give everything that we own, and as long as we apply---

Q529 David Taylor: And might own?

Mr Stirling: And might own. As long as we apply functional locations, which we have done in the canals that have been restored or built since 2002, they become automatically part of the waterway.

Q530 Chairman: Moving on from David Taylor's question, can I ask you a multiple choice question in this inquiry: (a) we make our money out of the core network, particularly now out of developing property opportunities; (b) we actually can make money out of an extended network but that extended network is only valuable to us if the property portfolio is really something that is going to bring in additional money; (c) we are prepared to take on an extended network but we will only take that extended network on if there is an understanding from government that somebody has to give us some additional resources, particularly to run that extended network; (d) none of the above, but we could be persuaded to take on additional parts of the extended network on an ad hoc basis. You may say all of the above, none of the above, but which of those actually do you feel most confidently describes what BW is about?

Mr Evans: The Chairman says, "The last one." I would answer it, unfortunately, in a different way. We are keen to expand the network but we will only expand the network if it does not drain our resources from the money we have to spend on the existing network and that we can see both the capital cost of restoration and the future maintenance costs thereafter. So, we look to others to find the funding, create the funding to restore waterways and then we hope that that restored waterway, if we model it and if we calculate it, will generate income to cover its expenditure by increased boats on it which will produce us licence fees, the option to create marinas and moorings alongside, which will introduce income. Very rarely will any property come with a restoration for us to make money out of it for long-term income. It may come with some property that we can sell to help fund the restoration. So, we are keen for restoration, but at the same time, we will not willingly, and we do not plan, to contribute to the cost of that restoration from our own funds because that is just spreading our already thin resources even more thinly.

Mr Hales: Can we take an example, like perhaps the Olympics one which I think you are all familiar with. We have to put in a million, a million and a half of our money. Ideally we would not be putting in any money at all, but I have to say that the whole of the British Waterways Board thought that this would be just the most ridiculous decision for UK Plc if the benefits to the community did not go ahead because we could not try and find the one and a half million. Most of the money for the building of it has come from the Olympic Development Authority, from Transport for London, from DTR. We do not have any serious land around there on which we have opportunities for property development, which would have been the best source of plugging the gap; we will get a very, very small income out of the freight, which is of huge benefit to the East London community that is going off the roads and going up the canals; so we had to take, if you like, what we felt was a balanced judgment. Had the decision been six million pounds, we would have probably said British Waterways could not afford to go ahead with that scheme, and I think many of the schemes we come to we either get to exactly a balanced amount or we end up having to tip in a very small amount, and there is going to be an on-cost, albeit marginal, to the waterways for each extra kilometre that it is expanded.

Q531 Chairman: To what extent would ministerial comment on this balance between extension of the network as against concentrating on arrears backlog play a part? If the Minister came to you and said, "I really think this is a good scheme, it needs to be reopened, it would do a lot of good in that area. I know you have not got the money. We will find some money through various different channels, but I want you to get on with that", does that play a part, or do you take these decisions objectively and you would always look at, "Should we do this and reopen it", as against, "Let us put that money into backlog"?

Mr Hales: Our priority is to maintain and recover the existing waterway network, but we also have within our mission to expand the network, and that mission has been agreed with the department, it is out there in the public domain. The Board takes a judgment on these things and it is broadly on the basis of: we will put a very small amount of pump priming in, but we do not have the funds to divert substantially. Equally, we will keep the department informed of any serious---. Obviously the Cotswolds one is one that we are all very, very sensitive on and is still being worked on by colleagues because there is a significant gap. The department has been well aware that there has been a significant gap since last year, and we are still trying to find a way of filling that gap because British Waterways----

Q532 Chairman: If I was to say to you, Tony (and this is purely hypothetical but I think it is germane), if the other partners were not aware of that gap, whose fault is that?

Mr Stirling: If they were not aware of that gap?

Q533 Chairman: Yes.

Mr Stirling: I think we have all been working towards trying to find the best solution down there. The best engineering solution has now shown up that there is potentially an £11 million gap. That is the worst and that is too high for British Waterways to handle.

Q534 Chairman: Whose fault is that? The Department did not know. Should they have known?

Mr Evans: We are the lead partner and, therefore, if there is any lack of understanding, it clearly falls on us. What you have to accept when you are putting packages like this together is that you go along to the HLF and you put a proposal to them - bearing in mind this started as a 50 million pound scheme - and they said, "We cannot possibly afford to fund that. What can you do for a £25 million scheme of which we will give about 11 million?" So we re-engineer it, we spread it down, we say, "This is what we think we could do for a £25 million scheme." They say, "Okay, we are in for 11 million." You go along to the South West Development Agency: "We have now got this smaller scheme. We have got this gap. What do you think you can come up with?" "Okay, we think we can put six million in." You go along to the county council, the district council, go along to the Waterways Trust. "How much money do you think you can raise?" All this takes time. No-one wants to fund at all, and then you get closer and closer to a funding package which then enables you to carry out serious design work, because you now think you have got something which is viable (you cannot spend money on something that no-one is going to want to spend, so you then get a funding package which is viable), you then send Jim and his team and others away saying, "We think we have got a £25 million scheme here. Go and work it out. Where are the pinch-points, what are the risks?" They come back and say, "We could do it for 25 million, but there is another 15/20 million risk because there could be more contamination, the EA may get a bit difficult about flood alleviation, you need planning permission and you need to get that within a year, it could take two years." So you have this huge level of risk which says, "If everything went well, we could do it for this amount. If everything does not go well, it will take this amount." We then make a judgment and say, "Well, we will win some, we will lose some", and you gradually narrow down the risk and get to a point, and this is what has happened on the Cotswolds. It is not a simple thing. It is not like building a house: "Get me a quote. How much is it to build a house." It is a very long process of matching the funding appetite of all these different partners with the actual costs and, as you develop the project, you understand more and you begin to understand all the issues more. That is what has happened with the Cotswolds, and it is not unusual. In the past we have sometimes gone ahead with projects, because of the pressures of funding, with people saying, "If you want our six million, you have got to start work tomorrow", and the Boards have to make difficult judgments and say, "Right, we will start", and then we have found out that actually the costs are much greater during the project, and there is no-one else to come up with the money, so we have to find the money; but we are determined that that is not going to happen in the future. We are not going to start something like the Cotswolds until---

Q535 Chairman: This is a change in approach. This is hard-bitten, finance driven, accountancy-led - I cannot think of any more metaphors - but this is a difference?

Mr Evans: When we were restoring waterways at the turn of the century with the millennium lottery, we added 200 miles to the network. Those cost us considerably more money than the funding that was originally allocated to them, and when I became chief executive I made it very clear that to ensure that we had sufficient resource going into the existing network, we would not take on restorations for new expansion of the network until we absolutely knew what our costs would be and we were certain of our contribution. As Tony says, that does not stop us putting in a contribution, because we have done that at the Olympics, but I think it is right that we are absolutely certain before we start that we know what the costs are and we know where our income is going to come from.

Q536 Mr Jack: I wanted to probe a little bit about the future financial position, but before I do that, could I just ask Mr Stirling perhaps to help me understand. Mr Evans, you said a moment ago in your evidence that, in terms of achieving the steady state, taking into account the RPI minus five per cent projection of your income, that you would end up, I think, in 2016 with 15 per cent of your principal assets in D and E category. Can you help me, Mr Stirling, to understand how rapidly, if that is the case, those assets would degrade: because one of the bits of evidence that we have had from users of the canal, the people who help to generate positive income, is that when principal assets go wrong so does their business. Secondly, are those D and E calculations you did spread fairly evenly over the network or are there some bits of it which are considerably worse off than others?

Mr Stirling: The crucial thing in deciding whether you can accommodate Ds and Es is twofold. One is the consequence of their failure. We apply a consequence number to our Ds and Es, and we do that from one to five, with five being, basically, catastrophic, multiple fatalities, et cetera, and you work back to one where there is virtually no impact, and we will not carry Es with a four or a five or very many Ds with a four or a five. You have to watch, because they are as much externally influenced as anything else, because somebody can come along and build a school next to a waterway which was in a rural area and the consequence of failure of the embankment was one. If a primary school was built next to it the consequence of failure becomes five. So, we need to keep looking at that, but, in essence, we take care of the poorest assets but with the biggest consequence. We can then assess whether we can afford to carry more of them. In our view, because we have removed the safety backlog in 2004 and we know the distribution of our assets according to things like consequence, we can afford to carry more. It is true though that the poorer the assets the more they cost. In an ideal world you would have no Ds and no Es.

Q537 Mr Jack: Are those Ds and Es in your projected model located, geographically speaking, on one or two particular canals or are they, as evenly as you can be, distributed over the whole network?

Mr Stirling: No, they are not distributed evenly. If you draw a map of where we predict the work will be to remove the arrears, there is a concentration in the North West, Wales and the border counties, the west Midlands and the south east. There are fewer in the north east area, the east Midlands and the south west.

Q538 Mr Jack: The operational impact in those areas where those Ds and Es in 2016 end up could be quite significant if they failed in that context?

Mr Stirling: That might not be where the Ds and Es are once you have removed the backlog. The ones that we wish to address are concentrated in the areas that I have suggested. When we finish they will be fairly evenly distributed. I am sorry; I misunderstood the question. The 15 per cent will be fairly evenly distributed when we have caught up. At the moment, the ones we call arrears are in a different area.

Q539 Mr Jack: Let us make certain that the Committee fully understands the future financial position because we have spent some time analysing what has been. Looking at the numbers which have been given to us in round terms, if we have understood this, in the period 2007 through to 2011 on the RPI minus five per cent projection, your grant income is supposed to drop by £56.7 million. That is correct?

Mr Evans: It is £56.7 million less than we predicted in 2002.

Q540 Mr Jack: This is perhaps where it gets quite difficult for us to understand because you changed your definitions in 2004 - tell me if I am wrong - about moving towards your steady state. In 2002 that concept did not exist. What I am interested to understand on this 56.7 is what are the real world consequences or have we covered that in that your 56.7 minus that figure versus 2002 is the bit that ends up with the 15 per cent D and D in 2016?

Mr Evans: It comes back to Mr Taylor's point. At some stage all this is very simplistic for the very complex nature of 2,200 miles of historic network and all the money we have to spend on it. The consequence of having less money because of the cut in grant which was about seven million in 2005/6, which has not been reinstated, and the further consequence of further reductions will be that we will have less money to spend on the maintenance and repair of the network. It has to mean that there will be less money. Just how that manifests itself is a matter of judgment and balance that we will have to decide, to put the money where we think is best each year which gives best value to the taxpayer and the users. What we are currently predicting is that we will live with 15 per cent in D and E because we think we want to put more money into other parts of the network to make it more attractive and get the towpaths up to better condition. The vast majority of people using the network are on the towpath but the towpath is not a principal asset. If government decides it wants all its money to go on to principal assets, we could do that but the condition of the towpaths would not be improved. This is what the board is here for and I advise the board. It is that constant judgment about where to allocate our scarce resource. We are trying to create simple figures like Ds and Es and arrears to give a view but in reality those judgments are quite complex.

Q541 Mr Jack: Have you received any kind of guidance from Defra about the emphasis of that? Somewhere I read in this plethora of material that we have had that there was some emphasis on trying to increase the number of users of the linear park, the towpaths, which might suggest that it is the non-principal towpath asset where Defra wants you to spend the money and not on the principal assets which are in the interests of waterway users.

Mr Evans: Defra has been consistent in saying that it wants its money spent on the fabric and infrastructure of the network. If we manage through our own resources to increase the money available for spend, they would like to see it help on improving visitor numbers. Defra has been clear that it wants its money to be spent on the infrastructure. Having said that, they are interested in making these good places for people to enjoy and use. Therefore, they are happy to take our judgment of that allocation.

Q542 Mr Jack: The clarity with which you have expressed that answer to me is a clarity of vision and purpose which is shared and enunciated by the Minister, is it?

Mr Evans: You will have to ask the Minister.

Q543 Mr Jack: You have not at this juncture had any ministerial guidance as to whether those priorities that you have just put to the Committee are ministerial priorities?

Mr Evans: We submit our financial plans and our priorities each year to the department for a three year period. Each year we shift it on and we had no adverse comment last year. We just have submitted our plan for this year and the next four years.

Q544 David Lepper: Was there any positive comment?

Mr Evans: The department has always been positive about us.

Q545 David Lepper: The Minister?

Mr Evans: The Minister has been very positive and has said on public record he admires what we do and he likes the waterways. He has made a lot of positive comments.

Q546 David Lepper: I wonder what your reaction is to the Minister's comment in our last session with him, talking about these funding issues, when he commented on the way in which they - that is British Waterways - had perhaps spun things over the past few months and suddenly these problems have arisen out of a relatively modest drop in government funding of 3.9 million. You have been spinning about government grant for a particular effect. That was what the Minister said you had been doing. Is that what you have been doing?

Mr Evans: No, absolutely not. The cut in grant was nearer seven million because we were notified of a cut in the 2005/6 grant the year before. The actual cut in our grant in year is not just the 3.9; it was cut before the year began. We have been absolutely clear about our position on the grant. We have repeated it a number of times already this evening. Cuts in year are never welcome but it is the future that is important. We have consistently, publicly said that these cuts are unwelcome but it is the future. The public perception of the grant has been that people have started to protest or comment against the grant because these passionate enthusiasts as they are sometimes referred to, these users, remember what it was like in the sixties. They remember when government turned its back on the waterways and they deteriorated. We almost lost them and they are very sensitive about that. They see any change in government grant as a signal that there may be stormy weather ahead. That is where our position and the users' positions have become muddled.

Mr Hales: We have tried to be very open. At our annual general meeting last year Robin talked about the network and there were some quite hostile questions raised. The senior civil servant who was there had a very rough ride but he answered the questions in a totally open way and he congratulated Robin afterwards on the clarity and reasonable way that he had expressed what the impact was.

Q547 David Lepper: I accept all that but nevertheless the Minister seems to think you have spun things. It is not just the users who have been perhaps exaggerating, for understandable reasons.

Mr Evans: I am sure the Committee will look at all the evidence that has been put. I would be happy to be presented with anything, any broadcast, any written word, anything that British Waterways have submitted to the department or anywhere else, which demonstrates "spin". As the Chairman has said, we have been very clear throughout. Our duty is to provide the right information.

David Lepper: It sounds as if it is the Minister you have to convince of that rather than us on the basis of his comments which I have just repeated to you.

Q548 Sir Peter Soulsby: Can I take up one very specific thing and that was going behind the department's back to meet with Ed Balls? What is the reality of that?

Mr Evans: The reality is that that was not a meeting that we knew about, attended or had anything to do with. That was a meeting between Ed Balls and the Inland Waterways Association, one of the user groups. The chairman of the Inland Waterways Association will be very pleased to write to the Committee to confirm that that was a meeting between the IWA and Mr Balls and had nothing to do with BW. BW were not involved in it whatsoever.

Q549 Chairman: In the wadges of information we have been sent from Defra obviously some of it is marked in confidence for the use of the Committee only. Would you have misgivings if this was subsequently to be published? It is in the ownership of Defra but it relates to correspondence between yourselves and Defra. We are at something of a disadvantage to know from what we can now draw our evidence given that we have been given that evidence on a privileged basis. Have you any misgivings? I am not asking you to go through page by page whether there are parts of that that you would not want to be published but, as a general principle, have you any misgivings about what is in the public domain now and what is not?

Mr Hales: As long as it is not commercially sensitive.

Chairman: As long as it is not commercially sensitive, publish and be damned?

Q550 Mr Jack: Publish but he does not want to be damned. Can we explore a little what may lie behind Minister Gardiner's observations about your future funding model? I quote from his words in the Westminster Hall debate of 27 March: "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. This has always been its intention. We are awaiting its proposals for a regulatory reform order to that effect." Could you provide us with the background detail as to what that means, please?

Mr Evans: We have long thought that there were ways in which we could work with government to help us generate more of our own earned income. There is a range of possibilities. One of them is to enable British Waterways to earn income on waterways it does not own or manage. At the moment, we are only allowed to have activity on waterways we own or manage. Rather than take primary legislation, we can achieve that through a regulatory reform order. That is something we tried to achieve in tagging on a bit to the Natural England Bill. We were not successful in persuading government to do that so now we are looking for a separate regulatory reform order. We are in discussion with the Cabinet Office about achieving that and the process. We are already starting on the long process of achieving an RRO. Another method that we wanted to look at was whether we could be the recipient of surplus government waterside land because we believe we generate value from that. Rather than just putting it on the market, maybe we could look at it and see if we could derive extra value. Our commercial director has had meetings with the persons responsible for coordinating the register of surplus government land. We are hoping to be able to regularly peruse that to see if there is anything that is worthwhile. One of the topics of discussion has been a planning gain supplement and, if there is to be such a thing, could waterside planning gain be in some way predicated or could we get a percentage of that gain supplement. It is commonly known and proven that when we restore and improve a waterway the value of the land increased by 20 per cent. We are making a case that 20 per cent of the planning gain supplement could come to us. That is something that we are discussing with the Department of Local Government and Communities. We are also talking very much in the long term about whether the way we are currently constituted as a public corporation delivers best value. That is a long term piece of work which we are currently engaged in discussing internally and we are getting some outside consultants to look at it too. I would suggest that is a very long term piece of work and there are a lot of things which we have to be very clear about and establish about the benefits of our current structure and where we think those things can be improved.

Q551 Mr Jack: In the context of the regulatory reform order proposal about being able to develop on waterside sites which are not currently yours, have you been asked to supply some kind of estimate to Defra as to what you think that could mean in terms of additional income over the period up to 2016?

Mr Evans: We have not been asked that exact question.

Q552 Mr Jack: Which question have you been asked?

Mr Evans: What the department have said is that they agree with us that allowing us to operate off our waterway is a good thing. When we have been asked what kind of benefits and what figures might be involved in all of these extra activities, we find it very difficult to put a figure on that because it entirely depends on what the opportunities are. If we widen our powers we are able to look at a wider selection of opportunities.

Q553 Mr Jack: If you are the Minister, he has two options: status quo or change. You have made some projections already as to how much money you think you are going to be short of. If the Minister is told by you that there are ways that you could raise additional revenues, you must want to have some idea of a very rough, ballpark number to decide whether it is worth making a change in your legislative position to enable you to realise some money. You might say, "Give us a go. We will see what we can do. There might be the odd wharf here or the odd riverside frontage. We cannot tell you whether it is worth doing it or not." You would not be asking if it was worth doing it if you did not have some idea of perhaps one or two little schemes up your sleeve that you would like to have a go at. I am not asking you to give me a list of them.

Mr Evans: I do not think operating off our waterways will be transformational in our fortunes. It could generate another £1 million a year over time. It is all in the right direction and there could be an opportunity for a particular property development which may be spectacularly worthwhile, but I would never be able to predict that.

Q554 Mr Jack: You would still come back to the basic contention then that, plus or minus maybe £10 million over that period, you are still going to be short of money to do the job that is your principal activity?

Mr Evans: For the period up until 2010/12, with the current grant assumptions, we will have less money to spend on the network than we believe we need.

Q555 Mr Jack: Property is a long term arrangement. I suppose to a certain degree you have an element of certainty about income. Looking at the figures which you have supplied, in the profit and loss figures you show a planned build up of British Waterways' joint venture income which is, year on year increase, quite spectacular. For example, 2007/8, you are predicting an income of 43 million as BW's share of joint ventures. That roughly doubles by 2009/10. Is that absolutely certain?

Mr Evans: Nothing is certain but that is not profit. That is gross income.

Q556 Mr Jack: I accept what it is but it is a very key underpinning of your overall income position because over that period you can see the effect of the grant reduction, I presume. Your income overall goes up by eight million but the amount of money that you are putting on joint venture income goes up by 40-odd million.

Mr Evans: That is because we are developing out a large number of properties where we are selling apartments and office spaces. That is our share of the income, coming in. There are very considerable costs going out. The line to look at if you are looking at the whole page of figures is the contribution line, where it says "BW's share of joint ventures CBIT" which is a much lower figure. It is still a handsome increase from 2.6 million this year to 14.4 million in 2010/11 but that is the contribution. These are gross turnover figures. There are an awful lot of sales of property going on but it hides a lot of cost of constructing the properties in the first place.

Q557 David Lepper: On this question of greater commercial freedoms and so on for British Waterways, you told us just now that the meeting with Ed Balls had not been a meeting which British Waterways had with him but a meeting that the Inland Waterways Association had with him. When the department say to us in a memo that they sent us in April that they are disappointed that British Waterways and the Inland Waterways Association made proposals at a meeting with Ed Balls on 3 November, they have it wrong?

Mr Evans: They have.

Q558 David Lepper: Mr Hales, you did write to the Speaker on 22 November. Could you summarise for us why you felt it necessary to write to the Speaker of the House of Commons?

Mr Hales: We opened the Diglis Basin up in Port Dundas, the Speaker's constituency. The Speaker came along and opened the lock. He expressed interest and concern in British Waterways and asked myself and the British Waterways, Scotland, chairman to go and see him which we did. He asked me to write a letter setting out any constructive suggestions that we had in terms of solutions to the current gap.

Q559 David Lepper: You were responding to an invitation by the Speaker to give him further information arising from something which initially he saw in his constituency?

Mr Hales: Correct.

Q560 David Lepper: You had not initiated that correspondence yourself?

Mr Hales: No. It is exactly as I say. We met in his constituency when he opened the lock.

Q561 David Lepper: In that same memo from Defra, they say they were disappointed about that as well, the fact that you wrote to the Speaker. It would have been impolite of you not to write to the Speaker if he had invited you to, I would have thought.

Mr Hales: I think so. If any MP invites me and asks me a question, I should reply.

Q562 David Lepper: I would agree with you. On the issue of the meeting with Ed Balls and the issue of the correspondence with the Speaker, the spin that is placed on those two events by Defra is wrong because their implication is that somehow you - I do not mean you personally, Mr Hales but the board, Mr Evans or others - have gone to another department and to the Speaker in an underhand way.

Mr Hales: I do not think we were underhand.

Q563 Chairman: Can you give us any cause for optimism in this recent series of problems because, at the end of the day, there is a network out there which is improving. Give us some positive spin.

Mr Hales: We have a network that has improved, that is looking pretty good today. We have some really good further development schemes in hand and we would like to find a way of resolving the one that is in your constituency, Chair.

Q564 Chairman: It is not important.

Mr Hales: It is important to me. It is very difficult. We have a very positive relationship with the two officials that have come onto the case recently. I do not want that to infer that there was anything about the relationship we had in the past. The two officials working with us now have grasped the issue very quickly and we have a positive relationship with them. We had a good meeting with the Minister after the most recent debate on the waterways and a good visit with him to the Bowback Rivers the other day, which has certainly helped. We all want to move on and take the waterways forward and not perhaps spend too much time going over the past. There is now a clear understanding of the facts, of what the state of the waterways is and what we exactly mean, the nuances in the A to E, where we are in the A to E and the steady state. We have a common understanding. We are now in a position where we need to find a solution as to what are the outputs that the government clearly wants and what is the best way of funding those. We will continue to drive commercial income as we have and we welcome new ideas. We have had some where we would like new powers but we certainly are open to any further new ideas as to how we can exploit this wonderful asset base that we have.

Chairman: Thank you once again for your evidence. Even more so than before, what is said is certainly going to be read in places where maybe it would not have been read as carefully as one would have liked. It certainly will be now. If nothing else, the canal interest groups have had plenty of opportunity to dissect every aspect of the waterways. I know they will continue to do so. My cycle ride in Gloucester yesterday did elicit some continuing interest in all the things that are going on. For that we are all grateful. We thank you for your evidence. We will read and reread what is said in the transcript from Gurneys and we will now consider in private how we take things forward. Thank you for your time.