Examination of Witnesses (Questions 140-159)
JONATHAN SHAW
MP, MR ROBIN
MORTIMER AND
MS SARAH
NASON
19 MARCH 2008
Q140 David Lepper: I just wonder
what Defra might be doing to ensure that BW does perhaps get more
in terms of financial reward from the regeneration work and the
development work that it is involved in.
Jonathan Shaw: In terms of a return
on their assets—and I am confident that they maximise every
area of income, whether that is from revenue sources, whether
that is from their capital investment—what that has allowed
them to do is to ensure that we have seen large-scale regeneration
across the network, so why would they be in conflict? I do not
see that they are.
David Lepper: What I am putting to you
is BW's own claim that so far they seem not to realise much in
the way of financial benefit, yet the Department seems to feel
they should be.
Q141 Chairman: Let me assist my colleague
by refreshing our collective memories by what the Government said
in its reply to our original report. You responded to our recommendation
number 8 when we discussed this, because in our original conclusions
we had asked whether there was a waterways equivalent of a section
106 agreement, and BW told us that for example properties built
next to the canal often command a 20 per cent premium because
of their waterside location and BW do not get any of that because
it is not on their land, but they are expected to spend the public's
money on keeping the waterway in pristine condition. You said:
"The Government recognises the regeneration benefits of waterways
and that BW has a case under section 106 or PGS. Depending on
the decisions made by local authorities about having to use section
106, Defra will ask the new interdepartmental working group to
keep this matter under review."[2]
Have you done that and, if so, what was the outcome?
Jonathan Shaw: As I referred to
earlier, the next meeting (which I am going to chair) will be
to talk about planning, so I will provide a note in my report
to you on that issue.
Q142 Chairman: Excellent, so you
are going to pursue your response?
Jonathan Shaw: It is in our response
that we will pursue it and I will provide you with a note.
Chairman: Forthcoming attractions! Let
us move on to your budget and Anne McIntosh.
Q143 Miss McIntosh: Minister, you
gave BW flat cash for the next financial year, which is probably
more than they were led to expect, but does it takes any account
of inflation because I understand that inflation in the construction
industry is rising at seven per cent, and does it take any account
of the flooding last summer?
Jonathan Shaw: The expectation
was hyped in the press about what the Defra settlement would or
would not be. I think that a number of our delivery bodies have
responded positively to the settlements that they have received,
and that includes BW. I think that you were responding for the
Opposition at the adjournment debate when I signalled prior to
the final announcement that we were working towards flat cash
and that is what we ultimately were able to deliver. In terms
of construction costs, one of the highest costs for organisations
such as BW is in procurement, and I know that within procurement
they are looking at effective and efficient processes to drive
down costs. In terms of flooding, there was a huge cost, I think
some £8 million, to BW last July. We expect our delivery
bodies to manage, to have some contingency and to manage these
events. I know that it has cost them a great deal of money but,
as I say, within the settlements we expect them to be able to
manage this and I have every confidence that they will be able
to do so.
Q144 Miss McIntosh: But of the £120
million of the European Union emergency fund that I think you
have successfully applied for, presumably it will be a legitimate
claim for this £8 million to be drawn down from that? Have
you made representations to your opposite number in that department?
Jonathan Shaw: Is it about 3.4
per cent of the total cost of what it cost the country for floods,
so it would be about £280,000 if it was on the basis of what
BW spent. There is a long queue, is there not, of people wanting
money out of the total sum? There will be people perhaps who have
had their homes flooded who did not have any insurance or businesses
that perhaps could not get any insurance, and on it goes. I cannot
say to you that BW will be the recipient of that money at this
stage, that is something that the Government and the Department
are looking at.
Q145 Miss McIntosh: You are aware
of the fact that one of the strongest charges that was laid at
the Government's door last year—and I have been personally
to see the damage in Sheffield and in Toll Bar and on the farmland
round Toll Bar—was that what caused the flooding was the
lack of dredging. I understand that in Sheffield in particular
there is a large amount of contaminated silt which is both expensive
to remove and has to be disposed of very sensitively. There is
only a small number of depots that can handle that particular
waste and whereas farmers used to be able to use the stuff that
was pulled out either of the canals or farm drains that can no
longer be used on the land because of the Nitrate Vulnerable Zones
Directive. I think that there is a very strong case to be considered
that does not seem to have been factored into the flat cash settlement
that should strengthen your hand to argue this case for British
Waterways?
Jonathan Shaw: The dredging arrangements
and the priorities for dredging—and you right to point out
the increased costs because of various pieces of EU legislation
which obviously we have to comply with—is an additional
cost, but the organisation have to prioritise what dredging they
undertook. I am advised the company is spending £6 million
a year and they may need to spend more. On the one hand you said
to me you were surprised they got flat cash and then the next
minute you are giving a list to me of the things that—
Q146 Miss McIntosh: I did not say
I was surprised.
Jonathan Shaw: There were reports—
Q147 Miss McIntosh: There was an
assumption.
Jonathan Shaw: There were reports
that there would be less money and then you are reporting areas
where we could make extra investment. We have to consider that
across the piece, whether that is climate change, biodiversity,
all of the areas of responsibility that Defra have got. As I say,
the response from BW to the settlement has been pretty positive.
Q148 Miss McIntosh: Do you believe
that the settlement will allow BW to avoid any underspend on major
works under the Comprehensive Spending Review settlement? Will
the settlement lead to further underspend or will it avoid underspend
in terms of the Comprehensive Spending Review?
Jonathan Shaw: We will see.
Q149 Miss McIntosh: Looking forward,
can British Waterways expect flat cash for the next two years
under the Comprehensive Spending Review?
Jonathan Shaw: That is what we
are working towards.
Q150 Miss McIntosh: In terms of increasing
self-sufficiency, what timescale would you put on it and how confident
are you that you will achieve self-sufficiency within that timescale?
Jonathan Shaw: We have got the
status review, which is an important part of that process, and
that will be being delivered to us soon. We need to look at those
options in terms of whether we feel that it will provide the first
priority in terms of maintaining the network and also to be able
to ensure that we can get the type of investment that we want
to see going forward.
Q151 Mr Drew: I want to just talk
about the latest options or status report that BW commissioned
from KPMG and Merrill Lynch. I do not know how much of it you
have seen, and we have only seen the process behind what BW are
doing, but just an observation: this has cost £300,000 already
and it is likely to cost at least twice that. Is there not a surfeit
of strategies going on within BW at the moment? We have got the
Deal, which is fairly straightforward and then we have had previous
strategies from BW. How do you respond to yet another strategy
document coming forward, even if it is a more definitive one and
gives more indication about how BW should spend their money?
Jonathan Shaw: The deal is, as
you say, pretty straightforward. You would expect them to publish
the Corporate Plan and work with us on that. This status review,
as I say, is necessary if we are going to be clear about what
the possibilities are for the future of the organisation. If they
are going to have more independence, that needs to be properly
looked at. We have got important public assets here that we want
to be maintained. We want to continue to see the regeneration
of our waterways and what that provides for a whole range of different
communities up and down the country, so I think that it is right
that we have this review. We have made this commitment, BW have
made this commitment and this piece of works need to be completed.
Q152 Mr Drew: Is more flexibility
on borrowing rights dependent on this options review?
Jonathan Shaw: Yes it is.
Q153 Mr Drew: So if this review were
to say they do not need more borrowing flexibility then you would
go along with that?
Jonathan Shaw: It depends on what
the implications of that borrowing are and whether that lending
is sustainable. We will have to see what comes out. As I say,
we have not received that report yet. We will want to consider
the options and it will not require us to say yes or no, it will
be advice, and, as I say, I am sure the Committee will be interested
to know how we respond to that advice.
Q154 Mr Drew: Will both your response
and the original documentation become public documents?
Jonathan Shaw: I have no reason
to believe that they will not be. There will not be any commercial
issues here in terms of arrangements with any clients that BW
have. It will be about how they are going to raise money and what
the options are. Obviously we will be wanting to make some public
announcement around that and give the reasons why.
Q155 Mr Drew: You are clear there
is not an agenda now for privatisation?
Jonathan Shaw: No, no privatisation.
Q156 Mr Drew: I am just giving you
the opportunity to say that.
Jonathan Shaw: I will put a banner
outside my office if you like, David!
Q157 Mr Drew: At least BW said exactly
the same thing on the issue.
Jonathan Shaw: I have every confidence
that they would do.
Q158 Chairman: Minister, just to
follow up on that, clearly you cannot anticipate the outcome of
a major and important piece of work, but it might have some important
things to say about the way in the future British Waterways arrange
their finances, so have you given them any suggestion (I will
not say instruction) that they should perhaps put on hold committing
themselves to significant new investment projects until you know
what the outcome of this document is?
Jonathan Shaw: No, I have not
said to them that they should put on hold their investment and
regeneration projects.
Q159 Chairman: So it is business
as usual until otherwise instructed?
Jonathan Shaw: Absolutely.
2 Environment, Food and Rural Affairs Committee, Fifth
Special Report of Session 2006-07, British Waterways: Government
Response to the Committee's Seventh Report of Session 2006-07,
HC 1059, p5 Back
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