Financial scrutiny of the Department for Transport - Transport Committee Contents

Examination of Witness (Question Numbers 1-91)

RT HON PHILIP HAMMOND MP

24 NOVEMBER 2010

  Q1  Chair: Good afternoon, Secretary of State, and welcome to this meeting of the Transport Committee, where I hope that you will be able to answer our detailed questions about the comprehensive spending review.

  The comprehensive spending review in relation to transport shows a reduction in capital spending of 11% and a reduction of 21% on the resources budget over the four-year period, yet you have repeatedly said that you think this is a good settlement. Why is it good if those cuts are there?

  Mr Hammond: I'll answer that in two ways. If you look at this in the context of the settlement on average that Departments outside the ring-fenced Departments have received, an overall reduction in spending of 15% for transport, comprised as you say of 21% resource reduction and 11% capital reduction, is, I think, a good outcome by comparison with what many other Departments have had delivered. I also think that, compared with much of the speculation about what was likely to happen to the transport capital budget and capital funding, we have achieved an acceptable outcome. Many of the commentators you read and I now read were speculating that there would be virtually no new capital investment at all in this period. The Government have made a decision that they want to protect capital and they are prepared to take tough resource decisions in order to protect capital spending, and I think the settlement that we've got reflects that. From the beginning of the spending review process, I clearly set out with the Treasury to protect as much as possible of the transport capital budget, being prepared to concede on resource where necessary in order to protect the capital budget, because I believe that that is the best way to support economic growth and to support the decarbonisation agenda.

  Q2  Chair: In the "Other programmes" capital expenditure line there is a cut of 75% over the four-year planning period.

  Mr Hammond: 27%, I think.

  Q3  Chair: 75% over the four-year planning period on the "Other programmes" capital budget.

  Mr Hammond: Are the programmes capital? Are you talking about capital?

  

  Q4  Chair: Yes. Capital. You said that you've tried to protect capital expenditure, and in some areas it is clear that you have, but in this area it says there is a 75% reduction. What is included in that?

  Mr Hammond: You want to know what is included specifically in that capital spending. Right. Somewhere here I have all the bits of paper.

  This will include spending, for example, in areas like the Maritime Coastguard Agency. Let me see whether I can find the other capital expenditure schemes. No, it is not so easy. The regional growth fund is included—our contribution to the regional growth fund is covered in there. There is the Office for Low Emission Vehicles, and over the four-year period some £240 million of what is called programmatic spend, which is expenditure on the smaller capital programmes, including things like the MCA, and on aviation security—those kinds of spending areas and the relatively small amounts of capital that support them.

  Q5  Chair: But these are cuts in those areas. Does this include the withdrawal of four emergency towing vessels around the country?

  Mr Hammond: Okay. The emergency towing vessels are not a capital item. The towing vessels are not owned by the Department. They are privately owned vessels and the MCA has entered into stand-by contracts with the operators of these vessels that require them to be available on a certain period of notice for an MCA assignment. They will be able to carry out certain other tasks, but only within the limits of the availability contract that the owners have with the MCA. This is a very expensive provision of a service which the MCA calls on only in relatively infrequent circumstances and which we judge could be provided by the private sector, and it should actually be something that vessel owners, ship owners, insurers and offshore operators should be able to negotiate on their own behalf.

  Q6  Chair: I'm sure you must be aware that there is a great deal of concern about the withdrawal of those vessels. There doesn't appear to have been any kind of consultation about withdrawing emergency vessels of that sort. Has there been any?

    Mr Hammond: The title is "emergency towing vessels", and the idea is that, in an emergency, the fact that we have such vessels on station available at relatively short notice would mean that there would definitely be a seagoing tug available to move a vessel that was in distress. I have indicated, particularly in the case of the vessel based in the Shetlands, that we are very happy to sit down and talk to the Scottish Government and local authorities about what alternative arrangements might be put in place, but I have made it clear that we don't believe the Department can contribute resource funding to this. We may, however, be able to play a role in managing an alternative solution, because the MCA clearly has the skill set and the management personnel in place that could perhaps do that.

  Q7  Chair: And you say that there are cuts on aviation security as well?

  Mr Hammond: Some of the capital elements of aviation security. Let me deal with aviation security, because it is one of the areas where I understand there will clearly be sensitivity to any suggestion that funding should be cut. It's a classic area where we need to focus on the outputs and outcomes, rather than only looking at the budgets all the time. There are different approaches to the way that we manage aviation security that can reduce the demand on the Department's budgets, while still delivering the outcomes that we seek. For example, some tasks that the Department undertakes could be assigned to the Civil Aviation Authority, which already has an enviable track record in managing and overseeing the safety performance of airline and aviation operations. The costs the CAA incurs in carrying out its duties are recovered from the industry. On the principle that charges should, where appropriate, be recovered from the industry, we are looking at transferring some of the responsibilities for delivering aviation security outcomes to the CAA, or indeed, in some cases, directly to industry operators themselves.

  

  Q8  Chair: No doubt, we will find out more about that. However, I do think it is of concern that as soon as we start to look at some detail beneath the headlines, we find areas such as this, where there is a withdrawal of funding from areas of, as you say, very great sensitivity—emergency services, aviation security—without it appearing to be part of thought-through policy. It is of concern.

  Mr Hammond: I can assure you that it is part of a thought-through policy. We went through all of the small programmes in great detail before finalising our spending review settlement with the Treasury. However, you will also understand that when you have a large number of lines of relatively small programme expenditure, there is significant benefit in maintaining some flexibility as to how you manage those budgets. Some areas will be susceptible to earlier reductions; others will take much longer to achieve savings in a way that are compatible with continuing to deliver the outcomes that we want to deliver.

  Q9  Kelvin Hopkins: I am very strongly in favour of protecting capital investment schemes, obviously, and one is enthusiastic about that, but in our notes it says there is funding for a further tranche of PFI projects. I am very surprised about that, given that PFI has been simply a way of disguising borrowing on PSBR—your party, when you were in opposition, attacked our Government for using PFI to disguise public investment—and yet, it is much more expensive. Why not just do it in the public sector and save lots of public money?

  Mr Hammond: The rules on PFI have now changed, and Departments taking forward future PFI projects will have to provide the resource funding to service the unitary payments from within their own resource budgets. As you know, the Chief Secretary announced a cut-off for existing approved PFI credits—they will have to be used up by March 2011 to fall under the old system, in which the Treasury effectively provided the ongoing resource spending to allow such projects to be funded. What we have been able to negotiate with the Treasury, for the benefit of the transport system, is some flexibility on that March 2011 cut-off, so a number of projects that had already been approved or were nearing approval, on which, in some cases, there had been a lot of work and investment by local authorities, will be allowed to proceed to completion.

  The Nottingham tramway is one such project, as are the highway maintenance projects in Sheffield and the Isle of Wight. Lots of work had already been done on those projects. It is not an entirely free ride. The quid pro quo of the Treasury's agreement to allowing us to proceed with those already-underway PFI projects was that we should demonstrate some efficiency savings, so we are now working with the project sponsors to show how those projects may be delivered at a lower cost than was originally planned, in order to demonstrate value for money.

  The one other project—a new project—that we have accepted that is funded by a mix of conventional funding and PFI funding is the Mersey Gateway bridge project. It uses an innovative approach, with Halton borough council levying a charge on a currently free river crossing in order to provide a funding stream to support the capital cost of providing a new crossing. That is exactly the kind of innovative approach by local authorities that we want to encourage.

  Q10  Kelvin Hopkins: As a supplementary to that, as I said, PFI projects are very expensive. If you tighten down the returns to the PFI companies to the level that you'd have to pay for public borrowing, the PFI companies would not be interested; they only take up the schemes if they have plenty of slush money. Indeed, even with PFI schemes, companies such as Jarvis got into very serious financial trouble. Is it not much more sensible to operate in the public sector? There are many comparable schemes in the public sector where things have come in on budget and come in on time.

  Mr Hammond: There might be some instances where things have come in on budget, but I'm not sure that there are very many. I consistently said in opposition, and I believe it now, that there is no point in doing a PFI scheme if all you're doing is borrowing money from the private sector. If you are genuinely transferring operating risk, execution risk and delivery risk to the private sector partner, there may be a business case for such a scheme. I think that that should be the acid test that is applied to PFI proposals.

  Q11  Iain Stewart: Also on the question of flexibility, it is part of the Government's overall agenda to reduce the number of specific grants and ring fences, and to allow local authorities greater discretion in how they allocate their budgets. Overall, do you think that that will help to prioritise certain transport projects at the local level? Specifically, the Department for Communities and Local Government is introducing the new homes bonus to match and increase funding for infrastructure associated with new housing. Do you anticipate a sizeable chunk of that grant being used for transport projects?

  Mr Hammond: One of the disciplines that we all have to get into with the localism agenda is that, having espoused it and delivered the devolution of power and funding that makes it real, we can't really sit here and talk about what the outcome will be. That will depend on local decisions, which will be different in different places. Without a shadow of a doubt, some those decisions will be ones that some of us won't like. That is the nature of localism, but I think that will probably lead to better solutions, because it will lead to locally tailored solutions that are appropriate for the individual circumstances. I think there is a very real prospect of money that comes from the new homes bonus, as well as from the community infrastructure levy, being directed towards transport projects.

  While we are on the subject, I should perhaps plug the regional growth fund. We have made a sizeable contribution from the transport budget to the regional growth fund, and I will be very disappointed if we don't get at least our money back, and preferably a lot more, in terms of transport projects. The way the scheme has now been set up, over a three-year period with a £1 million threshold, it is ideally suited to modest scale local authority schemes, which in some cases have already been worked up and are ready to go. I would encourage local authorities, where they are eligible, to apply to the regional growth fund to make use of that money.

  Q12  Chair: What types of scheme? Can you give us an idea of what you are looking for?

  Mr Hammond: In terms of the regional growth fund?

  Q13  Chair: Yes.

  Mr Hammond: The scheme will need to demonstrate, first of all, that the promoter in the area that it will benefit is one that is particularly suffering from the contraction in public sector employment, and it will need to demonstrate that it underpins sustainable private sector economic growth. We know that the business community routinely puts transport at the top of its list of interventions from Government that support business investment. So, I would expect local authorities to come forward with schemes, for example, for road improvements that will open up developable land, where they can reasonably expect sustainable business investment to take place.

  Chair: Paul Maynard?

  Paul Maynard: The Secretary of State has just answered my question.

  Chair: Mr Leech, then.

  Q14  Mr Leech: The Department's administration budget is due to be cut by 33% in real terms, or £62 million in cash, over four years. How will the Department reduce its administration by a third, without having a big impact on the Department's functions?

  Mr Hammond: Clearly, there are two approaches within any Department to that challenge. First of all, we have to work more efficiently and effectively. Secondly, we have to stop doing some lower-value things that we are currently doing. The Department for Transport aspires to be one of the leaders in terms of completing its restructuring—a very radical restructuring programme, that will reduce head-count in the central department by about 25% overall. We will move to a different approach to discharging our functions: there will be much more use of flexible teams that will come together for a task and then disperse, rather than having big standing battalions of people in different silos dedicated to different things.

  We are looking at how we work and the service that we deliver in lower-priority areas: how, frankly, we deliver more with less. I'll give a small example in the area of handling ministerial correspondence. We have invested in a software system that is in use in other Departments but hasn't hitherto been used in the Department for Transport, which will enable the tracking and management of ministerial correspondence, without so much manual input and the carting around of vast cardboard folders.

  Q15  Mr Leech: In PMQs this afternoon, the Prime Minister answered a question on consultants. Will there be a big impact on the consultancy costs of the Department? Is there a danger within the Department for Transport that outside consultants who are required for specific knowledge on specific issues may be lost if we don't have the same level of consultants being used in future?

  Mr Hammond: No, I think that consultants have been misused in all Departments in the past. The regime that is currently in place—which is quite draconian in that it requires the Secretary of State personally to sign off any consultancy assignment with a cost of over £20,000—has in the case of the Department dramatically reduced the number of requests for consultancy, and not all of those requests are approved.

  I'd like to characterise three different types of consultant use. There are short-term specific and usually technical functions, including—for example—the consultation exercise that we will be doing on High Speed 2 in the new year. There is a need for quite significant consultant support. These are specialist technical functions that will be needed for six or nine months or, in some cases, less than that. Clearly, that work still has to go ahead, and the most efficient way to do it is by using external consultants.

  There are other functions, which are hard-to-fill posts, where, frankly, practice in the past has been simply using consultants to avoid addressing the fact that there is something wrong in the departmental structure or the pay structure around particular types of function, particularly in IT, where there are pretty sizeable roles to be filled in the departmental agencies. We have to get away from simply ignoring the structural problems, and if there is such a problem, where we simply cannot fill some of the posts at the pay grades that are assigned to them, we have to look at long-term solutions and not just fill them with expensive consultants.

  There are, however, some specialist administrative functions where using a consultant is the best solution, provided that there is knowledge transfer. The Department is actively trying to manage the previous category by hiring consultants on limited term contracts, including provisions for knowledge transfer during the period of the consultancy, with specifically assigned civil servants acquiring that knowledge by working with the consultant during a limited consultancy period.

  Q16  Mr Leech: With a 25% loss in headcount, is there a danger that you may actually lose some expertise among that 25%, which wouldn't be transferred, in the short term, to the people that are left over?

  Mr Hammond: That's the challenge of managing change on this scale and with this degree of rapidity. We have a very strong change management team within the Department for Transport, which is led by the person who carried out the change management programme within the DVLA. I have a high degree of confidence in what they are doing, and one of their key focuses is ensuring that we don't accidentally lose people with critical skills. For example, the Department has run a voluntary redundancy programme, and we have rejected a number of applications for voluntary redundancy on the grounds that the people in question have skills that the Department does not want to lose.

  Q17  Mr Leech: Finally, do you expect there to be compulsory redundancies within the Department or will it be through natural wastage and voluntary?

  Mr Hammond: No. The Department for Transport has made a decision to complete this process rapidly. I am firmly of the view, and my permanent secretary is firmly of the view—he is probably permanently of the view as well—that, once you've made a decision to change the structure, you need to get on with it. The transformation needs to be completed, so that the new structure can start to function, and so that people within it can start to see the benefits of what will be a much flatter management structure and a much less hierarchical structure with much more empowered and smaller operational units within it.

  It is fair to say that, while there was some wariness of the agenda at the beginning, as we have progressed and as people have had the new structure explained to them, there is a great deal more buy-in and enthusiasm for it. We want to get rapidly to the final structure by next spring. That does mean that there will be some compulsory redundancies, although I expect it to be a relatively small number.

  Q18  Mr Leech: You said that there had been a number of people who have come forward for voluntary redundancy who are not being allowed to take it, because of the skills that they have. Does that mean that there will be more compulsory redundancies necessary, because you have to keep people who, perhaps, would have chosen to take voluntary redundancy?

  Mr Hammond: Well, of course, when you're restructuring a Department, it is absolutely critical that you make any necessary compulsory redundancies in those areas with surplus requirements. Not everybody is fungible: not everybody can go from one function to another. There are some people who would rather not go who probably will have to go, and some people who, perhaps, would have welcomed the opportunity of voluntary redundancy who will not be selected or accepted for it because they have skills that the Department needs.

  Q19  Julian Sturdy: The main point of my question was answered on the regional growth fund, which was touched on. You talked about local authorities and the fact that we are freeing them up to spend on their priorities, rather than giving them money and telling them how to spend it, as happened in the past. Personally, I welcome that. Coming from a local authority background and being a transport cabinet member, I know how difficult that has been in the past. There still has to be joined-up thinking in the process, so are you expecting local authorities to work together cross-border on the major schemes—I know that some of that will come through the local enterprise partnerships?

  Mr Hammond: This connects to a question that the Chairman asked the Prime Minister at the Liaison Committee about the—

  Q20  Chair: Yes. The last time you came here, you said that there would be a need to develop a sub-national organisation for transport purposes, so perhaps you could tell us what that's going to be.

    Mr Hammond: That's exactly right. Last time, I think I said that it was too early to say what the pattern of LEPs would look like, because they are a bottom-up structure. Obviously, we now have a picture of what the first group of approved LEPs looks like. My view is that most of them look as though they are too small on a stand-alone basis to perform a strategic transport function, but that groups of LEPs working together around appropriate geographies would be the right unit with which to engage. Until all the LEPs are in place, it will be difficult to start doing this, so I deliberately indicated, when I made my statement to the House on road and local authority capital funding, that the programme we set out would last for the duration of this Parliament. By the end of this Parliament, we expect to have developed arrangements for devolving local authority capital, so that decisions about how it is spent can be made sub-nationally.

  Q21  Chair: You say, "by the end of this Parliament."

  Mr Hammond: By the end of this Parliament.

  Q22  Mr Harris: Secretary of State, which specific developments have led you to conclude that now is the right time to reduce the aviation security budget by 25%?

  Mr Hammond: I start from the position that the outputs must be defined, and then the question we need to ask is whether the current budget is necessary to deliver those outputs. That is in the context of budgets being reduced generally and bearing in mind that any area of the business that does not take its share implies a heavier cut in another area of the business. Aviation security, in particular, is an area where the industry participants are keen that we focus more on an output specification for our security requirement and allow innovation, for example the deployment of new, and sometimes capital-intensive, means of delivering the required outputs.

  There is also, I think, a general appetite for moving to an approach that sees the CAA play a greater role, which will transfer part of the burden of cost to industry players. Industry players don't routinely welcome a transfer of cost burden to themselves. They see a win-win here—they see a move to an outcome focus that will allow them to be more efficient and deliver solutions, which, perhaps, the current model does not allow to be effectively delivered. Therefore, there will be a saving to the departmental budget greater than the burden that industry itself will take on, but we will not compromise on security outcomes. Before the recent aviation security alerts, we had already been working on a proposal to move to a more outcome-focused model. Indeed, I made a speech about that just a week before the East Midlands incident occurred.

  

  Q23  Mr Harris: Talking about outcomes is a bit nebulous, isn't it? The only outcome that we all want from security aviation is that planes are not blown up as they are flying across the Atlantic, so it is actually quite difficult to quantify what the preferred outcomes are. We all agree that we want to stop terrorism. Do you think that the travelling public at the moment are quite sanguine about a 25% cut in security budgets?

  Mr Hammond: I don't agree with your premise. I think there are different ways of achieving what we seek to achieve. When somebody goes into an airport search area on their way into the air side it is very clear what we are seeking to achieve: detection of any explosive materials, detection of metal materials and identification of suspicious behaviour. There are different ways of achieving that, some using a lower-technology approach and some using a high-technology approach, as the Committee knows. For example, at Manchester airport there is an ongoing experiment using body scanners as an approach to delivering security.

  At the moment, the system is very prescriptive. We specify precisely what has to be delivered in what way to what proportion of passengers. The current system doesn't allow for the effective deployment of new techniques and new equipment in the way that an outcome-based system would allow. I am not suggesting that we should relax the standards we require; I am suggesting that we should allow more flexibility to explore different ways of delivering them.

  Q24  Mr Harris: One last point; it seems to me that new equipment and allowing the security people to have some kind of flexibility would actually require increased budgets. What you are really saying is that in the current international situation you are quite satisfied we can increase and improve security at airports with less money. Is that correct?   

  Mr Hammond: We can do it with less public money, by transferring some of the responsibility to the airlines and to the airport operators, which is where the primary responsibility rests.

  Q25  Mr Harris: So any cut will be met by the Civil Aviation Authority and by British Airports Authority. There will be no actual cut in the total money spent.

  Mr Hammond: I can't say there will be no cut in the total money spent: what we need to do is to improve efficiency. What I will say is that I completely reject the idea that there are some areas, such as security, where it is not possible to become more efficient. One of the problems we have had in this country in the past is allowing ourselves to be boxed in by the notion that some areas cannot deliver any efficiency gains. Almost every activity, if you look at it carefully and analytically, is capable of yielding some efficiency gain and delivering the same or better outputs with fewer inputs.

  Q26  Chair: But, Secretary of State, it must be a public concern at this moment that on a drive to reduce costs you seem to be taking decisions about aviation security without any proper evaluation of the consequences or how the change will work. Are you going to make any cuts to TRANSEC, which is responsible overall for transport security? Is that hidden in some figure here?

  Mr Hammond: It is not the case that we are making decisions driven by the need to make savings.

  Q27  Chair: Are you going to make any cuts to TRANSEC? Are you reducing TRANSEC?

  Mr Hammond: I am not going to ring-fence the aviation security budget.

  Q28  Chair: I am asking you now specifically about TRANSEC. Are you cutting the funding available to TRANSEC?

  Mr Hammond: The reason I can't answer the question directly is that we are looking at a structure that will distribute TRANSEC's functions into two distinct areas. At the moment TRANSEC includes aviation security and non-aviation security. We believe that it will be more effective if the aviation security group sits within the aviation part of the Department rather than sitting in a separate, discrete, security-focused unit.

  Q29  Chair: How have you approached this? Have you worked this out as a policy that will bring better results, or is it cost-driven so that you have plucked a figure out of the air and taken it off the money that is going there?

  Mr Hammond: I haven't plucked any figures out of the air. This approach is based on a process that started before I became Secretary of State, frankly. In the Department for Transport, and I believe in most Departments across Government, there was an awareness that whatever the outcome of the election it was likely that cost reductions would be required.

  Q30  Chair: But Secretary of State, you are in charge and are here today to tell us what your proposals mean. We are now trying to get underneath the headlines of where you say you had a better result than other Departments. Maybe you did, but we are trying to find out what it actually means. From the questions we have put to you, it now emerges that there may be quite significant cuts in transport security, specifically aviation security. On further questioning, it appears that you are looking at a different way of dealing with things, yet it is unspecified and unevaluated. There has to be public concern that this is being cost-driven, not needs-driven. I am just trying to find out a bit more about what kind of work took place before you arrived at these figures, or are the figures there and then you find a way of meeting them?

  Mr Hammond: I think, with respect, it would be misleading to the public to suggest that a 25% saving in transport security represents a reduction in spending of 25%. It represents, in part, a transfer of the burden to the operators and the industry, using the Civil Aviation Authority as a regulator in the same way that it oversees the safety obligations that the industry delivers. The Department does not deliver safety solutions; the CAA oversees the industry's delivery of safety solutions.

  Chair: Perhaps you have identified an area we may look at in greater depth, but for today I will say that it is of great concern that, underneath these figures, there appears to be a completely new look at aviation security that involves cutting funding without any proper explanation or apparent evaluation of what is going on.

  Q31  Paul Maynard: You mentioned the departmental agencies earlier. One of those key departments is the Highways Agency. I note that the capital budget for national roads is due to be cut by 50%. What implication do you think that has for the Highways Agency's management and for motorists? Does that explain why you are imposing a non-executive chairman on the Highways Agency?

  Mr Hammond: There are a number of different questions there. First, we have made it clear that we expect to focus on maintaining the asset that we have. It would be folly, in our view, to allow reductions in budget and spending to translate into a degradation of the asset in a way that was penny wise and pound foolish. Although the Highways Agency will reduce routine maintenance scheduling where it can without degrading the underlying asset in a way that would cost more money in the long run, it will prioritise capital maintenance so that the asset is kept in good structural condition. Beyond that, we will deliver a programme that will involve starting 14 new major schemes during the current spending review period. That is a far higher level of schemes than the agency's management and most commentators expected it to be funded to deliver.

  In order to meet the challenges of a tighter public spending environment, the Highways Agency must become more efficient in the way it procures. The management believes that it can deliver significant savings, partly because the contracting market is softer than it was when many of these schemes were first put together and costed, but also because the agency is getting smarter in the way it delivers. The recent National Audit Office (NAO) report looking at the M25 DBFO urged the Highways Agency and the Department to focus more on specifying outcomes and allowing contractors flexibility in delivering those outcomes. That is exactly the kind of approach that we will use to drive greater efficiency.

  On the management of the agency itself, although the Highways Agency is called an agency, it is not an arm's-length body in the same way as the DVLA. It is integrated with the central Department. The view is that having a more arm's-length relationship between the Highways Agency and the central Department, and more of a commissioner-provider relationship, will drive a greater focus on efficiency and, in particular, value for money in procurement.

  Q32  Paul Maynard: Given the financial constraints you refer to, do you continue to rule out any form of road-user charging on the national road network?

  Mr Hammond: The Government's policy is that there will be no introduction of a national road-user charging scheme during the current Parliament, and that remains our position.

  Q33  Julie Hilling: I hope that this is an appropriate moment to ask about DVLA centres. What are the plans for the regional DVLA centres?

  Mr Hammond: The DVLA will have to look at making efficiencies, but this time for the benefit of the public, not in order to address the public spending cuts agenda. The DVLA has a trading fund, and it recovers in charges to the public the costs that it incurs. So, rationalisation of the DVLA estate and efficiency in the DVLA operation will be for the benefit of those people using DVLA services, which are user-charge funded.

  Q34  Julie Hilling: Does that mean that regional centres are going to close?

  Mr Hammond: I can't answer that question at this stage, but I can't rule it out either. There will be a review of the way in which the regional structure operates within the DVLA.

  Q35  Julie Hilling: Are you looking at the effects on the motor industry—and certainly on motor traders—if centres close? Clearly, a lot of the usage of those centres is by motor traders, who come to tax new cars and so on. Are you examining the effect on the motor trade if those centres close?

  Mr Hammond: Of course, we will look at that from the point of view of the user, because it is the user who is paying for the system as it currently operates. Any savings would be for the benefit of users; there is no point making savings that have a negative impact on the users they are supposed to benefit. My understanding is that the great majority of motor traders use online systems. One of the big wins for the DVLA is getting a further migration to online use of systems, particularly for vehicle excise duty renewals. There is already quite an impressive performance, but we can do better.

  Q36  Julie Hilling: But there is also that role of enforcement that they have. Is that role going to diminish? Online is fine for younger generations, certainly, but not so good for those affected, I guess, in terms of changing disability, recognition on cars and so on.

  Mr Hammond: That is right, of course, and I very much welcome the initiative to allow the Post Office to become an assisted portal to online Government systems. That will be of great benefit to Department for Transport agencies and to the DVLA in particular, as it gives more and more people assisted access to the online systems.

  You have mentioned enforcement, which is a very important point. One role of the DVLA, for which it is separately funded by the Treasury, is as the collector of vehicle excise duty and its enforcement. We have in our budget settlement with the Treasury agreed to deliver efficiencies in the vehicle excise duty enforcement regime. We will have to drive those as we drive efficiencies in other parts of the business. Clearly, that must not be at the expense of effectiveness of enforcement action, maintaining the revenue collection for the Treasury.

  Q37  Steve Baker: Secretary of State, I wonder whether, returning to security, you agree that it is possible to over-obsess about airline security. I know that this won't be a particularly popular line to take, but I shall explain why I ask. I well remember going on a skiing holiday with my wife after she had returned from Afghanistan on active service. She was stopped three times between check-in and the aeroplane to search her rucksack. I remember thinking that we had reached an absurd level of security checking. Do you agree that it is possible to maintain security while having fewer physical checks?

  Mr Hammond: In some cases, it may be. That is why we must focus, in my view, on outcome. It is difficult to answer a question about a specific anecdote, because I don't know the circumstances. It would depend where she had come from, whether she were a transferring passenger, where she was going, what airline she was flying with, her behaviour and whether she had bought her ticket for cash, for example. If you buy a ticket for cash, you can expect to get more scrutiny in an airport. The way forward is to try to focus more effectively on high-risk behaviour and ensure that we focus resources on the risks.

  In principle, I would agree with what you are saying. It is possible that in some cases more searches than are necessary are being carried out, because different approaches using technology, for example, could eliminate the possibility of a risk at an earlier stage in the process.

  Q38  Gavin Shuker: If we can turn for a moment to rail, Secretary of State, since May you have cancelled the better stations programme through Network Rail's grant. We are still awaiting announcements on IEP, new rolling stock and Thameslink, and rail passengers will be expected to pay a third extra on their fares. Do you disagree with the evidence?

  Mr Hammond: Yes. There's no suggestion that rail passengers will be asked to pay a third extra on their fares. What we have announced is that regulated fares will increase for a three-year period starting in January 2012 by 3% above RPI. Next year, it will be 1% above RPI. That means a real increase of 10% over the four-year spending review period, as opposed to a real increase of 4% over that period under the previous regime.

  Q39  Chair: The Campaign for Better Transport estimates it could be a 30% increase over a four-year period.

  Mr Hammond: Forgive me, but I believe the figure you are quoting is a nominal terms increase figure based on speculation about what RPI might be and adding 3% to it. What matters is the increase in real fares. It is the real increase that is delivering additional revenue that will allow us to support additional rolling stock to address overcrowding on the system, which is rightly a concern of many commuters.

  Q40  Chair: Those average figures are not accurate, are they, because percentages quoted today in the national press go up to 13.8%, 12.8% and 10.1%? Do you think it is right that the train operating companies are allowed to talk about average increases without referring to the real increases—what it actually costs individuals?

  Mr Hammond: The Department's responsibility is for regulated fares. As members of the Committee know, something like 50% of fares are regulated and the question related, as I understood it, to the regulated fares where we will increase the regulated cap to RPI plus 3. The figure that you are referring to, I think, which ATOC issued yesterday, was an average across increases of regulated and unregulated fares. That will, of course, as any average does, conceal some decreases and some bigger increases.

  Q41  Chair: It's fairly meaningless, isn't it? Wouldn't you want companies to say what an actual fare is, rather than providing a meaningless average that has no significance to an individual wanting to make a particular journey?

  Mr Hammond: Well, I think the significance of average fares is that they represent the overall increase in costs across the system. There are, I am told, hundreds of thousands of different individual fares in the computerised system. It would clearly be impossible for ATOC to issue a press release that identified every one of them, but I agree with you that more transparency is preferable to less transparency.

  Q42  Gavin Shuker: While I don't want to get sucked down in a debate about fuzzy maths and the statistics, would you accept that fares are increasing?

  Mr Hammond: Absolutely.

  Q43  Gavin Shuker: Do you believe that passengers will get a better or worse deal at the end of this Parliament?

  Mr Hammond: I believe that passengers will have a better deal. Rail investment time horizons are quite long. Some of the improvements that we will be announcing will not necessarily be delivering benefit in full by the end of this Parliament, but we will be able to make some announcements in due course that will address some of the overcrowding issues, for example, which I think are a very important part of rail passengers' experience.

  Q44  Gavin Shuker: Just to clarify that answer, are there any significant milestones or outcomes that you are looking to achieve by 2015 that would allow us to judge whether your judgment that passengers are getting a better deal has come about?

  Mr Hammond: I will be making a statement to Parliament shortly—

  Q45  Chair: Can you tell us when, because we have been waiting with bated breath for two weeks now? We cannot wait much longer. Is it going to be tomorrow?

  Mr Hammond: Very shortly is all I can say. I want to observe the etiquette; I don't want to find that I have fallen foul of the Speaker's rules. However, very soon indeed I will be making a statement to Parliament in which I will be able to set out at least some of the investments that we are planning to make, and some time scales around their delivery.

  Q46  Kwasi Kwarteng: Across the south-east, people are clearly very worried about the fare rises. In that context, I want to ask the Secretary of State whether his Department is looking at the costs of the British rail industry as a whole. There is a suspicion that not only the passengers but the Government are spending far too much money and not getting enough in return. I wonder what your Department is doing about that.

  Mr Hammond: Yes, I think that is a fair analysis of the problem in the system. Passengers are paying a lot of money, the taxpayer is paying a lot of money, and nobody is quite sure we are getting value for money. In the short term, the choice that I had to make was fairly stark: do we go ahead with initiatives that will relieve overcrowding and improve passenger experience, particularly on commuter routes, at the cost of an increase in the cap on regulated fares; or do we abandon those investments? I have taken the decision that we must make the necessary investments to maintain the integrity of the system and carry on improving passenger experience.

  In the longer term, we have to address the cost base of the railway. The ORR estimates that our railway is up to 40% more expensive to operate than comparable mixed-mode railways in Germany and France, for example. We have asked Sir Roy McNulty to review value for money in the railway. He has delivered an interim report, which I will be publishing in due course. He will publish a final report in the spring, and it is my intention to make a statement to Parliament shortly about how we intend to take matters forward around the issue of driving greater efficiency in the railway, getting costs down and getting a fair deal for passengers and taxpayers in future.

  Q47  Mr Harris: I would appreciate some clarification on how you see the role of Passenger Focus. Do you still anticipate that it will continue to research and present passenger views to Government and industry about both bus and rail services?

  Mr Hammond: Yes, but Passenger Focus, like other parts of the business and related bodies, will have to do that on a smaller budget in future. It will have a smaller research budget and will continue to carry out the national passenger survey, which is a very important piece of information that we all rely on. Of course, Passenger Focus will continue to exercise its quasi-judicial function as the adjudicator in disputes between passengers and bus and train operators.

  Q48  Mr Harris: What about the franchise process? I know that that's all under review at the moment, but one of the innovations that the previous Government introduced for Passenger Focus was a new role in the specification of franchises. The first one it was involved in was the Southern franchise, I think. Is that something that you see continuing?

  Mr Hammond: I haven't looked specifically at that issue, but I see no reason why we would not ask Passenger Focus for input in the process of specifying a franchise. It seems like the obvious body to do that.

  Q49  Mr Leech: Just one brief question on fares. Given that the Government have chosen CPI as a better indicator of inflation than RPI, shouldn't we be moving to CPI plus 3 rather than RPI plus 3?

  Mr Hammond: We've chosen to cap regulated fares at RPI plus 3, but we have made it clear that that is for three years only—2012, 2013 and 2014. Thereafter, we will review the approach to the regulated fare cap. I hope that by then we will already be able to see a path forward to harvesting some of the efficiency gains that Sir Roy McNulty is beginning to identify a route towards for the benefit of passengers as well as the taxpayer.

  Q50  Chair: I know we have to wait a little longer to find out about the rolling stock, but are you looking at reconsidering health and safety legislation or regulation in relation to overcrowded trains?

  Mr Hammond: Not at present, no. It's not something that I've been focused on. I'm looking at how we deliver additional capacity on to the system.

  Q51  Chair: Are you satisfied that we're going to solve the problem quickly through extra capacity?

  Mr Hammond: We will be able to address the overcrowding issue through delivering some additional capacity on to the network. Clearly, I cannot sit here in front of the Committee and say that we'll be able to make the problem disappear, and I certainly can't say that we will make it disappear overnight. In the long run, I would like to see—and I think I made this clear the last time I was here—the train operators having the lead role in identifying and delivering capacity on to the system, and I would like to see the franchise arrangements giving them a clear responsibility to address overcrowding, as well as the means to do so. I don't think the current arrangement, where train operators just carry on cramming more passengers into the train and then come to the Government and say, "Can you give us more subsidy so that we can get more carriages?", is a very sensible way of dealing with the problem. I'd like to see the train operators in the lead in addressing crowding and having the clear incentive to do so.

  Q52  Julie Hilling: Secretary of State, I wonder if you can clear up one thing that is a great puzzle to people in the north-west. Are you intending to electrify Manchester to Preston—that arm of the triangle?

  Chair: Can I add Liverpool to Manchester to that?

  Mr Hammond: I don't want to pre-empt the statement I am going to make very shortly to Parliament. However, in this case, I think that the Chancellor intended to convey in his statement at the spending review—even if he did not do so—that Manchester to Preston, and the arc that takes Manchester back on to the west coast main line, as well as Manchester to Liverpool, will be electrified within the spending review period.

  Q53  Julie Hilling: That is helpful, thank you. Is the northern hub part of the announcements you intend to make?

  Mr Hammond: The northern hub is a very interesting and potentially high-value proposal, but it is still a proposal at the moment. It's being worked up—Network Rail is evaluating it and costing it. I expect that it will be presented as a project for the next control period, which as you know starts in 2014-15—the next five-year Network Rail control period. The process of identifying the high-level outputs that we want to specify for that period will begin very shortly.

  Q54  Julie Hilling: Just one more question. Are you looking at all to close the gap in expenditure? The expenditure in the south, or certainly in London, is three times that of the expenditure in the north of the country.

  Mr Hammond: Expenditure on?

  Q55  Julie Hilling: Rail. Of course, we value our railways just as much up there as they do in the south. Is there any intention to look at rejigging the budget?

  Mr Hammond: Each investment proposal in the railway has to be measured to ensure that there is a business case to support it. The Government cannot make investments if they do not have a positive business case. One of the most challenging things around investments in the commuter railway infrastructure in the north is that fares are much lower than they are around London, and the commuting peak is much shorter, which means that the economics of applying additional rail vehicles are much more difficult. We need to have a discussion with the PTEs in particular—and I have been talking to PTEs about this—about how we integrate better what we're doing on the main line rail franchises with what they're doing on light-rail systems and bus systems to make sure that we get the optimum outcome, bearing in mind that we always have to make a business case for every piece of main line rail infrastructure that we fund.

  

  Q56  Kelvin Hopkins: On rolling stock, I understand from my informants inside the industry that something like 10 trains of carriages are parked up in sidings around the country. They were ordered as part of the west coast modernisation and are not being used—they are new carriages that are not being used. These cost a lot of money, in terms of borrowing costs. I just wondered if you knew about them and what the Government have chosen to do about them.

  Mr Hammond: Rail carriages are typically owned by rail leasing companies. We don't own them and we can't direct them, but we can support train operating companies financially to lease additional rolling stock. When Governments of any persuasion talk about investing in new rolling stock, what they are actually talking about is contracting with train operators for them to lease rolling stock that can be used on the system. Having some spare rolling stock in the system is important in order to keep the train leasing companies honest, basically. If every single carriage that the train leasing companies owned was always being leased—ultimately at public expense—I am not sure that that would be the best way to drive value for money. As replacement programmes mean that older carriages are released, the train operators clearly need to drive the hardest possible bargain with the train leasing companies, because that is the way that we get maximum value for taxpayer money.

  Q57  Kelvin Hopkins: Well, I could pursue that but I won't.

  I have one more question. Under the previous Government, the Treasury forced the Mayor of London to accept PPP on the Tube, which turned out to be a financial and engineering disaster. It cost vast sums of public money, the work wasn't done and we still have engineering problems on the Tube every week, as we know to our cost. It was reported this week that that will be going on for some time yet. Are the Government going to avoid such madcap schemes in future and be more sensible?

  Mr Hammond: The Mayor, as I understand it, has not the slightest intention of entering into a new PPP arrangement.

  Q58  Kelvin Hopkins: But will you force him?

  Mr Hammond: No. We have no plans to force the Mayor to do anything. We have entered into an agreement with the Mayor, the terms of which are in the settlement letter—a matter of public record—which sets out how the Government have made a commitment to funding the Tube upgrade programme. The Mayor, in turn, has made a commitment to deliver that programme. We believe that this is crucially important not only for Londoners, but for the economy of the UK. It will deliver, when it is completed, 30% additional capacity on the Tube network. Added to the additional capacity that Crossrail delivers into the equation, that marks a step change in passenger rail capacity in and across London.

  Chair: I'd like to move on now. We want to ask you questions on other areas—buses and roads, to name but two.

  Julian Sturdy: Can I just very quickly go back to rail? Is that okay?

  Chair: Can it be a very quick one?

  Q59  Julian Sturdy: It's a very quick one on franchising. I have to declare a slight interest. As a York MP, I just wanted to touch on the east coast main line and whether there is any time scale set for reissuing the new franchise? Secondly, on a more general theme, what is the position on the length of future franchises?

  Mr Hammond: Okay. We've signalled, in general, that we favour longer franchises. The work that we've been doing on franchises has, to some extent, been subsumed by the work that McNulty is doing, which is looking at the wider rail industry, including Network Rail, and how to make the interface between Network Rail and the train operators more effective and efficient.

  I am acutely conscious of the fact that we have a decision to make about the timetable for the east coast main line. When I announce to Parliament our plans to take forward Roy McNulty's work and to proceed, ultimately, to a White Paper on the future of the rail industry, we will set out, at the same time, the proposed timetable for re-letting the east coast main line franchise.

  Julian Sturdy: Okay. Thank you.

  Q60  Kwasi Kwarteng: I want to ask a very general question about your appraisal process, and it is not related to rail, although you mentioned it in that connection. Are you happy with the current model that the Department uses in terms of appraising projects?

  Mr Hammond: For rail?

  Kwasi Kwarteng: No, generally.

  Mr Hammond: We've already refined the model to reflect a revised cost of carbon assumption and to take out a particular little wrinkle, which seemed rather absurd to us: if a scheme induced more fuel to be burned, that delivered a benefit to the Exchequer, which netted off against the cost of delivering the scheme.

  Q61  Kwasi Kwarteng: That was the old model, was it?

  Mr Hammond: That was the old model. We have already adjusted those things and that was something that we were able to do quite quickly within the confines of the Treasury Green Book. Further work is going on within the Department, and we will consult in the new year on further proposals to reform the appraisal model that the Department uses, to make it more reflective of our objectives, including decarbonisation.

  Q62  Kwasi Kwarteng: So this is an ongoing work.

  Mr Hammond: It is an ongoing process, yes.

  Q63  Chair: Can you tell us what the non-monetised impacts are? You told us that all major road schemes were reviewed in terms of value for money, strategic value, deliverability and non-monetised impacts.

  Mr Hammond: Yes. Working from memory, they took into account things such as landscape impacts. So we gave a certain weighting to those issues that the model cannot monetise in the multi-criteria analysis. I can write to you and give you full chapter and verse on that, but the one that springs to mind is landscape impacts. If we had two schemes that appeared to be of exactly the same cost benefit on the monetised model, but one had a significant negative impact on landscape and the other did not, clearly, additional weight would be given to the one that did not.

  We also took into account things such as regional balance in the non-monetised impact. For example, the fact that lots of schemes in one region might score quite highly would not stop us from giving weight to a scheme because it was in a region that did not appear to be getting a fair share of the allocation of funding. So we took into account modal equity, modal distribution, regional equity, and landscape impacts—things that are not strictly monetised in the benefit-cost appraisal model.

  Q64  Steve Baker: I was going to ask a question about rail; I shall try to make it relevant to buses.

  Chair: You can make it about roads or buses.

  Steve Baker: I'll try to make it about buses. I am conscious that, for any business, life is a constant struggle to lower prices, improve quality and improve services. But when we look at buses and, indeed, rail, we find a wide range of subsidies, price controls and heavy regulation. You have talked about train operators' responsibility to relieve overcrowding, but across the piece of transport, I wonder where the policy might go, so that transport operators share that constant search to improve price, quality and service.

  Mr Hammond: I think that is right. One of my criticisms of the current rail model is that it—as I have described on many occasions—seems to elaborately create a quasi market, with all sorts of complexities and costs in having that market structure. It then completely fails to deliver market incentives at the margin to the people who are supposed to see those incentives. So train operators do not see the marginal additional passenger as a benefit, and they do not have the wherewithal to provide capacity to serve the marginal passenger without coming back to the Government. If you try and imagine Marks and Spencer operating in that way, it is quickly apparent that that is not the way to align the interests of the passenger with the financial interests of the train operating companies. Yes, we need to make sure that interests are better aligned—that what matters to the passenger translates into what matters to the train operator. We must set the system up in that way.

  The incentives are much clearer for bus operators. They are always vulnerable to loss of revenue from loss of customers. Of course, there are concessionary-fare passengers who are not affected in the same way by changes in prices. But I know, from talking to the bus operators, that many routes are quite price sensitive, and changes in fares will lead to drops in revenue. The bus operators themselves have to address that—unless we are talking about one of the minority of routes, outside London, that are directly subsidised by a local authority.

  Q65  Iain Stewart: I have two questions on buses. First, picking up Mr Harris's earlier question on Passenger Focus, could you confirm that its new remit to cover bus services will continue?

  Mr Hammond: Yes, it will.

  Q66  Iain Stewart: Secondly, earlier in the year, I secured an Adjournment debate in the House on the involvement of passengers in shaping bus routes and the extent to which they are consulted on changes to routes and timetables. I'm not asking you to comment specifically on Milton Keynes buses, but more generally, do you think that the Department should have a role in setting a mechanism through which passengers may be consulted on such changes, or do you think that that should be devolved to the local authority level?

  Mr Hammond: The traffic commissioners also have a role on bus routes, but, in my view, that should be dealt with at local level. There are two types of bus operation: there are commercial bus operations, in which the bus operator, subject to the traffic commissioners, operates a system that makes the most commercial sense—in other words, that reflects the demands of passengers—and there are the subsidised routes, in which local authorities contract for services that would otherwise be unprofitable for operators to run. I don't want to invent roles for the Department, and in relation to local authorities and decisions that can be made at local level, I think that the Department should restrict itself to intervening to facilitate decisions on which there is a regulatory impediment. If local authorities come to us and say, "There are things here that we would like to do, that make sense, but we can't do them," we would certainly look at trying to clear the barriers out of the way, but I don't want to insert the Department into what are essentially local matters.

  Q67  Paul Maynard: I note your decision to abolish the bus service operators grant for long-distance coach travel. That deepens the divide between coach travel and bus travel on how they are treated by the Department for Transport. Do you believe that there is a case for local bus services to have parity of esteem in the formation of public policy on those two modes of transport?

  Mr Hammond: I think that the focus on local bus services—maintaining concessionary fares on local bus services, for example—has been driven by the perception that local bus services provide a vital service upon which many older people have come to depend. In the context of further constraint in the public spending environment, it is essential that we focus resources on those areas that deliver the best value and the most important service, and I think that local bus services do that.

  Q68  Paul Maynard: As a consequence of your decision on long-distance coach travel, how do you believe your Department can best deliver on the cross-departmental objective of encouraging domestic tourism by using coach travel?

  Mr Hammond: I have to confess that I haven't given a great deal of thought to how we might encourage tourism by using domestic coach travel, but clearly, to the extent that coach travel is an alternative to car travel, it is to be welcomed if we can encourage tourists to use coach travel. We don't believe, and we didn't believe when we made the decision, that changing the subsidy levels for long-distance coach operators would make a significant difference to the routes that they operate or the fares that they charge. It was a marginal intervention.

  Q69  Paul Maynard: Did you think that it would significantly affect the levels of occupancy on particular routes to particular resort destinations?

  Mr Hammond: No, I don't think so.

  Q70  Julie Hilling: I want to talk about buses and the cut to the bus operators grant, particularly in relation to urban areas, not city areas, and certainly not London, where bus travel is totally different from any other part of the country in terms of frequency and everything else. People who tend to use buses are often the old, the young, those with disabilities, those who are unable to drive and the poor. Have you done the equality impact assessment in terms of the reduction of the bus operators grant and the potential cuts in services and increase in fares?

  Mr Hammond: Yes, of course, we've carried out an equality impact assessment on all the proposals that we agreed with the Treasury in the spending review. The good news on the bus service operators grant is that the bus operators are indicating to us that, with a 20% reduction in the BSOG level, they do not believe that there will be significant fare increases or significant route reductions. They were, as I think you know, braced for possibly the complete abolition of BSOG. The fact that we have reduced it by only 20% and that we have deferred that by a year to give them time to prepare for it will, the operators are telling us, allow them to absorb the adjustment without major impact on passengers.

  Q71  Julie Hilling: Even if it is, as I think one of your Ministers said, a 1.5% cut in services, if that is your service, particularly in urban areas where it is always very difficult to get around—it is very easy to get to the centre of a local town, but it is very difficult to get across many areas—that can still be quite significant. Have you looked at which services are going to be affected by that?

  Mr Hammond: No, we can't determine which specific services are affected. Our appraisal looked at the likely impact on urban, sub-urban and rural services—three separate categories—and at the impact on different equalities groups within the legislation. In all cases, the impact was small.

  Q72  Kwasi Kwarteng: With respect, I want to ask a slightly more general question, although I know that we are looking very carefully at minutiae. We have mentioned aviation security, but we haven't mentioned aviation at all. What are your views on the British aviation industry? The Prime Minister said about six weeks ago that there should be more tourists, which begs me to ask the question, as an MP for a Heathrow seat, of how they are going to get here. What are your thoughts on that?

  Mr Hammond: I am sure that many of your colleagues on the Committee will remind you that we have some very fine regional airports as well as the London airports. I made a speech a few weeks ago in which I announced to the Airport Operators Association that we will develop a new aviation strategy to replace the, frankly, out of date 2003 White Paper. We will issue a scoping document in the new year that will set out the questions that we want to answer. We will then engage in an informal discussion with stakeholders during the course of next year, with a view to publishing a draft strategy at the back end of next year for formal consultation in 2012. I am sure that the Select Committee will want to be involved in that process.

  On the specific question of Heathrow, the decision was made to scrap the third runway because of the scale of local environmental impacts and the as yet unresolved issue of CO₂ emissions around the aviation industry. One of the things that we want to do in developing the strategy is understand where the industry thinks it is going over a much longer time horizon—over the next 20 or 30 years in terms of addressing the CO₂ problem and using alternative fuels and in terms of what technology approaches might become available for dealing with the local environmental impacts, particularly noise impacts.

  Q73  Julian Sturdy: Could we just touch on roads? I am not going to go into specifics, but the schemes that have been put into the development pool, which was announced about three or four weeks ago, are all very important to different local authorities in their own right in terms of cutting down on congestion and so on. Are you confident that the local authorities know exactly how the new bidding and decision-making processes are going to be made and what is expected of them?

  Mr Hammond: All the local authorities whose schemes are in the development pool have been contacted by officials of the Department and should therefore be aware of what the process is. But a process will be ongoing throughout 2011, so it is not something that has to happen in the next few weeks. We are looking to promoters of schemes to sharpen their pencils, to go back to the drawing board and to look at the schemes that they are proposing in the light of our current circumstances. Some of these schemes were first put together in 2006 and 2007. In some cases, the specification can be made more appropriate to the times that we are in. In some cases, the estimates of cost are historic and no longer appropriate. The contracting market is significantly softer than it was in 2007 and 2008. In some cases—I will not quote a specific case—third-party contributors have emerged from the woodwork, when it became apparent that the scheme will not necessarily proceed funded by the public purse alone. In at least two schemes that I could name, significant third-party developer contributions are now on offer to help make the business case for the scheme.

  Q74  Julian Sturdy: And are you looking for local authorities to actively promote private sector involvement in some of those schemes?

  Mr Hammond: We will need to be satisfied, when those schemes come to their final evaluation, because not all of them will be funded. There is a pot of money that means that perhaps a half or more will be funded, but the rest will not. We will need to be satisfied that all opportunities for additional non-departmental contributions have been explored and exhausted and that all opportunities for cost reduction, either through specification change or through improved procurement, have been explored and exhausted. Only when we are certain that what we have in front of us is the most effectively scoped scheme, at the best value-for-money price, will we consider approving it.

  Q75  Mr Leech: In response to Mr Kwarteng, you said that there would be a review of aviation policy. Has there been any consideration of variable airport passenger duty to support regional airports and deal with some of the issues around capacity in the south-east's airports? Has there been any progress on discussions on moving from APD to a plane tax?

  Mr Hammond: I'm afraid that the answer to that is that those are matters for the Chancellor. That question would have to be put to a Treasury Minister. I cannot comment on matters relating to aviation taxation.

  Q76  Chair: What suggestions are you putting to the Chancellor? Let's rephrase the question.

  Mr Hammond: I cannot comment on discussions that we may or may not be having with Treasury colleagues. This is a Treasury lead, and if I remember rightly, the Chancellor said in his Budget speech that he would return to this issue in the Budget next year.

  Q77  Mr Leech: In relation to future aviation policy, when capacity is a serious issue around south-east airports, one of the ways of dealing with capacity—this is a transport issue, rather than a Treasury issue—is to make regional airports more attractive. Perhaps that might be borne in mind in discussions with the Treasury.

  Mr Hammond: I understand precisely what you are proposing, and I have read the suggestions that you are making in various journals, but it is a matter for the Treasury. It is a Treasury lead, and the Chancellor will make a decision in due course and announce it.

  Q78  Paul Maynard: Is the Secretary of State concerned that neither regional airports nor charter airlines were specifically invited to take part in the south-east airports task group?

  Mr Hammond: I am certainly not concerned that regional airports were not invited to take part, because it was specifically a south-east airports task group, looking at how to utilise the existing infrastructure in the south-east airports more effectively. I am not sure that it is true that there is no representative of charter airlines on the working group. I will check that and get back to you. Certainly, we see this as a practical working group. It is not a strategic study; it is a practical working group approach to looking at how we might get that little bit more out of the physical infrastructure that we have available at the three major south-east airports.

  Q79  Kelvin Hopkins: Will the Secretary of State include Luton airport, as it potentially could double its capacity, with an extra 10 million passengers, at least on medium haul?

  Mr Hammond: I'm aware of that, and I think that the hon. Gentleman will have noted that the statements that the Government have made about airport runway capacity apply to Heathrow, Gatwick and Stansted, not to other airports.

  Q80  Chair: May I remind members of the Committee that we may well look at aviation as an issue? I am sure that the Secretary of State is happier talking about what might be in aviation rather than answering detailed questions on the comprehensive spending review, so let's ask him a few more on that. What's going to happen to the National Traffic Control Centre?

  Mr Hammond: When the current PFI contract—I'm sure somewhere here I have a detailed answer to that question—comes to an end in 2011, a new arrangement will be entered into. That will be an approach with a lower cost to the taxpayer to delivering the service that is currently delivered through the National Traffic Control Centre. If you'll give me one second, I think I probably have some more information on this somewhere here, but I can't put my hand on it right now.

  Q81  Chair: Would you write to us about that? We want to know about what's going to happen to the centre and what the impact of the changes that you are proposing will be.

  Mr Hammond: Yes. The intention is simply to make the current arrangements work more cost-effectively. At the moment, we are tied in to the tail end of a PFI contract, which we certainly won't renew on the current basis. We will be looking for a solution that delivers more value for money.

  Q82  Chair: What type of projects might be considered under the local sustainable transport fund?

  Mr Hammond: The local sustainable transport fund has two headline objectives, which are the same as the Department's overall objectives—to support economic growth and to reduce carbon output. It also has clear objectives around road safety, promoting walking and cycling, improving the urban environment and improving congestion. We will be looking for projects that address that group of objectives. We will be publishing guidelines to local authorities in the near future on applying to the local sustainable transport fund detailing how they should apply, how their applications will be scored and evaluated and the timetable for bidding and for announcements.

  Q83Chair: How much funding will be announced?

  Mr Hammond: It will be £560 million over four years, comprised of capital and resource. Local authorities have told us that for the kind of projects that we are looking at in this space, typically they need a mixture of capital and resource funding over a sustained period of three or four years in order to deliver the type of projects that they want to look at.

  Q84  Steve Baker: In the context of the CSR, will you explain your policy on road noise mitigation? I should declare that in Wycombe it is a particular problem with the M40, but I think it applies across the country. There are really two areas of road noise mitigation. One is tyre noise, which requires quieter surfaces that are marginally more expensive, and the other is engine and transmission noise particularly on steeper hills where lorries are high-revving in low gears. Will we see noise mitigation programmes across the country and to what extent?

  Mr Hammond: First, I am not trying to duck the question, but as I suspect you know, this is a DEFRA lead. DEFRA is currently in the process of conducting noise impact assessments of our major roads. I think I am right in saying that the M40 study is actually under way, but we don't have the output from it yet.

  It is the Highways Agency's practice to use porous surfaces that are quieter when strategic roads come to the end of their life and have to be replaced. It is not our policy to replace road surfaces ahead of their normal life expiry simply for noise reduction purposes. Any decision on funding acoustic barriers will have to await the outcome of the DEFRA noise impact assessments, after which there will be a prioritisation process.

  Q85  Gavin Shuker: When it comes to strategic road projects, there seems to be more of an emphasis on schemes to manage traffic as opposed to widen or build new roads. Is that a fair description of the Department's position on new road building?

  Mr Hammond: Yes, I would say that that is an absolutely fair description of it. You will have read the National Audit Office (NAO) report on the DBFO M25 scheme; the focus has clearly shifted from building more lanes to using the road surface that we've already got more efficiently, including using the hard shoulder at peak times. The evidence from the early examples of hard-shoulder running managed motorway schemes is extremely encouraging. On the M42 scheme, when the managed motorway is operating, there is a very significant reduction in injury accidents, a significant increase—34%—in capacity, and much more predictable journey times. All that is at a fraction of the cost of and with none of the environmental impact of building additional lanes. It is very clear to us that that is the way forward, and we have 10 additional schemes of managed motorway hard-shoulder running in the current programme that I recently announced. I expect that that will be a significant part of the mix in future.

  Q86  Gavin Shuker: Are there any strategic roads that you believe there is a pressing need to expand capacity on but that traffic measures, as you just outlined, wouldn't be appropriate for?

  Mr Hammond: It isn't appropriate in every location, and not all the 14 schemes that we announced are managed motorway schemes—I think 10 of the 14 are. Where appropriate, we will look to a managed motorway solution—on the motorway, obviously—as the preferred option, but we'll treat each case individually.

  Q87  Gavin Shuker: Briefly, the A14 is a key upgrade programme that appears to have been shelved. Do you want to say anything on the future planning of the A14? It is particularly key for our road haulage needs.

  Mr Hammond: The proposed A14 scheme was predicated on an ever rising highways budget and a big dualling and capacity increase scheme with quite significant environmental impacts. In any case, a £1.2 billion scheme is unaffordable in the current climate. We will go back to the drawing board and look again at the challenges of connectivity between the east coast ports and the east midlands distribution hubs. We will look at the different challenges for container traffic and other forms of traffic. We're ruling nothing out; we've explicitly said that if local authorities wish to bring forward proposals for toll-financed, private sector-led solutions—and there are local authorities in the area that do—we will look at them. We will also look at options for enhanced use of rail freight.

  I'm particularly keen to see if we can find a way of avoiding taking all the Felixstowe rail container traffic through a junction in north London just outside St Pancras Station. It seems to me to be barking mad—if that is parliamentary language—to bring all that freight traffic into London just to channel it out again to the east midlands. If we can find a more efficient way of doing that, it would certainly be a step forward.

  Q88  Julie Hilling: I would like to ask a couple of questions around road safety. The first is around the cuts to speed cameras. It seems a bit odd to me that when we are in financial straits and looking to make cuts, we are looking to cut one area that is clearly income generating. Speed cameras, in the vast majority of cases, have been put in because of demands from local people due to accidents in communities. I am sure that all of us know that our communities are for ever demanding speed cameras in their areas. Why has the decision been taken to remove speed cameras?

  Mr Hammond: No decision has been taken by the Department to remove speed cameras. If any speed cameras have been removed, they have been removed by local authorities. I am aware of some being taken out of service, but I am not aware of any being removed yet. I understand that some of the ones that were taken out of service with great fanfare at the end of the summer will be brought back into service in the next few months, with rather less fanfare.

  The key message here is that that is a local decision. We have said that we will not provide dedicated, ring-fenced funding for new capital spend on speed cameras. But if local authorities want to use their funding to install speed cameras, subject to the existing criteria, they can do so. In many cases, local authorities will wish to continue using existing camera networks—sometimes on a reduced intensity basis—that they believe, in their particular circumstances, are delivering a positive road safety result.

  Q89  Julie Hilling: But is it not Government policy—and, I assume, departmental policy—to reduce and do away with speed cameras?

  Mr Hammond: No. Government policy is that we will not provide dedicated funding for new capital spending on road safety cameras. We are not providing a stream of funding to local authorities specifically for that purpose. If local authorities want to use their unring-fenced funding, that is a matter for them.

  Q90  Steve Baker: The Government have talked about mutuality, community ownership and so on. I wonder whether there is a place for it in transport in relation to cost savings. I have in mind particularly the suggestions of the hon. Member for Dover around the port of Dover. Have you given any consideration to how mutuality might be used in transport?

  Mr Hammond: On the port of Dover, there is an application under the Ports Act currently before the Department for decision, and that is a quasi-judicial decision, so I don't think I can discuss it. In terms of engaging voluntary sector action and local community support to protect and preserve services, there might well be applicability in the provision of local transport services. Many local authorities run community transport schemes to provide bus transport for people of limited mobility. There may be scope for volunteer involvement in those schemes. That would be something for local authorities to look at, and we will certainly seek to encourage the use of volunteers to support local services. Where there are regulatory impediments, it would be entirely appropriate for local authorities to approach the Department and ask us to look at them to see whether we can do anything about them.

  Q91  Julie Hilling: Just one more question on road safety, I gather that the Christmas drink-driving campaign has faced considerable cuts this year. I am just wondering whether you could tell us about what is planned for the campaign, and whether it is true that it has had a considerable financial cut.

  Mr Hammond: All departmental advertising budgets have been reduced, and what we are trying to do is refocus our efforts in a more targeted way. We know where the highest risks are, and in relation to most issues around driving, the highest-risk group is young people. It is a fortunate coincidence that the most effective way of reaching a young audience nowadays tends to be via social networking media, which have lower costs than traditional television advertising. Yes, the Department has had to reduce budgets, but it is taking the opportunity to refocus efforts using lower cost media. For example—I am not looking through reams of notes here, because I happen to remember this figure—by moving the Think Bike campaign to social media, we now have 32,000 young motorcyclists registered to the Think Bike network. Using those new approaches is exactly the kind of thinking we need to do to work out how to get an equivalent, or perhaps even a bigger and more powerful, effect while working within constrained budgets.

  Chair: Thank you very much for coming and answering our questions.

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Prepared 11 January 2011