HC 359 The Secretary of State's priorities for transport

UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 359

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

TRANSPORT COMMITTEE

SECRETARY OF STATE’S PRIORITIES FOR TRANSPORT

Monday 26 July 2010

MR PHILIP HAMMOND MP

Evidence heard in Public Questions 1 - 113

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Transport Committee

on Monday 26 July 2010

Members present

Mrs Louise Ellman, in the Chair

Angie Bray

Lilian Greenwood

Mr Tom Harris

Kelvin Hopkins

Kwasi Kwarteng

Mr John Leech

Paul Maynard

Iain Stewart

Julian Sturdy

________________

Witness: Mr Philip Hammond MP, Secretary of State for Transport, gave evidence.

Q1 Chair: Good afternoon. Welcome to the Transport Select Committee. Could I ask you to identify yourself for our records, please?

Mr Hammond: I am Philip Hammond, Secretary of State for Transport.

Q2 Chair: I would like to congratulate you on your new position. You are the fifth Secretary of State for Transport since 2006. It seems that most of your predecessors have stayed for about a year, perhaps less than that. If you beat that record and you are in your position for more than a year, would you could yourself a success or a failure?

Mr Hammond: I think the Prime Minister has made it clear that he intends that ministers generally will stay in post for longer. He will seek to avoid the musical chairs that we have sometimes seen in the past and, in order to deliver the most effective form of government, it is desirable where possible that ministers have a period to learn their trade and then a period to exercise the skills that they have learned. I hope and expect that I will be in post for longer than the average of my predecessors.

Q3 Chair: What are your top priorities? What would make your time a success, in your view?

Mr Hammond: There are three clear, key priorities. The first of course is the priority of the government to address the deficit. That must be the overriding priority and transport, like every other department, will have to make its contribution to addressing the challenges of getting Britain’s deficit down and getting our economy back onto a stable and sustainable basis. Within that over-arching constraint, I would expect that the transport agenda will be able to contribute to generating sustainable economic growth in the UK. The other big challenge for us is the very clear link between transport infrastructure and the operation of that transport system and the economy. We would hope to be able to make a contribution to achieving levels of economic growth that would create the prosperity and the jobs that we so urgently need in this country, at the same time contributing to the government’s 2020 carbon reduction targets, because transport has a large role to play here as well. I think a measure of success for the Transport Department will be demonstrating that there is nothing incompatible between those two objectives: supporting economic growth and supporting the 2020 carbon reduction objectives.

Q4 Chair: What was your input in the Coalition agreement on transport? There are quite a lot of items here, some of them quite vague. Did you have any specific input?

Mr Hammond: I did of course have discussions with my colleagues who were drawing up the Coalition agreement about working with the transport provisions within that agreement.

Q5 Chair: One of the commitments is, "We are committed to fair pricing for rail travel." It is a bit vague, is it not?

Mr Hammond: I think I have made the point on several occasions. We are facing a huge fiscal deficit. The railways receive a very large taxpayer subsidy and I think it is clear that we have to be prepared to look at all possible options in addressing the challenges of tackling fiscal deficit and also sustaining investment in our railways because it is clear that there are important investments in the railway, including investments that are directed at improving passenger comfort and passenger convenience, that it would be very unfortunate if we were to lose. As I said at transport questions last Thursday, I think ruling out in advance any change to the fair formula would be unwise given that we do not yet know what the envelope of revenue support from the Exchequer is going to be on completion of the spending review.

Q6 Chair: "Fair" is a very nebulous word, is it not? What does "fair" mean?

Mr Hammond: That is a very broad question.

Q7 Chair: "Fair" in the context of the Coalition agreement. You are committed to fair pricing. Fair to whom?

Mr Hammond: I think there are two aspects on this. First of all, there is the question of overall fairness policy on the railway and ensuring that any increases in fares can be justified in terms of improvements in the service that passengers receive. There are two parts to the equation. It is not just about fares; it is about value for money for passengers. Beyond that, there is also an agenda around ensuring that passengers are treated fairly when they go to buy a ticket. It is about making sure that they are given proper information about the most advantageous fare available to them, that the information that is published is clear so that passengers can get the best deal that is possible within any given framework of any given fare structure.

Q8 Chair: You have been to the Treasury and you submitted your proposals to the Comprehensive Spending Review. When do you appear before the Star Chamber to argue your case?

Mr Hammond: My understanding of the process is that there will be a period in late August/early September when departments may be able to settle bilaterally with the Treasury without necessarily appearing before the Public Expenditure Committee. Appearance before the Public Expenditure Committee, as I understand it, will be to deal with unresolved cases that cannot be resolved bilaterally.

Q9 Chair: How do you see the procedure now, as far as you are concerned?

Mr Hammond: I am expecting to receive an initial letter from the Chief Secretary some time before the end of this week, giving the Treasury’s initial response to the proposals that we have put forward, seeking further clarifications and that letter will, during the course of August, lead to discussions between officials seeking to clarify any issues on which the Treasury requires further clarification. Depending on what the content of the letter is, it may be that we and the department wish to put forward further supplementary proposals to the Treasury to explain further how we would approach any given expenditure scenario.

Q10 Chair: Are you going to share with us what is in those proposals?

Mr Hammond: No, I am afraid not. You do not seem surprised.

Chair: We might pursue that point as we progress through the meeting.

Q11 Mr Leech: Could I just return to the issue of rail fares? Can you tell us what work has been done in the department to assess the potential impact of the big increase, the 5% or 10% increase, in rail fares and what impact that would have on carbon emissions and on congestion and all the other issues that might emerge from people moving away from the railways?

Mr Hammond: The department does have a model that is capable of generating those outputs for any given level of change in fares. That work is ongoing within the department. In the course of looking at all options before preparing a bid to the Treasury, as you would expect that we did, we have of course looked at those issues.

Q12 Mr Leech: Do you recognise the figures that have been created outside of the department, the estimates of the impact that increased fares might have in terms of a 10% increase in congestion on some routes?

Mr Hammond: I do not recognise those figures.

Q13 Chair: The Department of Business, Innovation and Skills said last week that the UK needs to spend £42 billion per annum on infrastructure investment, including transport. How is that going to be achieved in current circumstances?

Mr Hammond: With difficulty, I suspect. As the Committee will know, the previous government announced a very significant reduction in public capital investment over the next four years. The Chancellor has indicated that the present government does not propose that there should be any further reduction in capital expenditure over that which was pencilled in by the previous government. Nonetheless, delivering that reduction is going to be very challenging. As the Committee I am sure will understand, within an area like transport, there is a very significant amount of forward commitment to capital spending programmes. I think we are talking about two different things here. We are talking about securing sufficient capital from the Treasury to continue with existing, committed programmes ongoing, including capital maintenance programmes. Then we are looking hopefully at having some additional discretionary capital that would allow new capital spending commitments to be made during the course of the spending review period, but until we have a settlement from the Treasury it is not possible at this stage to be clear whether and to what extent we will be able to permit new schemes that are not already committed to go ahead. The Chancellor made the point in his emergency budget statement that it does not make sense to allow the existing infrastructure to crumble. Capital maintenance projects should be protected as far as possible to ensure that, during this period of fiscal stringency, we do not allow the assets that we have to deteriorate to an extent that is not sensible or economically rational over a longer term.

Kelvin Hopkins : If I could return to rail fares and railways in general, you did say in transport questions last week that Roy McNulty identified that our railways are up to 40% more expensive than the state owned, integrated rail systems on the continent of Europe. The major difference between those systems and ours is that ours is largely privatised and fragmented. Is not a logical way of overcoming that problem to put it back into a state owned, integrated system?

Q14 Chair: Are we going to have state ownership?

Mr Hammond: Your question is at least predictable.

Q15 Chair: Is the answer predictable?

Mr Hammond: I think it is not clear that the largest distinction between our railway and the state owned railways in France and Germany is that they are integrated. That may be one of the distinctions. I think I would prefer to await the conclusions of Sir Roy McNulty and approach those with an open mind, look at the recommendations that he makes and engage with all stakeholders in the industry on them. The important point is though I have not heard anybody disputing that we have a cost differential with the comparable railways which I think in fairness are France and Germany, the two big, mixed mode, comparable railways in Europe. To the extent that we are constrained in the amount of public subsidy that will be available over the next few years, it is very important that we look at delivering the optimum level of value for money both for passengers and for taxpayers.

Q16 Kelvin Hopkins : A consequence of these high costs is of course a ballooning public subsidy over the last 15 years and also some of the highest fares in Europe which means our passengers are suffering and our taxpayers are suffering. Is not that a matter for serious attention, especially in our present circumstances?

Mr Hammond: Yes, it is. That is why, as I said a moment ago, it is essential that we drive value for money for passengers and for taxpayers. We have to start by getting an understanding of what the drivers are of that excessive cost. Some of them will be technical. Some of them may be structural, as you have suggested. Some of them may be cultural. We have a railway steeped in history and practice, some of which may now need to be reviewed.

Q17 Angie Bray: You have mentioned the issue about having to look at ways of maintaining a common infrastructure. With that in mind, I wonder what your views are on the possible use of road user charging, if not for roads that are already there, for any new roads, bridges and what have you that we might want to build to improve the rail infrastructure.

Mr Hammond: Those are two quite different areas. First of all, as you will know, the Coalition Government has ruled out the introduction of national road user charging during the current Parliament other than for heavy goods vehicles, where we have a commitment to introducing a lorry road user charge. This is for existing road infrastructure. We are however completely open to the suggestion that entirely new roads could be funded by private capital supported by tolling or charging for the use of those roads. We will look at any propositions that are put forward by promoters for such schemes. My understanding is that one or two local authorities around the country, I think perhaps anticipating that public capital funding for favoured schemes may be in short supply, are indeed looking at whether there are practical schemes that could be promoted, funded by user charging.

Q18 Kwasi Kwarteng: My question is related to rail and the position of Railtrack. Clearly, you have been on record saying certain things about the governance there and there is a perception that that is quite poor because it is neither one thing nor the other. It is a private concern and then I suspect because the government did not want the liability to be on the balance sheet it is neither fish nor fowl. I was just wondering what your position on Railtrack was in terms of governance.

Mr Hammond: The Coalition came into office with a commitment to make Railtrack more accountable to its immediate customers and to its ultimate customers, rail passengers. Part of the exercise we are doing now is looking at how that commitment can best be delivered. I think that my perception is the same as yours, that the relationship between government and Network Rail has been an uncomfortable one because of the focus of the previous administration on keeping the Network Rail debt off balance sheet. The national statistician is ultimately the owner of the decision about whether that debt is on or off balance sheet. It is clear that one of the key influences of that decision will be the extent to which government exerts or seeks to exert control over Network Rail. I have the impression that the previous government will on occasions have been itching to intervene or give an opinion on what Network Rail was doing but had to restrain itself because of its concern about keeping the debt off balance sheet. I do not have any such theological focus on keeping the debt off balance sheet. I want the relationship with Network Rail to be the one that is most constructive for taking the railway forward and that is why I wrote to the board of Network Rail a month or so ago, making clear that the government did not approve of the proposed large executive bonuses and asking them to think very hard about the message they were sending in proposing such bonuses. In doing that, I consciously risked the national statistician deciding that the debt had to be classified differently but I say again we will not allow our relationship with Network Rail to be dictated by an artificial accounting convention.

Q19 Kwasi Kwarteng: Would you say to the Committee anything about any plans? Obviously in the private sector it is now in this limbo in terms of corporate governance. It is public but the balance sheet is off ----

Mr Hammond: Network Rail is a private company limited by guarantee but most of its revenues come in one form or another from or via the taxpayer.

Q20 Kwasi Kwarteng: There are no plans to float it?

Mr Hammond: There are no plans at the moment to change Network Rail’s status but Sir Roy McNulty has indicated that looking at how Network Rail interfaces with the rest of the industry will be one of his focuses.

Q21 Mr Harris: Can I echo the Chair’s welcome to you in your new role and, for what it is worth, it is a much more interesting role than Chief Secretary to the Treasury. I think you have probably landed on your feet. Can I just ask one follow up on Network Rail before I get on to the question I want to ask? You kind of dismissed the whole idea of the off balance debt of Network Rail as being a theological concern. Does the Treasury share that view? Is the Treasury quite relaxed about you saying or doing something in public that would at a stroke result in Network Rail’s debt adding to the national deficit? Is George Osborne quite happy with that?

Mr Hammond: We said in opposition that for practical purposes, regardless of how it was classified, we would conduct ourselves on the assumption that Network Rail’s debt was public debt. We will not hide behind an accounting convention. When we look at the macro-economic position, we are taking into the equation Network Rail’s debt because the reality is that ultimately the government stands behind that debt. While it is for others to decide how the debt is formally classified, from a practical, working point of view, we will assume that it is treated as public debt.

Q22 Mr Harris: That is useful. The other question was about the general economic circumstances as regards the franchising system. In opposition the Shadow Secretary of State and her predecessor said on a number of occasions that the premia paid by franchisees were too high, that the government had extorted too high a premium from them and that in government therefore those premia would come down. When can we see for example First Great Western’s premium being reduced?

Mr Hammond: I am not sure that even I would use the word "extorted" to describe the action of the previous administration. I think that there is evidence that the structure of franchises, the length of franchises in particular, may have induced some potential franchisees to overbid, most obviously National Express in relation to the East Coast Main Line. You will know that the Minister of State has published a consultation document last Thursday on potential reform of the franchising structure with a view to lengthening franchises, inducing higher levels of investment by train operating companies, changing the relationship of the train operating companies to the railway structure as a whole by getting them to invest more of their own capital and commit over a longer period to the franchises they are operating. I think that will change behaviour in future. If you are asking me a question as to whether we have any plans to reopen existing franchises to allow train operating companies to reduce the premium bids they make, we have no such plans.

Q23 Iain Stewart: A couple of questions, if I may, returning to Network Rail. Firstly, on Network Rail’s debt. Amongst the rail industry commentators, there have been some quite alarmist projections about the debt. On Network Rail’s own figures, it is forecast to go above 30 billion by 2013/14 and on current trends within 10 to 12 years it is going to reach the level of the regulatory asset base. Do you share those worries?

Mr Hammond: The financing model for Network Rail is of course a matter of concern and it is one of the things that Sir Roy McNulty will be looking at.

Iain Stewart: As a possible route to make their future investment more sustainable, would you consider for Network Rail the same model as you have illustrated for financing future road projects, that it would be funded entirely from revenues accrued by future users of those projects?

Q24 Chair: Would that be fair?

Mr Hammond: Just thinking on my feet, it is not something that has been talked about actively in the department in the time that I have been there. I think that would be a challenging model to make work, to be frank. Clearly, because of what I have already said about the way we will, in every day working terms, think about Network Rail’s debt, we will not be able to take the attitude that the previous administration did to ever rising Network Rail debt. We will have to look again at how we finance the capital investment in the railways. The mere fact that it may be borrowing by Network Rail does not mean we can ignore it. We will want to look at that as capital spending in the same way that we would if it was financed by public capital investment directly. That will mean that we need to look at the model once we have Sir Roy McNulty’s conclusions and hopefully have come to some conclusions before we begin the negotiations around the next control period, control period five.

Q25 Chair: You have repeatedly said that transport investment should be linked to economic growth. How are you going to make sure that happens? When you say "economic growth", does that include regional economic growth?

Mr Hammond: I think what I have said is that transport investment has a huge role to play in supporting economic growth. One of the interesting things which I am sure Members of the Committee will have recognised is that, when you talk to businesses about what government can do to support them, to support business and to support business in generating economic growth, pretty much top of everybody’s list is investment in transport infrastructure. There was a recognition explicitly by the Chancellor in the budget statement speech that investment in infrastructure was critical for economic growth. This clearly has to be set within the context of affordability at a time of extreme fiscal constraint, but what I hope it will mean is that capital investment that most clearly will support economic growth will be prioritised over other forms of capital investment within the limited envelope of capital available for the next period.

Q26 Chair: When you say "economic growth" are you looking at regional economic growth as well as national economic growth?

Mr Hammond: I am looking at all economic growth.

Q27 Chair: Are you concerned about the disparity between investment in London and the south east and transport and in other regions? Is that something that is in your mind when you are looking at economic growth in transport?

Mr Hammond: Certainly regional equity has to be one of the features, one of the factors, when we look at how to prioritise transport investment. As you will know, the Department for Transport has quite a rigorous cost benefit analysis model which produces for all projects a number and would allow projects to be ranked in strict cost benefit order. In practice, that would produce outcomes that were I think unacceptable and unhelpful, so it is a very useful starting point but it does need to be overlaid with a view about regional equity, with a view about modal equity where the opportunities are for investment in competing modes of transport.

Q28 Chair: What are the mechanisms you have to help you to make judgments on that?

Mr Hammond: The appraisal tool that the department uses measuring the external benefits of transport investment against the costs of that investment in a net present value form is the basic tool that the department uses, but then there is clearly a requirement as I explained for some sort of discretionary overlay to that that recognises that there are other measures that need to be taken into account and regional equity is an important one of those.

Q29 Paul Maynard: I am sure you are aware over recent years that both the Northern Way and the Northern Transport Compact have produced very comprehensive analogies with transport policy to assist in funding decisions. Do you have any view as to the value of that work and, on the basis of that view, do you have a subsequent view as to how we can best ensure, given our scrapping of the Regional Development Agencies, that the Northern Transport Compact can keep contributing to the policy debate? Do you feel that is important?

Mr Hammond: Yes, I do. I think the work that you are referring to has identified some potential investments like the Northern Hub that could have significant, positive impact on the economy not only of the North West but of the north east as well. My understanding is that more work is going on at the moment. Network Rail is carrying on some work and it is expected, from memory, that we will be at a point where there is a project for approval or otherwise and appraisal in early 2012. I think that is the current timetable, so yes, this is an important piece of work. I do not think it is necessary to have Regional Development Agencies in order to promote regional approaches of this kind. The Local Economic Partnerships will offer a route to looking at these wider issues and, depending on how they form – because obviously they are bottom up organisations; we cannot be prescriptive about what the shape of Local Economic Partnerships will be – the may turn out to be very strategic. They may turn out to be less so. If they are less so, I hope that there may be an opportunity to encourage them to work together in appropriate groupings to look at transport issues on a sub-national basis around natural geographical areas that are relevant from a transport infrastructure point of view.

Q30 Lilian Greenwood: Just to take you back to a question a couple of minutes ago, you said there would be a discretionary element in deciding which transport infrastructure projects to priorities because, if everything was based purely on the cost benefit analysis, potentially I am guessing that it might focus all the investment in London and the south east. How exactly do you think you will make decisions about that discretionary element? How will that discretion be exercised and how will you decide which regions to focus on?

Mr Hammond: I think some projects have a strategic potential in addition to their clear, measurable benefits. We will come on, I am sure in due course, to talk about High Speed Rail which is just such a project, but there are other projects as well which have strategic significance. We are acutely conscious, as you will know, that the changes in the shape of the economy that are likely to take place over the coming years, as public sector spending contracts and hopefully is replaced with private investment as the private sector of the economy starts to grow again, will create more challenges for some regions of the country than for others. Clearly, these will all be factors that need to be taken into account in making decisions. You have surmised that a strict cost benefit analysis would benefit London. I think probably the clearer answer is that a strict cost benefit analysis would mean that you would be putting most of your money into the strategic highway network rather than into investment in roads and other forms of transport. I think we would all recognise that there has to be a balance between maintaining the road infrastructure, removing bottlenecks from the strategic highway network, investment in rail, improvement in conditions facing rail passengers and investment in sustainable, local transport as well. It is about getting that balance right.

Q31 Angie Bray: Recently London MPs were giving a briefing by the Chief Executive of Transport for London who was very clear in his analysis that, on any cost benefit analysis, investment in London and south east transport definitely brought a much bigger return. In the interests of a more equitable approach to regional investment, does that mean you are going to disregard that kind of cost benefit analysis?

Mr Hammond: No, of course we are not going to disregard it. It is the primary tool that the department uses and very clearly we have an absolute obligation to deliver value for taxpayer money, but I do not think the generic taxpayer would thank us for skewing all investment into one mode or one region of the country. There has to be balance. I would be happy to challenge TfL on that particular conclusion because I am quite sure from my recollection of the department’s list that the very highest scoring projects are in fact some quite modest highway improvement schemes in far flung parts of the country where removal of relatively small bottlenecks delivers very large network benefits.

Q32 Mr Leech: My question is a follow on from that as well. There has been a clear, massive gap between the spending per head in London and all the rest of the regions of the country. Will those facts be taken into consideration as part of the spending review to ensure that the north west, the north east and all other regions outside of London do actually get their fair share of spending, which certainly has not been the case over the last 13 years?

Mr Hammond: I am not sure that I agree with that last statement but if you are asking me whether the spending review will allocate money on the basis of some analysis of an historical pattern of spending, no, I do not think that is the appropriate way to allocate capital funding. It will be based on an appraisal of the candidate projects, looking at their cost benefit analysis but also taking into account the other factors that I have mentioned, including a concept of regional equity.

Q33 Chair: How are regional transport priorities going to be decided without either the Regional Development Agencies or the Regional Government Offices, because between them they brought together the local authorities and other partners within regions to decide on overall priorities? How is that going to happen?

Mr Hammond: The Department for Transport will need to create channels for appropriate discussions about sub-national funding. As I said a moment ago, I think we will need to wait for some clarity about the shape of Local Economic Partnerships. It is possible that Local Economic Partnerships will be formed on a basis that is quite strategic and comprehensive in its coverage. That may not be the case and by definition we are not dictating a pattern. We are allowing it to come from the bottom up. I think we need to wait and see what pattern emerges and then decide how best to harness that network to assist in the transport decision making process. It may be, as I said earlier, that it is appropriate to think in terms of consortia of LEPs being formed for transport purposes around a geography which is appropriate to that function.

Q34 Chair: I would like to turn now to some further rail questions. You previously said you supported High Speed Rail 2 because you saw it as a replacement for domestic flights. Is that still the case?

Mr Hammond: Yes. That is not the only reason that we have indicated that we support High Speed Rail. Clearly, it does have a significant part to play in our view of the future, given the decision that has been made about additional runways in the south east. Switching domestic traffic and short haul European traffic from air to rail over the medium term will be an important part of the solution to delivering a sustainable Heathrow within a two runway solution, ensuring that it can remain an important, national hub.

Q35 Iain Stewart: You have stated your support for the principle of High Speed 2 linking London, the Midlands, the north east, the North West and eventually to Scotland. What I am not clear about is how flexible your view is on the route and some of the broad considerations that HS2 looked at. For example, the possibility of intermediate stops. I know the whole concept of HS2 is a fast, major city to major city. If you look at High Speed 1 and some of the French TGV routes, they do have provisions for intermediate stops and the stations are modelled in a way that some trains can thunder straight through while others pull off and stop. In reconsidering HS2, are you going to re-examine concepts like that?

Mr Hammond: I have asked HS2 Limited to look again at the case for the two principal routes north from the West Midlands, the so-called inverted S route, Manchester to Leeds via the Pennines, as opposed to the so-called Y route, where there would be a separate line through the East Midlands, South Yorkshire to Leeds that way; and also to look at the possibility of intermediate stops. As you will know, there is a vociferous lobby in South Yorkshire for a stop in South Yorkshire and similarly in the East Midlands for a stop in the East Midlands. You will appreciate of course – you clearly do appreciate from your question – that the whole point of High Speed Rail is that it is not for ever slowing down, stopping and then gathering momentum again. Stops will be at a huge premium. They introduce a significant time penalty and every stop significantly erodes the business case for the service. I think it is worth observing that the proposed running speed of HS2 will be considerably faster than the French TGV system and therefore the time penalty from a stop will be considerably greater. When you have trains travelling at 250 miles an hour, clearly slowing them down, stopping them and then starting them up again introduces quite a significant challenge, possibly an engineering challenge as well. You may even need separate stretches of deceleration and acceleration lines, so these will not be decisions that can be taken lightly. Clearly, that will be part of the analysis of the overall project going forward. May I just say something else about Milton Keynes? A light bulb has just gone on in my mind that says "Milton Keynes." One of the key things about HS2 is that it is going to address the problems of capacity on the existing West Coast Main Line and the route to Birmingham. I know one of the issues felt very acutely in places like Watford, Milton Keynes and Nuneaton is the lack of stopping services on the current West Coast Main Line. Clearly, if you have a high speed, dedicated line which is getting you that critical London to Birmingham/London to Manchester, city to city time, then the opportunity to have more what you might call semi-fast – but they could still be pretty fast – services stopping at some of these intermediate stations on the existing West Coast Main Line will be much greater. I think what we envisage is that the two separate lines will create a much greater flexibility in the way the railway can operate with what we would today call high speed services, offering stops at places where frankly they cannot stop today without reducing the line capacity in an unacceptable way.

Iain Stewart: There are other questions that colleagues may wish to raise about connecting HS2 to HS1 which offers the possibility of travel from the UK to overseas. I would like the review of the business model to look at that possibility as well. If you take Milton Keynes as an example, within a relatively small travelling time from there, if you built an intermediate stop, you would have Oxford, Northampton, Bedford and other reasonable size places that could provide additional traffic if it was connected further afield.

Q36 Chair: Is that what you envisage happening?

Mr Hammond: The question of how you collect traffic for high speed trains is quite a subject in itself and it is certainly one that HS2 Limited have looked at in great detail. I have asked HS2 Limited to look at the feasibility and cost of a connection from the Old Oak Common Station directly to the existing HS1 line, bypassing St Pancras Station. There is an existing railway alignment which in part could help to deliver that possibility, but it is not going to be cheap. Yes, what we would like to see in an ideal world is a network that is fully interconnected, allowing traffic from Heathrow and traffic from northern cities to run straight the way through to the Channel Tunnel and on into Europe. That must be the vision that we are ultimately seeking to deliver.

Q37 Chair: When do you think that could be achieved? When is that vision going to become a reality?

Mr Hammond: The overall high speed network in the UK is going to take the best part of three decades to roll out. I would guess the first phase, London to Birmingham, is going to take ten years to construct. We would expect to try to manage the roll out of the overall high speed network in such a way that it supported the creation of a UK domestic supply chain. We want to try to see this done in a sustainable way that encourages businesses here to get involved in this process and to do that they need to be able to see that there will be a continuous stream of work over a period of decades.

Q38 Kelvin Hopkins: If I can move on to rail freight, you may know – I am sure you do – that there are proposals around for a dedicated rail freight route from the Channel Tunnel to Glasgow, linking all the main conurbations of Britain capable of taking full scale lorry trailers on trains, containers and so on, a scheme which would take traffic off the roads, five million lorry loads a year plus traffic from the East Coast and West Coast Main Lines. I have spoken about this in the Commons myself. Would you be prepared to give a fair hearing to a scheme of that kind, provide it was sufficiently intelligent and well argued?

Mr Hammond: This is the Central Railway?

Q39 Kelvin Hopkins : No. I hasten to add this is not the Central Railway which might have gone through your own constituency.

Mr Hammond: I do remember you and I having interesting exchanges. I am very happy to consider any proposals and particularly innovative proposals, innovatively financed, will certainly be considered, yes.

Q40 Mr Harris: On HS2, am I right to be concerned that the government’s commitment to HS2 does not quite sit that well with the government’s commitment to giving local communities a veto over major infrastructure projects? Is there a conflict there?

Mr Hammond: No local community can ever have a veto over major infrastructure projects. Clearly, one of the functions of government is to balance the national benefits that come from a major infrastructure investment with the local disbenefits and actually that is a very, very difficult thing to do. It is very easy to look at the clear business case for a piece of infrastructure investment and much more difficult to explain to people – small numbers of people sometimes – who are very directly and very adversely affected why it is right that their interests must be sacrificed to the wider, national interests. That is one of the functions of government. Perhaps I could just say that I have published today a statement indicating our intention to proceed with an exceptional hardship scheme in relation to the HS2 identified preferred route for the high speed rail network to ensure that people who currently are faced with extreme hardship as a result of the identification of that route have the possibility of being able to sell their properties, notwithstanding the inevitable planning blight that has been created.

Mr Harris: I was going to ask you about what the Chairman mentioned, "We are committed to fair pricing for rail travel". I did wonder how much negotiation had gone on within the Coalition to come up with that and who was actually pressing for unfair pricing for rail travel, but I will leave that one.

Chair: It is a pity to leave it.

Q41 Mr Harris: There are other issues. "We will turn the rail regulator into a powerful passenger champion." Presumably you mean the Office of Rail Regulation. Where does that leave Passenger Focus? Have they offended you in some way?

Mr Hammond: No, they have not offended me in any way. Really, the question of how the infrastructure and the interfaces within the industry work is one of the things that Sir Roy McNulty is looking at. It is largely about cost but it is not just about cost. It is about making sure that at all these interfaces within the industry the interest of the passenger does not get lost or forgotten. I have to say that sometimes, when you look at the way the rail industry operates, you do end up asking yourself: hang on a minute. Are there not passengers out there as well? How does all this address the needs of passengers? It is a commitment to make sure that the way the structure works is constantly focused and refocused on the needs of the passenger. The needs of the passenger are complex. Of course if you ask passengers, "Do you want lower fares?" the answer will be yes, but if you ask them, "Do you want more rolling stock, better quality rolling stock, improved stations, easier access?" the answer will be yes to all of those things as well. We have to develop a mechanism for properly balancing the different demands that passengers have in a way that is fair to passengers and fair to the taxpayer.

Q42 Mr Harris: Does Passenger Focus have a role in that?

Mr Hammond: Passenger Focus does have a role.

Q43 Mr Harris: Are you kind of undermining their position by talking about the Office of Rail Regulation taking some of that responsibility?

Mr Hammond: No. It is about making sure that the Office of Rail Regulation, in the way it performs its functions, is placed in a position where the interest of the passenger always has to be paramount. Perhaps I could draw an analogy, if you like, with the Airport Economic Regulation Bill that we have announced, where the intention is to refocus the regulatory system to ensure that it drives behaviour by the airport operators which is passenger focused. The same has to be true in the rail industry. We have to ensure that the regulatory structure drives behaviour which is passenger focused.

Kwasi Kwarteng: I am very conscious that in the last 45 minutes we have spoken very largely about rail and there is a school of thought that says that most people in terms of transport policy are impacted by road policy. They drive cars. They do not necessarily take trains. Having ruled out road tolls, there is massive congestion which is widely recognised. I just wondered what your view on the Coalition’s road policy was.

Chair: I just want to finish some things on rail. We will come on to road and I will make sure you put your questions.

Q44 Paul Maynard: Returning to High Speed 2, which segment of the proposed routing do you think would be the most economically transformational? How will that interact with the stated goal of reducing demand for domestic aviation, particularly in the light of Lord Mawhinney’s recommendations?

Mr Hammond: That is an interesting question. To start to see a truly transformational effect will come when we go north of the West Midlands because, once we go to Manchester and up to Leeds, we will start to see a significant shift from domestic aviation and hopefully the intention is capturing some of the aviation traffic that currently goes for example to Schipol from places like Manchester and indeed from Leeds Bradford. That is when we will start to see the truly transformational aspect of the high speed railway.

Q45 Paul Maynard: Does that not therefore suggest that building from Birmingham to Manchester and/or Leeds, be it by Y or S, should be of equal importance to constructing the section from London to Birmingham in the first place, given there will be no Heathrow spur?

Mr Hammond: Lord Mawhinney has made a recommendation about the interconnection to Heathrow. HS2 Limited are also doing some detailed work on those options which we will consider in due course. If we had limitless money, it might make sense to try and build all these sections at once, although it would rather operate against creating a domestic supply chain, I think, if it looked like a one-off splurge of work that was then finished. The reality is that it would not be financeable. We have to work on a sequential basis and we have to see this as a medium to long term project to connect the whole of the UK by high speed rail.

Q46 Julian Sturdy: Again on HS2, following on from Paul’s question, you talked about the intermediate stops and the time limits they would have which is quite obvious but have you any idea of how much time even more intermediate stops would bring into the system? Do we have priorities for stops going forward?

Mr Hammond: I am doing this from the top of my head and I have no doubt officials will be wincing at me doing so. As I remember it, when the train is travelling at its designed full speed of 250 miles an hour, introducing a stop will deliver about a six minute time penalty, deceleration, stop and acceleration, which is not insignificant when you are talking about a journey time, London to Birmingham, of 40 minutes. If you introduce a six minute time penalty, that is quite significant. In terms of how to look at these trade-offs, I think some people are thinking in terms of having the ability to stop at intermediate stations but not necessarily every train doing so, so that there would be some trains that made some intermediate stops. I am not a railway engineer. HS2 will be advising on all of this in due course, but I have to say superficially, to me as a layman, that sounds like a sensible sort of approach to take.

Q47 Chair: You are selling High Speed 1. Is that to benefit the passengers or is it just a straightforward thing to raise money for the Treasury?

Mr Hammond: It is for two reasons. First of all, we have a huge fiscal deficit and a massive national debt. Wherever we do have the opportunity to dispose of assets which there is no compelling reason to hold in the public sector, where we can realise a capital return to reduce debt, we should do so. In the case of HS1 there is another consideration as well. The building of the railway involved very significant construction risks. Until it was operational, there would have been perceived to be very significant operational risks around it. It has now been operating successfully for a number of years. The Javelin trains have been introduced very successfully and there is a clear perception that the operational risk is very manageable and very quantifiable. We have an asset in which nearly all of the risk going forward is commercial. How now to turn this line into a more effectively utilised line with more services, more competition, stops at more different places and a wider variety of destinations on the European continent. We think that that is a challenge that a private sector, commercial operator is best placed to meet.

Q48 Angie Bray: Just to return briefly to HS2 and the issue around Heathrow, as you said, part of the key aim is to entice people off domestic flights to Heathrow and to be able to use this new train service. We have had several reports. We have had the Lord Mawhinney report which suggests a sort of loop and a spur, if you like, from, I think it is, Old Oak Common back to Heathrow on some of the trains. Of course there is also an Arup report around suggesting that you could actually put Heathrow directly onto the main line. I just wonder how important you think it is that Heathrow is actually included on the direct line or where the thinking is at the moment on where you actually put Heathrow, because that does seem to be such a key part of this whole thing.

Mr Hammond: We are not thinking of moving Heathrow. I can promise you that. It is a question of how we make the connection to Heathrow. What is clear is this: there has to be a form of connection to Heathrow that makes sense to air travellers, that feels like a proper rail to air connection of the type that many major European airports have. Frankfurt, Paris, to a lesser extent Schipol, have excellent rail to air connections. It is about the passenger experience. In the discussions that I have held with HS2, with Lord Mawhinney, it is clear that there are different views about how that passenger experience can be delivered. It is not necessarily only deliverable by having the railway running directly underneath the airport terminal and we do have the additional complication at Heathrow that we have three separate clusters of terminal activity. Even a decision to take the line directly to Heathrow would beginning the question where in Heathrow and how long does it take you to get from there to one of the other terminals or terminal clusters. The objective is clear. There has to be a connection which feels right to airline travellers, which will encourage as it were interlining between air and train. That cannot be lug your heavy bags down a couple of escalators, along 600 metres of corridor and then change trains at a wet, suburban station somewhere in north west London. That is not an option. It is also clear that there could be options that involved a transfer point that was remote from the airport itself, provided the seamlessness of the service was of a type that airline passengers would find acceptable.

Q49 Chair: Who is conducting the reappraisal of rolling stock requirements?

Mr Hammond: The department.

Q50 Chair: When is it going to give an answer?

Mr Hammond: You are talking about the HLOS rolling stock programme?

Q51 Chair: That is part of it, yes.

Mr Hammond: We expect to make an announcement after the completion of the spending review.

Q52 Chair: That is when? October?

Mr Hammond: October.

Q53 Chair: In looking at the Intercity rolling stock needs, you are aware there is a major regeneration jobs implication to that programme. Will that be part of your consideration?

Mr Hammond: The model does of course capture the economic benefits of the programme, but you will be aware that Sir Andrew Foster’s report raised some questions in relation to the decision making process around IEP and recommended a pause until the completion of the spending review, something that we would probably have had to do anyway because of the nature of the commitment that was being sought, the duration of it and the scale of it. We have decided to use that pause to look at the other options that Sir Andrew recommended including an option of life extending the existing 125 rolling stock.

Q54 Chair: Is it true that there is the first of four 11 car new Pendolinos being delivered to Edge Hill and they are to be kept in store until 2012?

Mr Hammond: I saw that story and I saw the department’s rebuttal to it. I am trying to remember exactly how it goes now but it is true that the first 11 car set is being delivered. I believe it is being used in a programme of trials and integration work, because there are some questions around how the additional cars are integrated into the existing, I think, nine car sets. The story that ran in – I think it was – The Sunday Times that there were going to be four train sets parked up in a siding until 2012 is not true, but there is, as often with these stories, a grain of truth at the heart of it in that the first train set will be delivered much earlier than it comes into service. I think that is part of the plan to ensure that the introduction of these lengthened train sets is smooth. I think there is, to be fair, also a complication in that the timetable for introduction of the longer train sets does not sit very comfortably with the existing planned end date of the current franchise on the West Coast Main Line. That is something that will have to be resolved.

Q55 Chair: That is part of the problem?

Mr Hammond: That is another challenge. From memory, I think the additional rolling stock could be available for introduction very shortly before the point at which the franchise expires. Clearly, there are issues about ensuring a smooth process of introducing new rolling stock just at the point when conceivably the franchise could be changing hands.

Q56 Iain Stewart: Specifically on the West Coast Main Line franchise which comes up in March 2012, does the review of the franchising model affect that timetable, as it has with other franchises? I am also aware that Virgin have asked for an extension to their current 15 year franchise.

Mr Hammond: There are two separate questions there. The franchise renewals that have been postponed are ones which would have had to be in progress either now or very shortly during the course of the autumn. Because we wanted to complete the consultation on franchising policy, we have postponed those franchise renewals, Greater Anglia, c2c and also the East Coast Main Line. Once the franchising policy review is completed, we will be in a position to proceed with those. We would expect that to be well before the start of the competition for the 2012 franchise. The second point is the question of a possible extension of the West Coast Main Line franchise. As you rightly say, Virgin Trains have applied for an extension to the franchise and that is something that the department will look at and consider. Clearly, the question of the additional Pendolino rolling stock is one of the factors that will have to be taken into account in looking at that.

Q57 Mr Harris: You mentioned HLOS and 1,300 carriages, what were your concerns about the procurement process which led you to review it?

Mr Hammond: I think the concerns are, first of all, the original business case for the HLOS programme was based on projections of rising demand which have proved not to be robust in the light of the economic recession, so some of the benefits that supported the cost benefit analysis are now reduced. In the meantime the costs of the procurement programme have risen significantly in some cases, so the cost benefit of those looks different now from the cost benefit analysis which was done when the programme was originally put together. Also, and I am sure members of the Committee will understand this, the headline of 1,300 new carriages conceals a rather more complex story, that there is a cascade of rolling stock with some new rolling stock being delivered to certain lines and franchises releasing other existing rolling stock to be used elsewhere. In fact there is a degree of interconnectivity between the HLOS programme and some of the other large programmes which makes it appropriate to look at these things in the round. Clearly, the Spending Review impacts on the capacity to deliver all of these programmes and to rubber stamp and go ahead with one part of what is a big and complex package involving HLOS, IEP, electrification, Thameslink, all of which are interconnected, would be slightly strange; to single out one part of that programme and say that can go ahead according to the original specification and timetable before we are in a position to make clear decisions around the rest of the programme. It was decided that the best solution is to look at all these things together at the conclusion of the Spending Review.

Q58 Mr Harris: Is your assumption then that the 1,300 carriages, in whatever form, was too high a figure? That we can expect you to announce a significantly lower figure? Do you not think the 1,300 carriages are necessary? That is the first point, but secondly, are you instructing the same officials who came up with the original procurement process in the first place to conduct a review of their own work?

Mr Hammond: I cannot tell you which individual officials; I am afraid I have not asked the names. Perhaps it would be fair of me to say it is the officials who have been running the programme who have drawn my attention to the fact that costs have changed and benefits have changed since the original analysis was done. It does not imply there was anything wrong with the original analysis, it just implies the world has changed around us since 2006, as we are all acutely aware, and some of the things which had seemed pretty certain and unavoidable in 2006 now look different. I would not draw any presumptions about the number of units of rolling stock which are required to address the programme of over-crowding, but it is clear there are other ways in which over-crowding can be addressed. For example, we have seen proposals around smart ticketing initiatives which might encourage people to change journey patterns to reduce loading at the peak to the shoulder. That is one way of tackling over-crowding which occurs over very short periods at the super peak in the morning. So we want to look across the whole space of the rolling stock procurement programme, peak demand management, smart ticketing initiatives, to make sure the money that is available is spent in the way that represents the best value for money both for rail passengers and for taxpayers.

Q59 Mr Leech: You have rightly mentioned the issue surrounding cascading and the fact that some parts of the country, Northern Rail for instance, are reliant on Thameslink going ahead to get cascaded carriages from Thameslink. In the longer term, are you looking at simplifying the rolling stock issue so that we are not reliant on other projects going ahead to guarantee new rolling stock will come on line in places like the North West, where traditionally we have had to wait for other schemes to go ahead in the South East?

Mr Hammond: I think to suggest that we could get to a situation where there was no inter-dependence around rolling stock would be very ambitious. UK rolling stock is custom-designed for the UK railway with different loading gauges from continental railways so these are not standard vehicles which can be used interchangeably across different railway systems, they are vehicles which can only be used on the UK railway system as I understand it. So the question is whether the Department for Transport acts as the Fat Controller, moving all these train sets around the network, or whether some other mechanism is created which allows the train operators to play a greater role in specifying and procuring the rolling stock. Clearly, one possible consequence of longer train operator franchises would be the train operators themselves could be more involved in specifying and procuring rolling stock and taking more of the risk on to their own balance sheets.

Q60 Chair: We are getting mixed messages on rail electrification. You keep saying you support rail electrification but we do not get a straight answer to what is happening to the planned Manchester-Liverpool and London-Swansea railway electrification. Can you tell us exactly what is going on?

Mr Hammond: I can tell you what is going on, I do not know whether that would constitute a very clear answer. I hope the messages are not mixed, they are quite simple. The Government supports rail electrification as a principle and objective, because it produces a more sustainable, lower cost, lower carbon railway, so our ambition, all other things being equal, has to be to move towards an electrified railway. However, we also have to have regard to the constrained amount of capital which is available and look at the prioritisation for investment of that capital. What the previous administration announced, curiously through a Cabinet meeting in Cardiff, was an electrification of the Great Western Main Line which would be financed by Network Rail borrowing in the public debt markets. The consequence of which, in the way the previous Government scored Network Rail’s debt, would be a free hit – the electrification of the Great West Main Line with absolutely no impact on public sector borrowing. That was in my view an illusion. An investment project like the electrification of the Great Western railway is a big public sector capital investment; however you finance it, it should be thought of as a big public sector capital investment if carried out by Network Rail. We said in Opposition, and this continues to be our position, we want to look at other ways in which we might achieve electrification. The review which Sir Roy McNulty is doing, the review of rail franchises, will also consider ways in which investment in these kinds of big improvement projects which deliver reduced operating costs might be financed.

Q61 Chair: What does that mean for the Liverpool-Manchester line and the Great Western line?

Mr Hammond: In terms of a decision, as with all these other big projects, the decision will be taken after the conclusion of the Spending Review and in the light of the findings of Sir Roy McNulty and the feed-back from the rail franchise consultation.

Q62 Angie Bray: Can I raise the issue of Crossrail? As you know, those of us who represent London seats are desperate to hear that Crossrail is absolutely on and it is going to happen in its totality. There are these rumours going around that it may not be done in its totality or there may be time changes. Although I have taken a certain amount of heart from the conversations I have had with various people in Crossrail and elsewhere, it is clear that you said to Sadiq Khan in June that you were keeping a range of contingency options open. I wonder whether you can comment on whether you believe we do need the whole of the Crossrail route in order to deliver the kind of boost economically which I think would be the main justification for it, quite frankly, at the moment?

Mr Hammond: The Government’s objective is to deliver the whole of the Crossrail route network as proposed in the sponsors’ agreement, but it is clear that that has to be affordable and we are still at the relatively early stage of the project in terms of having a fixed handle on the costs. Although construction has started with the Canary Wharf Station, there is still a great deal of detailed engineering work going on now, and the joint sponsors have an obligation to their respective taxpayers to ensure the project delivers value for money. We must make sure that this project goes ahead at a price that is affordable and within the envelope which has been set out and after making proper allowance for risk and optimistic bias, as is properly done in costing these type of projects.

Q63 Angie Bray: It would seem pretty clear that by including all the stations in its totality you actually get a better return on investment than if you chop both ends off, or one end off?

Mr Hammond: I think the nature of the Crossrail project is that the heavy duty spend is in the central part of the project, which is all tunnelled, and many of the passengers will come from the outer parts of the Crossrail network. So, yes, in terms of the business case there is clearly a link between the extent of the project and the fare revenue it will generate, but fare revenue is only one part of what is quite a complex financing equation. I should mention, just because you have mentioned stations specifically, there is one station at Woolwich which under the current proposals needs to be financed by the private sector contributions which have not yet been fully secured. So that station is in a different category from the rest of the stations on the network.

Q64 Angie Bray: You will have heard there is quite a debate going on about investment in London as to whether London gets Crossrail and that is it, or whether you believe the Tube upgrade programme should also go ahead, because that will also deliver important investment which should get good returns in London. Do you see Crossrail as being more important than the Tube upgrade programme or do you consider both equally important?

Mr Hammond: They are clearly both very important infrastructure projects but from a Department for Transport perspective and from a funding perspective they are very different projects. The Tube upgrade project is the responsibility of Transport for London, it is funded in part out of the block grant which Transport for London receives from the Department for London resource budget, whereas Crossrail is a capital project for which we are bidding for a capital allocation in the Spending Review.

Q65 Chair: I would like to turn to aviation now. You have stated that you are forming a South East Airport Task Force.

Mr Hammond: Yes.

Q66 Chair: How can the use of this group ensure Heathrow remains a hub airport?

Mr Hammond: The clear objective of the Coalition is to secure Heathrow’s future as a hub airport within the constraint of operating with the two existing runways. The driver in setting up the working group is that for the last ten years, and I have always had an interest in what is going on at Heathrow as a local constituency MP, the main players have been principally focused on arguing the case for a third runway. It has not suited any of the stakeholders around the aviation industry to suggest ways in which Heathrow could be improved; the existing capacity could be better utilised while they work in a debate with Government and other protagonists arguing for a third runway. Now that argument has been shut down, and we have made it clear there will be no third runway at Heathrow, I wanted to create an opportunity for the huge amount of knowledge and experience that there is in BAA, in the airlines, in the Civil Aviation Authority and other stakeholders such as NATS, to come together and start to talk pragmatically about how within this constraint we can make Heathrow work better, we can utilise the capacity at Heathrow more effectively in order to protect its status as the UK hub airport.

Q67 Chair: When do you expect the task force to report?

Mr Hammond: From memory, when we set it up we indicated it would start to produce recommendations in the spring. If I am wrong about that, I will come back and correct that. We suggested it would not have a definite finishing time but that we would expect it to start producing recommendations from the spring.

Q68 Kelvin Hopkins: I declare something of an interest but I think there is a special case for including Luton with the other three airports in your considerations and that Luton has the capacity to take at least another 10 million passengers and probably more. Would you raise Luton up as a more serious player in this consideration, especially in view of the introduction fairly soon of the Boeing Dreamliner which will mean that long haul flights will be possible from Luton and it will not just be a medium and domestic airport?

Mr Hammond: The announcement of the working group made clear it would focus initially on Heathrow, Gatwick and Stansted, the three airports where announcements have been made about future runways so constraints are clear. But it will look at the wider issue of aviation capacity in the South East, and that is not only Luton; there are other airports and would-be airports in the South East as well, so absolutely the Minister of State will be looking at those issues and will be very happy I am sure to hear representations from Luton Airport in due course.

Q69 Kelvin Hopkins: I should have prefaced my question with my support for the Government’s decision not to go ahead with the third runway at Heathrow.

Mr Hammond: Thank you.

Q70 Mr Leech: The recent collapse of Goldtrail has caused a lot of confusion for people stranded away on holiday. What are you doing to protect the passengers and passengers’ interests when they are stranded and they do not know their rights and responsibilities?

Mr Hammond: The collapse of Goldtrail I think has produced an awful lot less confusion than it could have produced, because the CAA, which is the responsible body, has taken the approach that it will act to repatriate all Goldtrail passengers regardless of whether or not they were covered by the ATOL scheme. We clearly have a problem with the ATOL scheme. Over the last few years the way in which people buy holidays has changed, the use of the internet, the use of a much more á la carte approach to purchasing flights and accommodation has made the clear distinction between what is a package holiday and what is not a package holiday much less clear, and the subscription base, if you like, of the ATOL scheme has eroded in consequence. We do not know precisely how many of the Goldtrail customers who were stranded were on holidays in respect of which a premium to ATOL had been paid, so the CAA has decided to act to repatriate all of them at the expense of the ATOL scheme. Very clearly in the longer term we have to resolve this issue because the scheme will not be sustainable if there is essentially a free ride available for holidays that have not paid the premium, which I think is £2.50 per holiday; it is not a huge amount. There needs to be a refined definition of package holiday and a refined operation of the scheme to make sure it is the same for all in the future.

Q71 Mr Leech: The previous Government had been consulting on changes to the ATOL scheme, will you be looking at continuing with that consultation?

Mr Hammond: Yes. That consultation is continuing and we are continuing with that work. There is nothing party political about this, it is an administrative problem which needs to be addressed and we will build on the work the previous Government was doing.

Q72 Mr Leech: Would you be looking to include flight-only schemes within the changes?

Mr Hammond: I do not want to rule anything in or anything out at this stage. Clearly that could be one of the options. This is an industry-led review, or an industry-driven review, of how we make ATOL sustainable in the future, and the overriding requirement from the Department’s point of view is that when an operator collapses, whether it is an airline or a tour operator, or even when there is a natural event like the volcanic ash eruptions and passengers are stranded abroad, there is clear methodology for dealing with those passengers and repatriating them to the UK in a smooth, hassle-free way. We do not have consular capacity to handle these things, we need to utilise the systems that the airlines, that ATOL, that the Civil Aviation Authority, has and we have to build on those in finding a sustainable way forward for the package tour industry.

Q73 Mr Leech: It has been suggested a number of people may have to wait possibly up to two years to get the money back that they are owed, what is the Department going to be doing to try and speed up that process?

Mr Hammond: I too read these reports and I have asked the question internally if there is any evidence to support that assertion in the press. I think the problem is that many people repatriated by the CAA may believe because they have been repatriated that their holiday is covered by some kind of bonding scheme and in some cases that will not be true. In the case of people who have not travelled, who have had their holidays cancelled, we will have to unravel whether or not they are covered by the insurance scheme; whether or not what they have bought is in fact a package holiday. In some cases I think that is going to be a complex issue, but I would agree with you the underlying premise of your question is that two years is not an acceptable wait; I would entirely agree with that and we will be looking to do whatever we can to make sure people who are entitled to refunds get them within a reasonable period.

Q74 Angie Bray: Given that we now know there is going to be no third runway at Heathrow, is there going to be renewed pressure to change the runway arrangements? Any pressure to introduce mixed-mode in order to utilise what runways we have got to increase business there? What is your view on that and what stand would you take on that?

Mr Hammond: We have made clear in the announcement of the setting up of the working group that we would not approve a move to full mixed mode, which is something which some airlines have suggested as a way of increasing capacity. We think that the disbenefits to the local community would outweigh the benefits to the aviation industry.

Q75 Julian Sturdy: What is the Government’s position on more regional airports and potential expansion at those given the impact they could have on the local economy?

Mr Hammond: We recognise that local, regional airports can have a significant impact on regional economies. Proposals to increase capacity at regional airports will be looked at literally on their merits, balancing the economic benefits with the local environmental disbenefits which occur when an airport is expanded or increases its level of activity. I think it is probably worth mentioning though that the challenge at Heathrow is a different one. The challenge at Heathrow is maintaining an international hub airport with the constraints of two runways and very high utilisation of those runways. The role that regional airports can play is very important but it is a different one and it is obvious that the UK could support more than one international hub airport, although that is certainly something that the working group will want to look at.

Q76 Chair: Have any lessons be learned from the volcanic ash disruption?

Mr Hammond: There is a clear programme of work that is under way as a result of the volcanic ash disruption. I suppose to answer your question directly, have any lessons be learned, the obvious lesson is that you should prepare for the unlikely and the unexpected because the operating regime rules were clear, that when the volcanic eruption occurred the advice was do not fly in the presence of volcanic ash. It has become clear subsequently that that advice can be safely refined, and the work that is ongoing is designed ultimately, hopefully, to create a regime in which airlines working together with the manufacturers of the equipment that they use, both the air frame and the engines, can demonstrate a safety case for operating in the presence of certain levels of volcanic ash. That process involves both the gathering of more data about the volcanic ash cloud we have experienced and the gathering of test data about the robustness of engines and air frames in the presence of volcanic ash. As the Committee will know, the volcano (which I am not going to try to pronounce) has at least for the time being gone dormant again, so there is no current ash being generated which can be collected and sampled, so the collection of that data is not currently ongoing, but the collection of data about the resilience of engines is ongoing and my Department is in regular contact with the CAA, with the airlines and with the aero-engine manufacturers on this issue. We are also in regular contact with our European partners; this is a European-wide challenge and we need to address it at a European level.

Q77 Chair: I am told it can be called E15, to avoid the problem of pronouncing it.

Mr Hammond: That is very helpful. I shall remember that!

Q78 Paul Maynard: What is your view of the future of the air passenger duty?

Mr Hammond: That is a matter for the Treasury.

Chair: We will turn now to roads.

Q79 Kwasi Kwarteng: Someone might say to you that investment in rail is all very well but actually most people drive around the country, and I just wanted to hear what you and the Coalition Government had to say on road policy. You have ruled out road tolls, which was a major feature of the Eddington Report; they mentioned that as a way forward. I just wanted to see where we were.

Mr Hammond: We have ruled out road tolling for the life of the Parliament. I have made it clear that we have to be realistic about future transport policy, we have to accept that the motorcar is an important part of people’s lifestyle in a prosperous society, and while it is appropriate to focus on modal shift in certain situations, long distance inter-urban journeys, travel into congested city centres, it is also the case that in many suburban areas of the country and in rural areas the motorcar is hugely important to people. It is I hope clear that over the coming decades we will be successful through technical innovation in decarbonising road transport so that while there will still be huge issues of congestion to address, we will no longer have to look at road transport as being an evil in terms of its contribution to greenhouse gas emissions. So the answer to your question is that we need to operate the road network that we have - which is a huge infrastructure asset - more efficiently, more effectively. The work which the Highways Agency has done around managed motorways -using hard shoulders for peak time running, active interventions to ensure that motorway downtime due to accidents and incidents is minimised - is the way forward to ensure we optimise the capacity of our existing motorway and strategic road network.

Q80 Kwasi Kwarteng: You mentioned decarbonising cars, I was wondering if the Department or any other part of Government had specific incentives or schemes to try to accelerate this process of decarbonisation in terms of maybe an industrial policy to encourage scientists to come up with solutions?

Mr Hammond: The technology exists of course and the challenge now for vehicle manufacturers – and I think it is fair to say all the world’s major vehicle manufacturers are engaged in this challenge – is to reduce the cost and hopefully weight of batteries over time as production of electric vehicles starts up and on plug-in hybrid electric vehicles to improve the efficiency and the distance that can be run in the electric mode on those vehicles. The Government has announced support for Nissan to create a manufacturing plant for electric vehicles and the production of electric vehicle batteries in Sunderland; a very important piece of industrial policy. We have also made a commitment to investment in electric vehicle recharging infrastructure, further investment in the existing pilots in London, Milton Keynes and Newcastle, and we will shortly be making an announcement on the Government’s intentions around consumer support for electric vehicle purchase in the early phases of the market.

Q81 Mr Harris: You mentioned briefly hard shoulder running and active traffic management, is the Department, are you personally, quite enthusiastic about that as a solution, as a cheap way of providing capacity on the motorway network rather than having to build new lanes? If so, what are the prospects of rolling that out at a significantly quicker pace than the last Government managed?

Mr Hammond: I think the answer is yes, the Department and the Highways Agency are convinced that hard shoulder running delivers very good benefits in relation to its costs. It is relatively much cheaper to deliver a managed motorway with hard shoulder running than it is to build an additional lane. The environmental impact is less and of course the environmental benefit of keeping traffic moving rather than having congestion is positive. Having said that it is relatively much cheaper, it is still quite expensive to deliver managed motorway solutions because of the intensive use of variable speed signalling, electronic sensors in the motorway. If you like, it is moving from a dumb motorway to a smart motorway and there is significant cost involved. So the pace at which we can address this agenda will be constrained by the availability of capital for investment over the next Spending Review period.

Q82 Mr Harris: You also said you do not envisage congestion charging or road user charging for the length of this Parliament, but you said something about the possibility of constructing new roads with private finance and subsequently having a toll system, as we have with the M6 toll in the West Midlands. Does that mean we can look forward, or that I personally can look forward, to a toll road going from Birmingham up to Manchester?

Mr Hammond: I think a privately financed toll road would have to be promoted by a third party. It could be local authorities, it could be a private promoter. The Department for Transport would be happy to engage with a promoter of a new toll road but the Department does not intend to promote privately financed toll roads itself.

Q83 Lilian Greenwood: I wanted to turn to the issue of road safety. There is a lot of emphasis in the Government on localism, but nationally you have made it very clear you will not support funding additional safety or speed cameras, and also there has been a reduction in funding for local authorities’ road safety provisions. I wondered whether the Government is intending to publish a new national road safety strategy and, if you are, how is it likely to be different? If you are not, how do you envisage road safety being ensured?

Mr Hammond: I am glad you have asked me that question because it does allow me to set the record straight on the road safety funding for local government. The Coalition has made it clear that there will be no more specific funding for speed cameras, however highway authorities will be able to fund speed cameras if that is their view of the way in which they wish to prioritise their road safety funding. There is a misunderstanding about the road safety grant to local authorities. The Department for Transport’s support for local authorities for the current year was reduced as part of the in-year spending reductions by £309 million. Delivery of the reductions to local authority grant funding was entirely in the form of ring-fenced and special grants, specific and special grants, simply because there was no mechanism in-year for reducing the formula grant which makes up the bulk of local authority funding. At the same time, the Secretary of State for Communities & Local Government announced the de-ring-fencing of a significant tranche of local government funding and made clear that the expectation is that local authorities would use this new freedom to drive efficiencies out of their spending across the whole range of local government activity in order to re-prioritise to their own priorities. It is not and was not the intention of the Government to send any signal that it expects local authorities to reduce their spending on road safety by any greater percentage than their spending across the board as a whole. The road safety grant was simply one of the specific grants which was the mechanism for delivering that change. So I hope that is well understood by local authorities and that they will continue to invest in road safety initiatives but using their own set of priorities based on their local conditions.

Q84 Lilian Greenwood: So is that "no" to a national strategy then?

Mr Hammond: We have not ruled out setting a new national framework. I think I am right in saying that the current national strategy expires at the end of this year, and we are currently considering how we will follow on from that, but certainly we will want to recognise that the situation is different in different localities, different parts of the country, and the localism agenda does require that local authorities have discretion to identify the priorities for their areas.

Q85 Iain Stewart: One of the no doubt many reports on your desk is the North Report on drink and drug limits. Have you got an envisaged timescale in which you will announce your views on it? When you are considering it, to what extent will you take into account as well as the safety aspects the broader economic aspects of the effect of any reduction?

Mr Hammond: The North Report contained 51 recommendations ranging from the recommendation to reduce blood alcohol limits to 50 mg, which was the headline takeaway for most of the print media, right the way through to some very technical recommendations around improving the processing of drink-driving cases in order to reduce loopholes and reduce the number of people who are escaping effective punishment although they have clearly breached the rules. I think the judgment for us is around where to focus limited resources. There is only a limited amount of police time available to intercept and process people who are guilty of drink-driving and drug-driving, and our priority is to see we make the maximum possible impact on road safety within that constraint. We do know that a significant number of the people currently guilty of drink-driving are driving at well over the current 80 mg limit. I think the figure is 90% of drivers killed in drink-driving incidents are at 100 mg or more, and 40% are at 200 mg or more, so we have a problem of really serious non-compliance. This is not about failing to comply at the margin, it is about a total disregard for the limits. Different people will have different views about how best to deploy resources to ensure we address that issue, and that is what we are consulting on within Government at the moment, and I expect we will be in a position before the end of the year to announce our proposals on all of the North Report’s recommendations.

Q86 Chair: You will know, Secretary of State, that the Committee is going to be looking at that issue.

Mr Hammond: I welcome the input of the Committee. If I may ask a question, does the Committee have a view on when it is likely to publish its findings?

Q87 Chair: Not yet but we will ensure it is appropriate.

Mr Hammond: It would be sensible for us to have regard to the timetable of your inquiry when setting our own planned timetable.

Chair: We will make you aware of that and ask you to make your timetable encompasses our findings. Thank you.

Q88 Angie Bray: Following on from that, it always seems the main attention is focused on the alcohol limits but of course he does talk about how we can test for drugs at the roadside and I am interested in the technology which may or may not be available to do that. Part of the problem seems to be that it is quite difficult to get this technology so there can be roadside testing for drugs. Can you tell us where we are on that and what the Department is doing to try and bring on this technology?

Mr Hammond: The Home Office has the responsibility for type-approving any equipment used for drink or drug testing, and the Home Office is looking at the moment at the issue of type-approval of equipment for drug testing in police stations. We are some little way away yet for type-approval of any equipment which could be used for roadside drug testing. There are technical complexities around testing for drugs which basically, in a nutshell, derive from the fact there are many different drugs which impair driving capability, not just illegal Class A and B drugs but also prescription medicines which impair driving capability, and while it is currently illegal to drive while impaired through the use of any type of drug there are technical difficulties in measuring those particularly at the roadside. So it is work ongoing.

Chair: We will be returning to this issue in our inquiry so perhaps I could ask members to save questions on that until our inquiry.

Q89 Mr Leech: Do you have any view on the introduction of random breath testing?

Mr Hammond: The advice of the police is that they currently have the powers they need for enforcement of the current drink-drive laws. From what I have read there is something of a misunderstanding among the public about this and my understanding is that the police do in fact have powers where there is evidence of a localised problem to target an area in a way which I suspect many members of the public would call "random breath testing". So the distinction between the current regime and the full introduction of random breath testing is not quite so stark as is sometimes imagined.

Q90 Chair: We will look further at this issue in our next inquiry. I want to move on to buses and bus quality contracts. Before the general election the Conservatives said they were going to repeal the legislation allowing bus quality contracts. Is that still the case? The wording on this issue in the Coalition agreement is exceedingly vague.

Mr Hammond: The wording in the Coalition agreement recognises the fact there is now a Competition Commission inquiry into the bus market under way looking to establish how the bus market is working and whether in fact there is a competitive market among bus operators. The decision we have taken is that it would be inappropriate to make any structural changes or any legislative changes to the operation of the bus market until the Competition Commission has completed its inquiry and has ruled on any remedies which it considers necessary to correct any failures in the bus market.

Q91 Chair: What is your policy on bus quality contracts?

Mr Hammond: My policy on bus quality contracts is that we will look at the issue of the regulation of the bus market when we have the Competition Commission’s Report and remedies in front of us, which will be next summer.

Q92 Lilian Greenwood: What is the Government’s attitude towards the bus service operators’ grant and are there any intentions to change that?

Mr Hammond: The bus service operators’ grant in total costs nearly £1 billion a year. It is clearly an important part of the economic equation for bus operators, but as you would expect all major blocks of resource spending have been considered in the course of the Spending Review and will continue to be considered.

Q93 Lilian Greenwood: I know particular concern from people who use buses is from low income groups or young people – and possibly women are more likely to use buses - have you taken into account equality impact assessments in making those sorts of decisions?

Mr Hammond: Precisely, by doing an equality impact assessment. All departments will be required to carry out equality impact assessments for any of their proposed changes in funding of different areas of the resource budget. I can tell you in relation to the Department for Transport, where we have looked at and evaluated options in all cases we have assessed whether there is an equalities impact issue which needs to be appraised in more detail and, where there is, we have carried out an initial appraisal to see what the equalities impact is likely to be.

Q94 Lilian Greenwood: Are the equality impact assessments going to be published at the same time or prior to the announcement in the Comprehensive Spending Review?

Mr Hammond: I cannot give you an answer to that question off the top of my head. I suspect they are capable of FOI requests in due course, once the Spending Review decisions are announced. My own approach to this is that where information is capable of being the subject of a successful FOI application, given the huge reduction in administrative overheads we are seeking to deliver in central government, and thus the reduced capability to respond to individual inquiries, where it can be published it would be sensible to publish information as a matter of course, and that is certainly the approach the Department for Transport will be taking.

Q95 Kelvin Hopkins: I just wonder if the Government’s policy on the future of buses will be strongly informed by the fact in London bus ridership has gone up, because they are controlled and subsidised, and it has fallen elsewhere in the country? Would it not be a good idea to at least consider spreading the practice in London to other parts of the country?

Mr Hammond: That of course is the argument put forward by those authorities in South Yorkshire, West Yorkshire, in particular who are looking at the bus quality contracts model. I think it is not clear necessarily that the organisation of the bus market in London is what has delivered the higher ridership. Bus fares in London are relatively lower than in many other parts of the country, and the network is very much more extensive. Clearly those will also be factors which have an impact not necessarily resulting from the structure of the market but clearly related to the amount of subsidy that is delivered in one form or another to the market. So there is a complex question about how bus markets operate. The Competition Commission has the specialists and the expertise to look at this and is currently doing so and it seems to me it would be foolish of the Department for Transport to move before seeing the results of the work the Competition Commission is conducting.

Kelvin Hopkins: Could I interject a brief question on light rail at this point?

Chair: Can we keep to buses. We will come back to that.

Q96 Lilian Greenwood: I wanted to follow Mr Hopkins’ question about bus use. I am sure you are very well aware that bus use in Nottingham has also increased, it is not just London, so it would be worthwhile looking at what has happened in Nottingham as well in making an assessment of how to encourage better bus use.

Mr Hammond: My observation, from what I have seen and have heard in my discussions with local authorities, with PTEs and with bus operators, is that in areas where a constructive collaborative relationship has been established between the operators and the local authorities, services are improving and ridership is increasing. I think there is probably a pretty strong message there that collaborative models work well. That is not to say that in all cases it is going to be possible to deliver them, but where they have been delivered they appear to be working.

Q97 Paul Maynard: Do you think that the funding mechanism for the concessionary bus travel scheme is working adequately?

Mr Hammond: As you know, there are changes proposed to the funding mechanism so that concessionary travel grant will be distributed by upper tier authorities rather than lower tier authorities. This will make a significant reduction in the Department’s administrative costs in relation to bus concessionary travel. At a time of constraint in public spending, that must be a sensible thing to do.

Q98 Chair: Have you plans to change the eligibility criteria for the national concessionary travel scheme?

Mr Hammond: As you will know, the eligibility criteria are enshrined in primary legislation. The age at which the concessionary bus pass is available to older people will increase as the women’s state pension age increases over the coming decade. Beyond that, the Government has announced no plans to legislate, to change the existing primary legislation regime, but clearly there has been lots of speculation in the media and I think you would expect me to say that the costs and benefits of many options have been considered in the course of the run up to the Spending Review.

Q99 Chair: Come on, I think you can tell us a bit more than that, can you not? What about the age for eligibility? Is that going to be changed? You can do that without primary legislation.

Mr Hammond: I cannot answer that question. Of course the Spending Review will make decisions about the envelope of resource budget available to the Department. What I can tell you is that the Prime Minister and the Deputy Prime Minister have made what I consider to be very clear and unambiguous statements around the availability of concessionary bus travel for older and disabled people.

Q100 Chair: Does that mean that ages for eligibility will not be changed?

Mr Hammond: I cannot give you a categoric answer to that question ahead of the outcome of the Spending Review.

Q101 Chair: Have you suggested they might be changed in your submission to the Spending Review?

Mr Hammond: I do not think I can divulge to the Committee the precise details of the submission which has been made to the Treasury by the Department for Transport. As you will know, the requirement is for departments to identify changes they would make in order to respond to a 25% reduction in resource spending and then examples of further changes that could be made if higher levels of resource spending reduction were demanded. Departments will have looked at a huge range of options, some of them politically deliverable, some of them politically undeliverable, in looking at what a much larger cut in resource budgets could entail.

Q102 Chair: What about means testing the concession? Is that something which would be politically deliverable or politically undeliverable?

Mr Hammond: That is for others to determine.

Q103 Chair: In your opinion?

Mr Hammond: In my opinion, it would be impractical to means test eligibility for concessionary bus travel.

Q104 Chair: Would it be impractical to change the age of eligibility?

Mr Hammond: Clearly it would not be impractical to change the age, because the age is going to be changed under the existing primary legislation as the women’s state pension age increases.

Q105 Chair: But it could be changed further?

Mr Hammond: If you are asking me a simple question about administrative practicality, it is a simple administrative procedure to change the age of eligibility. To introduce a means test would be a very complex change to the system.

Q106 Chair: But they could be done?

Mr Hammond: Well, anything can be done, but you are asking me about the relative practicality of different, hypothetical changes to the system, and I am telling you that a hypothetical change in the age of eligibility would be relatively simple to deliver. A hypothetical means test would be very complex to deliver.

Chair: For the moment, we will accept that.

Q107 Julian Sturdy: On concessionary travel, when concessionary travel was introduced some time ago now by the previous Government, and the criteria was increased, obviously the cost increased. Do you feel at the same time there was some funding taken away from the subsidised routes so that rural areas suffered with the introduction of certain concessionary travel? I know the funding for concessionary travel was running about the same as the funding for subsided bus routes at the moment.

Mr Hammond: I think some local authorities have suggested that the distribution of reimbursement of concessionary travel in their particular cases has been inadequate and the way they have addressed that is by reducing other areas of local transport spending. I have heard that suggestion made by some local authorities, I am not in a position to say whether that is accurate or whether it is a fair assessment of what has happened in those cases.

Q108 Chair: National planning policy: do you intend to designate a national policy statement on ports?

Mr Hammond: We have not yet made a clear announcement about this but we will make announcements shortly about our intentions with regard to national policy statements.

Q109 Chair: When do you think you will be making that announcement?

Mr Hammond: I think it will probably now not be before the summer recess.

Q110 Chair: It would not be the first time statements have appeared late in the day!

Mr Hammond: I know the ministerial code urges ministers to avoid issuing ministerial statements on the last sitting day!

Q111 Chair: We are okay then! It will not happen tomorrow.

Mr Hammond: We will see how successful that exhortation is!

Q112 Paul Maynard: Do the ongoing negotiations over the treatment of the Port of Dover offer any indication as to the future of the other Trust ports?

Mr Hammond: You will understand that I have a quasi-judicial role, or my Department has a quasi-judicial role, in determining the application which has been made in respect of the Port of Dover and therefore it would be inappropriate for me to comment in any detail on the Port of Dover. We have announced that there will be a further consultation in respect of the proposals submitted by the Dover Harbour Board. We would also be interested to hear any proposals from other Trust ports around voluntary approaches to changing their status should any of them be so minded.

Q113 Chair: Any further questions? Thank you very much for coming and answering our questions. I am sure we will continue this conversation another day.

Mr Hammond: I am very happy to do so.