The Severn Crossings Toll - Welsh Affairs Committee Contents


Examination of Witnesses (Questions 331-384)

MIKE PENNING MP, JEREMY ROLSTONE AND GRAHAM BOWSKILL

9 NOVEMBER 2010


Q331   Chair: Good morning and thank you very much indeed for coming along today. Some of us know each other extremely well but nevertheless, for the record, I am David Davies, Chairman of the Welsh Affairs Select Committee. Perhaps, gentlemen, you could introduce yourselves.

Mike Penning: I will introduce myself. I am the Minister for Roads and Shipping, and these are my colleagues from the Department.

Jeremy Rolstone: I am Jeremy Rolstone from the Road Demand Management Division.

Graham Bowskill: I am Graham Bowskill from the Highways Agency.

Chair: Thank you very much for coming along today and I would like to begin with Owen Smith.

Q332   Owen Smith: Thanks for coming to see us. I would like to start with the terms of the deal that was struck on the building of the second Severn Crossing. I think we understand now, after our research, the essence of the deal: the four shareholders bear all the costs of building and maintaining the bridge and the bridge returns to public ownership after they have, in return if you like, netted the revenues to the tune of about £1 billion. Do you feel, looking back now, that the public got a good deal when that PFI deal was struck all those years ago?

Mike Penning: Hindsight is a wonderful thing, but I don't think there is any doubt that unless there had been private money, private investment, the second bridge would not have been built. If we look back at the net benefits of the bridge being constructed and the running of the original bridge being taken over, I think, at the end of the day, with the information that was available then—in hindsight we can always look at things differently—yes, I do. I think it is easy for us now to look back at the decisions that were made then which enabled the bridge to be constructed and then the infrastructure to be looked after during the terms of the agreement. So, yes, I do.

Q333   Owen Smith: Can you give us any insight into the sort of revenues and the profits that the company has made thus far and might make at the end of this, because we have been slightly surprised by the company telling us that they can't really tell us right now how much money they will make at the end of it all?

Mike Penning: I don't have that information either. I looked at the evidence that was given to this Committee. It is not for me to decide how much profit a company should make, particularly within the PFI. All I can say to you is that we looked very, very carefully at the tolls, for instance. The increase in tolls—and I am going to announce what the increases are in a moment to the Committee because I thought this was the right place to have an announcement today—is set in statute. They can only charge RPI increases. Of course the end of the contract is based around when they recoup their costs. We keep a very close eye on that, but, as you can imagine, it is not for me to decide and run the company. It is for them to run it and the four shareholders. It will fall into our hands as a national piece of infrastructure, which it is today, and ownership into the public's hands.

Chair: Mr. Smith, are you happy with that?

Owen Smith: Right.

Q334   Chair: Thank you very much. Could you tell me, Minister, what is the rationale that estuaries, and I think only estuaries generally, should be tolled?

Mike Penning: I think it is historic. If we look at how far back estuary tolling has been and can be done—1945 is as far as we can go back—the rationale is for that sort of enhanced communication. I think that is where the rationale comes from, and the huge cost of estuarial communications. That is why the historic tolling has taken place. However, it is, of course, not the case now that it is the only form of tolling that takes place. The M6 toll is the most obvious one. We are very much looking at new infrastructure—and I suggest new—which could be tolled.

Q335   Geraint Davies: Are you concerned that the incentives of the Severn River Crossing company are such that their real incentive is to get things sorted out by 2017, not to extend it perhaps and have a lower toll to allow more economic activity across the bridge? Indeed, in their hearing, they gave the suggestion that there was no incentive for them to invest heavily in modernisation. As you know, it is an antiquated system to how you pay, certainly compared to the Congestion Charge system. It is old-fashioned. Are you concerned now looking back—I know this wasn't your responsibility—that the structure is such that the intention of the modernisation or relaxation of the tolls over a longer period in the interests of the economy are the right ones for the Welsh and indeed the English economy?

Mike Penning: I think it is the national economy that I am particularly interested in, as you can imagine.

Geraint Davies: Yes, of course.

Mike Penning: Especially as one of the bridges actually goes from England to England rather than from England to Wales.

Geraint Davies: But just in the general trade—

Mike Penning: But I understand where you are coming from.

Geraint Davies: The barrier to trade—

Mike Penning: The contract is very restricted. The powers that the Secretary of State and I have are actually quite constrained. For instance, if I wanted to suspend charging at night or do something similar to what I am doing at Dartford, where I suspend the charge when tailbacks become unacceptably long—I think it is fundamentally wrong that people are charged for a service and then have to queue up in some kind of Soviet system for hours to do so. That is wrong. Under the contract, if I asked the Secretary of State to impose those sorts of things—and we will come on to free flow, I am sure, in a moment, which is something that I passionately believe should be on the bridge, which is quite key—the taxpayer, under the contract, would have to then compensate the company. They do not want to go, as you heard, beyond 2017.

If we actually incur costs to them, that liability has to be, under the agreements, the liability of the taxpayer unless they agree that they want to extend. For instance, there was a short extension done recently when the VAT increase goes up to 20%. That meant either we increased the tolls because of that, and RPI, or extended the period on agreement with them by five weeks. They have to agree. If they don't agree, there is nothing I can do.

Q336   Geraint Davies: Because we have heard that after 2017, in theory, we could reduce the toll to something like £1 a car because in terms of revenue it is about £72 million and the costs of running remains at £12 million.

Mike Penning: Yes.

Q337   Geraint Davies: So presumably someone could work something out and extend the period and have a lower average toll than is currently prescribed in order to have more economic activity during difficult times?

Mike Penning: Post 2017 that could be, because then obviously all the concession is finished. They clearly have indicated to you and indicated to us that they are not interested in running the concession past 2017.

Geraint Davies: I see.

Mike Penning: Now, that is a commercial decision for them to have made.

Q338   Geraint Davies: They didn't make that clear to us.

Mike Penning: Well, it is perfectly clear to me that they do not want to. I think I am right in saying that.

Q339   Chair: Have you had these discussions then or has somebody had them?

Mike Penning: My officials have certainly had discussions with them.

Chair: That is news to me.

Mike Penning: There are several discussions that take place. Let me touch on what I said a moment ago. By 2012, at the Dartford River crossing, we would have invested some £10 million and there will be free-flow charging both ways. So there will be no barriers and no toll booths, which actually is what causes the most pollution and congestion and upsets so many people. Interestingly enough, with the increases of 50p next year and 50p the following year, each way at Dartford, it will be £5 at Dartford, which is not far off the fee for a car, for instance, going across the bridge.

Q340   Chair: What you have said actually does come as news to me and I think to other members as well. Just to be clear, you are saying that your officials have had discussions with SRC and that SRC have given you an indication that they no longer wish to have the concession when it runs out in 2017 or thereabouts. Presumably, therefore, if those two facts are correct, perhaps you could just confirm for us, and I will then—

Mike Penning: Yes, my officials have been discussing with them.

Graham Bowskill: The discussions we have had with SRC relate to negotiations for settling what we might otherwise call claims and the cost of credit cards, for example, and they can be addressed in many different ways. One would be extending the concession beyond 2017. Others would be different means of addressing it within that timescale. Their preference is that they don't extend because they take on an extended period of risk, in their view, because they would be responsible for the existing structures.

Q341   Chair: That I can understand in relation to the credit cards. There is a wider question of what happens when the concession runs out. It is something—

Graham Bowskill: Officials have not had discussions with them about the arrangements after the end of the concession and how the Department and Ministers would want to deal with the Severn crossings once they return to our ownership.

Q342   Chair: Forgive me for asking you then, but surely this is something one would expect that you might be thinking about because it is not that far away? Seven years will go by fairly quickly, and if this is a fairly major question surely there must be some idea within the Department as to what is going to happen after the concession runs out?

Mike Penning: As you are aware, I have only taken over the portfolio in the last couple of weeks. One of the reasons that it was handed to me from the local government portfolio to the national infrastructure portfolio is because it is a major and important piece of infrastructure to the national economy as a whole, as well as, I fully understand, to the Welsh economy. Yes, those discussions will start. I stress that they had not formally started, but every indication is that they have not, as I understand it, shown an interest in extending beyond 2017.

If you look at the way that the negotiations have been done to do with extra cost and extra burdens, they have tended to be within the 2017 period rather than extending beyond. I think, to be fair to them, some of that is to do with the way that their finances are structured. It is quite complicated for them.

Q343   Owen Smith: Are you content though, Minister, with the attitude that the company are showing? It has been very clearly shown to us that effectively they do not want to invest in free-flow technology or any other innovation in respect of the tolling system and that is principally why they are not interested, I presume, in extending the franchise in order to meet some of those costs.

Mike Penning: I am concerned that there is a conflict of interest here between the end game for them being 2017—and there are some costs that the Government have which would actually have to be reimbursed after that through tolling anyhow—and actual investment in free-flow tolling.

The costs that I mentioned earlier on to do with Dartford at around £10 million is because we had to reconfigure the motorway as it comes off of the bridge rather than the cost of the free flow. The technology is there. We use it in London every day. We can learn by the early mistakes of the congestion charging, but there is no reason on earth that, in the 21st century, we are stopping people and asking them for cash or to use their credit card when they should be able to pre-pay and post-pay.

Q344   Owen Smith: So do you agree with me then that the company looks to be making a handsome profit and therefore should be obligated to invest in further technology?

Mike Penning: No, no.

Q345   Owen Smith: Do you think therefore that you should take powers in order to change that?

Mike Penning: The contract is quite specific as to what they have to do. If I wish to change the contract, I will have to renegotiate that position with them, which will have a cost implication on them. They were set up as a single-purpose company. They were set up for this project. They don't have any other projects anywhere in the country. This is a single-purpose company.

Yes, I agree with you. I would love to be where we were when they started it, because some of the restrictions that are there I perhaps would not have agreed to. But they were agreed to. We have a contract of obligation, and if I start changing the nature of the contract that would mean, without any shadow of a doubt, that there would be costs up front. Now, I am going to have those negotiations because I think that it is absolutely unacceptable that, in the 21st century, we have barriers to try and take money off of people when we need the money, but there are much better ways of doing it and we can learn from around the world how it has been done.

Q346   Jonathan Edwards: In terms of the free-flow technology, we pressed the company on this issue and they have got no intention at all of changing the tolling structure or how tolls are collected until after the end of the concessionary period. So what can you actually do to force them towards this?

Mike Penning: If they are absolutely rigid, it is very, very difficult. As I say, they have a contract. At the same time, we have a service principle that we have to make sure. Cardiff Stadium is fantastic, but when I used to go down there for the rugby and the football and sit there at the toll to pay it was one of the most frustrating things I have ever imagined. People do that on a regular basis, on a daily basis. The queuing and the congestion do affect the economy. There is no argument about that.

But I think I am right in saying that they are in a very powerful position should they wish to ignore. I can force it on them, I understand—I think the Secretary of State could actually force it upon them, but then there will be the up front costs which may well have to be incurred by the Highways Agency and my Department. That may well be worthwhile, but when I get into negotiations with them—I have only had the portfolio for about four weeks now—that is something that we can do. For instance, at Dartford, there is provision within the spending agreement that I have £10 million for that project. At the same time, of course, we have got the 50p up this year and 50p up next year, 2011 and 2012, to also help fund those works.

Graham Bowskill: What I would say about the Severn River Crossing company is that they have been co-operative in introducing changes. The caveat that they always place on it is that they would look within the concession to receive compensation. So, if their revenues dropped or if they were delayed in any way, they would be looking to negotiate a package with the Highways Agency to compensate them for that. They, with credit cards as an example, have been willing to make changes. I think the message that they gave the Committee was that they would not, of their own volition, make changes, but that does not rule out the opportunity to talk to them, to negotiate and, as the Minister said, recognise that there would have to be some payment to cover any loss to the company.

Q347   Stuart Andrew: Minister, in terms of the competitiveness of the Welsh economy, I wondered if you have considered what impact these tolls might have on that competitiveness and also how much you think it might impact on the company's decision on whether to invest on either side of the river?

Mike Penning: I have looked at this because I know that this has been raised on several occasions. I can't find any evidence that investment in Wales has been, or is being, affected by the tolling. Actually, the Welsh Assembly have indicated that the growth that they see is very, very good at the moment. I am more than willing to look at evidence should it be brought before me, but there doesn't seem to be any evidence that it is affecting the Welsh economy.

Q348   Stuart Andrew: So I take it that you welcome the Welsh Assembly Government's announcement of an economic impact study. What will your Department do to feed into that and be a part of it?

Mike Penning: By all means and we will participate with the Welsh Assembly as much as possible. The only thing I could say is that the Welsh Assembly is saying that Wales is increasingly attracting companies from all over the world. That has been published only in the last couple of days on their own website, which is great news— absolutely great news. I say this to the Committee strongly, but what does stifle it is if people are stuck in queues to pay a toll. We can learn from what we are doing at Dartford, but I think there is no argument that we need to have free flow running through the Severn.

Now, how we finance that is going to be really difficult because it will either be, as we alluded to a moment ago, an extension to 2017 or the taxpayer has to fund that. The principle has always been on estuary crossings that the taxpayer should not bear the brunt. That is why we had the tolls. That is something I am quite passionate about because it is affecting people's perception and it always will if you have to queue to pay a toll.

Chair: We certainly look forward to that.

Q349   Karen Lumley: Under the current legislation, has the Secretary of State any power at all to set the annual tolls below the Retail Prices Index?

Mike Penning: No. The agreement is RPI, and, for instance, I can use this opportunity to tell the Committee what the increases will be for next year. There are three categories of charge. The increase for cars will go up by 20p, the increase for vans will go up by 60p and the HGVs will go up by 80p. That is in line with the contractual agreement under the Severn Bridges Act, which is RPI to the nearest 10p increase. If you look at those increases and you then compare them to, for instance, my Dartford River crossing charges, which are the two I have control on, then you can see that it is actually slightly less—well, it is substantially less for cars—than what is happening both ways, I stress, at Dartford.

Chair: Just before I bring in Jonathan Edwards, I am sure we would swap our toll for the Dartford River one.

Q350   Jonathan Edwards: On what basis does the Department of Transport predict the costs and revenue associated with the crossings? Do you accept that an over-generous formula was created by the Department considering we are going to be finishing in 2017 rather than 2022?

Mike Penning: Again, we are where we are. The agreement, when it was all set up some time ago, is where we are and 2017 is where we are. Just to go back to the previous question, the Secretary of State does have the powers—don't get me wrong—but then we have to compensate them from the taxpayers' purse for the loss. With the priorities and where we are at the moment, I would struggle to be able to say that I can use taxpayers' money to subsidise at that time. Yes, we do, but we would have to pay them the difference for the loss of income.

Q351   Jonathan Edwards: We have been told by the company that they currently owe the Government a £200 million debt on the crossings. Would you be willing to delay repayment of the debt to enable a lowering of the tolls, particularly in the short term, considering the economic climate?

Mike Penning: Bear with me, as my officials will probably tell me I am wrong, but, as I understand it, the Secretary of State can ask for the tolls to be lowered. The compensation has to be directly paid to them. I don't think it can be offset against the loans. Is that correct?

Graham Bowskill: Yes, that is correct.

Mike Penning: Thank goodness for that.

Graham Bowskill: The Treasury are expecting the repayment of the subordinated loan as defined in the original concession agreement.

Mike Penning: The concession agreement is very tight. Let's not beat around the bush about that. It is very, very tight. If we touch it or move it, the taxpayer pays. That is basically where we are. We either get an extension—but if they do not want to do that then the taxpayer pays and that is the difficult part.

Q352   Jessica Morden: At the moment, the Severn tolls are the most expensive in the UK for all but the largest vehicles, and I bear in mind what you said about the Dartford crossing. Do you understand the real sense of unfairness in Wales that a lot of work is done on the Dartford crossing? There are toll fees on the Humber crossing, and yet with the Severn Bridges there seems to be nothing that we can do. It seems to be treated differently.

Mike Penning: I think the comparison with Dartford is understandable. The comparison with the Humber is not understandable, I am afraid, because it is owned by the local authority down there under a completely different piece of legislation. The link with Dartford, if you recall, is that Dartford was in a very similar position where there was a concession for the debt. The debt ran out and the tolls are still there. Believe me, I get a lot of discussion with the Kent and Essex MPs and their constituents as to why there are still tolls there. I think if you look at the increases that will move to 2012 for Dartford, which will take cars to £5—£2.50 each way—they will not be that dissimilar to where they are. However, I understand the concerns. The concession agreement that was entered into means that it is RPI increases to the nearest 10p and that is basically where we are.

Now, when RPI is low, the increases are relatively low. If it moves on then the increases are different. I understand the concerns, having inherited a contract which was not placed in the agreement by myself or any of the other Ministers in the Department. It is frustrating. The biggest thing that I am frustrated about is, is it fit for purpose? In other words, whether we like it or not, tolls across estuarial crossings are there. This particular contract means that it is very difficult to get the technology and investment that, for instance, I am putting into Dartford because we own Dartford in comparison to the concessionary agreements we have with Severn.

Q353   Jessica Morden: Just to clarify one point on the toll rises from January next year, what about the VAT increase? Have you absorbed that?

Mike Penning: Yes. What happened with the VAT increase is that under an agreement with the concessionaire, I increased—I think it was five weeks—the concession agreement further into 2017 so there wouldn't be any increases because of the VAT.

Q354   Jessica Morden: Just finally, there was a big campaign this year for a freeze in the tolls because people's hours are reduced and there are wage freezes, etc. Are you saying there is nothing that you could do in terms of legislation which could, for instance, bring in more flexible concessionary fares for people who live locally or off-peak fares? There is no way of altering that?

Mike Penning: If we alter the agreement of the RPI increases, which the Secretary of State does have the power to do, I would have to pay that from the Exchequer's purse.

Q355   Jessica Morden: But you were able to do that with credit cards, or the previous Government was. Therefore, did they take on the card handling charge, for example?

Mike Penning: I will let my officials explain to you what has happened with the credit cards because that has been an interesting experience over the last few days and weeks as well. One of the things that fascinates me when this country enters into agreements and bids for things like the Ryder Cup, is what has to be agreed to in the small print. So, for instance, the credit card situation had to be agreed to there, and the bus lane on the M4, for instance, has to stay because of the Olympics and things like that.

We will come to the costs in a second and I will ask my officials to explain that. Frankly, for the Ryder Cup, they put in a piece of technology which was not actually fit for long-term purpose. In other words, it was actually a PIN card similar to what you get in a shop. You have the cardholder and you have to put your PIN in. The new technology that is being installed as we speak means that they want you to use a PIN so it will be much faster. I still think it is antiquated. I still think that free flow is the answer. But, actually, we have had to absorb the costs, I understand.

Graham Bowskill: Yes. We have found it a very long and tortuous route to introduce credit cards and I have every sympathy with people on both sides of the crossing. The reason it is taking so long is because credit cards involve a new form of income coming into the SRC procedures. There is a cost of actually processing credit cards, which means that for every £1 coming in in hard cash they would get less than £1 if it were paid on a credit card. Therefore, we have been negotiating with SRC to cover those costs. That is in a negotiation coupled with other issues that need to be settled under the concession.

With regard to the temporary system for the Ryder Cup, we were very proud of being able to get it in for the Ryder Cup for obvious reasons, but SRC had to withdraw it very soon afterwards as it was administratively almost impossible for them to handle because of the manual processing of the card payments. They have produced a system now which is more effective, albeit temporary, and, as the Minister said, we are working with them to negotiate to have a permanent system.

Chair: I am pleased to say that we phoned SRC and it appears to be up and running today. I would like to say, "The Welsh Affairs Committee is wot done it." We will perhaps get a few further questions on this.

Q356   Guto Bebb: Just on the issue of credit cards then, to clarify, in order to get the credit cards in place for the Ryder Cup your Department basically had to come to an agreement with Severn crossing to compensate them for the loss of revenue in effect?

Mike Penning: Yes.

Graham Bowskill: We underwrote.

Mike Penning: Yes. This is where this contract was perhaps—if I was sitting in the chair and in hindsight, we and our lawyers would have been more careful—very, very tight. If we ask them to use sensible new technology, in other words, a credit card, for the loss of income they get because the credit card companies apply a levy on them, we have to compensate that and the cost of bringing it in is down to us as well.

Q357   Guto Bebb: But, contractually, the company was actually acting within their rights?

Mike Penning: Yes, absolutely.

Q358   Guto Bebb: And in terms of the new system which has come into place today then, did I hear you correctly when you stated that that is not dependent upon the PIN system?

Graham Bowskill: That is correct.

Q359   Guto Bebb: That is correct? Excellent.

Mike Penning: It is really interesting as to where the banks are on this because they desperately want PIN use wherever they can, but actually it is such a hindrance if you are taking small amounts of money and you want to move through fast. The truth of the matter is that, whatever happens, cash at the moment is by far the better method of use, but credit cards will be quicker. That is not a problem.

Jeremy Rolstone: The credit card system which is in place at the moment does need PINs to be entered. In the New Year, we will be moving to a system where you can just insert your card and take it out. Then you don't need a PIN.

Q360   Guto Bebb: Just a final point then. In terms of compensation, have you extended the period again in order to allow for the costs or have you actually provided for the costs?

Mike Penning: This is the negotiation that is still taking place. The indication is that they do not want to extend but, as I say, we are still in negotiation. I will say—there is no point in beating around the bush—that they are in the driving seat because of the way the contract is drafted.

Chair: A very quick question from Alun Cairns.

Q361   Alun Cairns: Thank you, Chair. Minister, is it the case that the company have the Government over a barrel really because you cannot make any changes without the taxpayer incurring the cost? Secondly, there would have been reduced cash-handling charges as a result of moving to credit cards. Was that incorporated into the negotiations? I hope that their savings in terms of reduced cash-handling charges would not have been of benefit to the company, and that at least taxpayers' funding would be reduced.

Mike Penning: On the latter point, the latter part of the negotiations are obviously taking place now. Cash—especially coin—is very expensive to bank, whereas the credit card charges in theory should not be. We are talking about a tiny amount in proportion, though, to the income from the tolls. I would not use "over a barrel" because those of you who know me know that I am fairly robust with these things and we will negotiate very robustly on behalf of the taxpayer, I can assure you.

Q362   Alun Cairns: Finally then, I got a sense earlier that the Committee, as well as the official from Monmouthshire County Council, were pretty irritated about the communication that came from the SRC in terms of not advising when the credit cards were available or when they were not available, and about the confusion, which meant that an official had to ring up to find out what the latest position was now. Do you think that is acceptable? What can you do to at least help communicate the message whether credit cards are acceptable or not, and to deal with the confusion that it brings to members of the public?

Mike Penning: I think it is unacceptable for confusion to take place when the public are being asked to pay a fee. I think they managed just about to get the technology in place for the Ryder Cup, but only just about.

Q363   Alun Cairns: But I mean since then?

Mike Penning: I appreciate that. The movement on since then is that we are in an interim period with PIN at the moment with no PIN as soon as we can after Christmas. But I am very, very conscious that communicating with the public who are using the bridge is a matter for the Highways Agency to get right with the management operating the tolls. That is something we are working very closely on.

Q364   Stuart Andrew: I think you have just answered the question on one point, but, talking about the latest technology that they will be using in the new year, I am presuming that is also going to be the contactless stuff, which is obviously going to be much quicker than having to insert into a machine?

Mike Penning: I think you will find it is not the contact one. It is not something that is similar to an Oyster. The technology is not there for credit cards to move into that position yet, especially in the environment they are going into. It will not be dissimilar to what you find if you go into an NCP car park these days—I am sorry to advertise NCP. You will have to insert, it will read and you take it out.

Karen Lumley: It is not like the M42.

Q365   Stuart Andrew: But you do with credit cards now. Certainly Barclays are introducing it and you just wave it past a window. You don't have to—

Mike Penning: But we have to cater for the whole of the public; in other words, for the facilities that they all have. If the credit card companies all moved to that technology then we would stand a chance. I am still going to places and being asked to sign when France and Spain brought PIN numbers in 25 years ago, if not longer ago, and now they are telling us, "The PIN system is not safe" and we move back to another method. The credit card companies move very fast and very slow sometimes, but I understand where you are coming from.

Q366   Geraint Davies: On that final point, when do you think we will be able to put their tolling booths into St Fagans so that people can visit it? It is an ancient monument. That was not a serious question.

My serious question is that you mentioned earlier that, as far as you were aware, there was no evidence of any negative economic impact on either inward investment or trade across the Severn. I suggest to you that if you imagine yourself as a builder in Monmouth, a jobbing builder putting on roofs, it would not be in your interests to even go across the bridge to try and get work in Bristol because you would know it would not work, so there would be a hidden impact that has not been measured in that sense.

Secondly, given that the market size on the English side is bigger, there will be a number of businesses who may have located there in the knowledge that it is better to be on that side. I know that Tesco has moved to the other side because of logistics costs. I think it is a much bigger market on the other side and they don't have to incur this toll.

Would you accept that some of these so-called economic studies have simply measured the elasticity of demand of existing users of that and have ignored small businesses who have just chosen not to even bother? The big businesses have already made the strategic locational decisions. So, therefore, would you perhaps look again at the economic evidence more deeply?

Mike Penning: Yes.

Q367   Geraint Davies: Because I fear that this bridge is acting as a squeeze as a gateway to inward investment in Wales and trade between England and Wales.

Mike Penning: That is why we will work with the Welsh Assembly very closely on the new assessment.

Chair: We welcome that.

Q368   Geraint Davies: On the Welsh Assembly, you said that they seem to be saying that everything is fine, but would you accept that my view of that is that they are simply saying, "Come and invest in Wales" and they are being positive as opposed to saying that there is not a negative impact of the toll?

Mike Penning: No, I didn't say everything was fine. The country is coming out of a very, very difficult situation and the figures are good, but we would like them better. There is one thing that is significant. If you talk to businesses like I do, the one thing they want is certainty that they can cross from A to B, even if they are going to pay, in a feasibly sensible time and not be held up with congestion. That is affecting certainly the Dartford River crossing and I know at times it affects the Severn.

Q369   Owen Smith: To clarify, are you saying that you are going to reopen negotiations with the company before 2017 in order to try and see this free-flow technology produced?

Mike Penning: Yes.

Q370   Owen Smith: You are. Are you also saying that we should think about the Dartford analogy where extra money has been put on tolls—£1 over two years—as what might be the consequence of that renegotiation?

Mike Penning: No, I don't think that. I think that the contractual agreement for the tolls at Severn is at the RPI anchored to the nearest 10p, and that is where the contractual obligation situation is. I can't show my hand, as you can imagine, as much as I like being honest with the Committee as much as possible, as to what could happen with the costs should we get free flow. I think we should have free flow. It is an economic issue as well as an issue of almost morality, if you wish, as to, "Is it right that you make people queue to pay something in that way when we have the technology to prevent it from happening?"

It shouldn't be anywhere near as expensive as Dartford. I have to completely realign the traffic coming off of the Dartford Bridge, the QEII Bridge, which is actually a major piece of road infrastructure where the major costs are. Of course there will be substantial savings should you have free flow because you don't have the toll booths, you don't have the costs of actually banking all that coin, and you don't have the people collecting it and carrying it. It is a balance between the two and I can see huge benefits to actually having free flow.

Chair: We can as well, I think, and we look forward to seeing that happen soon. Can we bring in Jessica Morden for a few questions on maintenance?

Q371   Jessica Morden: Just on maintenance, can you explain the split on how maintenance is allocated between the Highways Agency and Severn River Crossing?

Mike Penning: That is where the Highways Agency comes in.

Graham Bowskill: The Severn River Crossing company have taken over responsibility for both bridges. It is their responsibility to operate and maintain those two crossings with a few exceptions. One exception is that winter maintenance is not carried out under the concession. That is carried out by the contractor that looks after what I call Area 2—the Bristol trunk roads.

The other exception is where there are substantial defects that were deemed to be there before they took over the concession that they could not have envisaged when they priced their bid. It would have been a risk that would have been a costly risk for them to take. One of those latent defects is the corrosion in the main cables of the Severn Bridge. That is a cost that falls to the Highways Agency, although actually treating that problem—that maintenance problem—is something that SRC do on our behalf.

Q372   Jessica Morden: Are there any other major pieces of maintenance that have got to be completed by 2017 and, if so, how are you going to ensure that the taxpayer does not have to pick up the burden of those on the bridges?

Graham Bowskill: Under the concession, there are very clear requirements for maintaining the bridge. We have regular meetings with the operator to talk about their obligations under the concession. I know, for example, that there will be a need to resurface the second Severn crossing and that is factored into their maintenance for the bridge before the end of the concession. But when they hand the bridges back, they will have been maintained as far as possible, the same as we would do if it was in direct ownership and in accordance with the concession. The only reason I say "as far as possible" is because we have the cable corrosion, which is a separate issue, that we believe we have addressed actually. We believe that that has been a very successful treatment with the dry air injection which should now have stabilised the Severn Bridge to give us a long continued life.

Mike Penning: Just to elaborate on what my official was just saying, I will personally—and I am sure any Minister in my position would—keep a very close eye on the maintenance in the run-up to the handover of the concession. The concept of it being handed over—and I am sure this is not the intention of the company—in a condition which is not in the maintained state that we would expect it to be in under the contract will mean that we will keep a very, very close eye as it is handed over. It will be handed over in a condition which is right and proper.

Q373   Chair: Minister, or Mr Bowskill, I can understand why the Highways Agency had to take the responsibility for something that went wrong—"a latent defect", you call it—on the old bridge, but presumably if one found a latent defect on the new bridge, that would be the responsibility of SRC since they built it?

Graham Bowskill: Absolutely.

Chair: Okay, that is great. I like the enthusiastic nodding.

Mike Penning: Just to touch on that, Chairman, the key is that, on handover, we make sure that any latent defects that are there, which would then become the responsibility of us as taxpayers on the new bridge, are addressed before there is any handover to us. I don't know of any, but in case there is we need to make sure that is the case.

Q374   Chair: Do you have any further questions on maintenance this morning? In that case, can I ask a very quick one? I hope it is not too far off the subject. I am not suggesting anything, but how do you actually know that the number of cars that SRC report going through each day are the number that actually go through? It is not an unreasonable question, is it?

Mike Penning: No, no, very fair.

Graham Bowskill: I know that there are monitoring systems in place and we have somebody called the Government Representative, who works very closely with the operator but who is totally independent of the operator, who gives us reports on how the operations are progressing.

Chair: Okay; that's fine.

Q375   Jonathan Edwards: Obviously, one of the consequences of the economic downturn has been less traffic on the actual bridge and consequently less revenue. So how confident are you that we are going to reach the end of the concessionary period at 2017?

Mike Penning: All the evidence and modelling that has been taken at the moment will bring us in to 2017. The interesting thing is yes, there was and is a downturn, but it is not huge in costs of revenue terms. As the economy is picking up, I think—and this is another hint, I suggest—if we went to free flow, we would see an increase in traffic both ways because the concept of being able to just go from A to B without worrying about if you are going to have to queue, etc. is a completely different concept to actually saying, "Will we go from there to there, and we are likely to be delayed for X, Y or Z?" The congestion there is nowhere near as bad as it is at Dartford. At times it is horrendous, but it is nowhere near as bad on a daily basis. I think it will be an incentive economically if we can get free flow as well and that will bring it up.

Chair: Thank you, Minister. Can we have a couple of quick-fire questions in the last few minutes?

Q376   Owen Smith: What should the toll be, Minister, when the bridge reverts back to public ownership?

Mike Penning: I am very sorry, I had someone speaking in my ear.

Q377   Owen Smith: I thought so. What do you think the toll should be when the bridge reverts back to public ownership?

Mike Penning: That is something that, as yet, will be a figure we don't know. What is for sure is that there is debt on the books that will mean, once the concession stops, we are going to have to bring back in. It is another debt that we have incurred as taxpayers, as the Government. The Treasury will be heavily involved, as you can imagine, in it as well, but the key will be that the cost of maintaining what we have is where we should be. Now where that line is drawn, I really don't know.

I just need, Mr Chairman, to confirm one thing so that the Committee is fully aware. The card machines were up and running on Friday 5 November, which is very apt probably.

Geraint Davies: Guy Fawkes Night.

Q378   Owen Smith: It is interesting that you said, Minister, that you thought, broadly speaking, the costs should reflect the price of maintaining the bridge. From our analysis and from the questioning we have done, it looks as though that is about £12 million a year for both bridges and therefore it looks as though around £1 a car, on current prices, would cover the costs of maintenance. Does that sound reasonable?

Mike Penning: I'm not going to be drawn into an individual fiscal analysis of the bridge. It is not just about the maintenance of the bridge. It is also about investment in further infrastructure around it as well. Dartford is an example of that. For instance, at Dartford, not only will the 50p increases over each year, or two years, enable us to do the free flow, but they will actually allow free use of the tolls when the congestion gets particularly bad so they are not chargeable. To start the infrastructure talks, there are the early costs of a new river crossing down there as well, so we are not putting a burden back on to the taxpayer again as in the earlier negotiations on that.

Q379   Chair: Just to push you on this in the last minute or two before I bring in two other people, it was not a bad analysis. Of course it was a slightly rough one that we did, but clearly there is a huge profit being made by the Government. Would you accept that it would be wrong for the Government to be making a huge profit out of people who are randomly located in the UK just because they happen to be near the Severn Bridge?

Mike Penning: The principle of tolling estuarial crossings is there. It has been there since day one.

Q380   Chair: It is a hugely profitable one.

Mike Penning: I am not going to get into the realms of the Government making huge profits. What we need to say is that tolling is there, it is going to be there and it is actually something that the British public have accepted for many, many years. It is a national piece of infrastructure that needs to be there.

Chair: A very, very quick question, please.

Q381   Geraint Davies: Given that it is possible to move in 2017 to a toll of £1 a car from one of £5.50 a car and given the economic times we are going through, would you think there is a good argument to have a more gradual change and perhaps bring forward more quickly an earlier toll to enable an earlier economic benefit to the economy?

Mike Penning: For me, I don't think it is possible and you would not expect me to agree that we would move from £5.50 to £1 because I don't necessarily and can't necessarily accept the analysis that £1 is the right figure. Let's see how the negotiations go over the next seven years and the decisions that the Government will have to make as to what the future of tolling at the Severn Bridge is.

Q382   Jonathan Edwards: There were some pretty strong views about the post-2017 situation so, as part of the respect agenda, when do you envisage having negotiations with the Welsh Government on what is going to happen after 2017?

Mike Penning: Well, it is national infrastructure. It has a major effect on the Welsh economy and we will continue and work closely with the Welsh Assembly, but it is a piece of British national infrastructure.

Q383   Jonathan Edwards: Part-ownership would not be of any interest to you?

Mike Penning: It is a piece of British national infrastructure.

Q384   Chair: Mr Penning, a last final question—the chair's prerogative. Would you agree, in the interests of openness and transparency, that we ought to be given an accurate figure as to what the estimated costs of maintenance are and that any future Government should publish full details of how much they are spending on the bridge and how much profit they are making?

Mike Penning: I don't see any reason why, in the spirit of open government, that should not take place.

Chair: Thank you very much indeed for coming along today. We very much enjoyed that. Thanks a lot.

Mike Penning: It was very enjoyable. Four weeks into a new portfolio, it was very enjoyable!





 
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