Appendix: Government Response
This paper sets out the Government's Response to
the Third Report of Session 2010-11 (HC 506) on The Severn
Crossings Toll.
The Government welcomes the report and is grateful
to the Committee and all those who gave evidence in the preparation
of this report. The report is important and sets out a compelling
narrative about the challenges faced by the Government over the
future of the Crossings. The conclusions and recommendations
will make an important contribution to how the Government will
meet these challenges.
We have identified 18 conclusions or recommendations
from the Committee's report. The response follows the broad structure
set out by the Committee in its summary of conclusions or recommendations.
In our response we have grouped some of the recommendations out
of chronological order where the subject matter is related.
Impact of the Toll on the Welsh Economy
1. The Severn Crossings provide a key link
in Wales' transport and economic infrastructure. We note that
successive Governments have never undertaken a study of the economic
and social impact of the Severn Crossings toll charges. There
is therefore no quantitative evidence as to the effect of the
toll on the economy of Wales. (Paragraph 35)
2. We recognise the concerns of business about
the impact of the high cost of the toll. Some businesses argue
that the toll represents a barrier to business activity across
the bridge, hampering the development of Welsh businesses and
acting as a deterrent to inward investment into the country.
In particular, it was argued that the toll has a significant effect
on the transport and logistics sector and on the tourism industry.
However, no firm conclusion can be drawn without a comprehensive
study to evaluate the impact of the toll. (Paragraph 36)
3. We welcome the Economic Impact Study commissioned
by the Welsh Assembly Government. To ensure that it captures the
full picture, the study should examine not only the elasticity
of demand amongst current users, but also seek the views of companies
in Wales who argue it is not financially worth their while seeking
work in England. We also recommend that the study includes companies
that have located on the English side of the crossings and ascertain
the extent to which their decision was influenced by the level
of the toll. (Paragraph 37)
4. We welcome the Department for Transport's
commitment to consider the findings of the survey commissioned
by the Welsh Assembly Government. We look forward in due course
to debating the Government Response to the Committee's Report
on the floor of the House. (Paragraph 38)
5. The Severn Crossings are essential to the
Welsh economy. There is the perception however, that the high
cost of the toll is detrimental to businesses in Wales and to
the development of the Welsh economy and discourages traffic between
England and Wales. The Government must ensure that it takes note
of the economic impact study commissioned by the Welsh Assembly
Government. (Paragraph 96)
Currently we have seen no evidence that tolling is
a disincentive to business investment in South Wales. The new
Severn Crossing has greatly improved the transport links into
Wales which is likely to have supported business investment in
Wales and in particular South Wales. And we await the outcome
of the Welsh Assembly Government's Economic Impact study.
The Severn Crossings under the Concession Agreement
6. We welcome the introduction of a facility
to make payment of the Severn Crossings toll by credit cards;
albeit many years after it should have been. The Severn Crossings
are a gateway into Wales and provide a first impression to many
travellers. For too long, the first impression of visitors was
this antiquated system. This unacceptable situation went on too
long. The introduction of a contemporary payment system is essential
and not before time. (Paragraph 61)
7. We are disappointed that a permanent system
is not yet in place. Severn River Crossing Plc maintain that
a permanent system will be installed and active by the end of
the first quarter of 2011 by the latest. The public must be informed
of developments and the system must be available in as many toll
plazas as possible to make the credit card payment system accessible
to the most number of users. We will continue to monitor developments
closely. (Paragraph 62)
A card payment facility remains in place on both
Crossings. Despite the difficulties we have faced introducing
this system within the confines of the Severn Bridges Act, we
are delighted that this alternative method of payment was available
for the Ryder Cup and then from early November.
Information on the existing card payment system is
available on the Highways Agency's website which is updated to
reflect any changes. A further press release will be issued when
the full system is implemented and at this time the HA and SRC
will use other information channels to publicise the payment options
as widely as possible.
8. We are disappointed that it has not been
possible to freeze the toll for 2011. The inflexibility of the
Severn Bridges Act, as originally drafted, does not allow the
Government to impose a level of toll charge as it sees fit in
the current economic climate without incurring liability for the
taxpayer. The Government should take responsibility for the failure
of civil servants twenty years ago to future-proof the legislation.
(Paragraph 66)
9. We make no comment on the merits of using
private sector finance to deliver public sector infrastructure.
However, it is important that the Government learns from the
inflexibility of the Severn Bridges Act 1992 and the concession
agreement when agreeing future contracts. (Paragraph 68)
10. Our inquiry has demonstrated the inflexibility
contained in the Severn Bridges Act 1992 and the concession agreement
between the Government and Severn River Crossing Plc. This has
made it difficult for the Government to respond to the current
economic climate and freeze the tolls. The Government must learn
from the issues that have resulted as a result of the drafting
of the Act for future Private Finance Initiative projects. (Paragraph
97)
The Concession Agreement and Severn Bridges Act 1992
provides protection for the Concessionaire to ensure its costs
are recovered through the tolls. The annual indexation of the
tolls was a key risk mitigation factor when the Concessionaire
signed the billion pound concession agreement in 1989. The Severn
Crossings Concession was delivered and agreed under very different
circumstances and reflected the market knowledge and precedent
at the time. Without such risk mitigation at that time, it is
likely that the Concessionaire would not have signed the agreement
without an increase of the tender price to cover such risks to
SRC's sole income stream. The UK Private Finance Industry has
significantly matured and developed in the subsequent 20 years
and this would lead to a different risk profile for any new similar
PFI project.
11. There seems to be no appetite on the side
of Severn River Crossing Plc to reduce the toll prices and extend
the concession beyond the current forecasted end date of 2017.
The responsibility of the company to its shareholders and debtors
puts it in conflict with the needs of the users of the crossings.
This will end when the Severn Crossings return to public ownership.
(Paragraph 67)
We accept that in any private concession or otherwise
outsourced public service, there will always be a conflict between
the needs of the customers and those of the company to its shareholders
and debtors. The Concession Agreement attempts to balance these
responsibilities and to ensure that the new crossing was constructed,
the large debt from the Severn Bridge was funded and the whole
project is maintained appropriately within a tightly regulated
toll structure. Tolling arrangements and the basis for yearly
increases are set out in the Severn Bridges Act. To provide protection
for users, the new toll rates are increased in line with the Retail
Price Index (RPI) using a formula and rounded to the nearest 10p.
This prevents the Concessionaire from increasing tolls above
the rate of inflation.
Future of the Severn Crossings
12. With running costs of £15 million
a year, and a current yearly income of £72 million, we estimate
that the toll could be reduced to a fifth of its current level,
to approximately £1.50 while allowing the crossings to remain
self-financing. We recommend that the Government should seek
to reduce the level of the toll at the earliest opportunity.
We recognise, however that at this level no "sinking fund"
would be accumulated towards any future replacement of either
bridge. (Paragraph 79)
No decisions have been made on the future management
of the Crossings or any charging arrangements after the end of
the existing Concession. Under the existing legislation, the
Government is able to continue tolling for up to 5 years at the
end of the concession to recover its costs.
13. We believe there is a strong case for
reducing the cost of the toll and urge the Government to implement
this when they take ownership of the crossings. Annual accounts
for the crossings should be transparent and publicly available,
so that the public can differentiate between the operational and
maintenance costs of the crossings and any profit made. The Government
must not be tempted to use the crossings as a "cash cow"
when it takes over responsibility for the crossing. (Paragraph
92)
No decisions have been made regarding future toll
levels once ownership of the Crossings returns to Government.
The Government fully accepts the need to provide transparent accounts
of expenditure on the Crossings. SRC accounts are available through
Companies House and the internet (but they do not separate out
operational and maintenance expenditure). The HA Severn Bridge
Act accounts are available at www.official-documents.co.uk or
in hard copy from TSO.
14. We recommend that the Government amends
the vehicle classification system contained in the Severn Bridges
Act 1992 so that free-flow technology can be implemented as soon
as possible. We believe there is a strong case to invest in free-flow
technology now. We recommend that the Government pays the Concessionaire
to implement it, with these costs recouped from future profits
when the concession has expired. (Paragraph 93)
15. Modern technology must be implemented
on the crossings to enable a smooth journey with the least amount
of disruption to the users. The Government should pay for improving
the methods of payment. This should happen soon. (Paragraph 98)
Free Flow technology is not currently in operation
on any of the UK statutory tolled undertakings. The Government
is very keen for free flow tolling to be implemented on the Severn
Crossings once the lessons from implementing this technology at
Dartford have been learnt. We note the Committee's recommendation
for an earlier implementation and will consider the option of
bringing forward the necessary changes in the Severn Bridges Act
1992. Any changes prior to the end of the Concession will need
to be discussed with the Concessionaire.
The Government supports moving to a more efficient
way of collecting tolls which benefits traffic flow and therefore
congestion which is evidenced by our plans for Dartford Crossing,
but we have to realise the costs involved and the fact that the
implementation of this technology is as yet untested.
16. We welcome the UK Government's recognition
of the importance of the Severn Crossings to the Welsh economy
and its transport infrastructure. There must continue to be a
close working relationship between the Department for Transport
and the Welsh Assembly Government over the future strategy for
the crossings. (Paragraph 94)
The Government will continue to work closely with
the Welsh Assembly Government on the operation of the Crossings.
17. We look forward to regular updates from
the Department for Transport regarding its future strategy for
the Severn Crossings. (Paragraph 95)
18. The Government must develop urgently a
future strategy for the crossings. This must be based on discussions
between Government, the Welsh Assembly Government and Severn River
Crossing Plc. The transfer to public ownership at the end of
the concession period in or around 2017 provides a unique opportunity
for a new tolling regime. The current tolling prices should be
reduced and concessions for those who depend on the crossings
for their livelihood could be introduced. (Paragraph 99)
The Severn Crossings is a vital piece of UK national
infrastructure and the Department is committed to providing regular
updates regarding the future strategy of the Severn Crossings
and will discuss these with interested parties. The Department's
view is that it is too early to be setting a future strategy for
the Severn Crossings at this stage, including future toll prices
and concessions. There are several major factors to take into
account when considering any future strategy after the end of
the Concession including the future operational requirements,
management of the Crossings, future traffic flows and some of
these will only become clearer nearer to the end of the Concession.
It therefore would not be prudent to make decisions when the end
of the Concession period is 6 years away and the economic situation
the Government finds itself in may be different.
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