Severn Crossing Toll

Written Evidence from the Freight Transport Association (FTA)

1. The Freight Transport Association welcomes this opportunity to provide evidence to the Welsh Affairs Committee (WAC) on the impact in Wales from tolling off the Severn crossings located on the M48 and M4; two important trade routes which constitute part of the Trans European Route Network. In this submission FTA will be concentrating on the areas which have a direct impact on our membership, namely:

· The impact of the tolls on the Welsh economy including businesses, local residents and tourists;

· The current level of toll prices and the available methods of payment;

· The futures of the bridges after the crossings have reverted to public ownership in 2017.

Introduction

2. The Freight Transport Association (FTA) represents over 14,000 companies engaged in the transport of freight both domestically within the UK and internationally. Contrary to public perception, FTA members are about much more than just getting goods from A to B. FTA members constitute every part of the supply chain, from operators, carriers, freight service providers, through to suppliers of raw materials, retailers, manufacturers, and wholesalers, covering all modes of transport - road, rail, water and air.

3. Freight transport touches every aspect of society and the economy. The goods on our shop shelves or delivered to our door must first be moved as freight. Efficient supply chains bring the consumer all-year-round product availability, up-to-the-minute fashions and rapid response times to orders placed in the comfort of our own homes.

4. Road currently remains the dominant land freight mode between Wales, the United Kingdom and Europe. This is because road freight movement has a number of advantages to the end user relative to other modes, such as:

· Direct access to/from collection and delivery points (i.e. door-to-door);

· Flexibility and freedom for the supplier (or his nominated contractor) to match fleet capacity (number and size of vehicles) to demand (volume/weight of goods to be moved);

· Ability to operate ‘Just in Time’ delivery systems, whereby the combination of direct access and flexibility of fleet capacity enables a supplier (or his contractor) to replenish customer stock levels ‘Just in Time’ (i.e. when stock has declined to a pre-determined minimum level);

· Speed of both delivery and collection, and;

· Highly professional services

5. Profit margins within the logistics industry are traditionally slim, more so in this time struggling economy, which has seen many smaller operators go out of business or forced to drastically reduce their workforce. Subsequently, vehicle operators are looking closely at all their costs to ensure the viability of their businesses. Fuel, for example, represents a quarter of the overall vehicle operating costs, and in some cases this will be absorbed by the operator to ensure that contracts are maintained.

6. Considering the present economic environment, it is important that external business costs as a direct result of Government decisions are carefully regulated. FTA doubts that when the methodology for setting the Severn Bridge tolls was originally agreed it was not imagined that they would result in some of the highest tolls on a road infrastructure anywhere in the UK, and with RPI already exceeding 5% this year, users can only brace themselves for a substantial increase again in 2011. It is for this reason that FTA recommends that Government freeze the expected toll increase for 2011.

7. It is clearly understandable that business in South Wales has been vocal in its concern over this issue. Like the rest of the UK, Wales has also been affected by the economic downturn, therefore it is imperative that this regional economy is not further disadvantaged as a result of high, inflexible infrastructure charges which competitors based in the rest of the UK do not necessarily have to consider when they tender for business. After all, the need for local companies to tender effectively for business was, of course, a major factor in the previous Government deciding that the tolls on the Humber Bridge should be frozen.

Background

8. In 1990, the then Secretary of State for Transport announced that John Laing Ltd with GTM-Entrepose were successful in their bid to design, build and finance the Second Crossing. Additionally, this Partnership would take-over the maintenance and operation of the existing Severn Bridge. The agreement was formally signed between the Government and Severn River Crossing Plc - a Company formed by Laing and GTM with Bank of America and Barclays de Zoete Wedd in October 1990.

9. The "Severn Bridges Act 1992" finally received Royal Assent on 13 February 1992 and on 6 March 1992 the Secretary of State signed the Order setting the starting date of the Concession as 26 April 1992. On that day Severn River Crossing Plc took over both the Operation and Maintenance of the present Bridge and the organising of the construction of the new Bridge. The finance arranged by the Company covers the costs of construction for the new Bridge and pays for the outstanding debt on the present Bridge. To meet its financial obligations, the Company has only one source of income: the Toll revenue. The Second Severn Crossing was opened on 5 June 1996 by His Royal Highness, The Prince of Wales.

10. The Concession period is set at a maximum of 30 years. The actual end date of the Concession will be achieved when the Company has collected a fixed sum of money from tolls valued at £995,830,000 at 1989 prices. Toll levels were set for three categories of vehicles by the promoters Laing-GTM at the time of tender. These toll levels – set in 1989 terms – were written into the Concession and are now embodied in the Severn Bridges Act 1992. Toll levels are amended each year based upon the increase in the Retail Price Index

Tolls

11. Currently, tolls are set at the following rate:

Category I Cars & Motor Caravans £5.50 – 10p increase on 2009

Category II Small Goods Vehicles and Small Buses £10.90 – unchanged

Category III Heavy Goods Vehicles and Buses £16.40 – 10p increase on 2009

12. Severn River Crossing Plc presently allows two types of payment, either cash at the toll, manned or unmanned, and the use of a TAG which is an ‘On Board Unit’. The TAG is an electronic device, which fixes to a vehicle’s windscreen. As you approach the Toll Lane a scanner will read the TAG and, provided your account is in credit, you will be able to drive through. The system will automatically record a journey and debit a prepaid account.

13. The Tag system works in two ways, the first being a seasonal TAG and the second a Trip TAG, both require a deposit of £30.00 per unit and a prepaid account.

14. Seasonal TAG - A set period is purchased, such as a calendar month or quarter, which will give the purchaser unlimited crossings. The price is fixed for the period no matter how many journeys are made. The cost of this service depends on the category of vehicle a purchaser intends to use:

Category 1 - Motor Cars & Motor Caravans up to nine seats - £96.80 per calendar month per vehicle.

Category 2 - Small Goods Vehicle & Small Buses up to 3500Kgs & 17 seats - £191.84 per calendar month per vehicle.

Category 3 - Other Goods Vehicle & Buses from 3500Kgs & 18 Seats or more - £324.72 per calendar month per vehicle.

Trip TAG – Tolls are levied at the standard rate dependant on the category of vehicle per trip, there are no reductions in cost for frequent users. There is a £30.00 deposit on each TAG required.

15. FTA believes that the payment methods used by Severn River Crossing Plc are not flexible enough, especially given the technology available in 2010. This year it was announced that credit cards would be allowed as a payment method for crossing the bridge, but still people cannot pay by credit card, debit card or online. Further, they cannot travel off peak and there are no concessions for those who live locally. Additionally, there are no reductions for frequent users or environmentally-cleaner vehicles. Many FTA members pay tens of thousands of pounds per month just to cross back into Wales having done business in England. This is a cost which, in most cases, comes off the bottom line.

16. Taken as an example alongside other UK tolled infrastructure it becomes increasingly clear that users of the Severn Bridge are paying considerably more for the benefit than elsewhere in the country. Below is a list of tolled infrastructure, as part of this comparison FTA has concentrated on vans and HGVs and highlighted any flexibility available in the pricing structures:

17. Dartford - 06:00 - 22:00 hrs 22:00 - 06:00 hrs

Standard Dart- TAG Standard Dart- TAG

2 Axle Goods vehicle £2.00 £1.75 Free Free

Multi-axle Goods vehicle £3.70 £3.20 Free Free

18. The Thames crossing between Dartford and Thurrock consists of two tunnels and the Queen Elizabeth II Bridge, forms a vital link in the M25 and is one of Europe's most heavily used bridges. Exemptions from payment include vehicles already exempt from paying Vehicle Excise Duty on the grounds of disability, and a local residence discount scheme which after an annual registration of £10.00 allows 50 free trips per year and a 20p charge annually thereafter. Users of the TAG system can benefit from a reduction in the standard price as seen above.

19. Mersey Tunnel – HGVs over 3500kgs gross vehicle weight, with four or more axles £5.60 or, with a ‘Fast TAG’, £5.00.

20. Tamar Bridge – HGVs with four or more axles and towing a trailer, £16.40 or £8.20 with a TAG, three axle HGVs are considerably cheaper at £12.00 or £6.00 with a TAG.

21. Tyne Tunnel – Cars or light vans not exceeding 3500kgs are £1.20 or £1.08 with a Tyne Tunnel Permit, whilst vehicles greater than 3500kgs, are £1.50 or £1.35 with a Tyne Tunnel Permit.

22. M6 Midlands Expressway – rates vary dependant on working day, weekend or night time travel. However, the most expensive rate is for an HGV during working hours, at £10.00

23. In Scotland it should be noted that the Erskine Bridge, Forth Road Crossing, Skye Bridge and Tay Road Bridge are all free of charge.

24. Humber Bridge One Trip Twenty Trip Reduced

Cost

Cars and Goods vehicles not exceeding 3.5 tonnes £2.70 £48.60 - £2.43

Goods Vehicles exceeding 3.5 tonnes up to 7.5 tonnes £4.90 £88.20 - £4.41

Goods vehicles exceeding 7.5 tonnes with 2 axles £10.90 £196.20 - £9.81

Goods vehicles exceeding 7.5 tonnes with 3 axles £14.60 £262.80 - £13.14

Goods vehicles exceeding 7.5 tonnes - 4 or more axles £18.30 £329.40 - £16.47

25. The Humber Bridge Board has 22 members. They were appointed by and represent the local authorities on each side of the River Humber, namely, Kingston-Upon-Hull City Council, East Riding of Yorkshire Council, North Lincolnshire Council and Lincolnshire County Council. Exemptions are limited to blue badge holders. However, frequent users can benefit from a reduction in the standard cost when they purchase a book of 20 tickets.

26. Compared with the Severn Bridge, the Humber does look like it offers less of a deal for HGVs with a charge of £18.30 applicable on an HGV with four axles and exceeding 7.5 tonnes. In general, though, because of the number of axles involved this higher cost is only likely to affect vehicles with a gross weight of 30 tonnes or more. Consequently, all other tolls are significantly cheaper than the Severn Crossings, which has a cost of £16.40 for all HGVs above 3.5 tonnes. The Humber is considerably less for vans at a rate of £4.90 compared with £10.90 on the Severn.

27. FTA believes that the important factor when comparing the Humber and the Severn crossing is Government reasoning behind freezing the Humber tolls back in 2009 and awarding a £6 million pound grant to help cover costs. Mr Sadiq Khan MP, the then UK Transport Minister, said: "The government is committed to doing everything it can to protect communities and businesses from economic downturn, and help the country recover. That is why I recently decided not to accept the Humber Bridge board's proposed toll increase." FTA welcomed this news and supported the previous Government’s decision; however, our members were concerned and puzzled that Wales and the Severn Crossing were being excluded from this common-sense way of thinking, especially when jobs were being lost at an alarming rate due to a recession which did not discriminate by region.

28. Using the examples above, which all represent important links in the UK trade route network, it becomes clear that the Severn Crossing tolling regime does not offer anywhere near the range of payment options which are present across the rest of the UK. FTA understands that infrastructure under the control of local authority or government does allow for a degree of flexibility, as seen in the recent Humber Bridge price freeze. However, this clearly does not seem to be the case with Severn Crossing Plc where Ministers in Cardiff and at Westminster refer constantly to the inability for change.

29. An example of this is highlighted in a response made by the Parliamentary Under - Secretary for State for Transport, Norman Baker MP, to Jessica Morden MP, in a short debate at the House of Commons on the Severn Bridge Tolls. [1] The Minister commented that ‘’the Secretary of State does not have the authority to set the annual tolls below the level of RPI increase without the concessionaire's agreement. The concessionaire would not be able to agree to anything that would affect their net revenue without compensation and agreement from their shareholders and lenders,’’

30. Given the statement above which clearly indicates how all benefits seem to rest with the Concessionaire we strongly believe that there needs to be a review regarding the way future tolled infrastructure builds are administered in the UK. We would recommend that a UK wide infrastructure tolling criteria should be developed which would give government the flexibility to involve themselves in the decision making process (should that be required), at any time during the life of any tolled infrastructure, something that the ‘Severn Bridges Act 1992’ does not currently allow.

Impact on the Welsh Economy

31. FTA is not aware at the time of writing of any published paper which specifically concentrates on the impact of tolls on the Welsh economy. FTA and its members believe that carrying out a study into the effects of the toll on the economy is now a priority. The Association believe that this type of study be incorporated in all future agreements where the methodology for setting the toll price results in user costs increasing annually irrespective of the economic conditions. To that end, it is welcome news that the Welsh Assembly Governments Minister for Economy and Transport, Ieuan Wyn Jones, has agreed that a study into the tolls will be undertaken by the Welsh Assembly Government in the autumn.

32. FTA will be meeting with the Welsh Assembly Government in September in an attempt to fully understand the remit of the study and to ensure that the logistics industry is fully represented. FTA is currently carrying out a study of its own membership based on both sides of the bridge to fully understand the extent of this impact. However, we are aware of three transport companies based in Wales who regularly use the bridge and currently pay in excess of £250,000 annually between them.

The Bridge in Public Ownership

33. FTA realises that in the UK tolls are generally levied for large infrastructure projects such as bridges and tunnels. We also recognise the fact that these large infrastructure projects would in some cases not go ahead unless there was a way of attracting the necessary finance. Consequently, it is inevitable that some structures would not have been built without the providers being guaranteed a reliable revenue stream or concessions being put in place to encourage private investment and, like Severn River Crossing Plc, these companies have a duty to ensure that the business remains profitable.

34. Originally it was anticipated that the bridge would revert back to public ownership in 2014, but because of a change in taxation rules the concession is now expected to end in 2017. After this date it is proposed that a ‘maintenance fund’ would be adopted for a period of time to ensure the integrity of the bridge is maintained, additionally the fund would allow Government to recoup some of the money already spent on major repairs on the Severn Crossing.

35. FTA understands that once back in public ownership the integrity of the Crossing must be maintained. The revenue for this should rightly come from the user. However, this period also affords Government the ideal opportunity to introduce the flexibilities to the pricing structure already inherent at other tolled sites. FTA believes that users should benefit from lower rates for off-peak or overnight use, reduced rates for frequent users, and reduced rates for environmentally-friendly vehicles. The standard charges should be reduced to a rate which finances the costs of the crossing, with Government resisting the temptation of looking to cash in from revenue from unrelated artificially high charges.

36. However, in the case of the Severn crossings, FTA feels that little or no consideration is being given to the business/local communities that have come to rely on, albeit at a high price tag, the convenience of being able to use the bridge. We respect the argument that there is an alternative to using the bridge; but this infrastructure was built to provide an expeditious transit route into South Wales and southern England for the benefit of all road users, regional/business communities, and to engender a greener environment through reduced vehicle emissions and a reduction in the impact of high volumes of traffic on local communities. We maintain that this reasoning is still valid and high toll costs should not negate the benefits of any major UK infrastructure by pricing vehicles off important trade routes.

37. FTA believes that introducing year-on-year price increases where the impact goes unmonitored is an incorrect policy. Government should regulate to ensure that all tolled structures are introduced against robust criteria, providing the flexibility for Government to intervene to introduce appropriate amendments where necessary.

September 2010