To be published as HC 1890-i

House of COMMONS



Environment, Food and Rural Affairs Committee

The Draft British Waterways BOARD (Transfer of Functions) Order 2012 and the Draft Inland Waterways Advisory Council (Abolition) Order 2012

Tuesday 13 March 2012

tony hales, robin evans and john kittmer

clive henderson and howard pridding

Evidence heard in Public Questions 1 - 122



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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Tuesday 13 March 2012

Members present:

Miss Anne McIntosh MP (Chair)

Thomas Docherty

George Eustice

Barry Gardiner

Iain McKenzie

Neil Parish

Amber Rudd


Examination of Witnesses

Witnesses: Tony Hales, Chairman, British Waterways and Chair of Canal and River Trust Transition Trustees, Robin Evans, Chief Executive, British Waterways, and John Kittmer, Head of British Waterways Sponsorship and New Waterways Charity Project, Defra, gave evidence.

Q1 Chair: Gentlemen, good morning and welcome. Thank you very much for contributing to what is a first for this Committee and probably Parliament: to consider an Order under the recent Public Bodies Act. We are very grateful to you. For the record, could you introduce yourselves and tell us what positions you occupy? Mr Hales, would you like to go first?

Tony Hales: I am Tony Hales, Chairman of British Waterways and also the Chairman of the Canal and River Trust.

Robin Evans: I am Robin Evans, Chief Executive of British Waterways.

John Kittmer: I am John Kittmer, Deputy Director for Inland Waterways at Defra.

Q2 Chair: Thank you. Mr Hales, it would be enormously helpful if you explained to the Committee what the current status of the Trust is, and where we are in the proceedings.

Tony Hales: The Trust exists as a shell, with no assets yet. We have a Board of Trustees, which is now complete, and we have also announced our Council Members. There are about three positions left to fill, but 32 of the 35 positions of the Council are now in place. We have announced the Waterway Partnership Chairs. There are 13 Partnership Chairs, and 12 of those are now in place. The Trust is very much in position as a shell, waiting to take over once, hopefully, Parliament has approved the Order.

The financing arrangements are agreed with Defra. There are some minor discussions going on with the Charity Commission and Defra about wordsmithing, but the principles are all agreed now.

Q3 Chair: Are there any outstanding issues to be resolved before the Trust is ready for the transfer?

Tony Hales: I do not think there are any issues of principle there. It is down to wordsmithing the detail.

Q4 Chair: I know that under the new system you will be heavily dependent on volunteers, and you have started a recruitment process. In my own area, we are heavily dependent on our excellent North Yorkshire Moors Railway. Given the economic climate, there are obviously issues for volunteers, like fuel and the cost of travelling to work. Does your dependence on volunteers and on there always being a steady stream of them concern you?

Tony Hales: If I could step slightly back and look at the financing, we have an income of about £150 million per annum. At the moment an income of about £100 million is generated from the commercial activities of British Waterways-that is a mixture of property, utilities, boat licences and moorings, marinas and so forth-and then the grant element of that is about £40 million per annum. When we are looking forward, towards being a charity, in the initial years our projections are for no net charitable income, because there will be a cost in building that up. We are looking to build that net charitable income up to be in year 10 approximately £10 million. It is important to understand the relativities of commercial income, Government grant, and the voluntary income, which, important though it is, is the smallest element.

We have 24,000 volunteering activities at the moment. This has grown three times over the last three to four years, and yes, we aim to continue to grow that. We are very confident that we can achieve this, because there is huge interest out there. One small cameo: 7,000 people walked through the Bingley high rise locks one weekend just recently. People actually wanted to put money in a tin for the experience, but we were not in a position to take it.

Q5 Amber Rudd: Sorry, I just wanted to follow up on your comment that there are 24,000 volunteering activities. Is that individuals volunteering?

Tony Hales: 24,000 volunteer days.

Q6 Chair: That is helpful. Against that background, Mr Kittmer, what measures will Defra take to ensure that the Trust is in a position, including a financial position, to take on the navigations currently the responsibility of the Environment Agency, which we understand is the next stage?

John Kittmer: Ministers have made a commitment to transfer the Environment Agency navigations subject to two conditions. One is affordability, and the second is of course the consent of the Trustees of CRT at that point in time. The affordability question will be racked up in the next Spending Review, so we will be bidding into the next Spending Review in relation to the costs that will arise from the transfer.

Q7 Chair: Will the transfer include the staff who are currently with the Environment Agency in regional offices and across the country?

John Kittmer: There is much to be worked out, but that would be the normal understanding, yes.

Q8 Chair: So we will not be consulted at that stage?

John Kittmer: We will do consultation around the transfer in a way that is comparable to the consultation that we have done around this transfer as well. We will consult widely with our stakeholders, and indeed there will be some sort of Parliamentary Order, so we will need to have a proper consultation.

Chair: Some Parliament audit?

John Kittmer: A Parliamentary Order.

Q9 Chair: Will there be an Order under the Public Bodies Act?

John Kittmer: Again, there is quite a lot to work out, but that is certainly one option.

Q10 Chair: That is not very reassuring, Mr Kittmer. That is not exactly the sort of detail we would like to hear.

John Kittmer: Ministers have agreed this in principle. We will start to work out the way of doing this in 201314.

Q11 Iain McKenzie: Good morning panel. I shall introduce the Scottish question: what would you say are the implications and impact on Scottish Water of this proposed transfer?

Tony Hales: The Scottish Waterways have operated somewhat independently for some time. They have been funded directly from the Scottish Government, and management have therefore acted on the agenda of the Scottish Government. They have had the support, of course, of the resources from England and Wales, which they will no longer have, but they will find those resources through different means in Scotland, working with bodies in Scotland. This is an agenda that the Scottish Government wish to pursue, and we are entirely supportive of their agenda.

Q12 Thomas Docherty: Just to pick up on that last point, you said that in Scotland they will find alternatives. Is that that you have identified where they can find it, or that they will have to find it?

Tony Hales: If you like, it is not for us to identify. It is for Scottish management. They also have a shadow Board now in Scotland, which has been appointed by Scottish Ministers, ready to do the takeover. Yes, indeed they have: for example, they are working with Glasgow Council on the payroll system. They will be working more closely with Scottish Water on the asset management system. It is not for us in England and Wales to dictate how they do it. The Scottish Board have got on and done that, and I think they are well advanced.

Thomas Docherty: Thank you.

Chair: Thank you very much.

Q13 Neil Parish: Good morning, gentlemen. The Government will be handing over a great deal of assets to the CRT. John Kittmer, what sanctions will Defra have if its audit service is not satisfied about CRT’s delivery of public benefits?

John Kittmer: We have two types of sanction. One is connected with the performance mechanism, which I will describe first, if I may, and the second is in relation to more serious breach of the funding arrangement.

For the performance mechanism we have agreed with the CRT-this is set out in the heads of terms-a performance mechanism that identifies the three main areas of public benefit that we want the CRT to have due stewardship over: first, asset conditions-the condition of the network itself; secondly, the condition of the towpaths, which is the source of the principal public benefit; and thirdly, the condition of the assets that play the most important role in flood prevention. We have agreed with the CRT that there will be an element of money set aside every year that will be tied in with performance against the standards on these three principal issues. We will receive data from the charity every year, and from 201516, £10 million will be released only if performance is satisfactory.

We have also, as is always done in contracts of this sort, reserved to ourselves the right to take more extreme measures if there is serious breach. Again, you will see those provisions set out in the heads of terms. If there were a serious breach of the funding agreement, or a serious breach of the statutory duties that we are transferring, subject to Parliamentary consent, we could withhold in whole or in part, temporarily or for a longer period of time, the funding we are making available.

Q14 Neil Parish: I am sure that the CRT would not do this, but if, for whatever reason, they were to sell off an asset that put an area at risk, would it not be a bit late by the time you got to audit, if that asset had been sold off?

John Kittmer: We have two forms of protection. There are two forms of assets that we are transferring. The network itself, the core infrastructure, will be transferred subject to trust. We are creating a trust-again, we have let you have a draft of the trust settlement-called the Waterways Infrastructure Trust, which will hold all the core network assets that make the network work: not just the water and towpaths but also the pumping stations, the reservoirs and so on.

Under the trust, CRT as the Trustee of the Waterways Infrastructure Trust will not be able to sell any part of the permanent functional endowment without seeking the consent both of the Secretary of State and the Charity Commission. This is held in a very tight lock, and the expectation is that this land will not be sold, except in very exceptional circumstances.

The second type of asset is commercial-the portfolio of property that BW has built up over the 50 years or so of its existence. The charity needs to have a degree of freedom over those, because this is a source of income. It needs to be able to generate income imaginatively from the property endowment. What we are agreeing with the CRT, as alluded to in BW’s memorandum and some of the other paperwork, is to create a protection system that will run throughout at least the period of the Defra financing-the next 15 years-under which both CRT and Defra will appoint a Protector, who will check that the medium-term investment statement-

Q15 Chair: I am sorry to interrupt, but we are coming on to the property section, so we do not want to preempt that.

John Kittmer: Okay.

Q16 Barry Gardiner: Mr Hales, this has been a long time coming. Let us go back to your projections in 2002. Can you tell the Committee what your stated aim in 2002 was for 2012, the year we are now in?

Tony Hales: I will be helped by my Chief Executive, but I believe one of the key things that we said in 2002 was that we did have a target on major assets: to have Ds and Es reduced to 15%.

Robin Evans: Our 2003 vision, which was your great challenge-I am not sure I can do it verbatim-was to grow the waterways, to double the number of visitors on the waterways, to become more selfsufficient, and to increase participation in the waterways. It was stated rather more elegantly than that.

Q17 Barry Gardiner: Let me remind you of two key phrases. One was to move to becoming largely selfsufficient, and the other was to have the waterways in a steady state.

Robin Evans: That was not part of our vision statement.

Q18 Barry Gardiner: My recollection, Mr Evans, is that it was. Mr Kittmer, you may recall from the Department that that was the understanding and the funding basis agreed in the last Spending Round, was it not-that the waterways would be moving towards a steady state?

John Kittmer: I am afraid that is before my time, Mr Gardiner.

Q19 Barry Gardiner: Before your time? Okay. Tell me, what has been the profile of your income against projection during the period from 2003 through to 2012-over that decade?

Robin Evans: I cannot give you exact figures off my head-I am very happy to provide them for you-but I would think that the profile is that our earned income has probably slightly exceeded our predictions, and our Government grant has underperformed, if that is the right word; we have had less, put together. More important than the income, we have taken a lot of action to control our costs and reduce our cost base. That has helped us as well.

Q20 Barry Gardiner: Indeed. What you are telling me is that, despite the fact that your income is slightly above what you projected in 200203, you have not yet moved the waterways to the point that you decided you would have them at by 2012, namely largely selfsufficient and in a steady state.

Robin Evans: I am afraid I do not think that was part of our vision statement. What we had agreed with Government in 2002 was that there would be only 12% of our big infrastructure assets-the aqueducts, bridges and reservoirs-in the poorest condition grade. That 12%, was the agreed target that Government and British Waterways had in 2002. That changed in 2007 to a holding state of 22% in the poorest assets, because Government accepted that the funding was not sufficient for us to move down towards that 12% target. The current target is 22% of assets in the poorest two condition grades.

Q21 Barry Gardiner: That was because, if I can put it this way, in the fat years, the years from 2002 to 2007, during which your Government and selfgenerated income outperformed, you used that money, as people were very pleased to see, to expand the waterways-to expand the network.

Robin Evans: No, no. That is not correct. We used that money to reduce the assets in the lowest condition grades from 30% down to about 24% or 23%.

Q22 Barry Gardiner: But you had also expanded the network to 2,200-

Tony Hales: With Heritage Lottery Fund money.

Robin Evans: With Heritage Lottery Fund money. Very little of the Government grant or our earned income went into that. Some did. Again, I cannot give you it exactly, but I suspect that no more than 10% of those costs were generated from BW.

Q23 Barry Gardiner: If one expands the network, the costs of meeting the same percentage targets for repairs and maintenance of course rise, don’t they?

Robin Evans: They rise marginally, but generally, when you have had a restoration, the infrastructure you are taking on has just been repaired. It has just gone through a massive improvement, with new locks, new bridges, new aqueducts: everything has been restored and refurbished. We take them on in good condition grade, as it were, rather than poor condition grade and adding to our burden.

Tony Hales: I think in terms of that £150 million of income, only £2 million in any year would have gone towards restoration. Nearly all the other restoration came from third party sources, regional development authorities, Heritage Lottery Fund, and so on.

Q24 Barry Gardiner: I am talking about ongoing repairs and maintenance, though.

Tony Hales: Yes.

Robin Evans: We increased the network by 200%, which we are very proud to have done.

Barry Gardiner: Absolutely.

Tony Hales: 200 miles.

Robin Evans: 200 miles, sorry. Yes, inevitably there was an increase in maintenance, but that was done with everyone’s agreement, and the Millennium Commission and Government were delighted that we were doing that.

Q25 Barry Gardiner: Can I turn to the table that you have provided-the illustrative projections of additional resources from moving to civil society?

Robin Evans: Oh, right. The impact assessment.

Chair: It is in the impact assessment. I am not sure what page, but it is in the Government’s impact assessment.

Robin Evans: Yes.

Q26 Barry Gardiner: One of the things you have always said is that one of the key constraints you feel under the present arrangements is the way in which it constrains you from taking additional borrowing. Is that right?

Robin Evans: It is one of the factors.

Q27 Barry Gardiner: It is one of the factors. It is certainly one that sticks in my memory from the interlocution we had a few years ago. What surprised me in looking at this was just how tiny a factor it seems to be in your forward projection, so that even at the peak, it comprises scarcely £1 million in increased revenue. Can you explain that?

Robin Evans: I am sure my Chairman will have a lot to say about it too, but the world changed in 2008, and with the banking crisis there was a huge amount of risk. It was very difficult to borrow money for property. The whole appetite for borrowing has changed, and I think what we are reflecting here is a cautious view as to whether we want to go out and borrow money to the extent that we had in the past. What we are trying to do here is show that the Trust is viable, not make predictions and forecasts that are aggressive. They are prudent, and we think that is why-

Q28 Barry Gardiner: No, I am not disputing your prudence. What I am challenging, I suppose, is the motivation here, because it strikes me that this was always given as one of the key reasons for transforming the relationship between Government and British Waterways, because this would free you up. If you read the Committee Report, the seventh Report of the 200607 Session, you will remember that this was a factor you dwelt on in your evidence at that time quite substantially. What I am saying is, given that the world changed in 2008 and given that this forms now such a tiny amount of the increased revenue you are anticipating over the next 15-year period, the motivation or rationale for this change in the structured relationship must be different. What was the big motivating factor for this change has now disappeared. What is the new motivating factor for the change in the relationship?

Tony Hales: Let us take what is the motivating factor. The two motivating factors are to have a new source of income and our belief in a governance structure that takes responsibility and accountability much closer to the people who actually use and live by the waterways. We want to give it to the communities and the users, as opposed to, no matter how good they are, one Minister who changes regularly and the officials of Defra in Westminster. Borrowing provides some flexibility, particularly in the short term, in evening out-

Q29 Barry Gardiner: So it is to get closer to your customers.

Tony Hales: It is to get closer to our customers, and to give us a new source of income in terms of voluntary income.

Q30 Barry Gardiner: That is the other aspect that really puzzles me. In this illustrative projection of the additional resources, I do not see anything that says, "Land sales". I do not see a bright red block or a black block that says "Land sales".

Tony Hales: What we have is a dowry, £460 million of dowry, which is being transferred over in terms of property from Defra. One of their objectives, and indeed one of the objectives of the Trustees, is to maintain that for posterity, for the nation, as a source of income. Our aim is not to utilise our assets but to increase the income and grow our assets for the future of the Trust going forward.

Q31 Barry Gardiner: You will recall a conversation we had six years ago, when you advised me of the additional premium that could be obtained for development land that was on riparian land. What was that additional premium?

Tony Hales: The premium is 20% for people who live by the-

Barry Gardiner: I think in those days you told me 25.

Chair: We are coming on to property, so we will just do maintenance for now, if that is okay.

Barry Gardiner: I would like to pursue this, because these are-

Chair: Yes, but I think we are coming on to property. Could we do the maintenance for now?

Q32 Barry Gardiner: Chair, I will go with you. In terms of your projected income, the additional resources that you have here, Mr Kittmer, you have said in the impact assessment that "it is difficult to judge the degree of optimism of these projections". I find that a disturbing statement from your impact assessment. What precisely do you mean by "difficult to judge the degree of optimism"?

John Kittmer: It is a statement of prudence, again. The projections in relation to, for example, charitable giving, as the impact assessment says, are dependent on some market research that was done-a degree of market research and some benchmarking against the Woodland Trust. This benchmarking and the market research were done after the events of 2008, so we think they are robust, but on an analysis like this there is always a degree of prudence that needs to be applied. We will not know how successful the charity is in raising money until it is liberated to start raising money. The fundraisers are in place. You will see that we have discounted the figures to 75% and used a 75% figure. There are other ways of looking at the sensitivity, but that is essentially what we have done. These are illustrative. We have to acknowledge that they are illustrative figures.

Q33 Barry Gardiner: They are illustrative-right. We have received from the Inland Waterways Association an estimate that it will cost some £40 million to address the dredging backlog, whilst £8 million is required each year on top of that to keep the waterways in the steady state that we have always talked about. What does the Trust plan to spend on dredging each year, Mr Hales, and how will it address that backlog?

Tony Hales: The outlook in 201516 is that we have £10.9 million in our budget for dredging. It will then address some of the backlog. There will always be a backlog. We do not see in our current plans that we will resolve that total backlog. It does not mean that the waterways are not navigable; they are navigable, just not ideally navigable.

Barry Gardiner: I will leave it at that for now, Chair, thank you.

Q34 Thomas Docherty: Picking up on when you said "some of the backlog", could you give us a proportion of the backlog that you would seek to have cleared in 2015?

Tony Hales: That is when we reach 2015. We will have another two difficult years ahead of us. That is quite clear. We do not expect to maintain the system at the current level over the next two years. We expect a very slight deterioration. It is then that the new money kicks in from Defra, and then we start to be more comfortable with our funding arrangements. The numbers are basically that it is about £2 million per year that we start to improve it by.

Q35 Thomas Docherty: That is helpful. What assurances can you give us that the Trust’s funding will be sufficient to maintain the waterways in an acceptable condition in the longer term, so particularly beyond the end of this decade, when the conditional grant has expired?

Tony Hales: All of our projections cover 15 years-we have a very robust asset management system, which has been tested with peer groups from the water companies and from other infrastructure companies-and those show our graphs going up: our asset condition deteriorating slightly in the first few years, but in the latter years going on an improving trend.

Q36 Thomas Docherty: You will obviously be aware that one of the powers that the Committee has is to effectively trigger an extension to the Order. What assessment have you made of the impact that such a triggering would have on confidence in the sector that you are wishing to attract?

Tony Hales: We are keen to launch the Trust in June. We are very keen to do this before the Olympics and to catch an opportunity between the Jubilee and the Olympics, when people are out there walking the towpaths or in their boats. We can go out and enrol them and capture them then. It is a great opportunity. We think if we do not launch on time, it will cost us at least £100,000 this year in potential lost membership or friendship fees from people joining us.

Q37 Thomas Docherty: Is that because you have built a PR campaign specifically for the Olympics?

Tony Hales: We are certainly not trying to prejudge where Parliament goes to.

Thomas Docherty: Sure.

Tony Hales: But we have people on standby. Each of the regional Waterway Partnerships is working on plans for their own launch in their own area, and we have some plans for a national launch. Those clearly have to be flexible in terms of the ultimate date, depending on where Parliament’s decision is, but it would be hugely helpful to us, and I think to the success of the Trust getting a good launch, if we can do this at the end of June and not be pushed back into the Olympic period or later in the year.

Robin Evans: The key bit is getting the public’s attention. We know that the public’s attention will be on the Jubilee at the beginning of June, and the public’s attention will be on the Olympics in July. If we want to launch something and capture some of the public’s attention, it has to be in that, otherwise we will probably have to wait until after the Olympics.

Thomas Docherty: Thank you.

Q38 Chair: Mr Evans, I think you are aware, even more than Mr Hales, of my personal interest in maintaining waterways. Why should it be acceptable to see a deterioration in the waterways over the next two years?

Robin Evans: We have to put this into context. I said earlier that only a few years ago, at the turn of the century, we had 30% of our major infrastructure assets-the reservoirs and the aqueducts-in our poorest condition grade. We have got that down to just below 20%. At no stage does it rise above 22% in our calculations. This is relatively marginal. We have been very open in saying that there will be a relative deterioration from just under 20% to just over 20%, but nothing like what we have been used to in living memory. The waterways are in far better condition: they are very functional-30,000 people have boats on them, more than we have ever had before. Although we are being very open in that some of the conditions of the structures, the grades, will deteriorate slightly, we do not envisage that the waterways will become any less attractive, usable or safe.

Q39 Chair: Why did you not argue that the Government should increase the funding now, rather than wait for two years?

Tony Hales: We did, but it was made very clear to us that, in the current Comprehensive Spending Review, this was a nonnegotiable amount of money, so we needed to focus our attention in the outlying years and dealing with longterm infrastructure. We believe we can cope with a shortterm issue. What is really a problem is if our funding is uncertain over a long period of time. What we have is 15 years of certain funding, which is an enormous bonus from where we have been historically. We have been down to some very shortterm changes at times.

Q40 Chair: It worries me that the Inland Waterways Association say that the current expenditure on maintenance is half of what is needed to maintain the network from further deterioration, and that the funds are not sufficient to remedy any of the current backlog.

Robin Evans: I do not know whether that statement was made before or after the funding agreement was announced. I think it is more likely that was before the funding agreement, when only the £39 million was on offer.

Q41 Chair: If we have established there is underfunding in maintenance, can I turn now to pensions liabilities? There is a plethora of documents, including a written ministerial statement on 31 January, showing that you will receive a £25 million oneoff grant to be spread across the next few months and a capped last resort Government guarantee in relation to the historic public sector pension liability. What is the nature of the last resort Government guarantee?

Tony Hales: The last resort is that if in 19 years’ time the Trust is effectively bankrupt and unable to underwrite the pension fund, the Government guarantee will come into play.

Q42 Chair: To a limitless amount?

Tony Hales: £125 million.

Q43 Chair: Even after the £25 million, you will have a £40 million deficit. How concerned is the Trust about the significant pensions deficit that it will inherit from British Waterways now?

Tony Hales: It has always been built into our plan that there will be a payment as a recovery to the recovery plan. There is about £7 million a year of pension funding built into our plans.

Q44 Chair: What guarantee can you give us today that there will be no future increase in the pension fund deficit?

Tony Hales: I cannot, because mortality rates may change. The giltedged market may change. Previously the pension fund was separate from the Government pension fund; British Waterways were responsible for running that pension fund, and if it changed, British Waterways had to find the money to go into that fund.

Q45 Chair: What are the implications of the change?

Tony Hales: The implications of the change are that we have a very explicit guarantee, whereas before there was no explicit guarantee; and we have a £25 million down payment, which is extremely helpful. The greatest thing that we would like from a pension fund point of view is to see interest rates go up from their absolutely extraordinary historic low, where today there is a negative yield on indexlinked gilts. If that goes up, then our liabilities fall.

Q46 Iain McKenzie: Mr Hales, do the Trust agreement and associated documents provide the right balance between protecting public assets, once they have been transferred to the third sector, and freedom for CRT to make investment decisions in a highly competitive property market?

Tony Hales: Yes. I think John Kittmer referred to this, and I alluded to it earlier. We have £460 million of property assets being transferred over. We have just sold our interest in Wood Wharf, which is one of our most valuable property investments, for a longterm income stream and also a capital sum of £50 million that will come in. We will then reinvest the £50 million over the next three years in other property investments. That is a particular example of our aim to continually rotate our portfolio to keep maximising value.

We are looking at getting a return on that property portfolio of about 7%, which is a reasonable return in the property market. It is a lot more than we could possibly get putting it into the bank, a building society or in the bond market. There is of course a commercial risk, which we feel we have the management expertise to handle. We are concerned about not leveraging that up too much, because the more we put leverage on, the more we increase the risk.

Q47 Iain McKenzie: To all the Panel, what do you feel are the criteria used for the appointment of the Protector? Will the Protector’s advice be made public?

Tony Hales: Yes. The Protector would be appointed jointly by the Department and by the Trust, and if there was a failure to agree the appointment, a professional body would nominate somebody. He will be a recognised surveyor, a very senior surveyor, who understands property and would review the investment principles in very much the same way that people review pension fund investment principles between a Trustee and the corporate. Yes, he would make his statements public.

Q48 Iain McKenzie: Other members of the panel, any comment?

Robin Evans: If I may say so, it is an elegant solution in that it gives the Trust freedom to operate commercially with its assets, its commercial properties, so that it can raise money for the Trust and operate in the market as it sees fit. At the same time the Protector makes sure that what were public assets are not squandered and badly invested or mismanaged by the Trust. The Protector will always oversee the working of the Trust, and if at any time the Protector thought that these commercial activities were in any way not protecting the commercial value of that dowry, he will notify the Secretary of State and the Secretary of State can take action. It is a very elegant solution, because it provides the freedom to operate within a very structured framework, and if the Trust goes outside it, they know they will be penalised.

Q49 Barry Gardiner: Picking up on that phrase "protecting the commercial value", are there any other values that the Protector will be empowered to consider? Are there any environmental values? Are there any landscape values? Or will they only be commercial values that the Protector is empowered to consider?

Robin Evans: The Protector will primarily be concerned with maintaining the value of the dowry. The charity’s objectives cover things like heritage and the environment, so our charitable purposes require us to consider all those things in everything we do. But it would not be the Protector; it is more to do with our general governance. Acting within our charitable purposes would ensure that we gave proper account to those sorts of factors.

Q50 Barry Gardiner: If Government considered that your balance of priorities was wrong but that nonetheless the commercial value of the land that you were selling was protected and enhanced, they could do absolutely nothing to stop you developing that land?

Robin Evans: I do not think that is necessarily true. On a daytoday basis, we will be meeting with Government. We have performance reporting and openness to Government, and Government will be our biggest funder. What they say and what they feel are very important to us. I do not think that they will be powerless. They will be very important influences on what we do, and if we seemed to be irritating or going against Government policy, that would be very serious for the Trust.

Q51 Barry Gardiner: But they will not have any power?

Robin Evans: I think there are other statutory powers. We have a statutory requirement to protect the environment. We will inherit that power from BW, so again there are statutory controls and obligations on the Trust through the statutory powers it inherits.

Chair: Thank you. Mr Kittmer?

John Kittmer: The grant agreement requires the charity to act in line with its statutory obligations. If there were serious and persistent breaches of statutory obligations, whether those are connected directly with the waterways or with their environmental obligations, that could be an issue in terms of withholding, as I was explaining, part or all of the funding agreement.

Chair: That is very helpful. Thank you.

Tony Hales: Local planners would have a lot to say in this, as well. For most of this commercial property, adding value to it would have to go through the local planning process.

Q52 Neil Parish: So Government could hold back funding if necessary?

John Kittmer: If it was very severe. It would have to be a serious and persistent breach.

Q53 Amber Rudd: I would like to pursue the concept of safeguarding services under the Trust. What assurances are provided in the Transfer Order and associated documentation that the Trust cannot use its reclassification power to downgrade the navigation status of waterways inappropriately?

Tony Hales: We cannot reclassify. We can recommend to the Secretary of State a reclassification, and we can put financial arguments to the Secretary of State, but we have no powers ourselves to reclassify.

Q54 Amber Rudd: I see, but do you feel that there is any risk of a downgrading of the current service provided in that arrangement?

Tony Hales: No. There tends to be some debate over certain freight routes where costs are higher than revenue. We are very keen to see freight grow. It is in our interest. The purpose of the Trust is to encourage the use of waterways and to grow the waterways, if we can find money from outside the Government funding. It is absolutely not our intention to go down that route. In the end, we do have to look at certain waterways, and if, for example, freight completely stopped on one of our waterways, it would seem economic nonsense to keep dredging to a greater depth than is necessary to meet the purpose that it was now being used for.

Q55 Amber Rudd: Do you have any plans to take measures to encourage freight to move more onto the water, away from roads?

Tony Hales: We will be setting up a new freight advisory body to advise the Trust and look at how we can develop it.

Q56 Amber Rudd: Given the need to increase funding to the Trust in coming years, should those using the waterways for navigation be concerned that the Trust will seek to raise licence fees and other charges as a consequence of all that we are discussing?

Tony Hales: First of all, we want to see more boats on the network, because that is one of our purposes.

Amber Rudd: Yes.

Tony Hales: We want to see more boats on the network, because that brings in more income. If we started putting up charges to an unreasonable level that drove boats off the network, it would both be against our main purpose and it would not be a commercially sensible thing to do. Frankly, there is no intention to increase boat licences at the moment by more than the rate of inflation.

Q57 Barry Gardiner: Going back to that bar chart, what is voluntary income net, the blue element of those bar charts?

Q58 Chair: It is on page six of the impact assessment.

Tony Hales: This will be before and after, gross and net. Essentially there is a cost in bringing in voluntary income, and that is the gross income less the net cost of-

Q59 Barry Gardiner: I know what the difference between gross and net is. What I am asking is: what is this voluntary income?

Robin Evans: This is the subscriptions that people will make towards the Canal and River Trust, hopefully £5 per month or £3 per month, to become a Friend of the Waterways Trust, to support the work of the Trust.

Q60 Barry Gardiner: Okay. So none of this includes increased income from licences or berthing charges?

Tony Hales: No.

Robin Evans: No, because this is purely about the extra income that we will derive from our new status.

Q61 Barry Gardiner: From your new status?

Robin Evans: Not from continuing as we are.

Q62 Barry Gardiner: This Committee criticised you about five years ago for introducing berthing charges without warning. You will remember that. Your assurances on this need to be pretty solid now for users of the network: that you are not intending to raise licence fees or berthing charges over the projected period, except, of course, in line with what one might imagine, with inflation, but there will be no substantial rise. You are not projecting in any of your figures that there will be a rise in those costs.

Robin Evans: We are not projecting any rises of that nature over the 15 years in our projections. I think that is entirely different from giving a guarantee to say there will be none. Sorry, I am just being advised that we have already announced that we are increasing our licence fees by inflation plus 2%. I am sorry, I forgot this. We announced that earlier this year. That is already on the cards, and that will happen for the next two years. Our forecasts take into account inflation and some growth in numbers. But I have to emphasise that cannot be a guarantee, because we simply do not know what will happen.

We also set our mooring prices in a very different way now from the way we did some years ago, because we now put our vacant moorings up for internet auction, which helps to guide the right market price. Something that we were always very criticised for in the past was that we did our own research for the market price. We now have a very open system that dictates and demonstrates the market price.

Q63 George Eustice: I was going to come on to freedom of information requirements, but just before I do that: Mr Hales, you raise the point that if you did put charges up, you would potentially drive traffic off the waterways. Is there evidence that would happen? Once people have invested in a boat, they have quite a capital stake in it. They are a captive audience, aren’t they? I just want to return to this point. If you do not achieve these voluntary subscriptions, and people are not quite as enthusiastic as you hoped to become voluntary members, will that then require you to look at these charges and fees as a way to plug your funding gap?

Robin Evans: I think you are right in that our research shows there is not much elasticity in it. Once you become a boat owner, you tolerate price increases because you still want a boat and everything else. But we are incredibly proud of having grown boat numbers from 20,000 to 30,000, more than at any time since the Industrial Revolution. It brings so much colour, vibrancy and activity to the waterways, which brings people onto the towpaths, which is where we will recruit them for the subscriptions. Having more boats is a virtuous circle. I think what Mr Hales was saying is that it is really against the Trust’s interest to see price rises to an extent where we see a reduction. Even though there may be some inelasticity and they will still be there, a cheerful, supportive, engaged boating community is what the Trust wants. It does not need a boating community that feels that we are out to price them off the waterways. It is not in our interest to do that.

Tony Hales: We have not really touched on the governance, in that there is the management there. They are subject to the Trustees, who are there to legally deliver the charitable objectives, but then there is the Council. We have just had four representatives of our licence holders announced yesterday as elected to that Council. The Council has the right to remove the Trustees. I am sure if they felt that the boating charges were being moved unreasonably, they would take a strong view and persuade the rest of the Council about their views.

Q64 George Eustice: Just on freedom of information, the Government has announced the approach it will take with the CRT, which is a much narrower approach than is currently the case under the existing system. Do you accept some of those criticisms? I know Private Eye, particularly, have run a campaign on this, saying that it is effectively public money now but the body will not be open to the same degree of scrutiny through FOI.

John Kittmer: Should I pick that up? The Private Eye campaign, as I remember it, was before the Government had decided which of the three options that it publicly consulted on it would follow. What we have done is to propose, through the Transfer Order, a limited application of the Freedom of Information Act, but it is not strictly true to say that it is a narrow definition. It is essentially the same as the core business now. All the powers and duties of the waterways will be transferred through the Transfer Order, and everything that is transferred through the Order is up for grabs in terms of freedom of information. You will be able, as a member of the public, to write in and ask about dredging, vegetation management, asset condition and repair, just as you can do now.

The Government decision carves out from the application of the Freedom of Information Act things that are now not subject to the Act-the charitable activities of the CRT. The CRT’s fundraising will not be within scope of the FOI provisions. That is largely because we were convinced by the arguments that we should try to achieve a level playing field with other charities, and we should rely on the governance mechanisms of the charity itself, which will vastly increase the transparency and contestability of the actions of the management and indeed the Board of Trustees. We think we have a very good balance between protecting the existing provisions of the Freedom of Information Act and finding equally robust but different transparency mechanisms for those things that are the charity’s business.

Q65 George Eustice: Give me an example of what that would entail that is not there now. Are you talking about minutes of meetings and things like that?

John Kittmer: I am sure the CRT will publish the Board’s minutes.

Tony Hales: And have done.

John Kittmer: Indeed, you can find them on the CRT website now. They will do so because they are an open charity rather than as a result of the FOI. There will be some business that the CRT Board of Trustees conducts, in relation to, say, the Waterways Infrastructure Trust-which is the permanent network that, as already explained, we are transferring-that will come within the scope of the FOI regime anyway. They would be accountable to some things through the FOI regime, and others through general provisions of charity law and good practice.

Q66 Thomas Docherty: Mr Kittmer, obviously there was a consultation on the proposed abolition of the IWAC-lots of abbreviations here. Whilst there was a pretty low response rate, the clear majority of respondents felt that it was useful to keep IWAC during at least the transition phase. Can you tell the Committee why Defra does not propose to provide that?

John Kittmer: There are a number of reasons. First and foremost, unless they see, according to the three tests that they established, that there is a real case for independent advice from a statutory body, Ministers have decided that they expect the Civil Service to generate advice, and to generate advice outside the Civil Service as well, by of course talking to our stakeholders and to external opinion formers.

In the case of IWAC, you are right, Mr Docherty: there was a majority of the very few people who wrote in on this subject in favour of keeping the body, at least transitionally for two years, and we did think long and hard about doing so. It costs us £200,000 a year to run IWAC. As already explained in the question from the Chair, we will start to look at the EA navigations in 201314. We have already made very strong commitments to our stakeholders that we will draw them into the fold. We will talk extensively with the CRT. I am sure it will be busy in its Council and in its Waterway Partnerships as well, giving us advice on this. If, over and above the existing advice that is available to us, we think we need independent advice, we will commission it ad hoc. That is essentially what Ministers have decided they want to do in this sort of field. But we will consult publicly on the EA navigations.

Tony Hales: We have 150 people coming in now to act as governors of the waterways, if you take all the regional partnerships and the Council. The budgets of each of our waterways managers will be subject to the scrutiny of their regional Waterway Partnership. At the national level, the Council will be looking at our budget. There is a change. Yes, of course, the Department is stepping back. This is about central Government having less influence and less daytoday control. There are 150 new people out there who have a particular passion, who are standing up as volunteers, and they will be scrutinising what the Trust does.

Q67 Thomas Docherty: Finally, Mr Kittmer, you touched on the fact that there was such a low response rate-I think it was only onetenth of the one that we saw for BW. How has Defra tried to engage and fill that gap, so to speak?

John Kittmer: Throughout this conjoined process of working out the transfer of the waterways and the abolition of IWAC, we have engaged very closely with stakeholders. We have had numerous meetings with them. We have a core stakeholder group-I say core, but it is a large group of about 20-which we see frequently. We also talk to the broader navigation authorities, through their collective body, AINA, and we have had meetings where we have brought in all of the navigation authorities to see us.

Since Ministers confirmed the abolition of IWAC, we have had numerous offers from our stakeholders to come in and talk to us whenever, particularly of course around the known project of the EA navigations. There is a lot of goodwill for us to continue the very good and close working that we have done with stakeholders on this project, and we will continue to do so. It has been very valuable for us. We have very engaged stakeholders. They have helped us enormously to improve the proposal that we made in March of last year, and we will want to continue that.

Thomas Docherty: Thank you.

Q68 Chair: Finally, Mr Hales and Mr Evans, relating to both the outstanding issues that you have mentioned today, and to which the Minister refers in his written statement, how much are we, as a Committee, taking on trust that all will go smoothly?

Tony Hales: I hope we have given you enough reassurance. This has been an incredibly participative process, and I think there is a lot of trust there. It is only minor detail that remains to be resolved now.

Chair: Thank you very much indeed, all of you, for participating and being so generous with your time. We are very grateful. Thank you very much indeed.

Examination of Witnesses

Witnesses: Clive Henderson, Chairman, Inland Waterways Association, and Howard Pridding, Executive Director, British Marine Federation, gave evidence.

Q69 Chair: Welcome and thank you very much for participating. As I mentioned earlier, this is very much new territory for Parliament and for the Committee. Would each of you in turn like to introduce yourselves and your position for the record?

Clive Henderson: I am Clive Henderson. I wear many hats within the waterways sense. I am the national Chairman of the Inlands Waterways Association, which is a charity founded in 1946. We currently have about 17,000 members with varied interests, all relating to the waterways. About 18 months ago I was elected Chairman of the British Waterways Advisory Forum, and about two years ago the Minister appointed me to the Board of British Waterways as an observer, to effectively help them and handhold them on this process towards joining the third sector. As of yesterday I was advised that I was elected as a user representative on the Council of the CRT.

Q70 Chair: Congratulations to you. Mr Pridding?

Howard Pridding: I am Howard Pridding. I am the Executive Director of the British Marine Federation, which is the national trade association for the leisure marine industry. About 40% of our members have businesses on the inland waterways of the country. I am also a member of the British Waterways Advisory Forum, and a former Chairman of the BWAF. It is not quite the esteemed track record that Clive has.

Q71 Chair: Before I turn to more general questions, I would like to raise with each of you the concerns that we have highlighted about the lack of maintenance funding and the potential deterioration in the waterways in the next two years. I notice that you made some comments in your written statement, Mr Henderson, and so did you, Mr Pridding. Would you like to comment for us on those points?

Clive Henderson: I think you may have mentioned earlier on that the funding available for maintenance is half what is needed. I do not think it is quite that severe. I think we are saying that it is £20 million per annum short of what it needs to achieve this concept of the steady state, but that is not a new problem. We have been dealing with that for a while. The problem has been, particularly in dredging, which has already come up, that the bottom has become too close to the top in certain waterways in certain areas, and you can only dredge as you go along, with the number of dredgers that are available. You cannot suddenly dredge the whole system overnight. It has to be a planned programme, and that has been behind schedule for some time, as has been acknowledged.

I think the chart in the impact assessment on page 17, which shows the realterm funding from the Government, illustrates historically why that has happened. We have watched the Government grant reduce year on year. We have watched British Waterways try to become more efficient and reorganise itself, but it has suffered badly from very shortterm activities in terms of cutting staff and maintenance projects, etc., inyear to cope with the variable funding levels, which have all been on a downward trend for some time. With the certainty we will have from the new funding package, hopefully we will see a real plan to attack the backlog. We are confident that can happen.

Chair: Mr Pridding?

Howard Pridding: In our evidence we stressed how important maintaining navigation is to our members’ businesses. If there is no water in the canal, if boats cannot float, our members do not have a business. It is a very important area. Money is tight, we know that. The Government settlement was welcome. As a representative body for the industry, we will be looking to work very closely with British Waterways to make sure that we are prioritising and maintaining the waterways that are so important to our members’ businesses.

Q72 Chair: Thank you. Do you have any concerns about the proposal for the Canal and River Trust to eventually take on the navigations currently the responsibility of the Environment Agency?

Clive Henderson: Only the concerns that relate to the risk that it may not happen. My organisation would certainly support that transfer. It is a longheld vision. We are the elder statesman organisation; we were founded in 1946, as I said, and the waterways were not even nationalised until 1948. We outlive every other representative body of waterway users. It has been a vision to have a proper national authority, with user input and participation, to make the most of what the waterways are for this country.

Howard Pridding: We brought together members who operate on the canal network, the navigable rivers and the Norfolk and Suffolk Broads at the start of this debate to try to reach a united industry position. Part of that was that we believed that the EA navigation should be part of the new charity. The industry would like to see it within the CRT.

Q73 Chair: Excellent. Do either of you have any concerns in principle about the transfer of British Waterways’ functions to a third sector organisation?

Clive Henderson: We have no reservations. As Mr Kittmer illustrated earlier, this is effectively a joint shared project. We have worked very closely together during the last 18 months or two years to bring this about, and any concerns we have raised along the way have been addressed to our satisfaction.

Howard Pridding: Similarly, we have been heavily involved in the debate since the outset, and last week, with other stakeholders, we had the opportunity to look at the detail of the Order, with Defra officials, Defra lawyers and the Chief Executive of British Waterways, and I think we were satisfied that it provides the necessary protections.

Q74 Chair: Do you think that the draft Transfer Order to the Canals and River Trust broadly meets your expectations as to the protections in place for the users of waterways, Mr Henderson?

Clive Henderson: Do you want to go?

Howard Pridding: I think we do. My previous answer was intended to illustrate that. We have been through the detail, and we are satisfied that there are protections there, both for the industry and for our customers, the boat users.

Clive Henderson: For users, we are inheriting almost what we had before. We are not expecting it to get any better, but where we have sought protection, it has been effectively encompassed within it.

Chair: That is very helpful, thank you.

Q75 Barry Gardiner: I want to talk about the voluntary funding, but before that, can I just pick up on something you said about the graph-figure 1-on page 17? Just for clarification, that is a fairly selective graph, isn’t it? It starts at what was the peak of funding, and belies the fact that the highest level of Government funding was between 199697 and 2006. Would you confirm that it was predicated on the needs of the network-to bring the network back into a much better state of repair at the time?

Clive Henderson: Oh, yes, I would happily acknowledge that those peaks were to effectively put right the major decline of the state of the D and E assets, not only to bring those back to manageable problems but to resolve safety issues as well.

Q76 Barry Gardiner: And very successfully, too.

Clive Henderson: Absolutely, yes.

Q77 Barry Gardiner: I know your members were very pleased at the result of that. Over that period, also, whilst the Government funding then reverted to historic levels, the income for British Waterways as a whole has been substantially increased, hasn’t it?

Clive Henderson: Absolutely, yes. You raised earlier on the 2002 vision for 2012. At that time Government funding was far more than 50% of British Waterways’ funding, and during that time they have actively sought to increase the income from the investment property assets and to become more efficient. The headcount now is 1,600 or 1,700. In those days it was 2,700. We have seen actions on the ground. Sometimes that has perhaps affected the service levels to our members, but I think they have been understandable and accepted.

Q78 Barry Gardiner: Are you disappointed that, despite the fact that the funding levels have been higher than projected in 2002, the actual objectives stated at that time with regard to your members and the steady state of the network have not been achieved?

Clive Henderson: The direction of travel on managing the major assets has been in the right direction.

Q79 Barry Gardiner: Broadly right?

Clive Henderson: One of the items that we raise with them all the time is the specific examples. It is easy to look at a graph and look at a percentage, but they are individual aqueducts and embankments, etc., that historically we have had concerns-

Q80 Barry Gardiner: I think we would all agree that it has been the right direction of travel, but what I am seeking to tease out from you, if I may, Mr Henderson, is the level of confidence that you might have, given what has happened in the past with projections made by British Waterways-their projections for the next 14 years, in particular the significant increases in voluntary funding. Do you think those projections are realistic, particularly in terms of how much money can be raised by fundraising, or do you share the impact assessment’s difficulty of judging the degree of optimism that British Waterways has adopted?

Clive Henderson: We are stepping out into the unknown. We are advised by the people who prepare these projections of income that they are conservative. At least two of the transition Trustees of the shadow CRT are specialists in national charities and major fundraising organisations, and they looked at this area in detail themselves to gain comfort when they first came on board. They have comforted their colleagues and users such as us that there is prudence in these figures already. The figures are not unrealistic, provided that the world does not change or become too bad, under current known issues-the "known knowns"-these are achievable with goodwill out there.

Howard Pridding: I just wanted to add a couple of comments so hopefully you will have a bit more confidence in this area. Like every stakeholder, we were very concerned about it. It is an unknown, as Clive has said. At the outset I had concerns. I was unsure of the science behind this, but I think British Waterways were very open and transparent in this area about how they made their projections and forecasts. I think they took on a senior person with a charitable fundraising background, which helped. Perhaps for me the most important thing was that the interim Trustees, many of whom are people very experienced in charities, have scrutinised them. We have had conversations with them that give us much more confidence in the forecast going forward.

Q81 Barry Gardiner: Have you advised your members that, of the £12.5 million predicated additional income from the change in structure of moving to civil society-with the exception of the additional returns from new borrowing and the rate relief that one assumes would take place anyway, which is just under £2 million-£10.5 million of their projections would, if not realised, have to be funded by your members through increased berthing charges and licence fees?

Clive Henderson: I have not advised my members along those lines, because I think there is always a danger that we would damage the proposition and the product if we were to set scares running amongst the boating users and the potential boating users who have not even discovered the joys of the waterways.

Q82 Barry Gardiner: But that is a fact, isn’t it?

Clive Henderson: We have until 2026 on this. But I would like to emphasise that, if the funding was not available from the blue bands on these charts, some things would not get done. There would have to be cutbacks in expenditure. Some of this is additional funding-well, it is all additional funding to what is there now, and it will make a difference. It will improve the waterways and make them better, and hopefully get some restoration of more miles. We have had 500 miles of waterway come back into use through restoration activities of volunteers and other organisations working together. We expect some of this to be translated into improving and enhancing the network. On the green figures on there, which is the monetary value of volunteer effort, I confidently expect that to be completely understated. We will achieve massively more than that.

Q83 Barry Gardiner: Very good. So you have no fears that, as British Waterways moves to become a charity, instead of becoming a charity it will de facto become a property company with rivers attached?

Clive Henderson: I have no fears along those lines. I think we know enough about their ambitions.

Barry Gardiner: Thank you.

Q84 Chair: We heard about the pension shortfall, which will be running a £40 million deficit and an ongoing, I think, £7 million a year. Do you have any concerns about how this will be funded, as stakeholders?

Howard Pridding: The pensions issue was obviously a big concern at the outset. The announcement of the Government contract and the money to address this gave comfort. We did not want the charity to start with a major handicap of pensions liability.

Q85 Chair: But it will be £40 million deficit after the £25 million.

Howard Pridding: That is true, but people are more reassured since the announcement of the Government contract that this issue is being properly managed.

Clive Henderson: It is a concern, because it is quite a large deficit. It is effectively historic: it is no fault of the current management, probably, and certainly not attributable to the Trustees of this new charity. But they will have to effectively take the £39 million per annum and effectively pass over £5 million or £6 million of it each year to reduce the scale of the past deficit. It is unfortunate that the Government money going into the grant is not effectively reaching the waterways as such. It is preaccounted for.

Chair: Thank you. That is helpful.

Q86 Neil Parish: Good morning-or good afternoon, I think it is now. Mr Henderson, are you as confident as Defra appears to be from its impact assessment that volunteers can be recruited and retained to realise the estimated efficiencies cited in the impact assessment?

Clive Henderson: I am extremely confident, as I said before. The scale of the green band, the monetary value of the volunteer effort, is likely to be understated here rather than overstated. Provided they are welcomed, trained and given useful, rewarding tasks to do, volunteers will continue to want to be involved. This is quite an easy sell. The waterways of Britain are wonderful things. You are not asking people to go along and clear the sewers out, or go and work in a shelter somewhere feeding the homeless. There is nothing wrong with those activities, but this is a much nicer and more enjoyable and more rewarding opportunity to get involved with.

Q87 Neil Parish: I would agree with you that the waterways are a great asset. We are naturally looking to see how they will be managed in the future. Are you confident that volunteers are more likely to volunteer for a charity than they are at the moment for a Government body? Will that have any effect, do you think?

Clive Henderson: I think that will have a drastic effect. British Waterways are currently auctioning some of the prime moorings in London for the Olympic period, and most people will say, "Why would I pay that much to hand it over to British Waterways?" I suspect come July, hopefully, on this timescale, people will be much more willing and see that they are supporting a charity. They are getting a nice mooring in London, and their money is not being thrown at British Waterways but going into the new charity.

Q88 Neil Parish: Under your new management plans with CRT, you will need more volunteers to do a lot of the work. Are you confident that will happen?

Clive Henderson: The use of volunteers is aimed at making the network better, rather than taking the existing employees’ jobs from them. That has been a concern of the employees, I know. I think they are now satisfied that is no longer a concern; they have reached agreement with all the workers’ representatives. It is trying to make it a better waterways network, more enjoyable, and welcoming visitors, particularly overseas visitors who come and hire a boat from one of Howard’s members, to bring the UK visitor economy up. It is much more useful if they are met at their first lock flight by somebody. They can get help if they want it or can be shown how to use a lock flight if need be. At the moment, British Waterways do not have the spare staff or resources to be a tourist information service.

Neil Parish: Thank you very much.

Q89 Chair: In terms of the economic downturn, is the cost of travelling to work as a volunteer a concern?

Clive Henderson: Yes, I think it is. Clearly we do not just want volunteers who are in the affluent band-the early retireds-who can afford to do this. We want to make it communitybased, and the communities along the waterways vary in their economic circumstances. I think there will be a need at times to help and support volunteers when they come along, particularly what one might call the NEET generation. There are many people out there who can come along, find something that interests them, get engaged with it as a volunteer, and also learn some skills and the discipline of getting up in the morning. There are a lot of case studies now; some fantastic work has been going on around the country over the last couple of years involving British Waterways and Groundwork, etc., in getting in otherwise disaffected young people and giving them something to do, and working with young offenders as well. They make a positive difference to something, which they are then proud of. They bring their families down at the weekends to show them the good work they have done in painting lock gates. Under supervision, they have learned to paint.

Howard Pridding: I think there is an immense passion for the waterways amongst those people who enjoy them, and that will be harnessed by the new charity, both in volunteering and in charitable giving. We are all very keen to get on with it and prove that fact.

Q90 Chair: In terms of supporting that, Mr Henderson, which budget will that come from?

Clive Henderson: That would come from the general resources within the Trust itself. They will obviously weigh up the costs and benefits of individual projects, but they will be working with others. There is other funding out there to try to get some of this generation working, and to become involved with young offenders and older offenders as well. There are other schemes and projects, and the new Trust will be a perfect vehicle to work with them. It is a nationwide operation in its geographical spread at the moment, so it could really learn lessons in one area and translate them to replicate them elsewhere.

Chair: Thank you very much.

Q91 George Eustice: A point that Mr Gardiner touched on earlier was the potential for increased reliance on commercial property for income. Are there concerns from users of the waterways that this might undermine the ethos of the CRT in some way and, in particular, might it lead to more development alongside waterways if some of those properties were developed and sold?

Howard Pridding: I will start. First of all, the property portfolio is essential to the success of the charity going forward. British Waterways are very experienced in this area. We need to understand that the philosophy is that the money made from property is spent for the benefit of navigation. I believe British Waterways understand the importance of access to the water and the boating facilities that boaters need. When it comes to individual developments, if we have any concerns in those areas as an industry, or indeed as boat users, we would make our representations known to the new charity, as we do now with British Waterways.

Clive Henderson: Working together on a construction plan does really deliver urban regeneration in certain towns and cities around the country, and the checklist of examples that have already succeeded and made a real difference to those communities are there on the books. There are many other people, towns and locations that aspire to copy that and join with it. Some of the investment property opportunities will be within the CRT, and some will be with third parties that are already out there working together with the Trust. I do not see that there is a problem. The commerciality that one needs to make sure that the endowment is protected and its value increases over time is not incompatible with the charity, which will get the benefits of that appreciation.

Q92 George Eustice: Will it create a culture where there is more pressure for you to concede to things that you might have concerns about? If you say, "We have a concern about this," and the answer is, "I am afraid if we do not do this, there is no money; therefore, we will not be able to do all these other things that you might want." You might feel under pressure to go along with things that you otherwise might not have done.

Clive Henderson: We live in the real world. We have to accept that there is a price and a value for everything. Within the urban areas, provided what is put up is in keeping with the waterway corridor and does not detract from it and ruin it, we would be supportive. If the rural sections were under threat, with proposals to make three miles of housing estate either side because people enjoy looking at the water, we would be concerned. We would be concerned prior to and post the setting up of the Trust that a unique waterway environment perhaps has not been protected, and that the views and the aspects that have been there since it was built are now being threatened. People have to live somewhere, but it is the scale and the design, etc., that can be affected.

Howard Pridding: I would stress that there is a consultation process and a dialogue. Of course not everyone is happy with every development that British Waterways do, but at the end of the day they do understand that boats are integral to the enjoyment of the waterways. Often it is mixed developments that are needed, but there is a process and an understanding there that will go forward with the new charity.

Q93 Barry Gardiner: Of course we have had no projection of the revenue income from the property portfolio from British Waterways, and I understand that in order to transfer the powers to the Trust, the Minister will have to make a transfer scheme using powers under Section 23(1)(a) of the Public Bodies Act. As yet, that has not been made public. Why do you think that there are those two great big blanks at a time when the Government and Parliament has to take a decision in principle to go ahead with this, and we have heard such alacrity on the part of British Waterways that it should not be delayed? We would have to take that decision today without that information, wouldn’t we?

Clive Henderson: If it is not available, I guess you would have to reach that decision. The investment property portfolio, as Mr Hales said earlier, is running at approaching 8% on average across the portfolio, which when it is benchmarked against its peer equivalent property companies, comes out very well.

Q94 Barry Gardiner: You sit on the Board, don’t you, Mr Henderson?

Clive Henderson: Yes.

Q95 Barry Gardiner: So you will have seen the projections that British Waterways have for the future income from the property portfolio.

Clive Henderson: Yes, I have. Under the confidentiality agreement, I probably could not tell you, but I do not remember the detail anyway.

Q96 Barry Gardiner: What you are saying is that they are confidential and you could not share them with this Committee?

Clive Henderson: No, no. The target rate of return that they look for in a new investment property portfolio, the benchmark, is a minimum of about 8%. They ignore proposals that would not deliver that.

Q97 Barry Gardiner: I am not asking about the rate of return, am I? I am asking about the income.

Clive Henderson: I think the rate of return generally turns into income. These are rental incomes that they are talking about, not capital gains. There are other development opportunities where the return that they look for is much higher than 8%, to cover the risk involved in a development. We are talking about the rental incomes of many existing properties, many of which are nowhere near the waterways. They are investment properties.

Q98 Barry Gardiner: Does it not strike you as strange that we have had very clear projections about the additional resources that will be achieved from moving to civil society-from volunteering and all sorts of other rate reliefs and savings-but we have not had any hard information from you about the projected revenue that will come in from the property portfolio?

Clive Henderson: But it would not be coming from me.

Q99 Barry Gardiner: You are a Board member.

Clive Henderson: I am not a Board Member. I am an observer on the Board.

Barry Gardiner: Sorry?

Clive Henderson: I am an observer on the Board.

Barry Gardiner: Sorry-a Board observer.

Clive Henderson: I can sit and listen, and I sometimes speak. In the current marketplace, I suspect it would be a brave man who would put his hand on his heart and put in really firm commitments. You can only put in assumptions that the property market will continue to be almost in the doldrums. The property market is nowhere near as good as it was four or five years ago, when it was producing a bigger contribution.

Q100 Barry Gardiner: So what does that tell us about table 1, the illustration of the funding profile going forward? Sorry, in fairness to table 1, it is the grant funding, but what does that tell you about the security of the information about the revenues that the Trust will have going forward?

Clive Henderson: There is no property income included.

Barry Gardiner: No, indeed-sorry.

Q101 Chair: With respect, this is probably something we could direct more fruitfully at Defra. We could do it in writing. It is probably not for Mr Henderson to answer.

Howard Pridding: It is very difficult for a stakeholder to comment. It is appropriate, I think, for a Defra official or Minister to comment. All I would say is that all we can look to is BW’s track record in this area, and I believe we have confidence.

Barry Gardiner: Thank you.

Chair: Thank you very much.

Q102 Amber Rudd: Regarding safeguarding of services, if I may, are you satisfied that the Transfer Order and associated documentation provide sufficient protection against the inappropriate use by CRT of its advisory role to reclassify and power to downgrade the navigation status of the waterways?

Clive Henderson: I am confident that they are most unlikely to abuse the powers available to them, because as Mr Evans said earlier, boating is the lifeblood, and usage of the waterways is essential. If you downgrade, you will probably deter boats from coming. You might at the same time save on some maintenance costs, but you would damage the longterm viability of the whole network, because each part of the network depends upon the other adjacent parts being open and available for usage by boats of the local standard and size.

Howard Pridding: It is an important issue, because any curtailment of waterways for use by people is detrimental to the enjoyment of the waterways and our members’ interests. My understanding is that the Order transfers the powers to the charity, so nothing is changing here. As part of that, if the new charity did wish to downgrade a waterway, they must seek the permission of the Secretary of State, and the Secretary of State has the responsibility to consult with stakeholders. That gives us the protection that we are looking for.

Q103 Amber Rudd: What about a potential rise in licence fees to take account of increased costs? Do you think that the users might be vulnerable to that?

Howard Pridding: It is always an option, but as has been said previously, British Waterways understand that it will not be in the interests of the charity to start pricing people off the waterways. Again, with any licence increase there is always a consultation process, and we will have that dialogue.

Clive Henderson: Our members have lived with that scenario for many years anyway, so I do not think anything is particularly going to change. If there is an unrealistic, unjustified increase in licence fees, it will inevitably see a decline in boat numbers, which would be counter to the whole concept of this charity, which has maintenance of navigation at its core.

Amber Rudd: Thank you very much.

Q104 George Eustice: I would ask about access to towpaths and access rights. There were concerns raised by some that these might be affected. The Government has explicitly safeguarded access rights for pedestrians, but I wondered if you thought the same upfront assurances should be given for cyclists as well?

Clive Henderson: They were not given because cycling on towpaths is quite a big issue. In some areas it is permitted, in some areas it is banned, and in some areas a blind eye is turned to safe, responsible cycling. If a cyclist is travelling at five miles per hour on a grassy piece of towpath with an unmadeup surface, provided they travel safely and carefully and the width and the condition of the surface is safe, there is nothing wrong with that in my view. That is why a blind eye is turned. If lycraclad mountain bikers or racers travel along that same stretch and come across a person pushing a disabled relative in a wheelchair, or a mother pushing somebody in a pushchair, that is where the risks come about, especially if sitting on the towpath is a fisherman with his tackle box, and things like that.

Not all of the towpaths are the same. There are inner-city ones that are almost too popular. Some of the towpaths in London are very dangerous because there are almost too many cyclists, going too fast. The balance of safe, responsible use has to be established, which is why I think they are perhaps not given exactly the same right of access as walkers. It has to be responsible cycling in the right areas.

Q105 George Eustice: You can understand that if you were a cyclist, what you have just said would cause concern, because it suggests that there might be a change from the current position. As you say, there may be some where they discourage cycling or turn a blind eye to it.

Clive Henderson: No, I do not think that would be a change from the current position. That is what it is now. Responsible cyclists are welcomed onto the waterways. There are some areas of the country where the known limitations of the condition and width of the towing path are recognised, and cycling groups and Sustrans have worked together to get funding to improve those areas-to create corridors where there is a safe cycleway incorporated in the towpath. We would support that in the right areas. We would not like the towpaths of the whole country to be tarmac. It would change the visual and natural aspect of what we are talking about.

Q106 George Eustice: I think it was agreed that CRT would also publish policies on free access for pedestrians and cyclists, which would enable them to differentiate between different types of towpath?

Clive Henderson: Yes. Yes.

Q107 George Eustice: Are those being done?

Clive Henderson: Those are still in development. We have seen early versions, and there have been over the years policies for the two groups living together. Within London there is a "Two Tings" campaign, where cyclists are encouraged to ring their bell twice to alert people who are walking that they are coming up behind. That requires cyclists to have bells on their bicycles, which not many of them do, unfortunately. There are issues, and they are being developed, and I am sure happiness will ensue, as long as people are not saying, "I am in training for the next Olympics as a racing cyclist, and I want to use the towpaths for that." That is incompatible, full stop.

Q108 Chair: They have left it a bit late to train.

Clive Henderson: The next Olympics-the one after this year’s.

Chair: Thank you very much indeed.

Q109 Neil Parish: Can I question you both now on governance? Do you consider the provisions for CRT’s governance set out in the transfer document to be sufficiently robust to ensure transparency and accountability in the Trust’s operation?

Howard Pridding: If you look at our evidence, the industry’s role in governance was one of the key issues for us. In our first look at the governance, it seemed cumbersome. Again, this is one area where there was expertise among the interim Trustees who were appointed, and I think the Government’s structure will work. The British Marine Federation is looking to make sure that the industry is represented at every level, particularly the Waterway Partnerships. Yes, we are comfortable with the governance structure as it is proposed.

Clive Henderson: Yes. I would agree with most of that. I think the Waterway Partnerships are the key to making this work, because that is local and will get users at local level, and the communities through which the waterways pass, involved in what they want from their waterways.

Q110 Neil Parish: I see that CRT interim Trustees agreed to increase the number of Council members directly elected, and move to 50% of members being directly elected over time. What do they mean by "over time"? Is this one year, 20 years, 100 years?

Clive Henderson: The appointees that have just been elected, where there are elected members, effectively had constituencies, that is boating users-there are four representatives-two from the trade and one from the employee group. They had a database of who made up those constituencies. I think the press release yesterday said, in announcing these seven elected members of the Council, that by the time their term of office comes to an end in four years, they are expecting 50% of the Board will be elected from the other groups-the heritage groups and the wildlife groups-which at the moment are nominations.

Q111 Neil Parish: Right. So you see a fouryear turnover, as these existing jobs come up for reelection?

Clive Henderson: I would mentally put four years as the target for when we would expect to see more people elected to the Council.

Neil Parish: Thank you.

Q112 Chair: Thank you. On the abolition of the Inland Waterways Advisory Council, I understand that the vast majority of the responses did not support the proposal to abolish IWAC. Mr Pridding, were you surprised that the Government nevertheless went ahead and agreed to abolish the work of the Advisory Council?

Clive Henderson: I was not surprised that they had gone ahead with the proposals to do it. I suspect it was inevitable they would. A body like IWAC produced some good things in terms of research and validation of things that generally supported the waterways, bearing in mind they also looked at the totality of the waterways of the UK, and not just the waterways run by British Waterways and to be run by CRT, which is only 40% of the waterways. My organisation is concerned that the Minister and Defra feel that they no longer need advice from such a learned group, but I was not surprised. I would now see it as inevitable, but in terms of the independence and the research, we will be perhaps slightly poorer for its loss. Equally it must be recognised that some of the works of IWAC over the years have led to this particular project becoming a reality. They have supported it.

Howard Pridding: I believe that IWAC has performed a strong role over the years, and indeed many members of the industry have served on IWAC over the years, but the Government has taken that decision. I think cost was one of the reasons, in particular, for why it would not continue for a short period until the charity got going. We stressed in our response that there are national organisations, like us and the IWA, who have the experience that Ministers and the charity can now call on. That is what we hope will happen-that the charity and Ministers and Defra officials will continue to tap into the expertise that is out there.

Q113 Chair: Mr Pridding, the BMF did suggest that the membership of IWAC could be incorporated into the expert advisory groups. Have you had any reassurance that will be the case?

Howard Pridding: Those groups have and are being formed. I am not clear on exactly the makeup of those groups at the moment. I would hope that they have tapped into that expertise.

Q114 Chair: Thank you. Could I just ask on implications for other consultations? You suggested that there would be a dialogue if there was a consultation about a licence fee, but how much regard do you think any Government takes of any particular consultation?

Howard Pridding: Any Government, or the charity and British Waterways?

Q115 Chair: Would it be the charity that would-?

Howard Pridding: On individual licence fees, for the businesses that pay a licence fee to British Waterways, bearing in mind that for many businesses BW are their landlord, there is a consultation process with the stakeholder groups nationally. I would see that continuing under the new charity, and it is the same for the boat licences.

Clive Henderson: Boat licences, yes.

Q116 Chair: We have not discussed, Mr Henderson, the appendix about bridges in your memo to us. Are you concerned about the state of bridges and the required level of spending for them?

Clive Henderson: We are concerned about the historic liability of a group of navigations that were put together under Acts of Parliament 230 years ago, when a bridge was provided for the local lane or track. There is an obligation on British Waterways now, and on the Canal and River Trust in future, that they have to take what might be a blank commitment to maintain these bridges. We know that if local authorities remove an old bridge and replace it with a new one, it becomes the Highway Department’s responsibility, but a lot of the tradition, and part of the heritage, is the humpbacked bridges around the country that are not capable of dealing with any more weight increases on what we currently have. We have concerns that the future direction is that there will be heavier traffic rather than lighter traffic.

Q117 Chair: Any comments, Mr Pridding?

Howard Pridding: Nothing to add, no.

Q118 Chair: Finally, Mr Henderson, you seemed to contradict in your evidence this morning what you put in your Appendix A and the written evidence about the shortfall, or perhaps it was a comment from one of the earlier witnesses. You do say that on dredging that the IWA has already determined elsewhere that, in order to maintain a steady state, approximately £8 million is required to be spent on dredging each year, in addition to the £40 million needed to address the backlog. I think you corrected that to £20 million.

Clive Henderson: The £20 million I was referring to is in paragraph 3, which is effectively the £20 million gap in the ideal Government funding required to maintain the waterways in the steady state. If the backlog of dredging, which has built up over many years, were to be addressed in one go, it would require £40 million to be spent and an ongoing £8 million to cope with the siltation that occurs all the time from run-off of silt from adjoining land. That is when it rains, of course, and as it is not raining, we do not have so much silt coming in-perhaps it is the only good news out of the drought problem. I do not think it would be realistic to expect the £40 million dredging backlog to be made up in any one year or even in a fiveyear period, because there would probably not be the capacity of dredgers around to do it, and if it were spread across the year, it would probably interfere with navigation activities. It would be on a huge scale.

Q119 Chair: Thank you. On the conditional funding of towpaths-this is your paragraph four of Appendix A-the £10 million extra starting in 201516 is conditional on the charity maintaining the principal assets. You are just saying that conditional funding must not be conditional.

Clive Henderson: The spirit of the conditionality is good-that the principal assets in categories D and E are kept below 22%, and that 50% or 60% of the towpaths are in satisfactory condition. It is all very good. But the threat that, if they are not maintained in those conditions, the £10 million additional funding would not be available would only exacerbate the situation. There would then be less money to achieve those objectives.

Q120 Chair: On Mr Gardiner’s point, or whoever it was raised the question about volunteers-I think two of us did, Mr Parish and I-the figures that you have given in Appendix A you say were regarded as "optimistic" by the allparty group, and that the economy continues to be fragile. They were the figures of £5.5 million to £6 million by year 10, and recovery of net property income to £85 million by 201415. Are you still saying that is optimistic? Do you share the allparty group’s views on voluntary giving?

Clive Henderson: Paragraph five?

Chair: Yes, and six.

Clive Henderson: We were just saying that they were regarded as optimistic by the allparty group. Those are your colleagues that sit-

Q121 Chair: For the record, do you think they are achievable?

Clive Henderson: The voluntary giving I still think has to be seen to be delivered. I am not an expert. Although I am the Chairman of a national charity, we do not see any sums of that magnitude being given to us in any one year, and we have been effectively asking along the same lines for some time. I hope the new charity is successful in raising that new money, because it is envisaged that it will come from a new group of supporters out there rather than some of the traditional ones. On the net property income, the market conditions on property and development in the economy will hopefully improve one day. The assumption is that it will improve by 201415 in those assumptions. I do not know.

Q122 Chair: Let us all be optimistic.

Clive Henderson: Yes. You are the Government.

Chair: Thank you very much indeed for participating, Mr Henderson and Mr Pridding. It has been enormously helpful. We obviously are up against a deadline. There are some further questions that have arisen that we would like to put to Defra. It will enable us to meet the deadline only if we receive this in writing very promptly. That is just for the record. Can I thank all our witnesses for having participated this morning? We are immensely grateful.

Prepared 19th March 2012