Welsh Affairs Committee - Minutes of EvidenceHC 95

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Oral Evidence

Taken before the Welsh Affairs Committee

on Thursday 8 November 2012

Members present:

David T.C. Davies (Chair)

Jonathan Edwards

Nia Griffith

Mrs Siân C. James

Mr Mark Williams


Examination of Witnesses

Witnesses: Carl Sargeant AM, Minister for Local Government and Communities, Ian Davies, Head of Network Operations, Roads and Projects, and Nathan Barnhouse, Rail Policy Manager, Welsh Government, gave evidence.

Chair: Can I begin by thanking the Minister and Messrs Davies and Barnhouse for coming along today and giving us evidence? I am sure it will be a very straightforward session. As it is Mark Williams’ constituency, I would like to call on you to start, please.

Q203 Mr Williams: Thank you. Welcome, everybody, to Ceredigion, and the Minister again. I know you are a frequent visitor here. Your wide-ranging responsibilities lead you here very frequently, for which we are grateful. The first are general questions really about the relationship between yourselves and the Department for Transport in London and other English transport partners. How do you assess those relationships at the moment?

Carl Sargeant: Good morning and thank you, Chair and Committee, for the opportunity to be with you again. Relationships: you have to build on them constantly and there have been changes in Westminster. I must say the relationship I had with Justine Greening was very good. We had a longstanding relationship of good working practices between my department and her department and as Ministers, particularly around the electrification, which she was very helpful in terms of the conversations we had.

We had a reshuffle and we have a new Minister there now. I have met the new Minister and I am very grateful for the warm words he greeted us with in terms of maintaining that relationship. Of course, with all devolved/non-devolved functions, there are always challenges; we just have to try to work through them. What I am keen to do and my team are keen to do under instruction is that we highlight what the issues are and we raise them early and see if we can get some result around them. I am quite confident that we have a good relationship with Westminster in terms of the Transport Department. Other relationships that have an impact: the Welsh Office, of course, has a role to play. Again, an interesting relationship prior to the new Secretary of State taking place, but we have to work on that.

Q204 Mr Williams: In what way interesting relationship?

Carl Sargeant: I knew you were going to say that. Well, I think it was just trying to understand whose responsibility for what was where. I suppose electrification brought it to the forefront for me, really. The relationship between the former Secretary of State for Wales and my department-I speak for my department as opposed to the Welsh Government-was not always of mutual agreement. I will give you an example. For a long time we tried to settle on some wording around support for the electrification of the main line through to Swansea and all of the valleys. There was confusion right at the very early stages. When the announcement was initially made about electrification it was just the three valleys in the centre and up to Cardiff. Through the discussions we had said, "Look, these are not new valleys. They have always been there and they should be included." We could never quite get the Secretary of State for Wales then to publicly agree with us, so that was a challenge. I don’t suppose she did disagree, but it was very difficult for her to say that. That was just one example.

Q205 Mr Williams: What needs to be done, do you feel, to ensure that the Department for Transport understands Welsh interests specifically? I am conscious of the fact that the previous Secretary of State when she came before us often used to talk about how there would be a Minister responsible in each UK Government department for devolution, who would have that understanding of how devolution works. Do you think that kind of system works and has it worked in the Department for Transport to date and, if not, what could they be doing to enhance the situation and improve upon it?

Carl Sargeant: That is a very important question, actually. I think devolution has been a learning experience for everybody, hasn’t it? I think departments in Westminster and within the Welsh Government are learning to interact with each other better. There are still clear challenges and when you get changes in departments and relationships are built between civil servants and Ministers, I think they forge some strong ones, but when they change sometimes you can fall back into the operational way of working, the trust element of, "I know I can give X a ring in Westminster" or, "I know I can give somebody a ring because this is happening and this is the route."

Some examples I will give you: I do not think there was any intention but things sometimes are missed that do have implications to Wales and vice versa. For northeast Wales where I live, we have discussions about the Deeside/Chester/Wrexham triangle route, about the interaction between what is happening on the English side of the border on the A494 and A55 and vice versa on the Welsh side. Recently, there was an announcement on the A55/A494, just on the other side of the Welsh border, on the Chester side of the Welsh border, Chester/Wrexham side, which came completely out of the blue to us. We knew nothing about it. Now, as it happens it is an enhancement and that is great, but this is a through road for England/Wales traffic and that is just one element of this that we just were unsighted on. Not a bad thing, but it would have been really helpful in terms of planning infrastructure, if there was something that we wanted to do on our side, to have the engagement. There are still things that slip the net and I just think we have to get better at that.

Q206 Mr Williams: Finally from me, we had evidence from Simon Burns, the new Minister, a couple of weeks ago. He again spoke positively about the relationship between yourselves and his department. He said there would be a meeting to be imminently arranged to talk between the two Governments. Without wanting to intrude on private matters, what items do you intend to raise with him of concern at the moment?

Carl Sargeant: Franchise. Again, I am very grateful to Simon, I have had some telephone conversations with him already informing me of decisions in the UK, again just building on the trust element. I have raised issues around the franchise process that is happening in the reviews that are happening in the UK. That could have an implication on the franchise that is happening in Wales in 2018. It is not that far away and I am conscious that any delay in that process or any major changes to the way the franchise operation works or is determined could have a detrimental effect to the way we are pursuing the franchise discussions here in Wales, which is only 2018. So that is one of the issues we will be talking about. Other areas are again around decision-making powers, about who ultimately makes the decisions and whether there is an opportunity for Welsh Ministers to make those decisions or English Ministers.

Q207 Chair: Thank you, Minister. The National Transport Plan sets out transport plans up to 2015. What priority was given in that to cross-border links with England?

Carl Sargeant: Significant amounts. When the transport plan was developed a different Minister was created through the manifesto commitment. When I was brought into the Transport Ministry I committed to reviewing the transport plan and reprioritising that. There was no priority before; it was just a list of actions that we were seeking to do. I believe that the commercial economic benefits of Wales and England operate east to west, both in north, mid and south, and I instructed my team to ensure, therefore, that we made priority for east/west transition, both rail and road network, and they were to become my priority within transport.

Q208 Chair: You have suggested earlier on that there has not been as much discussion or information coming from the Government in London as you would like when they work on projects that will affect Wales. Would you feel that you have yourself been responsible for making sure that the Government in London is kept fully informed as to projects going on in Wales that link Wales with England?

Carl Sargeant: Linking that to the National Transport Plan, there is nothing new in the National Transport Plan. It is just about the way priorities within that were set. We have enhanced some of them. We have new targets for different work streams. I believe that all the actions that we are taking in terms of development of plans, whether that be road or rail, we are engaging with the UK Government in that process. As I said, I think it works very well. I just think there are some things that for whatever reason slip the net and we just have to get tighter about how that relationship works. But I am not pushing at a closed door here. They are very receptive and the new Minister and the old Minister were very helpful in that process.

Q209 Chair: It has been suggested that there was not enough mention in the Government’s 2011 autumn economic statement of cross-border links. Is that a concern that you would share?

Carl Sargeant: I think things change very quickly with the economy and the way things operate in Wales and in England. What we have tried to articulate with our National Transport Plan and with our business processes moving forward-enterprise zones being one of the processes, heavily involved in the Transport Department although sits in BIS-is that we support economic growth and jobs. We believe fundamentally that this is an east/west traffic flow. Notwithstanding you still have to have north/south links, but I think the strength needs to be east/west. That is why I am not sure I support the statement but I think what we certainly have is our ambitions to strengthen that element to support the economy.

Q210 Chair: Without giving anything away, are you able to tell us of any of the representations that you might make to the UK Government in advance of the autumn statement?

Carl Sargeant: No.

Chair: It was worth a try. Okay, thank you very much, Minister.

Q211 Mr Williams: Just very quickly, if you will excuse me and allow me to be parochial, the Committee travelled here on the service from Birmingham International yesterday, despite a very prolonged delay at Birmingham International having missed the connection. Just in terms of the plan up until 2015, the hourly service between Aberystwyth and Shrewsbury is not going to be a feature of that, I think I am correct in saying, until 2015. You mentioned the economic growth issue. Obviously, that is a key driver in some of the decisions you have been making. What kind of criteria were you using in terms of the hourly service and why it has not featured prior to 2015?

Carl Sargeant: There are two elements to that. One was about the infrastructure, the ERTM system that has been in place. It is the new system that is being used in the UK. It would be fair to say it has had its hiccups and I think to get to the bottom of that it struck some delay. But more fundamentally, I think, is the cost of enhancing the new service. We are working in an environment of £2.1 billion less to the Welsh Government. That has a consequence in service delivery. I am still committed to delivering the hourly service by 2015, but I put that with a strong caveat depending on what the autumn statement says. If something goes horribly wrong, then we will have to reconsider some of the priorities. That is not a threat or an action, it is just it is an unknown. My intention is currently to continue with that and deliver a service. With a fair wind we will do that.

Mr Williams: Good to hear. There is a challenge there for Westminster MPs in terms of the lobbying we have to do with colleagues. Thank you.

Q212 Jonathan Edwards: In evidence, Minister, during the inquiry we have heard that the Wales Freight Group has not met in the last two years. Is that correct? When do you plan to reconvene the group?

Carl Sargeant: Yes, that is correct. Give or take dates, there or thereabouts, it has not met, which I am disappointed about. I have ordered a review of the freight group. I think partly when I asked my team to strive to understand what was going on there, the freight group that was established probably was not delivering what it was really intended to do. It became a single focus group of local issues as opposed to a more strategic vision for delivery of freight across Wales. I have ordered a review. I am establishing a new freight group and I expect that to be driven by a relationship between Welsh Government and the stakeholders so that we can start a strategy about what we can do with enhanced freight services in Wales.

Q213 Jonathan Edwards: What mention is there of rail freight in the Wales National Transport Plan and what plan does the Welsh Government have over future years to increase rail freight between England and Wales?

Carl Sargeant: There is reference to freight within the transport plan and, as I have just alluded to, the review of the new freight strategy group will be key to understand again what we can take forward. We do have a finance stream within Welsh Government to enhance freight rail opportunities. We are looking at that through and with the Business Minister in terms of enterprise zones seeing if we can enhance growth opportunities, with some stimulation, with cash injection on freight services. I met with Lord Barclay a couple of months back now just again to understand how we can build relationships up between Westminster and Wales, about some of the super companies, if you like, building hubs, creating hubs in Wales. We already have some. I am very grateful for the fact that we received the right announcement on electrification. I always said if we had never received the full electrification announcement through to Swansea that would have scuppered freight plans completely. We have the right answer on electrification and we need to build on that to enhance freight access to places along the mainline, but also there are opportunities into mid Wales as well. I am looking at Newtown to establish a rail freight hub there, on the case again of reducing road traffic and putting it on to the rail.

Q214 Jonathan Edwards: Can you give an indication of the thinking of the Welsh Government in terms of the capacity potential electrification would provide in terms of rail freight?

Carl Sargeant: Well, rail electrification will give us the opportunity to upscale the access route so we can get freight through along the main coastline, which is really important. There are opportunities for many businesses across south Wales, Tata Steel, Margen. There are lots of new opportunities there. Of course, electrification and the benefits of that have been well rehearsed about the reduced cost of transport, environmentally friendly or more environmentally friendly, cost for running the service is cheaper with electrification, so it all makes economic sense. Therefore, what we have to try to do, working with partners, is to try to get a consideration about movement of services by using the rail. That is what part of the Rail Freight Strategy Group will be tasked with doing once that is set up.

Q215 Mrs James: Good morning, Minister. I wanted to turn to High Speed 2 now and high-speed rail. Could you explain to us what role did the Welsh Government play in the decision-making process for HS2? We have read in a report that you feel that Wales would be placed at a disadvantage by the Government’s plans, but the DfT told us when they gave us evidence that they had not really assessed this disadvantage. Could you tell us a little bit more about that?

Carl Sargeant: Well, first of all, evidence wise, we did not have a part in the decision-making process, but we did present our views at the Cardiff stakeholders’ day from the Welsh Government’s position on that.

The element of disadvantage, if we wish to use that term, is, of course, if there are high-speed facilities just over the border and it runs past the north Wales coast and past the end of south Wales, I believe not having that facility has to have its disadvantages. Now, in terms of the economic value I cannot give you that, but it might be something that our economists have done some work on. We certainly know that there are investment opportunities when you bring in electrification or discussions around the M4, et cetera. There are huge economic benefits and I will certainly look at that to see if I can provide any more evidence in terms of the advantage to us if we were to have that, and I will provide that to the Committee.

Q216 Mrs James: Okay. Your view on the expanding network, when do you think this should happen and how do you think Wales will fit into it?

Carl Sargeant: Well, 2018 is the new franchise date. That gives us new opportunities in terms of what we would like to do with the new franchise. We think by not having HS2 we have to make the best of what we have. Therefore, we have to build in a new franchise and new opportunities to make sure we link into the high-speed service. That is something that the team have been working on with the details around the new franchise. From 2018 onwards, really, that is when we need to start looking at what we can do in Wales to deliver on the back of HS2.

Q217 Mrs James: You will be working on that with your team, obviously, with stakeholders?

Carl Sargeant: Yes.

Q218 Mrs James: There has been much discussion and a call for Wales to receive £1.9 billion payment if HS2 goes ahead. Have you had any discussions with the UK Government on this?

Carl Sargeant: Well, the Finance Minister is always in discussions with the Treasury about Barnett consequentials and the right amount of funding. It is slightly unclear. We know that the function of rail and heavy infrastructure around rail is a non-devolved function and, therefore, it is understandable the argument that the consequential payments would be questionable. I think that is still up for discussion and that is something that the Finance Minister is in discussion with. Of course, the very nature of cross-border travel is about when and where does finance stop. If we have major rail infrastructure programmes coming into Wales, or not, then I am not sure what the demarcation line is. I say that when electrification and the whole infrastructure big investment is coming into Wales, do we get our fair share of what the infrastructure cost should be delivered to Wales compared to the rest of England? This is ongoing work through Treasury and the Finance Minister about just exactly what we should get.

One example I give you that just elaborates or expands the argument a little bit more: the London Olympics had benefits for all of the UK. There were local transport grants given in London that we received no consequential for at all. Now, should we or shouldn’t we? There are some big questions around that. It is quite a complicated element of the financing, but I am sure Jane Hutt and the Treasury are working on that as we speak.

Q219 Mrs James: You will be aware on previous occasions there has been an element of ping pong, hasn’t there? "Well, you should be paying for this." Do you think that the UK Government has an understanding of the situation that we are in in Wales, that we rely so heavily on the cross-border services, that it is not a contained entity, the rail infrastructure in Wales?

Carl Sargeant: I am very clear about where responsibility lies in terms of infrastructure. It does lie with the Westminster Government and that is why the decision-making processes currently lie with them and we are consulted on in an advisory role. That is part of the discussion I want to have with Westminster colleagues about where there are clear implications for Wales like the Wales border franchise, it currently lies with the Secretary of State for Transport to make the ultimate decision with consultation and agreement with a Welsh Government Minister. I am not convinced that is probably the right way, and that is a discussion that we have to have. But the main infrastructure financing is certainly with Westminster and I think that is very clear. It is just some of the decision-making processes could be clearer.

Q220 Chair: I suppose, Minister, that the Government could argue that the total cost of electrification on the Great Western Line in the valleys is, I think, around £1.3 billion, and that is not part of Barnett either. They might well turn around and say, "Yes, England is getting High Speed 2 but Wales is getting electrification to Swansea and up in the valleys."

Carl Sargeant: Yes, and I would accept that argument provided it was not just HS2 financing that was included. If we are talking about rail infrastructure we are talking about rail infrastructure, and we talk about cross rail and we talk about all the other interventions that are going to be taking place across the UK. If we bundle that together and then we get the Welsh consequential, I am happy to have a discussion.

Q221 Chair: I suppose if you look at it in an England/Wales context, then you might be able to make an argument that Wales is getting less. But if you start to look at England as regions, there must be many regions of England that are getting virtually nothing at all spent in them. Surely they would argue they have a greater claim. I do not suppose there is much going on in Land’s End, for example.

Carl Sargeant: Yes, there is not much further you can go with rail after Land’s End, really.

Chair: Well, that is true, I suppose.

Carl Sargeant: No, I do understand your argument, but it depends which way you want to argue that.

Q222 Mrs James: Well, we will have a bit of the £13 billion for Crossrail as well.

Carl Sargeant: Yes.

Q223 Jonathan Edwards: I will not get into HS2, but I have strong views on that one. We have had the series of problems with the Great Western franchise recently, not least the rail operator effectively pulling out of the franchise and getting a repayment. What is your view or what is your favoured view of the structure for the future for Wales’s various rail franchises?

Carl Sargeant: There is a review under way I am aware of in the UK, the Brown review, in terms of franchising and the whole processes that have taken place and are taking place for the future. My eye is on the ball of 2018 for the Wales and Borders franchise and there are a couple of key things that I believe would make the process flow a little bit easier. One of our commitments within the Welsh Government was to explore the opportunity for a not for profit/not for dividend rail service within Wales. That is something that we have asked stakeholders to consider. I held an event to bring people together to start that discussion.

This is a hypothetical argument but I will present it to you. In 2018 we could have two conventional type franchise applicants and a not for dividend franchise applicant. The decision would be made by the UK Government in consultation with me. Now, I say with caution and without prejudice in this process-this is purely hypothetical-if we were to favour as Welsh Government the not for dividend rail franchise, that could potentially be stopped by the UK Minister on the basis of favouring a conventional style franchise. Where do we go from there? That is one of the complications around the franchise process that we need to iron out now, I believe, because there are clearly also different policy agendas in opportunities for the future. That is something that I want to highlight early on so we can have the discussions.

There are also other elements of the franchise process that again have seen some problems in the UK. For whatever reason, the franchise process has not been working as effectively as it could be. I believe part of that problem is because to create a franchise, just the principle of application, can cost anything between £3 million to £5 million upfront. There are not many social enterprise alternative methods of the professional franchisees that are currently in place that can risk £3 million to £5 million on the basis of just a business case, and you have to be at that level to be able to create the right business case. I think that significantly disadvantages new opportunities in franchising across the UK. Therefore, again, I believe the UK and Wales should be looking at alternative ways of potential funding and opportunities of successful payback. If you are the successful bidder on a franchise that has cost you X amount upfront, then is there a way through Treasury of making sure they recoup that? For example, the Co-op social enterprise looking at can they afford £5 million upfront at risk to look at a new franchise, I would say that would be questionable. Therefore, we are stuck in the old-style franchising that clearly has its problems.

Q224 Jonathan Edwards: Who is responsible for determining the Wales and Borders franchise? Is it you as Minister and your staff?

Carl Sargeant: No.

Q225 Jonathan Edwards: Is that with the DfT?

Carl Sargeant: DfT.

Q226 Jonathan Edwards: So you would consult on that?

Carl Sargeant: We have to agree.

Q227 Jonathan Edwards: Doing the inquiry, we went to see Network Rail headquarters in Cardiff, an extremely impressive set-up there and huge investment. They are structuring on an all-Wales basis. Is that something you welcome?

Carl Sargeant: Yes, absolutely. The relationship since Network Rail have introduced a Welsh network manager has been welcomed and works well.

Q228 Nia Griffith: Can I go back to the franchising arrangements? Really, what you are saying is you almost need a clean slate to begin to think about the whole process of franchising. How much opportunity do you think there will be for that? Do you think it will even include the opportunity to include different things? I will give you an example. We have a bridge over a railway at Burry Port currently owned by Network Rail. All the other bridges linked to stations in Wales go with the station and they go with the franchise. Will it be an opportunity to perhaps open up and look at some of the anomalies there have been in the past-I am sure there must be many other examples across Wales-and rewrite what we want from the franchise in the first place?

Carl Sargeant: I think there is an opportunity. I do not know whether financially it is the right time to do it, but the UK Government should certainly be looking at this about new opportunities. Because I think the franchising method that is currently in place is cumbersome and is fixed, fixed in a term of there are not many alternatives you can move away from, this is how it is done and this is how it should be done. Then if there are new ways of doing business, it is really hard to break into that and I do not think that is probably right.

Q229 Chair: I know you want to be away by 10 o’clock, Minister, so we will have to whip through things if that is all right. Could I just ask you about the Severn Bridge? What is the justification for bringing it into Wales when three out of the four ends of the Severn Bridges are actually in England?

Carl Sargeant: Well, I think you present the argument of charging Welsh people to come back into Wales. We are a part of the union and we are disadvantaging Welsh commuters in terms of their opportunities. What the First Minister has said very clearly is that he would like a discussion with the UK Treasury, with the Transport Department, to ensure that this is not a fait accompli of just this is an English finance stream that goes to England when it has direct implication on Wales and access into Wales.

Q230 Chair: It would be a British finance stream going to the British Government, wouldn’t it, at present? Nobody is suggesting that it be handed over to Bristol Council or anyone else.

Carl Sargeant: With respect, devolution had not occurred when the bridge was established and, therefore, Wales does operate within a British context and has consequentials given to Wales when there is an implication to any financial stream.

Q231 Chair: Isn’t there a danger, though, that if the bridge were handed over to the Welsh Assembly Government that there would be a sort of reverse of the Barnett consequential, perhaps a Barnett inconsequential, where suddenly we found that a whole tranche of money that was coming through to Wales was taken away on the basis that we had just been handed over a large piece of infrastructure from Britain?

Carl Sargeant: I don’t see that, Chair.

Q232 Chair: If the First Minister became responsible for the running of the Severn Bridge, would he actually reduce the costs?

Carl Sargeant: I think he has made a statement this week indicating that there would be opportunities for reducing the toll, but that currently lies with the UK Government.

Q233 Mrs James: Just to come in on that, I think it is really important that we clarify that to the people of Wales, as the Minister has called for, because there is a huge resentment in Wales about the cost or what is seen as a penalty by road hauliers, any business coming into Wales. I would not like to think that there was not going to be a benefit for Wales at the end of this, the life of the bridge.

Carl Sargeant: No, of course. As I said, the discussions that are ongoing with the First Minister, Treasury and Jane Hutt’s department are about opening dialogue about what the future of the tolls are. He has indicated that he believes that it is fair that Wales at least has a share or ownership of that, and also he indicated that there was an opportunity to reduce the tolls if it came under the Welsh Government’s purview.

Q234 Jonathan Edwards: As you know, Minister, this Committee has had an inquiry into the future of the Severn Bridges and we were always under the impression that once the concessionary period came to an end the toll would revert. We know it is inflated by about seven times the maintenance costs, but in recent evidence to this Committee the new transport team, the new Ministers, effectively said that there would be no guarantees that the price would fall once the concessionary period comes to an end. Now, I have equated that to the indefinite fleecing of Welsh motorists. Does the Welsh Government share those concerns?

Carl Sargeant: I will be very careful about how I answer that. I would suggest that there are still many discussions to be had, but I would share the view of the Member that there are concerns of Welsh motorists having to pay a premium for a long time after the payment of the bridge is completed.

Q235 Chair: Well, I would love to stay on that one but time does not permit. Could you just tell us briefly if the improvements to the M4 near Newport are going to go ahead and, if so, how they will be funded?

Carl Sargeant: Well, I cannot answer in too much detail on that, Chair, because the consultation period is still open. I would not want to prejudge any determination of the consultation. But we will have to consider what the M4 CEM process comes up with. It is true to say that we would like to consider new opportunities for the M4 subject to the consultation process being completed.

Chair: Thank you very much. We have six minutes and about six questions, so that implies some rapid questions and answers.

Q236 Nia Griffith: Yes, very, very quickly then, going back up to your part of the world and over the border, the A55 junction with the A483 and the Chester Business Park, we understand that there has been obviously funding for the improvement of that. Were the Welsh Government in any way involved or consulted?

Carl Sargeant: No.

Q237 Nia Griffith: Okay. If I can just ask very quickly, we have had the suggestion about the M4 that the tolls could pay for improvements. Is that anywhere realistic as a suggestion?

Carl Sargeant: I believe it is.

Q238 Nia Griffith: Fine. If we could go back to rail then and rail improvements, where are we going now in terms of what are the big and exciting ways forward after we have had the electrification of the south Wales lines in the valleys?

Carl Sargeant: Okay, big ticket items. I think the electrification of the mainline and the valleys lines was excellent news. That is part 1. I think electrification of the north Wales line, Wrexham-Bidston line is part 2 and it is an essential part to complete the package of electrification. In Wales we are pursuing that. I have already had discussions with the Secretary of State for Transport to open some dialogue on that and we will continue with vigour.

Q239 Nia Griffith: As you probably know, we are very keen on this Committee to see the economic development not just of Cardiff but also Swansea. You will also know there is a railway line going past the airport with a little train that stops in lots of train stations on the way. Would you see any opportunity to improve the connectivity of that airport both with Cardiff and with Swansea? Given that the track is already there, could we do things to upgrade the type of service and then that would perhaps give an opportunity to develop Cardiff Airport for users from England as well?

Carl Sargeant: Yes, I think there is an opportunity there. Certainly, with the enterprise zone status around St Athan, et cetera, we need to look at that, and I am having discussions with Edwina Hart in relation to that. Can I throw one really interesting point in that you might want to pursue at some point? There is lots of talk about Heathrow and a new airport. Well, why shouldn’t it be Cardiff?

Q240 Mrs James: Yes. On that question, I am just going to come in on Heathrow. The recently announced £500 million is very much welcome. Obviously, it takes us in Swansea within that golden two hours and it is absolutely essential for us. How would you feel about that?

Carl Sargeant: I think again you are absolutely right. Two-thirds of the population of Wales lives along the south Wales corridor there. We know that and that is why the full electrification in the valleys was really important. I just go back to my point earlier that there is no reason, I don’t believe, that Cardiff should not be considered as part of a third runway. You talk about two-hour travel to London. What about the two-hour travel from London to Cardiff? There is no difference; it has just put it on its head. I think that presents new opportunities, certainly new economic opportunities, for south Wales and Wales as a whole.

Q241 Chair: Are you going to encourage Cardiff Airport to put forward concrete plans and talk to the Department for Transport about this?

Carl Sargeant: Well, there are discussions on various issues with the airport to enhance and develop support for Cardiff Airport. It is a private enterprise and it is something that the Welsh Government is keen to work with to give Cardiff the footing it needs. Of course, I offered you that thought on the premise that these are opportunities that could happen. I do not see why we would not as a Government try to support Cardiff Airport in that process.

Chair: Good.

Q242 Nia Griffith: One question that we skipped earlier, Chair, is the issue of increased demand in this period now before 2018. We all know the huge popularity of trains now. Is there any way that anything can be done in this interim period?

Carl Sargeant: The simple answer is it is based on finance. The budget is reducing. We have to think more cleverly in the way we use our money. I said to Mark earlier on about the hourly service on the Birmingham line. I would like to introduce that tomorrow but I cannot afford to do that. Therefore, it is very difficult to enhance further services pre-2018.

Chair: Good. Well, we have finished with two minutes to spare so thank you very much indeed, Minister. Diolch yn fawr, and we look forward to seeing you again soon.

Examination of Witness

Witness: Alec Don, Chief Executive, Milford Haven Port Authority, gave evidence.

Q243 Chair: Please feel free to be as open as you like. We are not trying to catch anyone out.

Alec Don: From Milford Haven it is a pleasure to come from one little corner of west Wales to another.

Chair: Both very important corners of west Wales. If I may, I will begin with the local Member of Parliament.

Q244 Mr Williams: Thank you and welcome. How important are cross-border road and rail links with England in terms of developing the ports of Wales?

Alec Don: I think they are obviously absolutely crucial. Across the Welsh Ports Group I do not think that there is any clear statistics about the actual amount of volume from Welsh ports going through to England, so this might be a little bit anecdotal but I would say almost all the traffic from Holyhead is mainly going into England. Of our ferry services from Pembroke, a lot of that will be serving the Welsh industrial heartlands of Cardiff and Swansea. We have quite a substantial amount of rail traffic carrying at the moment petroleum products but we think other energy products in the future that will be going to English terminals. The ease of connection to where the markets are is a key driver of ports and it is essential that those links are efficient and they are congestion free and make the ports competitive with other locations.

Q245 Mr Williams: Work has been done to quantify that volume of traffic?

Alec Don: I do not think there is any single set of statistics about what is going from Welsh ports through into England as opposed to staying within Wales, so I have to be a bit anecdotal about that.

Q246 Mr Williams: Okay. From a cross-border perspective, what role do you think UK and Welsh Governments should be playing in developing the ports of Wales?

Alec Don: I think it is obviously good that they should work very closely together. We are particularly interested in the designation of Milford Haven as a TEN-T port. That should bring with it opportunities to strengthen the road network connecting all the way along the southern corridor as a key bridge into Ireland. That will require quite close co-operation between the Welsh Government and the UK Government to make that happen as a European designation, so they do need to work closely together. We as ports are able to generate, if the market is there, private sector investment into the ports. I do not think that ports generally look for Government subsidies to make port investments happen.

Q247 Mr Williams: Are you happy with that? That was going to be my next question. The DfT Minister told us that it was not the job of Government to provide more commercial activity. You do not see that as a role for Government?

Alec Don: I think we are happy with that. There will be marginal cases where it can make a difference and doesn’t distort the markets, but we as a port would have to contemplate it being done to distort the market against us if it was done in some other part of the UK. We like a level playing field in principle. I think that you can get significant differences in terms of the attempts of different regions to impose planning gain costs on developments. I think that the climate there could be a lot more helpful in terms of not trying to impose road and rail development costs on to the ports as they are attracting private sector investment into the ports.

The point I would make just from the experience of Milford Haven-I am trying to talk from the point of view of Welsh Ports Group but obviously my closest experience is Milford Haven-Milford Haven has attracted over £5 billion of investment over the past five or six years in the creation of two gas terminals, a power station, a gas pipeline, all of which was private sector money. There was not a single bit of subsidy on that because the port offered the right characteristics and the location was right for that to be a viable investment. That is what ports do. They do play that role in the economy and can attract that investment. The role we would look for correspondingly from Government is to be the advocate and investor in the rail and road networks that support that, which serves all parts of the economy.

Q248 Chair: On that issue of the level playing field, Mr Don, I was told that there was quite a lot of anger when a decision was taken in England not to backdate business rates on businesses located within port authority areas in England, but I believe they were in Wales, which meant that quite a lot of businesses based in Welsh ports lost out. Is that correct, broadly?

Alec Don: Yes. The rating authorities did come along to businesses based in ports and say, "Here is a rate bill for the past five years," rather surprisingly. That was quite a significant issue.

Q249 Chair: It was a significant issue?

Alec Don: It was a significant issue. The UK Government did come up with money to basically deal with the problem and remove or pay essentially the backdated element of those rates bills.

Q250 Chair: In England?

Alec Don: That is what happened in England. They did give a corresponding amount of money to the Welsh Government to do the same for Welsh ports and it was a Welsh Government decision to not use the money for that purpose but to put it into general coffers and not solve that problem for businesses in Welsh ports.

Q251 Chair: Some of the people I have spoken to about this tell me that their businesses are often warehousing type of businesses with large premises but relatively small profit margins and that they were particularly badly hit by this and would have had real difficulty in finding the extra money. Is that, broadly speaking, also correct?

Alec Don: I think there probably will have been. I can express personal opinions-

Chair: Please.

Alec Don: -which is that we would have liked to have seen the money that was allocated being used to solve the problem in Welsh ports as it had been in English ports. On an ongoing basis, particularly in west Wales where the rental market for property is quite weak, we find that tenants find the rates imposition to be a very heavy fixed cost. We as a port have some empty and derelict buildings that we would like to demolish. We cannot do so because there are bats, but we are still having to pay empty rates on it. The rates are a very heavy imposition on industry and property developments and property owners that undoubtedly takes some of the ability to continue to invest in buildings and invest in growth away.

Q252 Nia Griffith: I really wanted to come in about this business about European funding. When we were out in Brussels we were told everybody seems to want big places, this idea of having 1% of turnover before you could qualify for any EU funding. Quite clearly, when you look at places like Swansea and you look particularly at Milford Haven, you feel that perhaps it is not necessarily the turnover, it is the strategic nature of where they are that should perhaps play a more important role. Perhaps that mechanism of funding is too rigid and does not respond to the actual geography and the needs and the situation. If I do not know if you would like to comment either from the point of view of Milford or from some of the other members of your group.

Alec Don: I think that if a location is strategic it is because it is able to do something quite big in the economy, so it may be that the two are naturally linked to each other. We would strongly believe that your economic activity should be concentrated where it is already strong because you get synergies; you get a more conducive environment to economic growth. In the context of transport, you build up the critical mass on transport routes serving that location the more concentrated the industrial activity you have around that. You hear of the words, "Ports are economic centres". You have port-centric logistics and that is very much about the interplay between short sea, feeder routes and deep sea routes. In the case of Milford Haven, we have two refineries who bring in vast quantities of crude oil. The finished product is going out in smaller ships around to other parts of the UK, to Ireland, to the US, back to Africa. On those Atlantic trade routes, Milford Haven is quite an efficient location. The model, efficiency and longevity of that business depends upon having that critical mass and scale. In terms of bang for your buck, I think it is worth concentrating where activity is strong.

Q253 Nia Griffith: This Committee would certainly recognise the potential for Milford Haven and certainly its achievements so far, but when we looked at the map we were shown in Brussels it does not feature. It is Cardiff and Newport is the only one that features in their mind because of this 1% thing, which does not seem to us to perhaps reflect the reality of the strategic position that Milford has.

Alec Don: I think that there was a focus on containers and ro-ro routes as opposed to bulk liquid that goes into pipelines. What I said was that to get Milford Haven designated on the TEN-T network-it is one of the UK’s largest ports, it does have potential to play a role in other sectors other than oil and gas-the UK Government and the Welsh Government need to work together to make the case in Europe. I think by and large they have now done that. We are now on the draft list for the TEN-T core network and that is excellent. I think a great deal of progress has been made just in the case of Milford Haven. If you have a route that has been reinforced with funding, should any be available, down to Milford Haven, I do also believe that will benefit all the other ports along the south Wales coast as well.

Q254 Jonathan Edwards: Well, that is certainly good news if you are on the draft and it is credit to your work-

Alec Don: Well, it is not a done deal yet.

Q255 Jonathan Edwards: But there is progress. That is credit to your work for informing us lay members in south Wales about that issue and, to be honest, Chair, the Committee because obviously we have been going and banging on about this for a long time with DfT and with the Welsh Government Minister. When I came down to see you over the summer I was extremely impressed with the set-up in Milford. I could not believe the scale of it. Can you just give a brief synopsis of what happens within the port authority?

Alec Don: Well, the port handles or handled last year about 48 million tonnes of cargo. That makes it the third largest port in the UK. That is driven essentially by five terminals operated by various energy companies. Valero, Exxon and Qatargas basically built the South Hook gas terminal. British Gas and Petronas own the Dragon LNG terminal. Murphy Oil owns the Murco refinery. These are major, major international companies that have their attentions in the UK focused on Milford Haven. It is based on the principle that the port has at all states of tide 16 metres depth of water. That might compare to 12 typically in Liverpool, eight to 10 in Cardiff. It is a deepwater port and the ships are able to come as very, very big ships, which obviously creates lower cost per tonne. It is this point about the whole scale of the operation.

We are also home to the Pembroke to Rosslare ferry route. That is an important link across to Ireland. It has obviously had a difficult time of late but we want it to continue there for the medium term. Milford dock, which we own, and Pembroke dock, which we own, are two relatively small port facilities. Those are the only bits of land or port facility that we own directly. Milford dock is actually the largest fishing port in Wales. We are looking to invest in the fishing activity based there. As the port, we provide pilotage services. We provide a deal of strategic planning and we do have plans to invest in a new deep sea facility that we think will be another amount of private sector investment by ourselves and others and lead to the creation of hundreds of jobs in the Milford Haven area and diversify the port, which is something that we need to do. As a port, we are very linked to fossil fuels. We see it as being very important for us to be able to diversify to preserve the economic role that the port plays.

In total, the energy sector in Milford Haven and all the companies that support it accounts for about 4,000 jobs in Pembrokeshire and about 5,000 in Wales. We did a study on this. The UK Port Industry Association has also done studies that suggest that for every one job in a refinery there are actually seven jobs in the UK economy. I could probably multiply my number by five or six or seven. It is a big generator of employment and it is because it is a deepwater port.

Chair: That is excellent.

Q256 Jonathan Edwards: It is incredible, yes. Can you explain a bit more about the energy connector with Ireland, if I remember correctly?

Alec Don: Yes. Going back to this point about concentration, our motorways as the port for the bulk liquids are obviously pipelines and the electricity grid. The actual roads and railways are very important for the operators, but the gas all goes in the pipeline. Some of the fuel products go into a pipeline connecting Milford Haven to Manchester and Birmingham. There is also a 400KVA electricity network capable of transporting five gigawatts into the hinterland. But it is a spur; it terminates at Pembroke. I think that the electricity grid would be a lot more flexible and enormously strengthened if that was also connected across to Ireland or around to Anglesey to create a ring main, as I understand it. You would, therefore, be able to use the capacity of that electricity grid more effectively. At the moment, if you have several people down the line putting electricity into it, you cannot put too much in at the top because then the chap further down cannot put his electricity into it. You have a capacity restraint because it is a spur. If your electricity is going out in two different directions, you can use the capacity more effectively.

It comes back to this point of concentration because if the product to feed the power stations going into that grid is able to use the same berths that are already there in Milford Haven and you are increasing the utilisation, for the same amount of electricity generated you are reducing your cost of production by pence here and there. Building links into a core piece of infrastructure that has the capacity to be utilised more uses that infrastructure more efficiently. I think that building a link into Ireland would help to do that in Milford Haven and consolidate those businesses that are there.

Q257 Jonathan Edwards: Are we talking about importing or exporting energy or is it both ways?

Alec Don: Well, I think we would obviously be hoping the electricity be exported, but all these interconnectors can, generally speaking, run two ways.

Q258 Jonathan Edwards: Am I right in speculating that these energy hubs are key criteria for TEN-T?

Alec Don: TEN-T I think tends to be in people’s minds mostly about roads and railways, not so much about pipelines and electricity grids, which I think comes under a slightly different heading within official circles. The railway does carry fuel product into the heartland of the UK. There is a degree of truck movement of product into petrol stations, but in the context of the whole that is a relatively minor amount, to be fair. If we were successful in building a biomass terminal at Milford Haven, we would obviously be looking to make much more intensive use of the railway and the TEN-T network would be incredibly relevant to that to get strengthening of the railway network.

Chair: Excellent, thanks.

Q259 Mrs James: Just going back to road and rail links again, in the Welsh Ports Group’s written submission they call for a number of improvements at pinch points along the M4 corridor, both rail and road. Would you like to tell us a little bit more about this, please?

Alec Don: Well, I think the Brynglas tunnels particularly do create a blockage. I think ABP is quite worried about putting a motorway through the middle of its dock estate at Newport. I think it is quite important when you have land adjacent to water that you do not break that up. I really do think that is quite important, and it may be it was some bigger, greater interest at the end of the day but I would be cautious about that.

In terms of delivery of product, there are obviously major industrial areas in Birmingham and Manchester and the railway links particularly through to those centres, where there are capacity constraints on the railway it is pathway constraints and it is gauge constraints. I think one of the biggest gauge constraint issues is for trains going through the tunnel. That is probably most relevant to containers. The bulk wagons that take oil or take biomass or flat beds that take steel products probably do not present gauge issues, but for containers with high-cube containers sitting on top of trucks, you do start to challenge low bridges and low tunnels and so on. Those are pinch points and those can potentially limit the freedom of people to decide to place themselves in the Welsh ports as a location to bring their products into the UK.

Q260 Mrs James: Has that been a particular problem, the size of gauges?

Alec Don: We obviously work to the markets that we can access. I am personally a great believer in what I would call the old predict and provide policy. The building of roads and railways and enhancement of gauges is of itself a driver of economic growth because the market will see there is an opportunity to do something more efficiently than it did it yesterday and will adapt accordingly. I would always pick that as something that is worth investing in simply because it drives economic growth, but whether there are specific examples of a piece of trade that has not happened because of railway gauges I would struggle to put my finger on to it because you do not know what has not come your way.

Q261 Mrs James: Yes, because I think people find it very difficult to understand how old the tunnel is and what a miracle of engineering it is, but it is restricting.

Alec Don: Yes. I think people when they look at road and rail constructions they want to get their money back in a certain time horizon, but the fact of the matter is these things go on for 100 and 150 years. I think that there is scope for particularly Government to take the view that shortening distances, improving logistics and investing in high-capacity road and rail links is of itself something that generates economic growth.

Q262 Chair: Thank you very much. I think you have sort of answered this but I was saving it up for you. I wondered what three things you would do if you were the Economic Development Minister in the Welsh Assembly or Transport Minister in London in order to boost the amount of business that is going into Welsh ports. You have given us a few hints, but are there any particular priorities that you might have?

Alec Don: I think that where we have projects that we are working on and want to invest in, the biggest problem we face is the time it takes and the amount you have to spend and the risk you have to take to get something through a consenting process to the point where you can actually start building it and signing contracts with customers. That is a big ask, is to basically simplify and shorten and make more certain and robust the planning processes.

Chair: The planning process, yes.

Alec Don: I think that would constitute the biggest. For an inward investor sitting in let us take Qatar, for the sake of argument, they have the choice of doing something in the UK or they have the choice of doing something in Africa somewhere or Japan somewhere or America somewhere. They would look at things like the experience of the RWE power station in Pembroke and they would say, "It takes five years to get a consent, it costs £5 million, and even then the system is so diffuse it goes on being challenged through the courts for the next five years after that." Whereas I was in Qatar the other day. They wanted to build a new ship maintenance facility and ship building facility in the Port of Ras Laffan. They decided to do it in 2008 and by 2012 it is fully operational, £3.5 billion, two dry docks able to take Q-Max ships, loads of employment, local people being trained and skilled, and they just did it.

Mrs James: They did not have much democratic choice, did they?

Alec Don: So that is always one thing I would particularly point to. We ourselves have plans to develop this terminal. We are slightly frustrated on them at the moment, but the thing I am most afraid of is the fact that in terms of surveys of the area where this would happen otter trails have been spotted and there is evidence of bats. It is just mind blowing.

Chair: All this is being noted down.

Alec Don: I did listen to the discussion about bridge tolls on the Severn. I think that it is something that will definitely be deterring some trade and some industrial activity in south Wales, the fact that hauliers have to pay whatever it is they have to pay to get across those bridges. They do not have to do it in north Wales. They do have to do it in south Wales and it will be affecting even our ferry services at Pembroke and Fishguard, the fact that those tolls are there. I just wonder if there is a short-term interim solution that could be reached for, which would simply be to go to the bridge company and offer to pay the tolls for trucks. I do not know what it would cost for that particularly, but there might be a pragmatic solution there.

Q263 Chair: Good. How realistic do you think it is for Welsh and UK Governments to use public money to try to increase trade in Welsh ports to more than 1% so that they can become eligible for EU funding?

Alec Don: This is the TEN-T point again.

Chair: Yes.

Alec Don: Well, as I said, I think that the Welsh Ports Group is, broadly speaking, on the position of saying it does not want to have other people to get subsidies and, therefore, I suppose it has to say it does not want to have subsidies. We take the view that if the project is right we can get the money and get the finance to do it as a private sector investment. I think that it is very important not to then seek to load up on that project section 106 planning gain costs because that will drive a project to the position where it is not viable and then everyone is very surprised when the developer turns around and says, "We need to have some grant".

I think that it is not necessarily particularly important to use public money as an objective to encourage traffic into Welsh ports. If, however, it did get you over a threshold of being listed on the TEN-T network and there is some money in future, which is a big if, to help invest in roads and rail infrastructure, maybe there is some merit in it. I think that the UK Government’s position on the TEN-T network is in support of it being listed. There is a debate around what conditions are attached to what the Government has to do, therefore, as a consequence of it being listed to improve and raise the standards of the connections. There is some debate about that. That is a process I would quite like to just see follow its own course to come to a conclusion, and I am sure it will be a sensible one.

Chair: Thank you very much indeed. That has been fascinating.

Alec Don: It is always a pleasure to talk about ports.

Chair: I find that very, very interesting, actually. Thank you very much.

Alec Don: Yes, thanks.

Prepared 5th March 2013