Examinations of Witnesses (Questions 180-199)
MR CHARLES GEORGE QC and MISS JOANNA CLAYTON, BIRCHAM
The Petition of David Loudon, John McGoldrick and
MR JOHN McGOLDRICK examined
180. Looking at that list, Birkenhead, Wallasey,
Wirral West, and Wirral South are all within Merseyside, are they
Yes, they are, my Lords. Those are the four parliamentary constituencies
on the Wirral, and they are all within Merseyside.
181. Whereas the ten per cent from Cheshire/Wales
are people coming from outside Merseyside.
That is correct, my Lords
182. Then down at the bottom we can see that there
is also a cross-flow from the east, from Liverpool, Sefton, Knowsley
and hardly anyone from St Helens because of their distance.
That is right, my Lords. It shows 25 per cent of traffic originating
on the eastern side, heading towards the west on a daily basis.
183. Having got that far, if we come to the current
financial situation, we have the toll income which we have just
been looking at, of approximately £33 million per annum,
we have operating costs of about £13 million, and we have
debt charges of nearly £12 million.
That is correct.
184. Refurbishment costs are about £8 million.
Is that correct?
They will over the current year and the next two years average
about £8 million per annum, yes, my Lords.
185. Are you subject to the district audit?
Yes. The external appointed auditor to both Merseyside Passenger
Transport Authority and Merseyside Passenger Transport Executive
is the district auditor.
186. Have your accounts been criticised in any way
in recent years?
Our accounts, my Lords, have received an unqualified audit opinion
over the last 18 years.
187. It is suggested that you ought to be making
economies and that in some way there is some slack in the system
which is going to positively increase if you are allowed to increase
tolls by RPI. Do you have any observations on that matter?
Yes, I do, my Lords. Merseytravel is subject to two statutory
constraints. Part of the external audit by the district auditor
involves value for money studies at annual intervals. Secondly,
Merseytravel is subject to the obligation to provide best value
for the provision of its services. It therefore, in my view,
would be quite wrong to suggest that you would try to ignore or
avoid those statutory obligations. We can demonstrate, if we
need to, that we have made savings in Mersey Tunnels' operating
costs, and we are in the process of doing that despite rises in
traffic over the last few years, and evidence of that is the reduced
volume of accidents. So my answer to that charge would be that
the existence or otherwise of the Bill would make no difference
to the way in which we continue to try to achieve economy and
effectiveness in the tunnels' operations.
188. Can we turn then to B20, which I took the noble
Lord, Lord Geddes, to just before lunch, dealing with the tunnels'
debt profile. It is rather dry stuff, but we looked at paragraph
2, the breakdown, and in paragraph 1 you identify the people who
have provided the money. The Department of Transport are the
ordinary people to borrow from for a new transport enterprise.
That is correct, my Lord. The offer was made originally of a
loan of £30 million towards a £40 million construction
189. Then Wirral Borough Council - what did they
put the money forward for?
Effectively, nothing, my Lords. It is a strange legacy of the
last local government reorganisation. All the debt owed by Merseyside
County Council was serviced, or the servicing of that debt passed
to Wirral Borough Council in April 1986, and therefore although
the debt is owed to Wirral, it is in relation to the activities
of the County Council for some years before that. Wirral are
also servicing debt which is repayable by the five district councils,
and of course, the police and the fire authorities on Merseyside.
190. The Public Works Loans Board you mentioned
just before lunch. That is, again, a standard public organisation
for local authority borrowing. Is that right?
It is indeed, my Lords. It is a government agency. If you have
permission from the Government to borrow in the form of a credit
approval, borrowing from the Public Works Loans Board can get
a slight discount on market rates. It is the first port of call
for all local authorities for borrowing.
191. So far as the Merseyside District Councils,
that goes back to the 1988-92 precept, which has then been treated
as a loan and which is being repaid.
That is right, my Lords, yes.
192. We can see there that it is now £26.2
million, repayable in annuity instalments and you plan to have
it paid off by 2014-15 at 9 per cent.
That is the current plan, yes.
193. Was I right when I said that was in accordance
with leading counsel's opinion?
That is entirely correct.
194. Turning to premature repayment of debt, some
people would like you to use any monies which you obtain, any
surpluses, simply to pay off the debt. What is your observation
on that matter, in particular by reference to paragraph 4.2?
My Lords, I understand the point. Many people with domestic mortgages
have in recent years been able to change the mortgage, move to
a different provider and get a lower interest rate. Unfortunately,
these are commercial loans. They are not in the same category.
What I am trying to do in this exhibit is to explain why that
is the case. The provisions in the loan agreement provide for
compensation to be made to those who lent the money in the first
place. That compensation is effectively the difference between
the interest rate which features in the loan agreement, and the
current interest rate. Therefore, the problem for me is that
I would have to raise a loan far higher than the current level
of debt in order to repay those loans with the additional interest
195. Before we turn the page, we can pick up on
exhibit B20 the significance of two dates: the end of 2014-15,
one date, when you are going to pay off your loans, which are
1(a) and 1(d), and 2025-26, when the Wirral debt, the former county
debt, is going to be paid off, and therefore one would expect
marked reductions in your commitments for interest after those
dates. Is that right?
That is correct, as shown in a later exhibit.
196. CHAIRMAN: Mr George, Mr Wilkinson made
a remark just now about having to increase the level of debt in
order to accelerate the repayment of the loan. It is fair, is
it not, that since so much is proposed to be changed under this
Bill, there is no reason why the present terms of indebtedness
could not also be changed? I am not saying that they would be,
or that they would agree to be, but presumably it is possible.
My Lord, my answer to that is anything is possible in this room.
The difficulty for me is that the stipulation of penalty payment
is in a contract between the tunnel authority and the Department
of Transport, which would need to be set aside. That deals with
the first tranche of debt without problem. The Wirral Borough
Council debt servicing is enshrined in a debt administration order
of 1986, a statutory instrument, which stipulates the way in which
that debt should be serviced by Wirral Borough Council on behalf
of the successor bodies to Merseyside County Council. That is
not to say that a provision could not be made in this Bill to
override those two things, but I would have to say, as a local
authority treasurer on Merseyside, that I would have some sympathy
with my colleagues, the treasurers of the district councils, if
instead of being paid at the sort of interest rates of seven per
cent, for example, if that rate were to be reduced to the current
bank rate of, say, four per cent; somebody is going to have to
pay for that, and the someone who would pay for it, I have no
doubts, would be the council taxpayers of Merseyside.
197. They are all at present able to plan their
finances ahead on the basis that this is an agreement and that
it will be paid off at this rate, according to this timescale.
That is correct, my Lords.
198. Bearing in mind those two dates, 2014-15 and
2025-26, if we then turn to page 74, the heading is Current Legislation,
and the Committee need to bear in mind that is if the Bill does
not go through; that means without the Bill. If we look at the
debt charges column for a moment, we can see that at the end of
2014-15 the debt drops from £9.3 million to £5.5 million,
and that is reflecting the fact that a tranche of debt has been
paid off at the end of 2014-15. Is that right?
That is quite correct, my Lords. There are two tranches of debt
which fall out at the end of the financial year 20014-15, as shown
on exhibit B20, and the same thing happens again; a third tranche
of debt falls out in the year 2025-26, when you see in the debt
charge column the figure of £3.5 million per annum drops
to £1.5 million per annum.
199. If we then move to the losses/profits column
approximately in the middle of the page, we can see that for the
first half of the period, you run at a relatively small loss.
Is that right?
That is correct, my Lords, and the effect of financing that loss
is shown in the column alongside. The presumption I have made
in this projection is that those losses will be drawn from the
reserve and renewals fund. What you then see for a period of
about 11 years is that the reserve and renewals fund gradually
reduces almost to nothing.