Select Committee on Mersey Tunnels Bills Minutes of Evidence


Examinations of Witnesses (Questions 200-219)

MR CHARLES GEORGE QC and MISS JOANNA CLAYTON, BIRCHAM DYSON BELL.

The Petition of David Loudon, John McGoldrick and MR JOHN McGOLDRICK examined

200. There is then a short period in the middle where you are in profit and hence the figures which are in brackets in that column, and then from 2020 onwards, you are back again with losses.

(Mr Wilkinson) That is the case, my Lords. In a sense, what this scenario suggests is that what comes to the rescue of the tunnel finances is the reduction of the debt charges in the year 2015-16, when two tranches of debt have fallen out, the debt charges in that year are reduced, and that puts the tunnels back into an operating surplus position. That does not last for very long on this scenario before we are back into loss-making, but we find that the pattern of those losses is then reduced again when debt charges fall for the second time in 2026-27.

201. MR GEORGE: So far as that toll income is concerned, which looks as though it is doing very well, we have to remember that the total traffic in 2015 has gone through the 30 million limit. Has it not?

(Mr Wilkinson): That is right.

202. If you look at "Total Traffic", it is about 30 million which is the practical capacity of the tunnel.

(Mr Wilkinson): That, I believe, is the point, my Lords, when the clamour for another crossing will become overwhelming.I do not pretend that another crossing will exist at that point, but I think we will find that peak-hour usage will be completely saturated, that we will have over spilled into the hour before the peak and that, too, will be saturated and there will be lengthy waits to get through the tunnels at any time between 7 in the morning and 9 in the morning. Therefore, the users will be begging for another crossing, just as they did in the 1960s with the first tunnel. My problem, at that stage, is that I envisage it could take 10 years to obtain legislation to build another crossing, to go through the procurement process and to actually build another crossing. At that point it is going to be some time towards 25 years from now before another crossing would be able to deal with the capacity problems that this scenario is envisaging from tolls being frozen for the next 25 years.

203. BARONESS McINTOSH OF HUDNALL: I am struggling to understand the figures here, and it is probably my incompetence. What you are showing is a couple of moments when there is quite a dramatic reduction in the debt liability, and the toll income continues to rise. I cannot quite understand what is the critical variable that is creating this lapse back into loss towards the end of the period.

(Mr Wilkinson): The critical variable is the rate at which operating costs and refurbishing costs are increasing. What we have is a situation where the tunnel finances will be out of balance. Those two costs would comprise something in the region of 95 per cent of the total cost of the tunnels. They will be going up in line with inflation - at least in line with inflation - and probably growing, and refurbishment costs will be growing. Yet the toll income, constrained by the level of traffic because you cannot get more traffic through quickly enough, is not going up fast enough to meet these increases in costs. Hence, we are back into a loss-making situation.

204. CHAIRMAN: Just one more detail on that. This whole page pre-supposes a locked toll at £1.50.

(Mr Wilkinson): Yes, my Lord, it does. There are some assumptions at the bottom of the page, my Lord. I realise that there are a wide variety of financial projections I could have put before you. I have used annual inflation at 2.5 per cent because that is the forecast HM Treasury uses long-term and it also happens to be the average rate of inflation in the UK over the last 11 years. I have used an assumption of a growth in refurbishment costs, I have made an assumption about the growth in traffic, but overall, my Lords, I have assumed that the car tolls do not change from the level of £1.50.

205. BARONESS McINTOSH OF HUDNALL: I think I am right in saying that this is a projection based on current legislation remaining in force in exactly the way in which it currently operates. It does provide for toll income to rise during that period. I am interested in why you have chosen to project everything except toll income rising. Individual toll costs, that is.

(Mr Wilkinson): My Lords, the simple answer is that under the current legislation governing Mersey Tunnel finances, a toll increase would not be justified. The Bill is in the exhibits The earlier part of the Bill, which Mr George drew attention to, Section 91, talks about the circumstances in which a toll increase can be triggered and refers to having regard to the finances and future prospects of Mersey Tunnels. In reality, that means, in practice, the tunnels have either got to be operated at a loss or they have got to contemplate a loss which is incapable of being financed from reserves before a toll increase could be justified. Mr George has already referred to the lengthy process that we undergo in toll revisions. It does not matter what the circumstances, my experience of the last toll revisions has been that there will always be objections, there will always be a public inquiry and it will take anything up to two years. But we do not get past the base, I am afraid, my Lords, because we are not in, technically, a large enough loss-making situation.

206. MR GEORGE: Let us split it up. On the one side there are the practical problems of delays and expense, but I think the matter which lies behind it is you are saying that if you apply for a conventional rise in the first half of the period you are going to be met with the argument "Just hang on a couple of years and you are going to come into profit" as we can see on these figures with the 2.7 and the 2.4, and therefore the case is not made out for an increase at this stage. Is that right?

(Mr Wilkinson): That is absolutely right, my Lords.

207. It is only at the very end of the period here that you might be getting into a position where you would be able to say "Now we are in deficit and we cannot see us coming back into profit" and you would be able to justify under the conventional criteria having a toll rise. Do I put that correctly?

(Mr Wilkinson): Yes, you do.

208. The other matter is there are critics of this legislation who have been saying "All is now rosy, toll income is going up and you simply do not need to apply for any further increases" and it is another part of B.21A, simply to show that it is not quite that simple.

(Mr Wilkinson): It is, indeed, not quite that simple. One of the consequences of B.21A would be if we did have to spend £400 million building a new crossing in, say, 25 years' time. If that was financed by borrowing I estimate the debt charges to be £40 million a year. I think the operating costs of a new crossing would be another £5 million a year, and I have no doubt that in order to finance that the tolls would then have to go up from the current £1.20, having been set at that level in 1999, 30 years later, to, probably, £3 each way to pay for a new crossing. That is one scenario under the current legislation. No toll increases for 30 years and then tolls more than doubling for the new crossing.

209. If we turn the page to 21B, we are simply seeing the same picture but put into, so to speak, a graph form, and wherever we can see red we can see that actually there is a bit of a problem. You have not got enough income to be making the necessary provision. Is that right?

(Mr Wilkinson): Yes, my Lords. Every time there is an entry on the graph above the black line of toll income, that means we are into a loss-making situation. There is, as you can see, a tranche in the middle of this scenario which is in white, which means that the tunnels are making temporary profits at that point in time, which should be enough to keep us solvent.

210. CHAIRMAN: 21B is merely a graphical illustration of 21A.

(Mr Wilkinson): Yes, my Lord.

211. LADY SALTOUN OF ABERNETHY: May I clarify a point? Is the toll for going one way only or for going both ways? Is it like the Forth Bridge where you pay going north but not going south?

(Mr Wilkinson): No, my Lords, we collect tolls in either direction. We have looked at one-way tolling on numerous occasions, and felt that it is unsuitable for the Mersey Tunnels, in part because of the origin and destination of large parts of the traffic. We think about 10 per cent of the traffic, faced with a one-way toll, would probably divert via Runcorn in the morning and then come back free through the Mersey Tunnels on the way home, and we would lose 10 per cent in effect of the tunnel income. So a one-way toll could not be twice £1.20, it would have to be twice £1.20 plus 10 per cent, so we are talking about something like £2.80 or whatever it is, to compensate for that.

212. MR GEORGE: Can we now skim on, please, to B.23, dealing with capacity. You show the traffic flows, and at the bottom left we can see "capacity limit 6,800". Is that your best estimate of what the eastbound peak-hour capacity is of the two tunnels taken together?

(Mr Wilkinson): Yes, it is, my Lords. It assumes that in peak hours we operate the Wallasey Tunnel, the Kingsway Tunnel, with three lanes in one direction and one lane in the other. That means that in one of the two tubes of that tunnel we have a contra flow. Given that situation, we therefore are constrained by the exits on Scotland Road in Liverpool, but if you allow for that our estimate is that the capacity through both tunnels, heading eastbound in the morning, is 6,800 vehicles per hour.

213. If we then turn back to B.22, we can pick up under the "Capacity" column that same figure of 6,800, can we not, Birkenhead, Queensway total. Under "Traffic Flows" do we then see some counts which have been taken showing, for Birkenhead, Queensway and Wallasey, Kingsway, a total of 6,250?

(Mr Wilkinson): Yes, we do, my Lords.

214. When I was opening this I said the flows had been counted at higher than that, at 6,400. Could you help the Committee on that matter?

(Mr Wilkinson): The most recent counts, allowing for the relevant traffic, are suggesting that the figure is now nearer 6,400. The limit is 6,800. Either way we are getting nervous about getting close to the traffic limit.

215. At 6,250, we can see, going down to the capacity utilisation figure that is at 92 per cent of capacity.

(Mr Wilkinson): That is indeed what the schedule shows.

216. If the figure is 6,400 it is obviously a little higher but we need not trouble the Committee with exact percentages.

(Mr Wilkinson): That is correct.

217. Turn on then to page 78. You are here dealing with the RPI and you set out the RPI bases. Am I right in saying that where, under "Toll Levels", it says "Determined", that would be what it would be if the RPI automatically bit and you had a toll which simply reflected the RPI?

(Mr Wilkinson): Yes, my Lord. What I tried to do in this schedule is use the June 1971 toll as a base. The choice of date is simply that it coincides with the opening of the first Wallasey tunnel. I have used that as a base, and in the "Determined" column I have shown what that toll would have been had it kept pace with inflation throughout the intervening period. So the 15p in June 1971 would, at this point, or at the end of December 2003, have risen to 134.9p.

218. CHAIRMAN: Mr George, with great respect, that is very interesting, academic material, but it has no actual relevance to the Bill we are talking about.

219. MR GEORGE: My Lord, it may have a little bit of relevance, in two respects. First of all, Mr Wilkinson, does it not show that in fact the tolls which you have charged have always lagged a little behind RPI?

(Mr Wilkinson): I think, my Lords, that is shown better in Exhibit 24.B, where there is a graph showing the toll rises charted against movements in retail prices - retail prices being the pink line on that graph and the blue line showing the increases in tolls. I think it does demonstrate that tolls have tended to lag behind inflation over the last 30-odd years, and even when you catch up there is a time-lag, partly because of the length of time of the toll increase process.


 
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