The Severn Crossings Toll: Government Response to the Committee's Third Report of Session 2010-11 - Welsh Affairs Committee Contents

Appendix: Government Response

This paper sets out the Government's Response to the Third Report of Session 2010-11 (HC 506) on The Severn Crossings Toll.

The Government welcomes the report and is grateful to the Committee and all those who gave evidence in the preparation of this report. The report is important and sets out a compelling narrative about the challenges faced by the Government over the future of the Crossings. The conclusions and recommendations will make an important contribution to how the Government will meet these challenges.

We have identified 18 conclusions or recommendations from the Committee's report. The response follows the broad structure set out by the Committee in its summary of conclusions or recommendations. In our response we have grouped some of the recommendations out of chronological order where the subject matter is related.

Impact of the Toll on the Welsh Economy

1.  The Severn Crossings provide a key link in Wales' transport and economic infrastructure. We note that successive Governments have never undertaken a study of the economic and social impact of the Severn Crossings toll charges. There is therefore no quantitative evidence as to the effect of the toll on the economy of Wales. (Paragraph 35)

2.  We recognise the concerns of business about the impact of the high cost of the toll. Some businesses argue that the toll represents a barrier to business activity across the bridge, hampering the development of Welsh businesses and acting as a deterrent to inward investment into the country. In particular, it was argued that the toll has a significant effect on the transport and logistics sector and on the tourism industry. However, no firm conclusion can be drawn without a comprehensive study to evaluate the impact of the toll. (Paragraph 36)

3.  We welcome the Economic Impact Study commissioned by the Welsh Assembly Government. To ensure that it captures the full picture, the study should examine not only the elasticity of demand amongst current users, but also seek the views of companies in Wales who argue it is not financially worth their while seeking work in England. We also recommend that the study includes companies that have located on the English side of the crossings and ascertain the extent to which their decision was influenced by the level of the toll. (Paragraph 37)

4.  We welcome the Department for Transport's commitment to consider the findings of the survey commissioned by the Welsh Assembly Government. We look forward in due course to debating the Government Response to the Committee's Report on the floor of the House. (Paragraph 38)

5.  The Severn Crossings are essential to the Welsh economy. There is the perception however, that the high cost of the toll is detrimental to businesses in Wales and to the development of the Welsh economy and discourages traffic between England and Wales. The Government must ensure that it takes note of the economic impact study commissioned by the Welsh Assembly Government. (Paragraph 96)

Currently we have seen no evidence that tolling is a disincentive to business investment in South Wales. The new Severn Crossing has greatly improved the transport links into Wales which is likely to have supported business investment in Wales and in particular South Wales. And we await the outcome of the Welsh Assembly Government's Economic Impact study.

The Severn Crossings under the Concession Agreement

6.  We welcome the introduction of a facility to make payment of the Severn Crossings toll by credit cards; albeit many years after it should have been. The Severn Crossings are a gateway into Wales and provide a first impression to many travellers. For too long, the first impression of visitors was this antiquated system. This unacceptable situation went on too long. The introduction of a contemporary payment system is essential and not before time. (Paragraph 61)

7.  We are disappointed that a permanent system is not yet in place. Severn River Crossing Plc maintain that a permanent system will be installed and active by the end of the first quarter of 2011 by the latest. The public must be informed of developments and the system must be available in as many toll plazas as possible to make the credit card payment system accessible to the most number of users. We will continue to monitor developments closely. (Paragraph 62)

A card payment facility remains in place on both Crossings. Despite the difficulties we have faced introducing this system within the confines of the Severn Bridges Act, we are delighted that this alternative method of payment was available for the Ryder Cup and then from early November.

Information on the existing card payment system is available on the Highways Agency's website which is updated to reflect any changes. A further press release will be issued when the full system is implemented and at this time the HA and SRC will use other information channels to publicise the payment options as widely as possible.

8.  We are disappointed that it has not been possible to freeze the toll for 2011. The inflexibility of the Severn Bridges Act, as originally drafted, does not allow the Government to impose a level of toll charge as it sees fit in the current economic climate without incurring liability for the taxpayer. The Government should take responsibility for the failure of civil servants twenty years ago to future-proof the legislation. (Paragraph 66)

9.  We make no comment on the merits of using private sector finance to deliver public sector infrastructure. However, it is important that the Government learns from the inflexibility of the Severn Bridges Act 1992 and the concession agreement when agreeing future contracts. (Paragraph 68)

10.  Our inquiry has demonstrated the inflexibility contained in the Severn Bridges Act 1992 and the concession agreement between the Government and Severn River Crossing Plc. This has made it difficult for the Government to respond to the current economic climate and freeze the tolls. The Government must learn from the issues that have resulted as a result of the drafting of the Act for future Private Finance Initiative projects. (Paragraph 97)

The Concession Agreement and Severn Bridges Act 1992 provides protection for the Concessionaire to ensure its costs are recovered through the tolls. The annual indexation of the tolls was a key risk mitigation factor when the Concessionaire signed the billion pound concession agreement in 1989. The Severn Crossings Concession was delivered and agreed under very different circumstances and reflected the market knowledge and precedent at the time. Without such risk mitigation at that time, it is likely that the Concessionaire would not have signed the agreement without an increase of the tender price to cover such risks to SRC's sole income stream. The UK Private Finance Industry has significantly matured and developed in the subsequent 20 years and this would lead to a different risk profile for any new similar PFI project.

11.  There seems to be no appetite on the side of Severn River Crossing Plc to reduce the toll prices and extend the concession beyond the current forecasted end date of 2017. The responsibility of the company to its shareholders and debtors puts it in conflict with the needs of the users of the crossings. This will end when the Severn Crossings return to public ownership. (Paragraph 67)

We accept that in any private concession or otherwise outsourced public service, there will always be a conflict between the needs of the customers and those of the company to its shareholders and debtors. The Concession Agreement attempts to balance these responsibilities and to ensure that the new crossing was constructed, the large debt from the Severn Bridge was funded and the whole project is maintained appropriately within a tightly regulated toll structure. Tolling arrangements and the basis for yearly increases are set out in the Severn Bridges Act. To provide protection for users, the new toll rates are increased in line with the Retail Price Index (RPI) using a formula and rounded to the nearest 10p. This prevents the Concessionaire from increasing tolls above the rate of inflation.

Future of the Severn Crossings

12.  With running costs of £15 million a year, and a current yearly income of £72 million, we estimate that the toll could be reduced to a fifth of its current level, to approximately £1.50 while allowing the crossings to remain self-financing. We recommend that the Government should seek to reduce the level of the toll at the earliest opportunity. We recognise, however that at this level no "sinking fund" would be accumulated towards any future replacement of either bridge. (Paragraph 79)

No decisions have been made on the future management of the Crossings or any charging arrangements after the end of the existing Concession. Under the existing legislation, the Government is able to continue tolling for up to 5 years at the end of the concession to recover its costs.

13.  We believe there is a strong case for reducing the cost of the toll and urge the Government to implement this when they take ownership of the crossings. Annual accounts for the crossings should be transparent and publicly available, so that the public can differentiate between the operational and maintenance costs of the crossings and any profit made. The Government must not be tempted to use the crossings as a "cash cow" when it takes over responsibility for the crossing. (Paragraph 92)

No decisions have been made regarding future toll levels once ownership of the Crossings returns to Government. The Government fully accepts the need to provide transparent accounts of expenditure on the Crossings. SRC accounts are available through Companies House and the internet (but they do not separate out operational and maintenance expenditure). The HA Severn Bridge Act accounts are available at or in hard copy from TSO.

14.  We recommend that the Government amends the vehicle classification system contained in the Severn Bridges Act 1992 so that free-flow technology can be implemented as soon as possible. We believe there is a strong case to invest in free-flow technology now. We recommend that the Government pays the Concessionaire to implement it, with these costs recouped from future profits when the concession has expired. (Paragraph 93)

15.  Modern technology must be implemented on the crossings to enable a smooth journey with the least amount of disruption to the users. The Government should pay for improving the methods of payment. This should happen soon. (Paragraph 98)

Free Flow technology is not currently in operation on any of the UK statutory tolled undertakings. The Government is very keen for free flow tolling to be implemented on the Severn Crossings once the lessons from implementing this technology at Dartford have been learnt. We note the Committee's recommendation for an earlier implementation and will consider the option of bringing forward the necessary changes in the Severn Bridges Act 1992. Any changes prior to the end of the Concession will need to be discussed with the Concessionaire.

The Government supports moving to a more efficient way of collecting tolls which benefits traffic flow and therefore congestion which is evidenced by our plans for Dartford Crossing, but we have to realise the costs involved and the fact that the implementation of this technology is as yet untested.

16.  We welcome the UK Government's recognition of the importance of the Severn Crossings to the Welsh economy and its transport infrastructure. There must continue to be a close working relationship between the Department for Transport and the Welsh Assembly Government over the future strategy for the crossings. (Paragraph 94)

The Government will continue to work closely with the Welsh Assembly Government on the operation of the Crossings.  

17.  We look forward to regular updates from the Department for Transport regarding its future strategy for the Severn Crossings. (Paragraph 95)

18.  The Government must develop urgently a future strategy for the crossings. This must be based on discussions between Government, the Welsh Assembly Government and Severn River Crossing Plc. The transfer to public ownership at the end of the concession period in or around 2017 provides a unique opportunity for a new tolling regime. The current tolling prices should be reduced and concessions for those who depend on the crossings for their livelihood could be introduced. (Paragraph 99)

The Severn Crossings is a vital piece of UK national infrastructure and the Department is committed to providing regular updates regarding the future strategy of the Severn Crossings and will discuss these with interested parties. The Department's view is that it is too early to be setting a future strategy for the Severn Crossings at this stage, including future toll prices and concessions. There are several major factors to take into account when considering any future strategy after the end of the Concession including the future operational requirements, management of the Crossings, future traffic flows and some of these will only become clearer nearer to the end of the Concession. It therefore would not be prudent to make decisions when the end of the Concession period is 6 years away and the economic situation the Government finds itself in may be different.

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