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I welcome back members of the press and public. Agenda item 6 is consideration of the budget process 2003-04. I also welcome Lewis Macdonald, the Deputy Minister for Enterprise, Transport and Lifelong Learning and everything else in government. In a second, I will give Lewis the opportunity to introduce the officials who are here to support him in giving evidence.
Thank you, convener. I am accompanied by David Reid, who is from the transport finance division and has a particular interest in budgetary matters. I believe that a number of members have met him in relation to previous budgets. The other officials present are Jonathan Pryce, who is the head of transport division 1, which deals with transport policy in the round, and Keith Main and Karen Watson, who are also from transport division 1. Karen has a particular responsibility for north-east Scotland and will therefore be involved in the second of the two items under which I am to give evidence this morning.
Thank you for your introductory remarks, minister. We have structured questions on a number of areas. We will start by considering the transport delivery report and its relationship with general funding issues.
Good morning, minister. The transport delivery report has received a broad welcome from most witnesses who have spoken to us about it and from the wider public. There have been criticisms, however. One is that it is too short on detail. Another is that there are inconsistencies between some sectors and geographical areas. A further criticism is that it shows little by way of being joined up with other Executive policies, such as enterprise development. Would you care to respond to those criticisms?
I will attempt to do so. We aspired to achieve a joined-up approach. We have recognised the need for transport investment and planning to reflect the importance of transport and transport infrastructure to the economy, to enterprise and to carrying forward the enterprise agenda elsewhere in government. We have clearly identified the fact that the biggest constraint on economic success in transport terms lies in urban and inter-urban congestion. The economic cost of that is such that it has to be given the highest priority as we move forward our transport policy.
You have said that the report focuses on congestion, which you view as the key problem. Others might suggest that the key problem is the historic underspend in investment in Scotland's transport infrastructure. Indeed, it is argued that spending per capita on transport in Scotland is substantially less than it is in England and that we should increase our expenditure on transport. Will you respond to that argument? Given the First Minister's recent pronouncement on additional funds, how can a substantial increase in funding for transport be secured?
You will certainly not find me arguing against the proposition that transport is a Government priority area and that it should attract appropriate financial support. We need to consider how to make the most of resources, how to make the case for attracting the resources that we require and how to draw in partners who have an interest in developing and supporting the transport infrastructure in the years ahead.
I thank the minister for that answer. Perhaps we can look forward to spending levels on transport that are nearer to the English levels.
The budget document for 2003-04 outlines our expectation and prediction of what we will require to meet our transport commitments, as the document for the current financial year does. We have made commitments to particular projects and to finding the resources to meet those projects and we expect to continue with those commitments. As with other budgets, sometimes the transport budget does not produce the outturns that were predicted at the beginning of the year. There may be good reasons for that—for example, efficient and effective management may produce savings in construction contracts—or less good reasons.
Minister, you mentioned underspend in your initial comments—I understand from Peter Peacock that underspend should be called "carry-forward"—but you did not quantify it. Can you forecast the underspend on transport programmes in 2001-02? Last year, the transport department was criticised for the level of underspend in transport programmes compared with some other areas of expenditure. If you can quantify the figure, can you break it down into planned and unplanned capital and revenue?
I can respond to some of that—it follows logically from Adam Ingram's question. Where we have found funds that have not been spent on schedule, we have sought to reallocate them, to adjust our priorities and to allocate the money in a way that reflects our priorities. The potential for carry-forward in the transport budget this year has been affected by a number of things. I mentioned foot-and-mouth disease, which had an impact on rural Scotland, particularly the south of Scotland.
At this stage—the end of the year—the numbers remain fluid to an extent. We expect to be firming up on the underspend position over the next month, with ministers making announcements before the summer recess on changes and implications for plans. I do not have more detailed information to hand on a split between capital and revenue.
At this stage, we cannot say what the precise split is, although the underspend generally relates to capital. I can indicate the likely figure of £32 million underspend on the roads programme but, until the returns are complete, as David Reid has said, we cannot be absolutely precise. I will write to the committee with the details when they come to hand.
One of the themes of the transport delivery report is the shift towards tackling congestion. However, it is not clear from the report what kind of measures you are using to identify success in dealing with congestion—whether you are talking about, for example, cars being off the road, traffic flows, journey times or the take-up of public transport. What are your success measures and how do they relate to identified priorities? That is unclear.
We recognise that congestion is a key challenge. I responded recently to a parliamentary question that sought to identify how we had measured congestion over the past years. Some evidence seemed to contradict itself, so it was clear that there were difficulties in defining congestion and finding the appropriate measurements. We are currently working up the criteria—or progress indicators—that will define whether we are successful.
If congestion is the key criterion, I am not entirely convinced by your arguments in relation to the projects.
You will be aware that the City of Edinburgh Council and its partners are developing road user charging proposals, which we expect to consider in detail later this year. Our fundamental approach continues to be that we will support local authorities that develop coherent and effective schemes for road user charging that deliver the benefits that we require. Those benefits are that the funds that are raised by charging are used to tackle the priorities that we agree with local authorities.
I return to the issue of what we mean when we talk about tackling congestion. It would help the committee if you could clarify the directions that you will give to the local authorities that are considering road user charging. What measures would attract your support or would you deem to be acceptable? What policies or mechanisms other than road user charging would help you to achieve your traffic targets? You seem to be setting an ambitious traffic target. What other measures are under consideration?
We are setting ourselves a challenging target. We have done so consciously because we recognise the economic imperative of doing so. We are not saying that there is a single formula for funding projects of the type that we have described or that local authorities may introduce if they consider that the projects offer the outcomes that we desire. The measures that Edinburgh is considering include the development of light rail or tram systems to link the city centre with west and north Edinburgh, which are the city's centres of economic activity.
How and by whom will progress towards achieving those challenging targets be monitored?
As I said, as part of the process of putting together the package that I have described, we are working on progress indicators. We expect to continue to work in partnership with the local authorities that introduce road user charging schemes. We will seek to agree with them how they monitor the effectiveness of those schemes in delivering their objectives. Clearly, there will be an element of continuing co-operation in ensuring that monitoring is consistent across the country, that the criteria used are compatible and that they provide real measurements of the schemes' success in delivering change.
I just want to push you half a yard further on that question. What if Edinburgh introduced a road user charging regime and over the first five years there was still an incremental increase in the number of cars on the road? How would you prevent the City of Edinburgh Council or any other council in that situation from imposing more draconian mechanisms to achieve their targets, which might not necessarily sit with your objectives at one level but might fit the narrow congestion targets? I can see the tensions and contradictions in such a situation.
Clearly, as with the development of any policy, tensions will arise. However, I do not see any fundamental contradiction, because we will approve any scheme at the outset and maintain a close working relationship with the council during the scheme's development. We are now at a stage prior to the introduction of the first such scheme, which will be launched in Edinburgh—we will watch carefully how it develops. We have had detailed discussions with the City of Edinburgh Council in advance of the submission of their final proposals, because we want to ensure that they are credible and that they will work and deliver the changes that we seek.
I have a couple of supplementaries on that point. You said that one measurement of the schemes' success will be that, by 2021, traffic volumes are no higher than they were in 2001. To what degree is that target achievable through investment in public transport services alone, without the triggers on behavioural change that form part of pricing mechanisms such as congestion charging? I am aware that only the City of Edinburgh Council seems to be seriously considering such proposals. However, even if the council were successful in alleviating congestion in the east of Scotland, there would still be increased congestion across Scotland as a whole unless other areas took the same approach. We should also remember that the council's proposals are unlikely to come to fruition for several years yet.
Because we are discussing the budget and the substantial document in front of us, I have concentrated mostly on infrastructure construction and expenditure, which are the big spends. However, you are right to say that simply building better infrastructure or providing more good-quality public transport alone will not bring about the kind of shift that we need. We also need a shift in attitude or culture so that the wider public recognise that the levels of traffic growth and congestion that have developed over the past couple of years are unsustainable.
We will now move on and concentrate on rail.
Before I ask my three questions, I want to ask the minister for one point of clarification. Is it fair to say that the Executive has moved away from a traffic reduction policy to an overall traffic growth control policy?
The distinction is a fine one, but I appreciate that there is a distinction. The position remains that we have asked local authorities to provide road traffic reduction targets. Some authorities have provided ambitious targets, some have provided targets that are less ambitious and some have not provided targets at all. The transport delivery report recognises that the approach to road traffic reduction in our congested urban areas matters more than the approach to road traffic reduction in the more sparsely populated areas. On balance, we seek to constrain traffic growth throughout Scotland to the levels that we have described. Clearly, a reduction in traffic levels in the most congested areas will be required to achieve that.
I have three questions on rail. There has been a debate on the authority of the Scottish Executive and of the Scottish Parliament over the development of a rail system. We will focus on that issue in our rail inquiry. The Executive does not have direct responsibility for railway infrastructure. Given that different techniques and evaluation methods are employed by the Strategic Rail Authority and by the Executive in relation to roads, how can you ensure that a level playing field is maintained between investment in trunk roads and investment in railways in Scotland?
The Strategic Rail Authority is the key agency in this regard. Our mechanism for achieving the outcomes that we want for rail infrastructure in Scotland is the work that we do with the SRA. Earlier this year, the authority produced its strategic plan. In that plan, it identified the redevelopment of Waverley station as a key strategic objective that is not merely of interest to Edinburgh, but of strategic significance to the whole east coast and central belt of Scotland. That was an important recognition by the SRA of one of our strategic priorities. The proposals for multimodal studies of rail links to airports are also significant to us. We operate through the SRA to identify what we believe requires to be done.
In my constituency, there is a campaign to reopen Laurencekirk railway station. From your answer to Robin Harper's question, I am confused about the responsibility that the Scottish Executive has for Laurencekirk. As you are from the north-east, I am sure that you know about the case to which I refer. Does the Scottish Executive have a locus regarding Laurencekirk, or is that a reserved issue that I should ask my Westminster colleague Sir Robert Smith to take up?
As with all issues of this sort, the best advice is to knock on as many doors as possible. That applies particularly to issues such as the one that Mike Rumbles raises, which relates to both devolved and reserved responsibilities. Local authorities that would like to have Laurencekirk or any other local station reopened may seek Scottish Executive support for such initiatives by taking part in the public transport fund bidding process. Equally, because the reopening of a station relates to infrastructure, it would be legitimate for members to talk to the SRA about where it places a project in its list of priorities. Events may prove this not to be the case, but it is probably fair to say that the SRA's overall focus is on big infrastructure projects such as Waverley station. With all due respect to Laurencekirk, it is not yet on the level of Waverley.
The current financial and operational problems facing rail in Britain seem likely to impact on the future development, or even retention, of the Scottish rail network. By how much have rail operation costs and subsidy requirements risen as a result of the Hatfield disaster, Railtrack's going into administration and other events? By how much have the estimated costs of new investment risen? What are the implications of those changes for rail's overall budget requirement? Can they be accommodated within the existing budget heads, without forcing reallocations either within the transport budget or outside it?
Those are big questions. Although the infrastructure developments that are required as a result of Hatfield will have knock-on effects throughout the rail industry, those do not impact on our budget. The rail budget that is set out in the annual expenditure review relates to the delivery of service rather than the delivery of infrastructure. Going back to Mike Rumbles's question, it is an issue for our Westminster colleagues, as the infrastructure budget lies with the SRA rather than with us directly.
That is a useful clarification, minister.
I know that the committee plans to hold an inquiry on the subject in future and I expect that you will pursue such questions in detail at that time. In the areas for which we have responsibility, we aim to achieve as much transparency as possible about what we are doing. Besides the franchise spend, we make a significant investment—which I mentioned earlier—in rail freight carriage. We are keen that people should be aware of what that involves, so that we can be held accountable for that money and what it achieves. Effectively, it is a spend that is designed to improve the sustainability of freight carriage by moving it from the roads to rail or sea transport or the inland waterways. The money is invested through the freight facilities grant.
To what extent are you able to co-operate and discuss matters with the SRA?
To a very large extent. Wendy Alexander and Richard Bowker, the head of the SRA, have held several meetings over the past few months, at which they have addressed specific projects such as those that we have touched on. They have also discussed other projects, including those for links from Larkhall to Milngavie and from Stirling to Alloa, the Aberdeen crossrail project and the Gourock project, which have been in the programme but have not yet come to fruition. Such discussions are held regularly between the chief executive of the SRA and the minister, as well as at an official level. There is a constructive relationship, which we expect to develop and grow. The SRA is becoming increasingly conscious of the issues in Scotland and is determined to engage with them.
When we took evidence from rail experts last week, it was pointed out in no uncertain terms that conditions outside the central belt did not make rail investment viable elsewhere in Scotland. We were told that any development north of Perth or any projected rural rail development south of Edinburgh was not economically viable. That is worrying to me, as someone who lives in the Highlands and Islands and who is concerned about the north Highland and west Highland lines. I am sure that colleagues are equally concerned about rail links to Aberdeen.
You have identified two separate aspects. In relation to the north lines, it is important to say that, when we reconfigured the ScotRail franchise a few weeks ago, our intention was to add into the franchise those additional services that were not in the existing franchise but were being provided by ScotRail. That included a number of services on the line to Inverness, as I recall. That should give comfort that services that were not in the old franchise will be in the new one.
How do you see priorities in investment being decided between trying to speed up the Edinburgh-Glasgow line—the most intensively used line—and speeding up the network? Does it not make more economic sense to improve the quality of services rather than launching new projects to open the rail service out?
You are talking about the balance between new and existing services and how they are best supported and addressed. The circumstances in Strathclyde are as you describe, although quite a lot of advantages also arise from having established a passenger transport authority some years ago, which other parts of Scotland have as yet not emulated. There is a balance between the pluses and the minuses of the arrangements that exist in Strathclyde, where there is effectively a single authority operating on behalf of a dozen local authorities, making investments, making decisions and providing transport services.
I appreciate that it is not simple but I think that we are getting a bit confused about what the objectives are. The transport delivery plan said that tackling congestion was one of the key issues. That would suggest that priorities would be improving the usage of existing rail infrastructure in Glasgow, for example, and further examination of the rail alternative between Edinburgh and Glasgow. If those are the key priorities, that is where the money should be going. If there are other objectives, such as economic development, the priorities might be different. I am unclear about how the Executive's identified priorities link to its allocative decision-making processes. If that link is not clear, we cannot measure in performance terms the extent to which that expenditure is meeting the objectives that you have set.
I am sorry if there is any confusion but I do not think that there is any contradiction. We are saying that we want to tackle congestion not as an abstract objective but because it is an economic and transport benefit. The solution involves improving existing services and nothing that I have said refutes your central point, which was that, if we are to effectively tackle congestion, we need to make existing alternatives to the private car more attractive.
Strathclyde Passenger Transport Authority says that it cannot spend money on improving existing services—by building new platforms, providing more information or developing integrated bus and train stations—because it has to pay burdensome overheads.
We are having discussions with Strathclyde Passenger Transport Authority on that issue. Like any other body that receives significant sums of public money, we expect it to make its case. It has done so and I am sure that it will continue to do so.
I am trying to get you to tell me what the key driver of transport policy in Scotland is. If it is reducing congestion, certain allocative decisions follow from that. If we can have more effective measures for determining what congestion is and the various mechanisms that we can use for getting rid of congestion, that will help us to make the decision-making process more transparent. Whether you are talking about the railways or congestion, I am unclear about the extent to which what you have identified as the key objective is driving the way in which you make decisions about the way in which you use the budget.
I ask the minister to respond to that point as briefly as possible because I want us to examine other areas.
I am conscious of that. Congestion is the key driver nationally but it is not the only driver. In some parts of Scotland, we will make decisions that do not relate to congestion because there are parts of Scotland that do not face problems with congestion.
David Davidson may ask a brief supplementary question.
My question is about the extra charges on different authorities, which Des McNulty raised. Will the minister clarify how the effects of resource accounting will be dealt with in his department? There will have to be a valuation of the capital assets of public agencies and councils. How will council roads and trunk roads be valued? Will there be an allowance in the budget for charges for capital assets? The straight charge for capital assets will become an issue of top slicing.
I am not sure that I follow the question.
In simple terms, if there is a move to resource accounting, which is starting to happen, there will be a charge on holding assets. At present, there seems to be no allowance for any of the agencies to meet such charges. I am asking whether councils or the Executive will have to meet those charges and how the issue will be dealt with in the budget process.
The budget documents lay out the levels of capital charges that apply to the Executive's assets. David Reid will give an answer on the agencies.
Local authorities are outside what is known as the boundary. In the circumstances that we are talking about, I do not think that road user charging schemes would have an impact on authorities' or the Executive's budget, if that is David Davidson's concern.
I was not asking about road user charges, but about the capital charge of 6 per cent that will exist under resource accounting, to which we are moving.
In the Executive's budget, the capital charges are fully funded. The Executive has a mechanism for the calculation of capital charges and there is provision for them in the budget up to 2003-04. When we draw up the plans for the new spending review period, which will be to 2005-06, the charge provision will roll forward. There is a particular difficulty with capital charges for the trunk road network because of a certain volatility in the valuation of the network and the consequent effects on capital charges. Those charges are kept outwith the Executive's departmental expenditure limit, which is the cash-limited or fixed part of the budget, and are kept to one side in what is known as annually managed expenditure. If there are changes—whether unforeseen or not—in capital charges between what goes into the budget up to 2005-06 and what is charged, that will not hit the Executive's budget.
I propose that we make progress. We have a number of other issues to work through.
I want to return to the transport delivery report, which makes little explicit reference to freight. Will the minister elaborate on how the interests of the freight sector will be addressed?
There are a number of aspects to that. I have already referred to rail freight and the support that we have given it through freight facilities grants and track access grants, which encourage operators to transfer freight from road to rail. As the budget document shows, those grants will feature as a budget heading for the next couple of years. We will keep a weather eye on that modal shift and on how successful the grants are in encouraging it.
We all support a modal shift in the transport of freight from road to rail, but the evidence that we have taken suggests that there is limited scope for that. What measures could be taken to improve the effectiveness and reduce the environmental impact of road freight?
There are a number of aspects to that issue. I do not disagree with the evidence that the committee has heard, which indicates that the scope for growing rail freight is limited, but there is still significant scope for further growth and we will continue to work to achieve that.
There have been calls for a vertically integrated rail franchise. What is your reaction to that proposal? If the franchise were reformed in that way, how would the interests of the rail freight sector be safeguarded?
The Scottish Executive does not agree that there should be a separate Scottish network operator, in part because there is a need to protect the interests of freight operators and of cross-border rail providers that are not included in the franchise. The idea that has been floated of having one operator that would operate both the passenger rail franchise and the infrastructure does not appeal to us. We are concerned to ensure that the successor company to Railtrack reflects Scottish interests and is conscious of particular Scottish concerns about infrastructure. Through our effective relationship with the SRA and the Department for Transport, Local Government and the Regions, we are working towards that end.
This is an unscheduled question, but do you see the east coast main line as ending at Edinburgh or at Aberdeen?
Personally, I think that it runs at least as far north as Aberdeen, and arguably further.
We move to the subject of road maintenance.
Repeatedly, witnesses have mentioned the backlog in addressing the maintenance requirements of trunk and local roads. We have heard that there is a significant gap between spend on local authority road maintenance and what is needed to maintain the existing backlog. For Glasgow, the figures are £8 million and £16.5 million respectively. A Society of Chief Officers of Transportation in Scotland survey indicated that there is also a shortfall in revenue expenditure of about £85 million. I am sure that the minister is aware of that. If additional funds for transport could be levered in through the spending review or by other means, what would the minister's attitude be to making road maintenance one of the top priorities for that expenditure? Does the Executive have plans to add to the £20 million figure that was announced in February and which is only for one year?
I recently discussed that issue with SCOTS and I am aware of the work that it has done. My officials in the road network management and maintenance division work closely with SCOTS to give technical support to its road condition survey.
I have a supplementary question on the road condition survey. Are data being collected on the inappropriate use of roads, which is use of roads that does not match their classification? I am thinking in particular of minor country roads, which are built to a particular specification but are used as unofficial bypasses. I can name two such roads in the north-east. Has the survey taken into account such unplanned, heavy use of roads?
You should address that question to local government because it leads the road survey. I am unsure of the survey's terms of reference, but I imagine that it will consider what needs to be done and why.
Notwithstanding what you have said, will you press for extra funding from the spending review this summer for those requirements that are conspicuous by their absence?
I am impressed that it has taken until nearly a quarter to 1 for me to be pressed on a spending review bid. Unfortunately, I cannot reveal what we will bid for. Suffice it to say that we recognise the importance of the local road network as part of the overall Scottish transport network. We will found our bids in the spending review on our overall view of the transport network.
My second question was dealt with in the minister's first answer.
I have questions about air transport. As the minister will know, air transport plays a vital role in the provision of lifeline services. We had interesting evidence from Highlands and Islands Enterprise, which said that if the Executive gave more support to airline services to the Argyll islands, for example, the Executive would not have to spend so much on ferries. There are perhaps better ways of delivering lifeline services than by ferry.
As you may know, the study on a possible Highlands and Islands transport authority concluded that there was not yet an appetite in the Highlands and Islands for a full-blown authority on the model of Strathclyde. The report indicated areas in which local authorities and other local partners in the Highlands and Islands might work together on projects, and we have encouraged that. The former Highlands and Islands strategic transport partnership is now the Highlands and Islands transport partnership—HITRANS—and Moray Council has joined it, thereby extending the partnership's area. It is for that partnership to suggest to us any further proposals that it might have on the improvement of integration. Specific cases and issues have been raised with me, as the minister with responsibility for air and ferry services.
Will the document include consultation on the potential for targeting public service obligations and other subsidies at services rather than infrastructure?
I expect a wide range of proposals to emerge from the consultation process, including some relating to PSOs.
You said that we are waiting for the specification for the lifeline ferry services to the Western Isles, the Argyll islands and the Clyde to be produced. When might that be published?
As I said, we expect to receive it in the next few weeks and we will consult on it for a considerable period thereafter.
What about progress on the restructuring of Caledonian MacBrayne?
That is running in tandem. When we are in a position to make an announcement on that, we will. The process of identifying the service specification—what the operating company will need to deliver—and the process of establishing the separate vessel-owning and operating companies are running in tandem. We hope to make progress on them this year.
How long is the consultation process likely to be after the draft specification is published?
I cannot answer that off the top of my head, but I will let you know. It will be a matter of months—perhaps three months, but I am not sure.
How long after that will the tendering process begin? I am trying to put together a time scale.
We will produce the draft service specification and consult on it, then consider the responses to the consultation—I think that we will do that over the summer and into the autumn. We will produce the full service specification after that. It is probably too early to predict precisely when the tendering process will begin.
I have a general question. Over the past couple of years, we have had difficulty in identifying—fully and transparently—the levels of subsidy for ferries, rail, airways and so on, and how they are directed. How do you plan to make the process more transparent and how do you intend to control the flows of expenditure? For example, the subsidy to CalMac has increased substantially over the past two years, but we are not sure how much the rail subsidy has changed. What transparency and control measures are being introduced?
I suspect that the single biggest change involving the west coast ferries will be the franchising process that we discussed. We will separate the vessel-owning company from the operating company. That will mean that the operating company will be engaged in a competitive bidding process with other potential operators that bid to provide the same services. The nature of the process will result in a greater level of transparency.
That brings us to the end of that aspect of our questioning. I thank the minister for giving evidence on the budget process.
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