Finance Committee, 12 Sep 2006

Meeting date: Tuesday, September 12, 2006

Official Report 157KB pdf

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Transport and Works (Scotland) Bill: Financial Memorandum

The third item on the agenda is consideration of the financial memorandum to the Transport and Works (Scotland) Bill. We agreed to adopt level 2 scrutiny for the bill, which involves taking written evidence from bodies on which costs fall. Today, we will take oral evidence from Executive officials. I welcome to the committee Frazer Henderson, who is the bill team leader, and Emma Sinclair, who is the bill team policy official. Frazer will make a brief opening statement before we ask questions.

I thought that it might be helpful if I clarified two aspects of our proposals. The first relates to the cost of administering the new process. We believe that the savings to the Scottish Parliament and the additional cost to the Scottish Executive of administering the process in effect cancel each other out.

The second issue relates to promoter costs. We are aware that mention of an additional £1 million in costs to promoters of large projects has generated excitement in some quarters. It might be worth explaining the background to that estimate. It is apparent that, given the experience of the private bills process, promoters are becoming more attuned to the need for good consultation and engagement during the pre-application phase. We are also aware that the guidance produced in support of the private bills process promotes such an approach.

The bill's provisions build on that guidance and exhibited best practice. The bill now places all promoters under a statutory requirement to undertake particular pre-application activities. As a consequence, there will be associated costs, which are based on estimates of additional staff required to perform and fulfil pre-application activities and commitments.

In short, the additional £1 million is the difference between a promoter fulfilling the current minimum requirements of consultation under the private bills process and undertaking the statutory requirements under the provisions of the bill. However, we recognise that £1 million is a generous, large figure. On reflection, we think that we are probably the first bill team to overestimate costs. As a consequence of producing draft illustrative secondary legislation, which was shared today with the convener of the Local Government and Transport Committee, we are able to refine the estimated costs for a large-scale project to around £600,000.

It is important to emphasise that for promoters who had previously planned to apply best practice and had built such costs into their existing budgets, there will be little or no additional cost. In short, additional costs are unlikely to apply to good promoters. It should also be noted that the additional cost is dependent on the scale of the project, whether it is in a rural or an urban area and whether it is involved or straightforward.

In the wider context, it is perhaps worth acknowledging that the process of scrutiny in terms of cross-project analysis and investment decisions will be taken through the strategic transport projects review, which will feed into the infrastructure investment plan and thence to the national planning framework. Given that the process of authorisation that the bill promotes flows in the main from the national planning framework, there should be a greater level of security that the right project is being promoted for the right reasons.

Our colleagues in Transport Scotland have recently commenced the strategic transport projects review, which it is envisaged will progress through to completion in summer 2008. I am sure that there will be ample opportunity for parliamentary scrutiny in the coming months and years.

The bill team's focus has been on designing the authorisation process for transport-related developments. We are happy to answer members' questions on the process as well as we can.

Thank you. Mark Ballard and I have taken on the lead responsibility for considering the bill.

In paragraph 110 of the financial memorandum, the Executive says:

"We will cover the details of the fees in secondary legislation".

You mentioned draft secondary legislation, and I am interested in hearing about the criteria that ministers would use in deciding fee levels.

I will pass your question to my colleague, who has been involved in the details about fees. I can answer more general questions on the matter.

As Frazer Henderson said, we have produced draft illustrative secondary legislation. However, we have not yet produced draft secondary legislation on fees, because we realise that a number of factors will influence our consideration of the matter. When the bill has been enacted we will produce draft secondary legislation and put it out to consultation.

The aim is that fees should be proportionate. We are giving careful consideration to whether the same level of fee for an application should apply to private developers, public developers and charitable concerns. We do not want to create a fee system that is bureaucratically all-consuming; the system should be fairly straightforward.

We do not want to set a fee level that will act as a disincentive for people to come forward, nor do we want the fee level to encourage proposals that have not been well thought through. We have not agreed a figure, but we expect to go out to consultation on the matter next summer, after which we will reflect accordingly.

Your points are well made. However, in footnote 24 to the financial memorandum the Executive says:

"The current Private Bills fee is £1.25k for charities … On this basis, the"—

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"fee may represent an increase of £18.75k".

Would such a jump in fees create the problem you identified, whereby too many charities might come forward with proposals, or would it have the opposite effect and discourage public bodies and charities from coming forward?

We are seeking to ensure that the level of fee is such that there is no cost—for want of a better term—to the public purse. It is inappropriate that the public purse should meet the costs of an examination that cost £20,000, for example. Those costs should fall to the promoter.

A fee of £20,000 could act as a disincentive to some charities—I am thinking in particular about heritage railways. That is why we deliberately kept the fee issue away from the draft illustrative secondary legislation that we mentioned. The issue is complex and we want a full and frank consultation on fees before we come to a view.

The current fee of £1,250 does not bear much relationship to the cost to the public purse. In paragraph 110 of the financial memorandum it is proposed that staff costs will not be included in fees. If the proposal is to move to a system in which there is no cost to the public purse, why are staff costs not included in the calculation? I would have thought that they could be the most substantial element of the cost to the public purse of any new application.

In terms of the public purse, that is our opening principle; however, our principle can be modified in the light of the consultation that will take place next year, so that we do not dissuade or affect charitable concerns, such as heritage railways.

In relation to the staff costs that are attached to the bill, we must remember that the Scottish ministers will make the decisions and that they will employ staff to assist them with those decisions. Most proposals that will come forward will relate to public transport and will be for the public good anyway. We therefore think that it is reasonable for the staffing costs to be met by the Scottish ministers. The only cost that promoters will have to meet will be the cost of the examinations.

Those are our views as of today; however, they may change following the consultation.

I am uncertain of the logic of that position. Either there should be full cost recovery by the public purse—including staff costs—or the current system of a flat-rate fee should be maintained. As you say, the fee is designed to act as a barrier to vexatious applicants but not to be so high as to dissuade genuine applicants. It seems to me that the second option is much more sound than what appears to be quite an arbitrary division, with staff costs not being included and other costs being included in the calculation of the fee.

You have neatly encapsulated some of the questions that we will include in the consultation to help us to decide whether to opt for one position or another.

On a separate issue, paragraph 128 of the policy memorandum states that

"one respondent did comment that consideration should be given to financial aid being given to an objector at an inquiry. This issue will be considered further when drafting the rules."

Can you explain how that might work and how a decision that there should be financial support for objectors might fit into the financial memorandum?

At the moment, we have not set aside a provision in the bill under which objectors could be given financial aid. Currently, objectors can get advice on Scots law from qualified solicitors, and civil legal aid is available to objectors in accordance with certain statutory parameters. We could address the matter in secondary legislation; at the moment, the bill does not enable objectors to receive financial aid.

If such a provision were to be made in secondary legislation, would the additional costs of paying for the financial support for objectors be met by promoters as an additional charge on top of the fees or as part of the fees, or would those costs be met by the Scottish Executive's inquiry reporters unit?

We have not yet formed a view on that. I am sorry that that is such a short answer, but it is an honest answer.

We can consider the issue if the secondary legislation comes our way.

Let us move on a wee bit. In 2005, we spoke to the then Minister for Transport, Nicol Stephen, about the need to identify a better mechanism for tracking the costs of projects. You will be aware that projects are authorised on the basis of a budget but that, sometimes, the budget increases or multiplies. The hope was that we could find a mechanism that not only would allow an initial authorisation process for projects, but would ensure that the costs were followed through. There is no proposal to do any of that in the bill. Have you any thoughts about how it might be achieved and about how the Finance Committee, in particular, may be able to wrestle with the costs of projects and changes to those costs over time?

In the coming months, the Scottish transport appraisal guidance will be reviewed. Everyone agrees that it would be better for the cost structures of particular projects to be fairly fixed at the outset, so that there is a higher degree of security than has existed hitherto. One of the driving mechanisms is to look at the economic bases and the financial assessments that STAG takes forward. It is anticipated that the new STAG proposals will be presented next year. I expect that both the Local Government and Transport Committee and the Finance Committee will subject the new STAG approach to scrutiny.

In my opening remarks, I mentioned the strategic transport projects review that is being undertaken at the moment and which will report in 2008. Both the Local Government and Transport Committee and the Finance Committee will have some interest in the review of cross-project decisions and prioritisation. That is especially relevant to the Finance Committee, as it feeds through into the infrastructure investment plan. The retort to what I have said could be that such opportunities are currently available to both committees. Through the STAG and strategic transport projects reviews, we are seeking to improve the processes, so that there is greater security around some of the figures in budgets, in particular. I cannot say that we will ever get it right, but now a genuine attempt is being made to address the issue. Clearly, we can deliver more projects if we secure correctly the budgets of those that are currently scheduled.

I will make two points in response to what you have said. First, the present mechanism for putting projects into play does not seem to have been very good at identifying adequately at an early stage what the actual costs are likely to be—the costs are rough estimates. Secondly, one occasionally finds part way through the process that a project has been altered—the best example being perhaps the new Aberdeen ring road, the line of which has been changed at significant additional cost. Under the arrangement that is proposed, the authorisation could be changed by ministers without reference to Parliament and without proper control of costs.

I am probing the issues with you. I understand that the bill has a particular purpose, but to make it effective for the purpose on which we and ministers agree, we require that a framework for scrutiny of proposals be put in place beyond the authorisation stage. As proposals change and are modified and as costs increase, we will need a system of accountability for those changes. No provision seems to have been made for that.

That is not included in the processes that are set out in the bill, but we believe that there are existing mechanisms for addressing the issue. The Scottish Executive is the predominant funder of most public transport. We hope that cost overruns will not happen, but if they do, the minister is accountable for them to Parliament at all times. Budget revision, budget scrutiny and the infrastructure plan provide mechanisms for accountability.

I would like to pick the Aberdeen ring road as an example. That project's budget very nearly doubled and then an arrangement was made to find a different route, which further increased costs. I am not aware that that budget went through a parliamentary process at any point. Announcements were made about increasing costs and about changes to the route, but there was no formal process of parliamentary scrutiny.

I cannot comment on that because I do not know the detail of the roads projects. However, in our mechanism for delivering rail projects in the future, a rail project will at the very outset form part of the national planning framework, so there will be an opportunity for Parliament to pass comment. Prior to that, the national planning framework will result from the strategic projects review and the infrastructure implementation plan, both of which can also be subject to scrutiny by committees, so there will be an opportunity to scrutinise individual projects that come forward to the NPF.

We hope that there will be greater security in the budget level for rail projects when an application is made for authorisation by the minister. A project will go through an authorisation process of nine months; we hope that work will commence shortly thereafter. There are necessary reasons for budget changes, including environmental reasons, shifts in policy and technological changes, and we have to address those factors as and when they arise. The bill will not shift us fundamentally from where we are currently, aside from saying that there should be greater security because major public transport developments will be included with the NPF, which is the distillation of various strategies, policies and plans.

I refer you to paragraph 177 of the policy memorandum, which states that "Proposals for a New Approach to Delivering Public Transport Infrastructure Developments" solicited views on whether there should be a mechanism to

"attach express Parliamentary approval to road developments of national significance."

Most respondents agreed that that was a good idea, but

"one respondent suggested that there was no compelling reason to change".

In practice, you seem to have gone with the one respondent rather than with those who said that there should be such a mechanism.

We have said that the mechanism should be for parliamentary scrutiny. Let us use the Aberdeen western peripheral route as an example. That project would feature in the national planning framework and is therefore a development of national significance. All transport developments that are of national significance will, once the minister has made the order, be subject to the affirmative procedure. They will be discussed at the NPF stage and also at the end of the process. We have achieved a degree of conformity by bringing roads and major harbour developments into that process so that they will now be treated in the same way as rail, tramway and canal and other inland waterway developments. We have some conformity in that, but we have not disassembled the roads legislation, which has been designed to address the complexity of roads. We have left that as it is, but the end result is that all national transport developments will be treated in a like manner.

Will they continue to be treated as individual projects, or will there be a mechanism through the bill, or through the guidance or procedures that will be attached to the implementation of the bill, that will allow us to ensure that individual projects fit into a priority process and that there are appropriate financial controls? In a sense, that is a different issue. The current private bills procedure allows planning considerations to be dealt with carefully and conscientiously—to too great an extent, some would argue—for individual proposals. To some extent, the Transport and Works (Scotland) Bill will simplify that process.

I am not clear whether the bill deals with the other aspect on which the current procedure has been criticised, which is that schemes are currently dealt with individually without effective co-ordination of scrutiny to ensure priority setting, financial management and so on. As a committee, we have been calling for such co-ordination for two or three years. We thought that we had secured ministerial agreement that the Executive wished to go down that road.

I hope to answer that.

It is correct to say that the process under the bill will be an authorisation process. Prior to that authorisation, priority setting will have been carried out under the strategic projects review, which will involve examining all the projects to rate them, to see what the interrelationships among them are and to determine the order in which they should be delivered. As I mentioned, that process feeds into our infrastructure implementation plan and hence to the national planning framework. There will be opportunities to address concerns during consideration of the strategic projects review and of the national planning framework.

In effect, the process under the bill is that all those issues should have been addressed in the national planning framework; authorisation of projects should fall out of that quite naturally. There is no mechanism to re-evaluate the priority of an individual rail project, which should have been addressed in the SPR and the NPF. Our process will be the outcome of consideration of the SPR and NPF. That is perhaps where the desired level of scrutiny ought to be addressed.

Let me cap that off by suggesting that the committee perhaps needs to seek additional guidance or thoughts from the Executive about how those different preliminary steps should be scrutinised so that we can see how they fit in with the authorisation process. For some time now, the committee has recorded its concern about the fact that projects with cash attached to them suddenly appear that have not gone through a clear process in which Parliament could engage, but which instead seem simply to spring out of ministerial announcements. If the authorisation process is to be backed up with a policy process, we need to consider how scrutiny can be linked in with that policy process.

The other side of that relates to what happens when a project is authorised and circumstances then change or its budget increases. We need a mechanism for reviewing the authorisation and the spend process. Given that not every project will always ends up in a perfect position in a line of process—as we know, that never happens—we need a mechanism that will follow authorisation that allows for a review. I am not sure that such a mechanism is provided for under the bill.

I will be delighted to draft a note to address that point. A similar concern was raised by the Procedures Committee, which wanted to see how the process under the bill will fit in with the SPR and NPF and the considerations that are attached to that. On the NPF, I point out that, as the Planning etc (Scotland) Bill is currently going through Parliament, we will not know what consideration will finally be attached to the NPF until after stage 3 of that bill.

I look forward to receiving that note. I want to follow on from, and amplify, the point that Des McNulty made. I understand that the NPF—which, I accept, is still being debated by the Communities Committee—will not necessarily contain a financial component. If that is the case and if a project's first stage is to be the NPF, we might have less financial scrutiny of such projects than we have of projects that go through the private bills procedure, in which value for money and business cases are, we know, some of the most hotly fought-over issues at the first stage.

I am worried that there could, in the situation that you have described, be less financial scrutiny of major infrastructure projects than there is currently because the introductory stages would be purely concerned with planning issues, rather than with issues to do with the business case, value for money and funding, about which discussions on private bills have often focused in this parliamentary session.

As I mentioned, the infrastructure investment plan, which will set out the Executive's funding for projects, is one of the key inputs to the national planning framework. There can be such input only when individual projects have gone through their STAG appraisal and the SPR. There are ample opportunities for scrutinising individual projects and all projects in the round in the SPR and the infrastructure implementation plan. Projects then feed into the NPF, which is clearly a spatial plan that articulates which projects will go forward. However, as I mentioned, the financial regime that sits behind those projects can also be subject to scrutiny through the SPR and STAG.

I want to ask about the bill's ambit. The bill is essentially a transport bill, as it focuses principally on transport or transport-linked works. Is there a reason why other linked infrastructure projects cannot be dealt with under the same procedure or a parallel procedure? In particular, I am thinking about significant water and sewerage activities, which are often part of road projects. By excluding the connected aspects of such projects from the bill's scope, will two procedures have to run, rather than its being possible to run projects through a single incorporated procedure? Does that make sense?

Yes. I suppose that what you have said takes us back to the genesis of the bill. We considered changing the private bills process and giving order-making powers relating to railways, trams and canals to Scottish ministers. Scottish ministers already have order-making powers relating to roads and harbours, but other matters go through planning legislation. Under section 1 of the bill, an order can be made relating to matters that are connected with rail developments. We were thinking about enabling access roads to link to railways and the provision of interchange facilities, for example. Basically, those are transport-related matters. We have not gone further on things such as sewerage, which you mentioned: we think that they can be adequately addressed in the existing planning regime.

Many people in Scotland would disagree with you about that.

I want to put a proposition to you. Parliament is dealing with the Planning etc (Scotland) Bill at the same time as it is dealing with the Transport and Works (Scotland) Bill. Is there a conversation that you might want to have with your planning colleagues on whether there are ways in which the systems can be drawn closer together than they appear to be in the description that you have given? I think that if there are water and sewerage works that are analogous to, or which are part of, road works, they should come firmly under the ambit of such legislation because separating appeals, notifications, notices and so on makes no sense.

There is also an argument about whether there is a need for an analogous and more fit-for-purpose procedure for water projects, which would take them out of the ambit of small local authority planning procedures to secure approval so that major schemes can be dealt with in a more streamlined national framework rather than through purely local planning systems. Significant cost and time benefits might be gained from such an approach.

I take on board your comments. We have worked closely with planning colleagues on the bill. When we embarked on that work, an issue arose about why the Planning etc (Scotland) Bill and the Transport and Works (Scotland) Bill are not somehow linked. However, the Planning etc (Scotland) Bill was much further advanced by that stage. We were asked to produce a proposal on a transport and works bill last year; the proposals on planning have had a much longer gestation period.

As members know, the Planning etc (Scotland) Bill seeks to streamline all the processes to do with national, major and local developments. As far as possible, when a proposed transport development has ramifications for other aspects of planning, we will seek to streamline activity. The Transport and Works (Scotland) Bill will allow us to conjoin inquiries so that there can be synergy and so that issues can be discussed and addressed in the round, in particular when Scottish ministers will be the decision makers in both instances.

We have no further questions, so I thank the witnesses for attending the meeting and answering our questions. We will discuss our draft report on the financial memorandum on 26 September and—I hope—publish our report shortly after that.