Good afternoon and welcome to the fourth meeting of the Finance Committee in the third session of the Scottish Parliament.
FETA's number 1 priority is the continuing safe maintenance and operation of the Forth road bridge. At present, that is funded entirely by toll income of approximately £12 million each year. Before the income stream is removed, a financial settlement must be agreed that safeguards the integrity of this vital transport link in the years to come.
In submitting written evidence—I hope that it has been issued to the committee—I had two objectives: first, to update the committee on the level of capital and resource grant required by the Tay road bridge for 2008 onwards; and secondly, to confirm that, in the main, the principles behind the proposed future funding package for the Tay road bridge are acceptable.
Mr Connarty, do you have anything to add?
No. I do not wish to add anything.
Treasurers are always the strong, silent people behind every organisation. I thank the witnesses for their opening statements. We will now move to questions.
Paragraphs 42 and 46 of the financial memorandum state that one-off costs for the removal of toll plazas and changes to road layout and signage are included in the 2007-08 or 2008-09 figures. For the Forth bridge, those are estimated at £3.5 million in 2007-08 and £2 million in 2008-09, and for the Tay bridge, they are estimated at £0.825 million in 2007-08.
The capital cost of toll removal is included in the figures that have been quoted. The cost of the physical civil engineering works on the toll plaza and an allowance for possible redundancies for the staff have been included.
I have confirmed with the bridge engineer that we hope to take the toll booths away from the Tay bridge and complete the road works before 31 March 2008 at a cost of £100,000. The bridge engineer has made an allowance of £150,000 for the new signage that will be required when the tolls are removed. I have to say that those figures are lower than those that were included in the financial memorandum, in which the combined figures for those two items come to £625,000. There is no allowance in our 20-year capital programme, which has been approved by the bridge board, and in the recent one that the engineer and I produced, for the relocation of the tolls to the Fife end of the bridge. Quite simply we deferred that matter, because we knew that the Parliament was considering the possible abolition of the tolls—we made no provision for it.
Even after taking account of the major reinstatement work costs, the capital estimates for both bridges for 2008-09 and 2009-10 seem to be well above capital spend trend levels. Can you explain those trends? What are the main purposes of the projected capital costs?
The committee will be aware that FETA is funding the M9 spur extension, which is a £39 million project. We have £24 million in grant aid from the Executive, so £15 million is being taken from the tolls income. We are also in the middle of a dehumidification contract for the main cable, at a cost of £8.9 million. We have just started on the weekend resurfacing programme, at a cost of another £3.5 million. This is the point that we wish to make about the irregular profile of spend: capital expenditure for the current year is higher than we would normally expect it to be because of those necessary works.
Historically, the Tay road bridge capital programme has run at £1 million to £2 million per annum. In 2005, we identified a significant problem with the bearings on which the bridge rests. Civil engineering work identified what repairs were required, which resulted in an £18 million tender for bearings replacement, spread over three years—that was a unique tender for the Tay road bridge.
I am happy with that. Colleagues will return to the point about the irregular spend profile.
The policy memorandum says:
For FETA, the estimates are £3.5 million for road works, and £2 million for severance costs. Those were the early estimates at 24 July, to pick up on Mr Dorward's point. Work is on-going to confirm the figures.
Will you give us feedback on the figures when they become available?
The figures will be discussed with Government officials as we go forward, but they could be fed back to the committee.
Could I ask you to shout at us, please?
Sorry.
There is an issue about revealing the information to which Mr Connarty referred. We are working closely with staff and the trade unions on the new structure that will be required to operate the bridge without toll collection. Clearly, it is an iterative process that involves reaching agreement on the new structure and identifying possible new posts to which existing staff can be matched, before starting to assess the severance costs. Should any employees choose the early retirement route rather than the redundancy route, that would have a major effect on the calculations. Therefore, we must proceed carefully and wait until the board and the unions reach an agreement, and staff are given that information, before going into print with the exact severance costs.
We have had a series of meetings with the trade unions; we will have another meeting with them tomorrow. I am confident that we will reach agreement with them in the near future. We will then take a report to the board. We have fewer staff than FETA does, so we have less of a problem in dealing with severance costs. We believe that our estimated figure of £200,000 for redundancy and early retirement costs will be sufficient. The costs will be met from our general reserve balance, which sits at £2.9 million. The road works element of £250,000 is for the removal of the toll booths and signage.
Before we leave this subject, I think Tom McCabe would like to come in.
No. I have a separate question.
Sorry. James Kelly has another question.
My question is on the staff issue. I realise that the matter is sensitive, but can the witnesses put a figure on how many staff are likely to be made redundant?
FETA has a permanent staff of 105 full-time equivalents. We envisage a reduction of between 35 and 40, depending on which model we adopt for the new structure.
The Tay Road Bridge Joint Board believes that there will be a reduction of 11 posts. Because of early retirement and the redeployment of toll collectors to maintenance posts within the bridge board, the number may be as low as two or three.
Has FETA had any discussions with the neighbouring local authorities about whether they will be able to absorb some of the 35 to 40 people that Alastair Andrew envisages will be involved?
Yes. The first priority within our support package is to seek redeployment, but members may be aware that the City of Edinburgh Council faces a recruitment freeze because of current spending problems. Some of our staff have limited training because their task in life has been toll collection, so we anticipate some difficulty with redeployment, but it will be our first course of action. We have already alerted the partnership action for continuing employment team and are working with the appropriate agencies to minimise the number of redundancies.
We wrote to the neighbouring authorities and Tayside Contracts, which is the direct labour organisation in Tayside. We had quite a positive response on the potential for redeployment to those organisations, so we will take up those opportunities to try to avoid redundancies at all costs.
The resource costs for the Tay bridge are pretty evenly spread over the next three years but, for the Forth bridge, there is a significant spike in 2008-09: £6.98 million running costs, as against £4.715 million and £4.833 million for the subsequent years. What is the explanation for the uneven expenditure on the Forth bridge?
That relates to the estimate for severance costs. We have assumed that severance costs of £2 million would fall in 2008-09, which is why the figure is higher in that year.
The figures in the summary of expected income and expenditure do not seem to reconcile. For the Tay bridge, the 2005-06 costs are £6.4 million, while income is £7.7 million; in 2006-07, costs are £11.3 million and income is £13.5 million. For FETA, the 2005-06 income is £19.7 million against costs of £18.6 million and, for 2006-07, the income is £25.9 million while the costs are £32.5 million. Are you able to provide an explanation for the gaps between income and expenditure?
Does Mr Connarty wish to respond?
I cannot see the figures. Can direct me to them in the memorandum, please?
The figures for FETA are in paragraph 26 of the financial memorandum and those for the Tay bridge are in paragraph 33.
Paragraph 26 shows the previous accounts for FETA. A reduction in the authority's reserve balance would account for the difference between income and expenditure.
If we take 2005-06 as an example, income was £7.7 million, which is greater than the expenditure of £6.4 million. Can you explain what you mean by the reserve movement accounting for that difference?
I am sorry, but you just quoted the Tay figures.
I am sorry. If we look at the Forth figures, we see that in 2005-06 income was £19.7 million and costs were £18.6 million. Income was therefore greater than costs, and you attributed that to movements in the reserve. How has reserve movement affected income and costs?
FETA has held a fairly significant reserve. As you can see, in 2006-07, there was exceptionally high expenditure: there was work on the A8000 and on the main cable. To balance the expenditure for that year against regular toll income and grant assistance from the Scottish Executive, FETA had to use some of its reserve balance to fund its expenditure.
I understand. In 2006-07, costs were greater than income. You are saying that that was because of particular projects, and you drew down from the reserve. In 2005-06, income was greater than costs. Why was that?
As I have said, expenditure fluctuates from year to year. In 2005-06, there was a small difference and the balance contributed to the reserve. That reserve was then used the following year to smooth out the fluctuations in expenditure.
So, in 2005-06, the reserve increased; and in 2006-07, you drew money down from the reserve to fund work that was being done.
That is correct.
What is the size of the reserve?
At the start of this financial year, the reserve was £12.8 million. However, with the planned dehumidification of the main cable, and with other works, the reserve is expected to reduce and actually to be eliminated during this financial year. Before the proposal to abolish the tolls, FETA had planned to borrow during this financial year.
The answer for the Tay is slightly different. I have the audited accounts in front of me and it appears that there is an omission from the expenditure side of the interest payable on finance charges. For 2005-06, that would add approximately £800,000 to the running costs. In that year, we made a total surplus of £600,000. In 2006-07, a similar adjustment would be required of approximately £800,000 on the expenditure side. The actual position is that we made a surplus of £1.4 million that year, £800,000 of which was a one-off payment for the cessation of a car park. The car park is part of the Dundee waterfront development; it was bought by Dundee City Council and the whole of that payment had to be recorded in our revenue accounts. It was a one-off—a unique payment that will not happen again.
Have future interest payments been built into your projections?
No. The assumption for our resource grant is that our capital programme will be funded 100 per cent by capital grant. There will therefore be no finance charges in future years' revenue budgets.
Looking again at the tables in paragraphs 26 and 33, we see rows labelled "Other income". What are the other sources of income? Mr Dorward mentioned the £800,000 from the sale of the car park in Dundee, and I presume that that is included in the figure of £906,000 for 2006-07 for the Tay bridge, but will you explain the other sources of income?
Yes. In 2006-07, £800,000 of the £906,000 was the income from the sale of the car park. The rest of the other income that is shown in the table is interest on revenue balances, on which we earned interest; rental income from the rent that we received from Dundee City Council—we rented the car park to the council before we sold it; and rental income from a kiosk on the Fife side of the bridge. We are entering into an agreement with a fibre optic company to lay fibre optic cables across the bridge, which will give us an annual rental income.
Is the Forth road bridge in the same situation?
The situation is similar. We already rent out duct space for fibre optics. Advertising hoardings and so on are rented out on some land holdings, which are a carryover from the 1960s when the bridge was built. The summary indicates the income other than tolls income.
Leaving aside the £800,000 for the car park, which is probably an unusual circumstance, is the other income likely to fluctuate over the years?
The rental of ducts on the bridge for fibre optics should provide a steady income. From time to time, other communications companies make inquiries about renting ducts, so that income may go up. The situation with the advertising hoardings on the approaches to the bridge is similar. Income should be fairly constant.
I have a more general question. Some items of income or expenditure have nothing to do with the bill—they will remain whether or not the tolls are abolished. Does the financial memorandum include a lot of additional material that is not about the cost of the legislation?
It certainly provides an accurate picture of income and expenditure, which is what is required in the memorandum. The other incomes are highlighted in the audited reports, which are freely available.
But they will not be affected by whether there are bridge tolls.
They should not be. As we understand it, only the toll income will be removed.
I believe that our reason for including all the expenditure and income was to arrive at the net effect of the loss of the toll income and to indicate the net amount that will have to be met by resource grant. That is why those items were included in the figures that we supplied to the Scottish Government.
Ministers are funding the repayment of all the debt, which should remove the need for any future borrowing—although I see that there is a provision for borrowing in exceptional circumstances. What is the rationale behind removing the statutory repayment deadline?
The statutory deadline of 2016 was included in the original Tay Road Bridge Order 1962. The thinking then was that all debt from the original building of the Tay road bridge would be repaid within 50 years. That was not very forward thinking, because repair work that carried a significant cost had to be funded by borrowing over the following 50 years. The deadline of 2016 meant that, as we got closer to that date, the finance charges on new borrowing had to be spread over an increasingly short period—five or six years. The finance charges on the new borrowing were therefore bearing heavily on our reserves and on our revenue spend. The bill includes the continuation of borrowing powers, but leaving the 2016 deadline in place would have meant that if we had to borrow in 2015, the finance charges on that borrowing would have been almost the whole cost of the borrowing, because there would be only one year left in which to repay that debt. Therefore, it was imperative that that anomaly—no other public sector body has a deadline by which it must repay its debt—was removed.
One could say that that would be no bad thing for some other public sector bodies, but we had perhaps better not go there.
We would apply public sector accounting principles. We would look at the asset on which we were borrowing and work out the calculation for the works over the useful life of that asset. In addition, the finance charges that would be generated by any such borrowing would need to be reflected in the resource grant that we received from the Scottish Government in future years.
I think that the financial memorandum states that the policy will cost about £15.5 million in lost income and will require a one-off payment of around £14.7 million for the repayment of debt. However, according to the financial memorandum, the expected costs on the Scottish Government come down to around £10.6 million in 2010-11. Will that lower cost be the trend going forward? What will be the expected annual cost of the policy on the Scottish Government's budget in the longer term?
In my opening remarks, I made a plea for flexibility. We operate on a 15-year capital programme. Under the current programme, spend on capital alone will be some £107,000 over the 15-year period, in addition to running costs. The difficulty that we perceive is that we will be required to plan works according to the three-year spending review budget, whereas we currently plan the works and then look at our expenditure. At the moment, we have a borrowing consent that allows us to smooth out the peaks and troughs. So far, we have never had to borrow since the original debt on the Forth road bridge was repaid. That is primarily because traffic growth has outstripped inflation. My board is keen to have a flexible funding mechanism that would look further than the three-year spending review cycle. For example, the painting contract runs for 15 years. That does not present us with a difficulty at the moment because we have our own income and FETA has obtained borrowing consent to borrow £15 million to see us through a period of higher expenditure while keeping the toll at the same level. With toll removal, we seek to have in place an equally flexible funding mechanism.
A distinction must be drawn between the resource grant and the capital grant. I believe that the resource grant will be fairly steady. Once we have a staffing structure in place, the expenditure on running the bridge year on year will be fairly constant apart from inflationary increases in pay awards. However, quite significant fluctuations can occur on the capital side. That is why I agree with Mr Andrew that we need some flexibility to ensure that the bridge can let longer-term capital contracts with the confidence that the Scottish Government will provide the capital grant to meet those.
Mr Andrew, will you just confirm whether the capital cost over 15 years that you mentioned was £107,000?
I meant £107 million.
Thank you for that clarification. You will now understand why I asked for it.
I understand everything that has been said. However, have you factored in the possibility that in future years you might be required to borrow—for whatever purpose we can only speculate—when the flow of traffic over the current bridge might have been reduced by a second crossing from which you would not get any income? Does that have an impact on your thinking about the degree to which you might need to enter the market to borrow money?
No predictions were made on the influence of a new crossing simply because we expect that a new crossing would take at least 12 years to deliver. When we estimate future works for up to 15 years, there is obviously some uncertainty in the values that we use. In looking forward, we have not taken into account a reduction in traffic, but we have taken into account the average growth of traffic in the past 20 years.
Mr Dorward, do you wish to respond?
I am not aware that a second crossing is planned for the Tay, so—
Not yet, anyway. I beg your pardon.
You are spending money on everything else, so why not? [Laughter.]
Mr McCabe, do you wish to ask a supplementary question?
I understand that, in considering a period of 15 years, there is a great deal of speculation. There has to be projection even though it is by no means a precise science. However, do you agree that there is a risk in projecting forward the same traffic growth that has occurred in the past 20 years, given that we now have greater concern for the environment, measures to try to reduce the number of journeys that people make and the possibility of another crossing?
I have to come back with the defence that it is well within the bounds of our ability to estimate traffic growth.
Given that financial memoranda to bills often present the costs that might arise as falling within a range of estimates, what degree of uncertainty or variation ought to be considered in the figures for the Abolition of Bridge Tolls (Scotland) Bill?
FETA's written submission mentions a number of the unforeseen events that have occurred, and Mr Andrew mentioned some of those today. FETA carries out detailed analysis of the risks of projects and tends to go into three-year capital programmes with a reserve of about £6 million. However, the reserve depends on the specific details of the programme.
Your submission states:
We have a unique structure. It is the oldest suspension bridge in Europe. When we are faced with a consulting engineer who has been employed to do a feasibility study of replacing the vertical suspender ropes—something that we have done—there is no book of rates for the brickwork, plasterwork or concrete work. The engineer starts from scratch and asks how we can replace the supports that hold the bridge up without disrupting the traffic.
Differences of 30 per cent and 33.7 per cent are substantial.
Our difficulty is that the road bridge is wind susceptible. Mid-span, for instance, it can move out 23.5ft in the direction of the wind. We have to work carefully, bearing in mind wind loading.
Capital works seem to be particularly vulnerable to such increases. On future costs, you have said that there are three schemes with
We have let the tender for the dehumidification of the main cable, but no one can sit here and say that what will happen will or will not be successful. If the dehumidification process is unsuccessful and we have to replace the main cables, there will be significant substantial costs. However, a report is not yet available—it will not be finalised until the end of the year. We have had to use guesstimates that are based on available information from internationally renowned consultants, but that is the nature of the beast.
Yes, but I think that you understand the concern about replacing toll revenue with the Government's grant scheme. Your submission states:
The 15-year plan reflects the fact that the vehicle parapets on the Forth road bridge are substandard. They do not meet the current British standard for vehicle containment. Should we replace those parapets? That question needs to be answered. What about the bridge expansion joints? When the bridge expansion joints on the Erskine bridge were replaced, traffic on that bridge was reduced to contraflow for three months. Industry north of the Firth of Forth would not accept contraflow on the Forth road bridge for three months, so we are looking to find an alternative.
Those points are being made clear to all parties involved.
Mr Andrew, are you really saying to us that there is little chance of properly estimating the future costs of removing tolls? I know that you do not mean to, but you are not presenting a reassuring picture of the bridge or the prospects of driving over it any time soon. It sounds as if there is little chance of a professional estimate of the future costs—tolls or no tolls.
Of course we are attempting to provide professional estimates. A major feasibility study is running at the moment, with international consultants considering the removal and replacement of the main cables, but it is exceptionally difficult for me to give you an estimate of costs when that report is not yet available. We are required to work up a 15-year programme so that we can consider our funding requirements over the year. As we have surfaced before, we can give you an accurate estimate of the cost of surfacing, but if we find a problem with the main cable anchorages, there is no readily available case for us to refer to for accurate estimates.
Am I right in thinking that, in general, people would welcome the removal of tolls from the bridge but that the true cost to the taxpayer may be higher than they envisage?
Alternatively, is it true to say that there are two separate issues? One is the cost of removing the tolls, which is the lost income, and the other is the big question mark over the authority's ability to predict capital costs for the reasons that have been outlined. The authority will face that problem irrespective of whether there are tolls.
Yes, that is an accurate assessment of the position.
The point that I was trying to make was that, when we are in the midst of uncertainty about substantial sums of money, it might not be unreasonable to question the wisdom of killing off an income stream.
I want also to ask about the Tay bridge situation. I note that work on additional bearing replacement and pier collision protection has been identified in the current year. On the Forth, similar projects cost way over the estimates. What is the situation on the Tay? Are the estimates accurate, or will the projects be over budget?
I would have to support what Mr Andrew said. The largest contract that we let was for bearing replacement. Although the engineers knew exactly the work that they wanted to carry out, until they went to the market and the companies came back with their tenders—very few companies can carry out such work—the engineers did not fully appreciate all that was required. The cost increase was mainly due to the supporting work that had to be put in place to carry out the main work while the bridge was kept open.
I return to the effect of the bill to abolish the tolls. There has been discussion about capital programmes and several pieces of work, including dehumidification, which would have to be done anyway. What difference does abolishing the road bridge tolls make? Does your argument about the flexibility of the grant lie in the proposition that, instead of the tolls getting abolished, they could have been raised in order to meet additional costs, or more people could somehow have been encouraged to cross the bridges to generate more revenue?
Given that approximately 12 million people pay the toll every year, it requires only a very small increase in the toll to buy a fairly large mortgage to see us through some of the major capital works. I want to stress to the committee the flexible nature of the matter. I hope that it has not been suggested that we are being unprofessional in our estimates—we are doing the best that we can. We cannot have the sort of grant aid that is handed out to some other boards whereby, if we come within 5 per cent of spend, we hand the money back or we are unable to carry it over to the next financial year.
As Tom McCabe said, it is true to say that we do not have firm estimates for the cost of the legislation.
The financial memorandum, which is based on a three-year spending review, does not show the full cost.
I believe that there is no linkage between taking away the tolls and the capital expenditure. If the tolls were there, that capital expenditure would still be required and we would probably have to be funded through a combination of a grant from the Scottish Executive and toll income. The bridge boards require a commitment that the capital grant, whatever it might be, will be available. I believe that the financial memorandum—if we use the updated figures that are contained in our written submission—is now correct. As it stands, there are capital and resource errors in the bill, but we have updated the figures through our written submission. It is simply a timing issue. The data are quite limited, but the figures from the Tay road bridge that we have submitted are accurate for the three-year or four-year period.
I return to the cost of the bill. Correct me if I am wrong, but my interpretation as an economist is that it equals the revenue that is lost as a result of withdrawing the tolls minus the cost of collecting them. In simple terms, that is the bill's net cost. All the other issues to do with capital, the profile of the capital spend and risk—all of which I understand perfectly—exist irrespective of whether we have tolls or not.
I do. The loss of income is a definite loss to the public purse. There will be a saving through a reduction in running costs for toll collectors, banking services and security services. That nets off the loss of toll income to some extent. Thereafter, whether we have tolls or not, capital expenditure will have to be borne by the public purse.
On revenue to the public purse, if the removal of the tolls generates the level of economic growth that we anticipate, the Government and taxpayer will get the money back in other ways.
We have had discussions with the Government through the bill reference group for FETA. That is where the estimates and information in the financial memorandum have come from. FETA has a meeting arranged with Government officials next Thursday to consider in detail some of our concerns about flexibility and determine whether they can be addressed by a detailed grant offer and grant conditions.
Will that be the first time that you have put the concerns to the Government?
No, the Government has been aware of the concerns through our discussions with it, but that will be the first time that we have sat down to concentrate on that detail.
I have a little factual question—
There are a few other people waiting to ask questions.
Aye, but I have waited about an hour to get in. Fair's fair.
In terms of the resource grant, the difference is entirely due to staffing changes. There is approximately £250,000 more a year in the revised staffing structure. The previous figure was produced prior to our personnel department in Dundee City Council reviewing the required staffing structure of the Tay road bridge after abolition of the tolls. In our written submission, we say that the resource grant in 2008-09 would need to be increased from £1.208 million to £1.474 million. That difference of £266,000 is due entirely to the staffing structure.
What has happened in terms of staffing to justify that substantial forecasted increase?
Initially, we foresaw a situation in which the toll collectors—about 20 people—would not have tasks on the bridge after the removal of tolls. However, the bridge manager, John Crerar, pointed out that the current toll collectors have duties other than collecting tolls; for example, they perform security duties and ensure that the bridge is safe and clear 24 hours a day, seven days a week. I will be honest: we had underestimated the staffing structure that would be required to maintain the Tay road bridge after removal of the tolls.
Both figures that Alex Neil mentioned are for a post-tolls situation. I understand that they are both lower than the figures for the current arrangement. Is that correct?
They are lower than the figures for the current arrangement because they relate to a situation in which there are fewer posts. At present, there are 47 posts and in the proposed structure there will be 36. We were too enthusiastic in our initial perception about the reduction in posts initially. When we considered the arrangements in greater detail—for example, when we considered staff rotas and so on—it became apparent that the staffing structure had been underestimated.
We are approaching the end of this part of our meeting, but Derek Brownlee and Liam McArthur would like to ask questions.
You have talked about other income and the funding that would come from the Executive. If the bill becomes law, would you be able, under other legislation, to charge users of the bridges?
The Forth Estuary Transport Authority was set up as a road-user charging authority. Under the Transport (Scotland) Act 2005, FETA would still be able to apply to introduce a road-user charge, but that involves a 12-stage application process that requires ministerial approval at each stage as well as a public inquiry. Although a mechanism by which charges could be introduced will still exist, Parliament would have a say in the matter.
There is no equivalent of FETA for the Tay road bridge, so it would be more difficult—if not impossible—to introduce any other form of road charging for the bridge under the original legislation once the tolls were removed.
The Courier in Dundee will be pleased.
I appreciate the confirmation. It is for ministers to answer why FETA's power to introduce a charge has not been removed.
My question relates to a couple of issues that did not come up in the witnesses' responses to Alex Neil and Tom McCabe. I acknowledge the points about the net effect in revenue and that capital costs will be equally predictable, or unpredictable, whether or not tolls are in place. Two other issues were not raised. The first is the impact of toll abolition on congestion and the costs that will arise from it, although the witnesses might not be able to comment on that. Secondly, there obviously exists the potential that removal of the tolls will result in changes to the capital cost profile because of increased movements leading to greater wear and tear on both bridges. Can the witnesses even estimate what that change is likely to be?
Yes. The current predictions are that traffic numbers will increase on the Forth road bridge, but we do not anticipate a significant increase in the number of heavy goods vehicles, which cause the structural problems. The forecasts indicate that the off-peak period will start to fill up and that the peak will simply become a bit longer, but cars do not cause the maintenance problems. The simple facts are that the Forth bridge is a 1950s bridge that is carrying twice its design load and that the number and weight of heavy goods vehicles continues to increase.
The Tay bridge manager does not predict a significant increase in use of the bridge when the tolls come off. The majority of the bridge traffic is users who are resident in north-east Fife and who go to Dundee for work. The manager estimates that even a 2 per cent to 3 per cent increase in traffic per annum would have no effect on our capital programme.
I accept that that was probably more a question for FETA, but I appreciate those answers.
We have had quite a long question-and-answer session. I will give the last word to our witnesses.
I will undo an impression that I might have created: the Forth road bridge is absolutely safe. I crossed it this morning and I will cross it again soon. Our only plea is that the Scottish Government will, in removing the income that is earned from tolls, give us an equally flexible grant to let us continue with maintenance.
All of us who use the bridge regularly will be pleased to hear what you said.
I echo Mr Andrew's points. The Tay road bridge is a different structure from the Forth road bridge and, although we are considering them together in one bill, the capital needs, the capital expenditure and, to some extent, the revenue are slightly different. The Tay bridge goes into the heart of a city: therefore, removal of the tolls will make a significant difference to traffic movements in Dundee.
We appreciate the three witnesses' participation. I bring this section of the meeting to a close. We will have a four-minute suspension to allow our next witnesses to settle in.
Meeting suspended.
On resuming—
I welcome our second panel of witnesses, who are officials from the Scottish Government. They are David Patel, the deputy director of the Scottish Government transport directorate, David Dow, financial adviser, and Christopher Rogers, who is a branch head in the Scottish Government transport directorate. Will the officials make an opening statement?
We will make just a brief statement, given that the committee has already heard a lot from the bridge boards. Under the bill, toll income will be replaced by direct grant funding. The grant for the coming spending review period will be in two elements—a revenue grant to cover the operating costs and a capital grant to meet the programme capital expenditure that we get from the boards.
Does either of your colleagues want to say anything?
No—we are happy just to answer questions as they come.
It is always good to welcome somebody from the Scottish Government.
That is a fair summary of the position. We work on three-year spending review commitments—there is no getting away from that—but we need to ensure that everybody understands that there is a long-term commitment to funding the boards. The specifics will be dealt with in three-year chunks, but the boards have a long-term funding commitment from the Government that allows them to enter contracts that extend beyond three years.
Would it be fair to say that the discussion is in a sense a bit academic? If either board did a Northern Rock and then went bust, under the legislation the Scottish Government would have to pick up the tab anyway.
That is a fair point.
Is that the correct position? Would the Government have to pick up the tab if either board went bust?
It would be a pretty good bet that the Government's door would be knocked on in that situation.
I have two other substantive questions. The first is about your scrutiny and audit of the boards' estimated figures. We heard an explanation of how the staff costs in the Tay Road Bridge Joint Board were originally underestimated. Do you go through an internal process of scrutiny and audit of the figures that you are given and then negotiate a final agreed estimate, rather than just taking the figures as read?
Yes—although I see that as a process that we will go through more as we come to agree each year's grant and as we become more familiar with the business of the two bodies. Going forward, that is the process that I envisage.
That is going forward. You are in negotiations at the moment, so I presume that you undertake robust analysis of the figures that are presented by both boards.
The learning process continues and we are questioning the figures. As the committee has learned from the previous session, matters are still coming to light.
I am not sure whether I am totally reassured by that.
As the committee heard, staff costs are iterative; the boards are going through a process with unions and staff at the moment. The financial projections include broad allowances within which we will, we believe, be able to meet whatever costs arise from those discussions. Indeed, the figures in the projections are higher than may be realised.
Secondly, I assume that you allow for variations over time in the estimates. Obviously, the profile of the capital spend can easily slip between one financial year and another, even within the three-year timeframe. I assume that you have done—or will do—your own sensitivity analysis to examine where there might be exposure. For example, two of the pending contracts have a total value of £75 million. As the convener pointed out, previous contracts show overspends of around 30 per cent. If that were to be the experience in this case, the total value would be close to £100 million. In any one year, such overspends could have a reasonably big impact on the Government's budget.
If I may, I will return to the original question to add a little to what my colleagues said. We can look at the present capital programme to see whether the figures are reasonable, but we cannot second-guess when something might need to be done. In other words, if FETA were to say, "In 2008-09, we will need to address issues in the expansion joints," we cannot say, "No, you don't." That said, in the future, we would ask: "What is the flexibility on that?"
How much is the proposed abolition of the tolls leading you into new territory? You said that you were on a learning curve. How much of the process is being done internally? Are you relying on specialist outside advice to assist you?
From the engineering viewpoint, we lean heavily on the engineering advice of both boards—they have, quite literally, decades of experience of their respective structures. Even if we were to go to consultancy, it would be difficult to get the equivalent level of expertise. We are talking about specific structures in specific conditions.
My questions are on the debts of the Tay Road Bridge Joint Board. First, I would like clarification. FETA confirmed that it would retain the power to implement road user charging on the Forth bridge. Given that the bill proposes to abolish tolls on the Forth and Tay bridges, and to repeal both the Erskine Bridge Tolls Act 1968 and the Erskine Bridge Tolls Act 2001, was consideration given to removing that power?
The bill is tightly focused on abolition of the bridge tolls. No consideration was given to removing FETA's particular provisions on road pricing. A couple of weeks ago, the minister told the Transport, Infrastructure and Climate Change Committee that he is willing to consider the matter in detail, so it is something that we will be considering.
I come to the Tay road bridge debt. Of the £14.7 million that will be outstanding at the end of this year, it seems that £2 million is, in effect, owed by the Government to the Government. I assume that that figure is included just to clarify to whom that amount is owed.
Yes.
The obvious question is, given that the debt was to have been repaid over the next 10 years, why was the decision taken to pay it all back next year? Why not spread or maintain the debt payments? That could have been done while abolishing the tolls, could it not?
That could have been done, but it is a matter of achieving value for money in the funding regime going forward. The debt interest for the Tay road bridge is about £800,000 a year. The decision was made on the ground that we should avoid that.
We hear that we are moving into the tightest funding settlement since devolution. Are comparative figures available? There is a cost to the Scottish Government in that the £12 million or £13 million that is owed to the other bodies, in particular to the councils, is to be paid back to them immediately. What sort of modelling was done on the consequences of that?
We had the opportunity to deal with that one debt now, and it is the one that we have concentrated on. On how the repayment plays with the spending review, the proposal is to pay for redemption of the debt within the current financial year. It will be over and done with before we move into the new spending review period.
Was there any negotiation with the councils, which will now be receiving cash that they had not expected to receive? Was an assumption made that they would be quite happy to be in that situation?
There was no discussion with the councils—it is purely a position that ministers have taken.
There are no provisions in the regime for any sort of penalty for early repayment.
As we understand it, there is none.
As was covered earlier in our evidence taking, and as is outlined in the financial memorandum, the cost of the new policy is £15.5 million per annum, plus the one-off debt repayment of £14.7 million for the Tay road bridge. However, in 2010-11 the total costs on the Scottish Government are expected to fall to £10.6 million, which is a lower figure than for preceding years. Is that lower cost going to be replicated after 2010-11?
The costs vary between the two structures. There is no doubt that the capital expenditure on both structures last year, this financial year and over the next two financial years is higher than average. The figure for 2010-11 is probably representative of an average. As the witnesses from FETA said, there are costs that cannot currently be estimated, including for guard rails. That £10 million figure might represent a trend, but there are likely to be substantial blips in that trend.
It is really the capital expenditure that creates the variation over the years. The capital programme for the Forth over 2010-11 to 2013-14 is about £2 million to £4 million, which is quite a bit down from the figures in this spending review period. That is the best figure for the period based on current estimates. A similar position holds for the Tay. On the basis of the current figures, and if the capital figures stay as they are, we expect the level of funding to go down in the next spending review.
So you are saying that, from 2010-11, you expect the costs in a normal year to be £10.6 million although, as we heard from the previous panel, unexpected events quite often occur in maintaining the bridges.
Yes. If the capital profile remains as it is, the capital expenditure will be nearer the figure for 2010-11 than the figures for any other years. If it would be useful, we can provide you with the information that you want.
That would be helpful.
You are inheriting a structure that has some structural problems, and future costs include the costs of three schemes that have
What you say is true. You heard from Alastair Andrew about that.
To some extent, the position is even more complex than a guesstimate. The difficulty is that neither we nor FETA know whether the work needs to be done. If we knew that the work was required, we could put a risk analysis against it.
I understand that you are looking through the fog of war, but do you have any idea how and when things will be clarified? When will the uncertainties begin to become clear?
The anchorages are probably the next major unknown, if I may use such indeterminate terminology. Consultants are studying whether the anchorages are competent or whether they need strengthening. I think that the consultants will report at the turn of the year, but I will come back to you with the date.
Please do that.
We are in an uncomfortable Rumsfeldian twilight zone of known unknowns and unknown unknowns. In seeking the best guesstimates of capital costs, to what extent have you asked FETA and the Tay Road Bridge Joint Board to err on the side of caution and include a bit of headroom? Alex Neil made it clear—and the convener raised the matter with the previous panel—that previous capital projects came in at about 30 per cent more than the projected cost. Have you considered that in asking for costs? For example, have you considered it in relation to the £10 million and £65 million contracts that are still to be awarded?
We have not added anything to the cost allowances that the boards have provided and have not gone back over any of their estimations. Instead, we have accepted their professional judgment.
With regard to the impact of lifting the tolls on the traffic using the two bridges, do you share Mr Andrew's view that the wear-and-tear profile might not change markedly because, although there might be an increase in the number of cars on the bridge, there will be no marked increase in the number of HGVs?
With regard to the longevity of the Forth bridge, Alastair Andrew is understandably concerned about corrosion and whether, at some stage, HGVs will have to be kept away from the structure. We have discussed with him whether that will have any implications for maintenance; the committee has heard his response to that question, and I have no reason to disagree with him.
Have you analysed the likely additional costs of such wear and tear?
No. However, a number of the roads that are involved are trunk roads, the responsibility for which fortunately falls to us. We will maintain traffic counts, as we usually do, and analyse the real-life effects of this wear and tear.
I assume, therefore, that you expect there to be an impact on road maintenance in other parts of the country.
There might be some impact, but it is very difficult to quantify.
Paragraph 60 of the financial memorandum suggests that
The toll impact study has provided us with some detail of that.
Can you share those costs with us?
Do you want us to provide you with a résumé of the study?
That would be helpful.
No, we are fine. We will provide the extra information that we have promised.
That is much appreciated. I thank the officials for their insight into the issues that the financial memorandum covers. The committee appreciates their evidence.