Transport and the Environment Committee, 29 Mar 2000

Meeting date: Wednesday, March 29, 2000

Official Report 130KB pdf

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Subordinate Legislation

The first item of business is consideration of subordinate legislation special grant report No 3 on grant in aid of expenditure on rail services in the Strathclyde Passenger Transport area. We have circulated papers TE/00/6/1, TE/00/6/2 and TE/00/6/3, which are the report, the Executive cover note and a committee covering note for the report.

The procedure for handling this report will be the same as for the affirmative SSI that we considered at the previous meeting. As we discussed then, under rule 10.6 of standing orders the committee is required to consider a formal motion for approval and to report to the Parliament with its recommendation on whether the instrument is to be approved. I advise committee members that the Subordinate Legislation Committee considered this report at its meeting on 22 March and did not highlight any technical problems with it. I suggest that we allow some time for members to discuss the matter with the minister. We will then move on to motion S1M-669. It may be debated prior to a decision being made, which can be no later than 90 minutes after the motion has been moved.

I remind members that the committee has no power to amend the motion or the report. Our task is to recommend whether the report should be accepted in its entirety or should not be approved. I invite Sarah Boyack to make any appropriate introductory remarks.

Convener, thank you for giving me the opportunity to present this important special grant report to your committee. Although it is the first time that such a report has been laid before the Scottish Parliament, this is the fourth report that has been prepared for Strathclyde Passenger Transport Executive since 1997.

Prior to devolution, this report would have been laid at Westminster, usually at the same time as the Department of the Environment, Transport and the Regions laid its report for the passenger transport executives in England. Now, this report is made by Scottish ministers under section 108A of the Local Government Finance Act 1992 as amended by section 167 of the Local Government etc (Scotland) Act 1994. The section enables the Scottish Executive to provide SPTE with vital financial support for rail services in 2000-01, which were secured by SPTE under the terms of the ScotRail franchise agreement. The report means that the Scottish Executive can pay grant to the 12 councils that make up the Strathclyde Passenger Transport Authority—since the authority does not itself constitute a local authority—and at that point the councils make payments to SPTE and arrangements are put in place to enable the councils to mandate the Scottish Executive to make payments directly to SPTE.

That is the background. In general terms, this grant pays for the estimated shortfall between the ScotRail franchise to SPTE and the revenue generated by fares, together with any other sources of income. It covers the direct costs incurred by SPTE in administering its part of the ScotRail franchise, and the making right of a deficit borne by SPTE as a consequence of its bearing revenue risk in 1998-99.

The other principal source of SPTE's income that is taken into account when calculating the grant level are deeds of assumption, which repay to SPTE the outstanding written-down value of its past capital grants to the British Railways Board and Railtrack. Once we take all those factors into account, our estimate is that the grant that is due to SPTE is £79.12 million.

Last year's report awarded SPTE £83.3 million. The year-on-year reduction is principally a consequence of the declining cost to the ScotRail franchise, as agreed when that franchise was let in 1997. Another factor affecting the reduction in grant is the projected increase in revenue that SPTE has estimated for 2000-01. That amounts to an increase of about £4 million, which takes the revenue generated by the rail services up to £50.8 million. SPTE has to demonstrate value for money when estimating its direct costs, and we have allowed it approximately £1.67 million for costs in 2000-01.

I will take a couple of moments to outline the structure and content of the report, which members have in front of them. The report's principal function is to set out the purposes for which the grant is paid. I will set out the purposes of the annexes. The first annexe sets out the calculations that the Scottish Executive will make to ensure that SPTE receives the correct sums of money to pay for the costs of the franchise services. It should be emphasised that SPTE's final bills are subject to audit. The second annexe details the conditions surrounding the payments, including the provision of relevant information to the Scottish Executive and to auditors. Scottish ministers may withhold grant if SPTE has not used the grant for the intended purposes. The final annexe describes SPTE's role and the method used for the grant calculation.

In coming to a view on the amount that should be paid to SPTE, we have considered a number of factors, including a parallel process that is being undertaken by the DETR for the English passenger transport executives. There are common elements that reflect the GB-wide structures of the rail industry and which are comparable, for example how we estimate revenue from fares, direct costs by the PTEs and the deeds of assumption payments. That does not stop us using our discretion when arriving at agreed figures for the grant, but it helps us to do that from a more informed position.

We have also held detailed discussions with SPTE on the content of the report that I am submitting to you today. It is broadly content with the figures that I have outlined. By underwriting the costs of the ScotRail franchise, this special grant report has already allowed the company to invest in new trains, enhance the levels of service and focus on better customer care, safety and security in what we regard as a close and productive partnership with SPTE.

I am very pleased to be able to recommend the report to the committee. It will enable SPTE to deliver its existing commitments, to build on its achievements and to look for further improvements in the quality and reliability of the services that it supports. I hope that that has been a helpful introduction.

Thank you—that was very helpful. Do members of the committee have any questions for the minister?

I have three questions. Would you like me to ask them all at once?

I suggest that you go ahead with all three.

My first question is about capital spend in the system. It is clear that this is essentially a revenue item, but SPTE is also responsible for investment—for example, it attempts to introduce one new station per year, provided that there are sufficient resources for that. It is also working on crossrail in Glasgow. How does SPTE fund that kind of expenditure? Does the revenue allocation offer it a way of funding its capital works? If so, will it allow SPTE to make a start on projects such as crossrail?

Under the section 94 system, there is a separate capital expenditure allocation for SPTE that is outside the terms of this report. However, a great deal of capital expenditure on railways in the SPTE area is delivered by ScotRail and Railtrack. The significance of the £79 million allocated through this report is that it feeds through into the franchise and will, therefore, find its way into capital investment by ScotRail—in new electric trains, for instance—or by Railtrack, which is able to finance investment through the track access charges that ScotRail pays to use the railways. The privatised rail system works as something of a financial merry-go-round. Although we are talking about revenue funding from the Executive to SPTE, the money will flow through to places where some of it is deployed for capital expenditure.

I will come back to you on that.

Somewhere in the paperwork there was an expression that I was unable to find again when I came to formulate my second question. The report, or the assessment of it, said that the services that are funded will be broadly similar to last year's. What scope is there for growth? Is a resource element built in for any potential decision to action the Larkhall line?

Resources for that would not come directly through this report. The main service enhancement that commuters will see as a result of this report is the new class 334 Juniper trains, which will come on stream this year—the 38 new three-car electric multiple units that SPTE is currently putting into commission.

I was wondering whether the revenue calculation assumed an increased subsidy payment to operate the Larkhall line.

No. We are currently considering the business case that SPTE is making for that route.

My third question concerns the broader budgetary position. I appreciate that papers that we have been given to deal with later relate to last year's budget and to the Scottish Office rather than to the Scottish Executive, but they do not include a section on either SPTE payments or ScotRail payments. As part of the budget round either this year or in successive years, will we be able to scrutinise that part of the department's expenditure, or is that outwith the scope of this committee? That is all the more significant given your indication that capital allocations to SPTE are made under section 94. This committee would like to think that it is part of the scrutiny and evaluation process for that.

As I think the minister mentioned, capital allocations are made under local government legislation, so strictly speaking they are local government expenditure rather than transport expenditure. Mr Tosh has highlighted a problem that affects the way in which the Executive views that expenditure—sometimes it appears in the transport block, but it has a life of its own in the local government system. We can look into the matter, if the minister is happy for us to do so.

We can do that.

I would like to think that we should be scrutinising the transport element of local government funding, as well as challenge funding. Although local government transport funding is part of the local government set-up, it is germane to transport issues. Will the SPTE and ScotRail payments—which amount to more than £200 million a year—be considered by the Local Government Committee or by this committee? I am talking about the £80 million that will go to SPTE and the £100 million that will go to ScotRail, which are not included in our budget papers.

I expect that we will comment on those figures, whether they are submitted just to this committee or to this committee and the Local Government Committee.

I do not think that they are likely to be included in the local government figures, and they do not appear in the budget papers that we will consider later today. I want to know whether this aspect of the department's budget is simply an Executive responsibility or whether the committee has the power to scrutinise it.

By bringing forward this special report, we are raising the issue of funding for SPTE and ScotRail before the committee and giving you the opportunity to explore it.

That is very different from the procedure that we are following in scrutinising the rest of the budget.

A couple of minutes ago, Adam Rennie said that we will investigate the point that you have raised. This morning, I want to focus on the report that is before us. You are raising a wider accountancy issue.

I understand that. The trouble is that this is our chance to consider this budget, which will go off today in the form of an affirmative statutory instrument. We have no come-back on that. For future reference, if we want to be involved in scrutinising this very substantial part of the Executive's expenditure and in the process of examining support for the railways, that must be built into our budgetary calculations, along with the figures for the motorways and all the other aspects of transport that appear in the papers that are before us and that are part of this committee's work.

As you know, Murray, we are going through all aspects of the departmental budget that relate to the minister's remit, so we will cover the area to which you have referred. There is also a difference in time scale between the contents of this report and the work that we will do on the forthcoming budget figures. The point that you are making is that you want to be reassured that we will have the opportunity to address the detailed issue to which you have referred. The minister has indicated that her view on that will be forthcoming. If we can leave it at that for now, I am sure that the minister will come back to us on your specific point.

Members indicated agreement.

I want to ask two questions, the first of which follows on from the point that Murray Tosh made about Larkhall. Am I right to assume that no funding for the Larkhall line is included in this aspect of the budget for 2000-01? If so, is it proposed that additional funding will be made available for the Larkhall line for 2000-01, or are we to assume that SPTE will not contribute to that project during this financial year?

Secondly, does the funding that has been made available include an element for in-fill electrification of lines within the SPTE area, or is that not on the agenda?

What Adam Rennie said about the process by which service improvements are fed through the railway system and the role of Railtrack in identifying enhancements answers your second question.

I do not think that it would be fair to make any assumptions about the Larkhall scheme. Adam Rennie may be able to clarify that.

As the minister said, we are waiting for SPTE to submit the revised business case for the Larkhall line. In principle, it has secured support through the challenge funding exercise that was conducted a year or so ago. However, until we receive a revised business case the project cannot go ahead. Mr MacAskill is right to say that there is nothing in this report specifically to cover that.

Is the challenge funding money ring-fenced? Would it be available if the package could be put together?

Yes.

If there are no other questions on the report, I invite the minister to move the motion.

I move,

That the Transport and the Environment Committee in consideration of Special Grant Report No.3 - Special Grant Report on Grant in Aid of Expenditure on Rail Services in the Strathclyde Passenger Transport Area recommends that the Report be approved.

Does the committee agree to approve the report?

Members indicated agreement.

I thank the minister and her colleagues for attending the committee. I understand that you will attend our next meeting to discuss the National Parks (Scotland) Bill, which was introduced on Monday.

The consultation exercise is now available from the Scottish Parliament information centre. Members will have the opportunity to consider those responses and the text of the bill before the meeting.

Thank you.