Official Report 238KB pdf
Good morning, everyone, and welcome to the third meeting in 2006 of the Edinburgh Tram (Line One) Bill Committee. Regular attenders will realise that we have had hundreds of meetings, each one more joyful than the last.
Good morning, gentlemen. When does the City of Edinburgh Council expect the first part of the tramline to begin operating?
As things stand, the scheduled opening date is 1 July 2010. That is on the understanding that the proposal will get parliamentary approval. We anticipate that the utility diversion works will start in the autumn of 2006 and that work on the new infrastructure will begin in the following year. All things being equal, we will aim for 2010.
That sounds like progress.
The answer must be that, as was set out in our report to the council, we hope to be able to operate within the figure that is currently in the sums for optimism bias. We are working towards the objective of providing the section to Granton as part of the first phase. We would then consider the remainder of the northern loop against various future funding options.
When do you expect to operate the Granton to Leith section?
That is what I was referring to. We intend to build the whole of tramline 1 as a loop. In my view, the funding issue revolves around the £45 million that is required for the Granton to Leith section. Initially, we will consider whether there are any funding options that we have not explored, but we will do so against the possibility of further development funding and funding that might become available from bids to the Scottish Executive. Historically, we are the most successful local authority in Scotland in terms of bidding for mobile funding. We will also consider the possibility of various innovatory funding solutions, which might include variations on private finance initiative solutions, with the intention of closing that gap within the next few years.
Before I call Rob Gibson, I ask you for a precise answer to the question. We will explore funding in more detail later. We are keen to know not exact dates—I appreciate that the start date for the bit of the loop that you intend to construct is 1 July 2010—but your best guess as to when the subsequent phases are likely to be completed, or at least commenced. Surely you are able to give us your best guess?
I would say almost certainly by 2020. The objective would be to be far ahead.
Are you talking about both phases?
The objective is to try to construct the section from Roseburn to Granton by managing the work within the optimism bias in the estimates. We will see whether we can get sufficient funding headroom from that and from the work that we are doing to explore possible further developer contributions within the timetable that Councillor Anderson set out for the first phase to Granton. On the remaining section along the waterfront, it is a question of exploring alternative funding options when the first section is up and running, but I would like to say that the date will be certainly no later than 2020.
Given that it seemed obvious from the start that money was going to be a problem, why did you enter the private bills procedure with a proposal for a circular route? Why did you not propose a phased approach?
The loop is still our desire and our intention. It is only when one gets the focus of being close to achieving the powers under the bill that one is able to start resolving the various difficult funding issues, such as indexation and the total level of developer contributions that one can extract. I still think that, within the optimism bias, only a small element of the total costs is unfunded. I do not think that it is usual, in the initial stages of the promotion of a scheme, to say that every last penny of funding should be guaranteed to be in the pot before one has the confidence to proceed. As I said, within the totality of the proposed tram network, we are confident that the vast majority of the funding is in place. Optimism bias apart, we are talking about a gap of about 10 per cent.
In our consideration of the project, we must be careful that we do not throw the baby out with the bath water. We cannot build any part of the scheme unless we get parliamentary approval. We have a worked-up scheme with a robust business case, and the scheme comes within the cost parameters within which we are operating. We believe that the scheme can be built on a phased basis and we are confident that, with continued work for a period of time, it can be secured. If we cannot get the parliamentary approval process completed, we will not be able to build any part of the network and the whole project will fall. It is important that we remain focused on making sure that we get through the parliamentary process so that we can get the project going as quickly as possible.
At an earlier stage in my career, I was involved in the promotion of the Edinburgh city bypass project. When we got that project up and running, we had funding for only one section, but it is all there now.
I press you on the point because it is important. I could not agree more with Councillor Anderson's comment that he wants to see the process through, but I am keen to establish when you anticipate that the various sections of the tramline will be built. I am clear about the start date of 1 July 2010. Am I correct to state that Mr Holmes's answer is that you will attempt to build the Granton to Haymarket section within the period up to 2010? If, for any reason, you are unable to save some of the funds that are available as part of the optimism bias, when will you build that section?
If we assume that we had the remaining two sections to build and we were unable to bridge the gap, we would try to mobilise funding from various sources to allow the first section—from Roseburn to Granton—to go in no later than 2015, say. The financial gap is such that it is reasonable to aspire to that target. We would then move on to construct the remaining section along the waterfront in the next phase.
Thank you. That is the answer that I was looking for.
We want to explore the effects of the scheme on the residents of Edinburgh. What consideration was given to the continuing blight on properties along the sections of tramline 1 that might not be built as part of the first phase?
We must distinguish between blight as defined in law—there is a clear legal process for that—and uncertainty. Very few properties on those sections are affected by formal blight. An example of a property that was affected is the Caledonian Ale House, but a deal has been done on that and the property has been acquired. No residential property on tramline 1 is subject to formal blight. Odd, relatively small sections of non-council owned land are affected but I do not think that there is an issue with blight as defined in law.
The other point about people who live in close proximity to the tram route is that there will be a substantial uplift in property values when the line has been constructed. In every other transport system of a similar nature—whether it is an underground railway or a tramline—property values in the immediate vicinity have been enhanced. People who live near the line want the tram system to be built as quickly as possible, as we do. We hope that we will achieve that.
We are well aware of the potential increase in property values that trains and trams bring, but we are talking about the difference between a long-term principle in a plan and the actual construction of the system over a period of 15 years or more. The 15-year period from now until 2020 is considerable. What justification does the committee have for continuing to recommend that the blight provisions in sections 38 and 39 should remain in the bill, given the possibility of unlimited extension?
It is reasonable for the committee to consider a realistic end date. That is quite normal. As I said, the amount of blight as defined in law is minimal and the uncertainty is, in part, simply a continuation of a long-term historical situation. Even if the tram project had never existed, that uncertainty would remain within the statutory planning system.
Indeed, but we were not talking about that. The committee has its views about the potential of the service. I would like to press you to decide a reasonable maximum period for allowing this blight to continue.
A 15-year maximum period would fit in with what I have just said about our desired completion timescales. It also fits in with things that exist in the statutory planning system—for example, the normal life of a structure plan, which brings its own planning blight with it.
Councillor Anderson referred to the fact that nearly everyone was clamouring for the tramline and that there will be little effect on people around the tramline. You said that their properties are likely to have added value. I put it to you that that conflicts with some of the evidence that we took when the committee considered objections.
That evidence being what, exactly?
Did you not read the evidence that was given to the committee?
I have read so much that I would not know where to begin. If you have a specific issue or concern, I would be happy to respond.
People are concerned that, during the construction period, the value of their homes will go down. Mr McIntosh confirmed that construction could well have an effect, although he was more positive about the longer term, in line with the comments that you have made. Many of the objectors feel that the tramline will not really serve their homes and that all that they will have is loss of privacy, noise and other problems. Although the majority will perhaps benefit, there is certainly a downside for a considerable number of people.
I understand that there is concern; however, the evidence of what happens when one of these schemes goes into place shows that the opposite is the case. The uplift in the value of residential properties along the tram route in Dublin is estimated to be 15 per cent, and in Strasbourg the uplift is 50 per cent. In reality, people see a substantial uplift. It is difficult to convince people of that; we can tell them almost until we are blue in the face, but they will not necessarily believe it. However, in reality, once these major infrastructure projects are in place, they have a positive effect on the value of property, both commercial and residential, along the route. I do not see that effect being any different in this scheme.
There are still doubts in my mind about whether that will be the case for some, but I recognise that the majority—
People do not know what is involved in building a tram, and there are understandable concerns about the construction process. I sympathise with those people. However, in the case of London Underground, residential property values increase the closer that the properties are to an underground station. That is the evidence—that is the reality—but it is not always easy to convince residents that that is the case.
If there was evidence that that was not the case, especially during construction, TIE has given some commitment that it will recognise that and will take it into account by giving people financial support. Would that be your view?
We are always happy to consider that. Indeed, we have been in discussion with the Edinburgh Chamber of Commerce about how we should handle the commercial premises that might be affected during the construction period. We have been as sympathetic as we can be in that regard, and those discussions will continue.
Let us move on more explicitly to funding. Do you consider that additional costs arise from taking a phased approach to construction? If so, what are they?
There are two elements associated with the phased approach, the first of which is the obvious one of inflation. Our current estimate of the level of construction cost inflation is about 6 per cent per annum. Therefore, there would be an increase in direct costs associated with the parts of the line that we have discussed: the Roseburn section and the seafront section. I will give you the base numbers, first of all. At today's costs, we are talking about £75 million and £45 million, respectively, for those two sections of the line. With inflation—and assuming that work starts on those sections in 2011, which is three years later than planned—the increase would be in the order of £14 million and £9 million, respectively. That is the scale of the increase that arises from inflation.
I am marginally confused. We had 2010 offered up a minute ago; then, when pressed, 2015, if all the ducks were not in a row. You are now offering up 2011.
That is for the start of construction, leading to the start of operations on those extra pieces by 2014, which is within the timescale of 2015 that was mentioned by Andrew Holmes. I am just giving you that as an example.
Okay. The start of construction would be 2011 and the start of operations would be 2014. So, for the original part of the tramline, 1 July 2010 is not an operational date. Is that a construction start date? I just want to be clear.
No.
We are talking about two different things.
We will start construction of the original part of the tramline in 2008, and it will be commissioned in 2010. The example that I am giving—I am not making a commitment; I am just giving an example—is for three years of inflation, with construction of the new bits starting in 2011 and their becoming operational in 2014. There will be a two to three-year gap between the start of construction and the start of operations.
My next question is for the council. Given the fact that the council has committed around £45 million of its own resources to the project, through section 75 agreements, where is it going to find the funding to construct the remaining sections?
A basket of funding is involved. We are in a bit of a hiatus in Government funding initiatives between the old system and the establishment of transport partnerships and transport agencies, but ministers have said quite clearly that there will be a revival of the kind of fund bidding that we have had in the past. There are mobile transport funds to bid for and, as I have said, we have been a successful authority in the past in that respect.
Although uncertainty over infrastructure such as the tramline does not necessarily make things easier, there tends to be a more significant contribution from the private sector to make such projects happen. In Dublin, they have managed to secure substantial contributions from the private sector to fund new elements of the tram network. The City of Edinburgh Council set up the waterfront regeneration process with its own regeneration company, and we are particularly keen to see whether we can work with it to try to make some of these things happen. A variety of different avenues are being pursued.
As the costs of the tram scheme have always been ahead of the available funding, why has the project been scaled back only now?
As both Donald Anderson and I said, the fact is that the project is not being scaled back—our intention is to build all the system. The issue is simply about matching the plans for construction with the available funding. Now that we are aware of the totality of funds that are available, we can focus on precisely what we can build within that budget. However, as the committee has heard, if we do our job efficiently—it is my job to ensure that we do—we will be able to build more than just the connection that we have discussed from Ocean Terminal to the airport: we will be able to get to Granton. I am hopeful that we will do that. The proposal is not to cut back; it is simply about phasing.
I press you for more detail on the grants and public funding for which the council might apply to construct the remaining phases of tramline 1.
That was covered in the points that I set out earlier. Mobile Government funding is always available. We are not looking for special treatment, but the Government has transport funds at its disposal for allocation to local authorities or regional transport partnerships, and we expect to enter into the bidding process for such funds.
All the evidence from elsewhere shows that, once tram schemes are up and running, they are enormously popular in the areas in which they operate, which creates genuine momentum and political and community desire to expand the networks. We have seen that in every example that we have studied. We are confident that, with the scheme up and running in 2010, there will be more momentum to secure additional support for the extension of the lines.
I want to press Mr Holmes on his response. During our walk-round of the area, it seemed that the final phase of the development that you are talking about is limited and is predominantly residential. How do you intend to lever in the sums that you describe for development gain? It strikes me that you should have done that at the start of the process rather than at the end.
We must distinguish between the different parts of the waterfront. You had a walk round Granton, which is predominantly, although not entirely, residential. One feature of the property market in Edinburgh is that residential values are the biggest single source of uplift and development gain. Further, the contribution from the Granton area, as important as it is, will be outnumbered by that from the developments in the western and eastern harbours at Leith, which will be about twice the level that is forecast for Granton and will continue over a longer timescale. There are defined scales of tram contribution, but, because of the phasing, the current sums are not based on the totality of the construction of those developments. Therefore, we still have some development funding possibility to attack in north Edinburgh in the longer term.
How much do you anticipate will be generated through that mechanism?
If we moved toward a simplified single supplement system such as that in Milton Keynes, where £18,000 per house is raised, we would quickly get into large sums of money, given that around 2,500 private houses are built in Edinburgh a year, although I do not necessarily advocate that that would be the roof tax for Edinburgh.
All those matters need to be explored. There are huge opportunities in the area that is being developed around Granton and Ocean Terminal. In the Leith docks area, we are talking about a population equivalent to that of the town of Bathgate, which represents the biggest residential development in Edinburgh for a long time. Once people see, smell, touch and taste the tram, major opportunities will arise to secure additional private sector support to extend the system. People will see the benefit and the increase in the value of their assets and will be prepared to come on board to a greater degree than they are prepared to do at present.
This is not a United Kingdom example, but an announcement will be made today in Ireland about the southwards extension of the Dublin tram system, for which more than half of the funding will come from development contributions.
I may have picked up Mr Holmes wrongly, but I think that he referred to revenue surpluses from the operation of the trams. Given all the arguments that the committee heard that were based on the fact that passengers on the tram system would flow two ways and given the all-important link times to Haymarket from the waterfront, are you confident that those passenger numbers and profits will still be achieved with the phased-in construction of the scheme?
At this stage, yes, although it is a given that the final business case, which will be produced towards the end of the year, must satisfy everybody before the Scottish Executive funding is released. Recent experience in Nottingham—which was the first UK system with the type of proper integration with the bus network that we propose—and Dublin is that the systems are producing revenue that is beyond what was originally forecast. Increased revenue is not required for the first phase, but it might provide funding opportunities for future phases of tramline 1 or, for that matter, future extensions of the tram system in the city.
What impact have the phasing and funding decisions had on the cost benefit ratio for the scheme?
The cost benefit ratio will be reworked in the preparation of the final business case, to which Andrew Holmes referred. However, we have already carried out a series of qualitative checks on the cost benefit ratio of the phase that we now propose and we are confident that it is at least as high as the ones that we presented to the Edinburgh Tram (Line One) Bill Committee in respect of the full loop and to the Edinburgh Tram (Line Two) Bill Committee in respect of line 2.
Will you confirm that the cost of the Haymarket to Granton section was to be £75 million and that the phasing would add another £14 million?
That is correct.
How did the promoter arrive at an annual rate of increase of construction costs of 6 per cent?
The figure comes from a range of indices, including some from Network Rail for similar types of work and others from throughout the construction sector. It was produced after consideration by an experienced technical team. The rate of 6 per cent that arose from that process meets with universal agreement and people can take comfort with it at this stage. We clearly need to go through a process with the Scottish Executive and Transport Scotland. That will involve an extensive piece of work not only on tramline 1 but on the portfolio of Scottish Executive projects.
Is 6 per cent something like the current industry norm?
It takes account of the fact that there is a range of indices. If one builds a road, the index that is used is linked primarily to oil prices whereas, if one is dealing with a rail project, the key factors are steel and core skills. The tramline 1 project feeds on appropriate indices from the sectors of the construction industry that are most appropriate. That is how the Executive intends to deal with it; the Executive will not pluck a single figure out of the sky but undertake a piece of work that will draw on appropriate indices, depending on the type of work that is envisaged.
Is the figure likely to be higher or lower than the construction industry norm?
It would be nice if it was higher, but the Scottish Executive will want to be entirely realistic in its determination of that figure and we are comfortable with that. However, we think that it is 6 per cent.
To a large extent, it depends on the type of construction project that is taking place. The rate of increase for large-scale engineering works is at a particular level, and the rate for general housebuilding runs at a particular level, but the costs of some big projects that involve excavation and tunnelling are becoming even more competitive because of technical changes in the way in which that work is carried out. The rate varies across the industry. We must try to ensure that we get it right and we are happy to work with the Scottish Executive to ensure that we do.
On what basis has Transport Edinburgh concluded that the first phase of the tram combined with bus offers the best option for Lothian Buses' dividend payments?
The task is not really focused on Lothian Buses' dividend payment. We have arrived at the phasing through a range of agencies—TIE, the City of Edinburgh Council, Transdev Edinburgh Tram Ltd, which will be the operator, Transport Edinburgh and Lothian Buses—working together and then having that work validated by the Scottish Executive. That group of agencies debated discursively to determine through argument and reason which phases within the totality of lines 1 and 2 would be the best to proceed with. Although I am sure that Lothian Buses kept one eye on the consequential impact on its dividend as part of that exercise, the starting point was not Lothian Buses' dividend but the issues about which we have argued here for the past two and a bit years—accessibility, mobility, linking key destinations and integration.
Do you think that you satisfied our concerns with that answer? We might perceive it as being more about short-term gain than the suggested long-term vision for Edinburgh that was previously used to justify the tram scheme.
The fact that you asked the question suggests that you are still a little unconvinced by the argument. If you examine the phases that we have derived from the process that I mentioned, which was particularly rigorous, you will see that there is a certain logic to the phasing that almost makes it seem as if this is the most natural conclusion. For example, phase 1—from the airport through the city centre to Leith waterfront—serves a range of key destinations and mirrors the main axis of activity in a significant part of the city. It links the airport, Gogarburn, Edinburgh Park—all those things that are on line 2—with the city centre, the high-density residential developments on Leith Walk, Ocean Terminal and Leith waterfront.
To be clear, we aim to make Edinburgh the most successful and sustainable city in northern Europe by 2020 and the tram project contributes to that vision. The route connects one of the fastest growing airports in Europe with Edinburgh Park, the Royal Bank of Scotland headquarters, the exchange financial district, the city centre and Ocean Terminal; it connects the bits of Edinburgh that make wealth for Edinburgh and the east of Scotland—perhaps the whole of Scotland. It is a hugely important area, as it is where much of our economic development and growth will come from, and it is right that we have the proper and modern infrastructure that is necessary to service that development. That is what the project is about. We are trying to achieve that vision and the tram project is simply one of the mechanisms by which we intend to do that.
What assurances can you give Edinburgh council tax payers that they will not be liable for any future shortfalls in funding for construction or operation?
That is an important point. As I have said in the past, we have made it clear that we will on no account add any burden to the council tax for running a tram system in Edinburgh. We have an excellent record on keeping council tax bills low—a recent Bank of Scotland survey showed that we had the joint-lowest council tax increase in Scotland—and we are determined to do everything possible to retain that record in the foreseeable future. We are working actively with the Minister for Finance and Public Service Reform, Tom McCabe, to reach agreement on a way ahead, which includes considering proposals such as shared services.
Will you make it abundantly clear to everybody in Scotland that you will not use the Forth road bridge to pay for the tramline?
That is not relevant and I do not expect the witnesses to comment.
I am kind of—
No, I do not expect a comment. The question was not relevant and was a bit sneaky. I also point out that West Dunbartonshire Council is another local authority with a bridge.
The bulk of my answer is the same as the one that I gave to Helen Eadie's question about short-termism. Your question is also dealt with in response 18C of 31 January to the committee. We dealt with the relationship of the tram with the Edinburgh airport rail link at considerable length in response 3 of 26 October to the Edinburgh Tram (Line Two) Bill Committee.
Why have you gone for the Leith to Haymarket section first?
I dealt with that issue in answer to Helen Eadie's question, but I will go back through it if you want. The key drivers behind building that section first are that that is where the greatest level of activity on line 1 is. Line 1 from Ocean Terminal to the city centre, leaving aside the airport, has the highest-density residential development, and it links the city centre with the development sites in Leith docks and Ocean Terminal shopping centre. The Leith to Haymarket line is where the greatest benefits are.
How did you arrive at the estimate of 13 million passengers a year for the first year? How does that level of patronage compare with the other options for phasing that were considered?
The answer to that question lies in work that was undertaken by Transport Edinburgh Ltd using confidential data from Lothian Buses that I have not seen, and it is obvious why those data are confidential. TEL looked at existing patronage on the public transport network in considerable detail—bus route by bus route. In partnership with TIE, it assessed what changes will be likely when the tram is introduced. In addition, TEL undertook work to look at patronage from people who do not currently use public transport and patronage that will be delivered from the new developments. The sum total is the 13 million that you quote. That figure accords with previous work that we undertook directly that gave us a figure of about 11.5 million.
Given that linking the developing waterfront area with the rest of the city was one of the main reasons for the tram, what are the main reasons for the tram project now? How will the former objective of linking be realised?
As I said in response to an earlier question, slightly more than two thirds of the development that is proposed for the Edinburgh waterfront is in the wider Leith area and it will be served by the proposed first phase at its absolute minimum. Two thirds of waterfront development will be served by the absolute base first phase. Our objective is to manage the optimism bias down so that we can construct the link to Granton and we are still reasonably hopeful that we will get the remaining third in there. Even as a base point, easily the majority of the Edinburgh waterfront will be served by a first phase to Leith without the Granton spur, although we hope to incorporate that as well.
So about two thirds will be served—
At an absolute minimum, two thirds will be served. It is a fact that two thirds of the total waterfront development lies at the Leith end of the waterfront and that will be served. However, as we said throughout and as we reported to the committee at the end of January, we are pulling out all the stops to manage the costs so that we can include the Granton element as part of the first phase.
Securing that element, as it is certainly our intention to do, would serve the overwhelming majority of the north Edinburgh waterfront area.
I want to understand this absolutely. When you say that the tramline will serve two thirds of the waterfront development, you are including the section along the Roseburn corridor to Granton in the first phase.
No. We mean purely and simply the link to Leith. That will serve two thirds of the waterfront development. Two thirds of the proposed development along the Edinburgh waterfront is contained in the area that runs across the Leith waterfront between Newhaven and the eastern end of the Victoria dock in Leith. Two thirds of the totality—approaching 20,000 houses plus shops and offices—is within that arc. The tram will serve that area extremely well.
Figures have changed during the consideration of the bill and Forth Ports has made revised proposals for Leith docks. Under the latest proposals, a community the size of Bathgate will be built in Leith docks. That constitutes two thirds of the development that will take place on the waterfront. If we get competitive bids in the tendering exercise, we hope to put in the Granton spur. That would mean that the overwhelming majority of the waterfront would be served by the tramline.
We understand that the waterfront development is coming along faster than had been estimated initially and therefore the section that you are talking about will be an added market. Given that the tram may not serve the Granton spur initially, what interim traffic management measures would be implemented to avoid congestion and an increase in rat running in the surrounding areas?
Do you mean measures specifically for Granton?
Yes.
Developers have already been asked to fund interim traffic management measures and, as a result of one of the earlier allocations of public transport funding that we won from the Government, there are further traffic management measures and bus priority areas serving north Edinburgh. Up to a point, the initial impact of development will be served by measures to which we have already committed and which are in the pipeline. However, we will reach the point of diminishing returns, as the network south of the waterfront is constrained. Setting aside the constraint that not having the tramline may put on development, we believe that congestion will increase. That brings us back to the importance of the waterfront section of the tram.
We re-emphasise the point that we intend to include the Granton spur as part of the line and we are very hopeful that it can be included in the first phase.
I understand that. However, the phasing of the process was your decision and tramline 1 will not be constructed as a loop. Therefore, we must be clear that the Granton spur could be in doubt.
The doubt in this issue is that if we do not get the bill through the parliamentary process, we cannot lay any of the tramline. We want to ensure that we have a sustainable, affordable tram scheme for Edinburgh; that is what we are focusing on. Within the constraints that we are under, we are confident that, if the tenders are right, we can install the Granton spur. We are equally confident that down stream from the construction of the Granton spur we will be able to fill the gap that exists between Granton and Leith.
I want to pursue a couple of points that relate to the southern part of the tramline as it heads towards west Edinburgh and the section at Roseburn. It has been strongly put to us that if the tramline is not built, there could be serious congestion and rat running within 20 years. You have talked about the line to Granton, but you have not talked about the traffic management measures that you will put in place in the interim, to get people from Granton to west Edinburgh.
Some on-street measures are already in place and others have been promoted—improved traffic signals, short sections of bus lane, and various developer-funded bits of infrastructure. A large number of traffic management measures have been put in place in the area to protect communities from rat running. If the tram were not an option, we might have to go back and consider some not very satisfactory alternative uses for the rail line, to be developed in phases.
If we do not provide any of the tram route, there will be problems across whole swathes of Edinburgh. Road capacity in the city centre is pretty much used to the full. There is no space for more vehicles at peak times. An extra car is coming on to the streets every two hours and car ownership and use are growing in Edinburgh, so we cannot offer protection to any communities. We all have to live with the consequences of higher levels of car ownership. However, the proper modern infrastructure that a tram provides will help us to cope. That is why we are passionately committed to the tram and are determined to see the project through.
We understand the passion, but I want to probe the practicalities a little further. How many buses will be displaced by the tram? What is the environmental impact of buses on Leith Walk and what will be the impact of the tram?
A group that involves Transport Edinburgh Ltd, Lothian Buses, TIE and City of Edinburgh Council has been working on that. When concluded, that work will feed into the business case that I referred to earlier. Consideration of environmental impacts is essential to that.
I have just had it confirmed by Andrew Holmes that Neil Renilson estimates that 2 or 3 per cent of the bus network might be affected. That will amount to a significant number of buses, but bus patronage in Edinburgh has grown by 25 per cent in recent years. Our urban bus network is the best in the United Kingdom outside London. That network will continue to grow; the tram will not disrupt the bus company or its services, but it will enhance overall public transport in the city. That is the key objective.
I am surprised that you have not tried to quantify the environmental benefits of the tram. If the environmental impact can be reduced in places such as Leith Walk—and we are talking about serious pollution—it might convince the committee and the Parliament that your passion for the tram should be backed.
As Mr Gibson will recall, we have discussed the environmental impact of the tram on a number of occasions at the committee. The environmental statement also refers to the impact. We have disagreed with objectors over the extent to which air quality will be improved by the introduction of the tram, but we continue to believe that it will improve air quality, especially at the point of energy use. The biggest impact will be on the corridors with the biggest volumes of buses—Leith Walk, the foot of the walk and Haymarket.
I am sorry, Mr Gibson—I may have come at your question from the wrong angle. It is not only buses that we can reduce; it is cars as well. I visited Manchester with the First Minister—although I do not want to name drop in a committee such as this—and the council there was lauding the trams for getting huge numbers of people out of their cars and on to public transport. That is the prize—a win-win situation with a mode of transport that carries more people more effectively than the existing bus service or private cars do and which provides an environmental benefit.
The committee would like to see the figures, if you can provide them. That would help in our consideration of the arguments.
Yes.
Councillor Anderson has spoken about the importance of the committee clearing the way for the tramline. However, a difficulty that we face lies in the fact that the route in the bill is circular. All the arguments that we have heard have been based on the importance of the loop but, now that the loop has been fragmented, other issues arise in my mind—even though our decision will still be based on the circular route.
I did indeed say that the tram would pick up 100 per cent of the development but I do not think that I said that it would pick up 100 per cent of the patronage that a complete loop would.
You did not; I am querying the patronage.
The most important thing is to serve the development and to mitigate its impacts in ways that cannot otherwise be done.
We have not fragmented the route; we are talking about delivering the route in phases. We are optimistic that if the tenders come in at the right level, we can build the Granton spur and, given the momentum of other transport schemes, we are optimistic that public and private sector funding will be available to allow us to complete the link. We have not moved from our determination to complete the circular route, but we are trying to do the best we can with the funding that is available. We want a robust business case for the route that serves the maximum number of people and businesses, providing the maximum benefit for Edinburgh and Scotland.
I understand that but, as with everything else, costs must be justified and value for money must be provided. It seems possible that you might not be able to justify the cost of the third phase to complete the loop. That is why I was wondering about patronage.
I understand that concern, which has been aired by elected members from the north Edinburgh community. All I can say is that we remain committed to the loop, because we foresee enormous benefits.
I will move the discussion on to practical points. If you intend to stop the tram at platinum point, will you build a turnaround area? Will there be land take? What will be the impact on neighbouring communities? If you plan to have a turnaround area in Granton, that question applies there equally. The beauty of the loop is that the trams just go round.
It is quite straightforward. The tram will come to the end of the line. Of course, it is a two-ended tram. There will be a crossover, and anyone who has been to Dublin lately will have seen at St Stephen's Green exactly the kind of thing that we have in mind. There will be two platforms on the current lines and, when the route is extended, the lines will continue beyond that point. The tram will come in, the driver will move to the other end of the tram and switch the switch and off the tram will go in the opposite direction. Therefore there is no requirement for extra land take.
New technology is wonderful, is it not?
I will ask Barry Cross to answer that.
If both bills are consented to, a tram depot at Leith may not be required. However, the tram depot site may still need to be used as a construction site. The construction programme and the tendering process will determine whether the site will be used for construction. At the moment, we cannot be specific because we cannot assume that both bills will be agreed to. However, a construction yard would still be associated with the building of that part of the network.
TIE's response 7 states that the total value for utilities, at quarter 2 2003 prices, is expected to be £52.6 million. That is considerably higher than the £31.8 million that was predicted for line 1 in December 2003. Will you explain that rise and how the current funding will meet it?
The short answer is that we made a mistake in response 7—that has already been mentioned to you. That £52.6 million is for lines 1 and 2, whereas the £31.8 million is for line 1 alone.
TIE has provided further detail on the procurement method that will be used. It indicates that that method will enable it to identify reasonably accurately any contract cost rises above those that are currently budgeted for. How will the promoter secure funding to meet such cost rises, especially as they may not be identified until much later in the process?
There are two parts to that. First, that is precisely the purpose of optimism bias, which the Treasury developed to manage that risk. Secondly, picking up Michael Howell's point, we are so confident about our figures precisely because we have taken on board the National Audit Office's findings, because our procurement methodology means that we have benchmarked this project against real ones elsewhere, and because of the advance works contract that the committee has heard about. Therefore the optimism bias is very much an insurance, but the real challenge is to manage costs as we are doing and as we are confident of doing through the entire project.
I have been impressed by the way in which we have drawn lessons from tram schemes in the UK and Ireland and further afield. I commend the work that city development officials and TIE have done to ensure that we have a blend of the best, making this the most robust business case for any tram project that has come forward in the UK and Ireland.
Do members have any further questions?
I thank all of you for giving evidence. I found the evidence particularly useful in clarifying some of the areas that are outstanding. We ask you to remain, on the off-chance that we need you to come back once the minister has given evidence.
Meeting suspended.
On resuming—
I welcome to the committee Tavish Scott, the Minister for Transport and Telecommunications. With the minister is Damian Sharp from the public transport major infrastructure team at the Scottish Executive. I propose to members that we move straight to questions.
Thank you for inviting us to appear before the committee. We have been a bit delayed, but we got here in the end.
I was happy to afford you the opportunity to give us that context, as it is important to the committee's understanding.
The indexation rate that we have applied is in a range between 4 per cent and 6 per cent.
A figure of £450 million would equate to an inflation level of just below 4 per cent, whereas a figure of £500 million would result from an inflation level of just above 6 per cent. The final figure will depend on construction cost inflation during the relevant period. We will meet that rate. That explains why our contribution falls within a range.
You are assuming that the rate will stay at around 6 per cent and will not exceed that.
Yes. We should bear it in mind that the current rate is around 4 per cent.
The same consideration applies to all the other major transport projects that we are doing.
Earlier this morning it was put to us that building other sections of the tram route might at some point attract additional public funding. You stated clearly that you could make no such commitment.
Correct.
Is the City of Edinburgh Council accurate in making that assumption?
Since I came into post, I have made it clear to the Local Government and Transport Committee and to Parliament that I want clarity on the numbers and the timescale for all major transport projects. That is what parliamentarians and local people expect. As I have said, I am not prepared—nor should I be prepared—to make any commitment on future funding. It should be recognised that that will be for a future transport minister to do at the appropriate time.
The £375 million figure was set at the start of the committee's deliberations on tramline 1 and was accepted. Now, we are talking about only partial implementation of tramline 1. Do you still feel that you are getting good value for money?
That is a fair question. A number of years have passed since the original announcement of the project. I can only go with the work that we have done in the past six months to two years to nail down the precise nature of the project and to ensure that it meets the criteria that you and your colleagues would expect us to meet by getting the best value for a lot of public money. The project meets those criteria and the ratio is good when compared with other public transport projects. As long as we hit the numbers and ensure that the timescale is adhered to, I assure the committee that we are comfortable with the robustness of the business case and with the money that we are talking about.
On that point, you have used two different phrases: "value for money" and "best value". Is there a difference between them? What is the definition of "best value"?
Do you want a long, rhetorical discussion about Government phraseology?
No, but I am concerned because you certainly ask local councils to provide strict definitions of best value. Nevertheless, you talk about value for money and the rough 6 per cent ceiling on the increases that can be expected. I take it that both terms mean the same thing.
Let me be very clear. The manner in which all public transport projects are assessed means that they have to meet a value-for-money criterion. Best value is something that we expect of the entire public sector, including local authorities and central Government. We are very clear about the requirement for public sector capital transport projects to meet those criteria—I am sure that you are familiar with all the projects in our programme. As I suggested to Mr Gallie, this project meets those criteria.
You have updated us on the outline business case. Do you have any concerns about it?
I have no concerns at this stage. I would not be coming before the committee today if I had concerns, because that would not be very clever. I am comfortable with where we are now. However, in response to the convener's opening question, I laid out the timescale according to which we will continue to assess fully the arguments and the business case made by the promoter. It will go through endless hoops so that we continue to be satisfied.
In its progress report of November 2005, the promoter notes that in the spring of 2003, the Treasury implemented new guidelines for capital cost estimates, including the concept of optimum bias. If that had been applied to the trams, the projected costs would have been about £150 million higher. In addition to the inflation linking, what consideration have you given to providing additional funding to ensure that the estimate of the required funding for the tramline meets the new guidance on optimum bias?
I will ask Damian Sharp to answer that—it is a pretty technical question, so let me ask the technical expert.
Although the optimism bias provision officially came into full force early in 2003, officials were already well aware of its existence and its likely impact when the advice was given. Therefore, we took into account the likely impacts of optimism bias in the run-up to Iain Gray's original announcement of the £375 million funding.
Every process of financial capital management involves managing optimism bias.
Yes. Optimism bias exists because past experience suggests that people get costs wrong. We would like to learn from mistakes, not repeat them, which is why we agree completely with TIE's intention not to use up the optimism bias and not to need that sum of money. However, Treasury guidance is that it is prudent to allow for it.
The mechanism is a genuinely sensible one to have in place for all capital transport projects.
I am delighted that that is so. I hope that we are talking about optimum bias, although I understand that optimism is creeping into the debate—the word crept into both of your answers.
Sorry, but the technical term is "optimism bias".
That is fine; I am glad that we have clarified that. Let us be optimistic then. Do you anticipate making any contributions to the operation of the tram, especially given that the promoter may raise capital funding by offsetting against future revenue projections?
If you are asking whether we will make commitments on the revenue cost of running the trams, the answer is no.
Will you make any contribution to the development of the system?
Again, I cannot make commitments in relation to situations when I cannot guess what they might be.
What consideration have you given or will you give to providing funding over and above the £375 million, to enable later phases of the tramline to be built, if they are to be built?
The straight answer is that those phases would be considered along with every other major or minor capital project that was being assessed at that time. Mr Gibson will be aware that we are embarking on a national transport strategy consultation and, as part of that, a strategic projects review. Many projects from throughout Scotland and involving all modes of transport will be part of that assessment. Any future phases would have to take their place in an assessment that involved many other competing priorities.
I am tempted to ask the philosophical question about what kind of assessment will be involved, but that is for another day.
I want to tease out the issue to help my understanding. The index-linked £375 million is for the first phase, which is from Leith to the airport.
Correct.
We have had described to us what I call the second phase—although it is more like part 2 of the first phase—which is the Haymarket to Granton stretch, running along the Roseburn corridor. There is a notion that if we are cute with the optimism bias, there could be spare resources which, when coupled with developer contributions, will allow part 2 to fly. If there is any saving from the optimism bias—say, the sums are right and the promoter does not need the extra millions—do you expect your contribution to come back to the Executive to go into the pot that you have just described so that projects from throughout Scotland can bid for it? If so, the assumption that the City of Edinburgh Council and TIE have made is inaccurate.
We would have to assess that at the time, depending on the numbers. We cannot predict at this stage anything about the tendering process and nor can we predict what the shortfall, if there were one, would be in relation to the cost of part 2 of phase 1, as you described it, convener.
Sure. I was keen to test the principle rather than the specific numbers. There was a suggestion in evidence this morning—this was certainly the assumption that I made—that if there were savings on the optimism bias, those would automatically be put towards the Haymarket to Granton stretch. You are saying clearly that that is not the case. Any decision will be subject to the numbers. We might want to test that further with the earlier witnesses.
Correct.
I find that slightly difficult to understand given that the committee has been talking about a circular route and about £375 million, which was to be sufficient for the costs of the entire route.
It is a little difficult for me to answer that because I was not a minister in 2002.
Perhaps Mr Sharp could answer.
I am not sure that Damian Sharp was with us then, either. To avoid passing the buck completely, all I can say is that we will write to you on that specific question and try to give you a fuller answer. I cannot say today because I do not know what the calculations of the timescale were in 2002, but I am sure that some of them must be on the public record. We can get that detail for you.
On that point, was the optimism bias that we have spoken about considered when the figure for the project was first set? Is it not part of what has been eaten up to date because of what you consider to be the delayed start?
As Damian Sharp said earlier, the optimism bias has been part of the mechanism for some time. It would not be fair to say that this project has been delayed more than some other capital transport projects. This is not the only time that I have been before a committee to explain a series of events that have led to where we are today. That is why I have been so clear about seeking clarity around numbers and timescales since I came into post. Those are not easy to deliver—invariably, we are dealing with 10-year time horizons. We are not just talking about the physical construction of a project; we are dealing with all the other varied aspects, including planning.
Thank you very much.
Forgive me, minister, but in the debate that has raged in the Parliament on the subject, I think that we were led to believe that the £375 million was for the entirety of the tramline. Now, phased development of the tramline may mean that the optimism bias that was set is not reached. If the Scottish Executive deems it appropriate to take back money from the tramline, does not that create a situation in which the Parliament has been slightly misled? As I said, my understanding was that the £375 million was for the entirety of the tramline. Therefore, surely it would be wrong of the Scottish Executive to take it back.
Two issues are involved. First, I need to read the Official Report of the statement that Iain Gray, the former Minister for Enterprise, Transport and Lifelong Learning made. I think that he talked about our "contribution" to the project. I remember sitting in the chamber up the road when he made the statement some years ago. Again, I am pretty sure that he said our "contribution", or words to that effect. Clearly, we can check the wording for Helen Eadie.
The minister misunderstands what I said. What I am really saying is that, if there is spare capacity, can that money be transferred to other phases of the project?
Again, neither Helen Eadie nor the taxpayer would thank me for opening up a blank chequebook. I do not know—and, with respect, neither does the committee know—exactly what part 2 of phase 1, as the convener described it, means for the numbers. We also do not know what the numbers for any of the other phases will be. Given that the committee has been studying the project for some considerable time, committee members know the situation better that I do.
Thank you.
If I may, minister, I have one final question.
Of course.
I might change my mind and ask you some more, but for the moment, it is the final question.
I accept that the project is important to Scotland because of the link to the airport, which is one of the fundamentals of that argument. The project has to be seen in conjunction with the airport rail link, which I argue strongly is not an Edinburgh rail link but a Scotland rail link; it will provide Scotland-wide transport linkages. If the project is taken in that context, it is an important project for Scotland.
Do members have any final—
We do not want—
I am not going to let Helen Eadie accept the invitation that was dangled there.
We do not want congestion charging on the Forth road bridge—
No, Helen. Thank you.
I am sorry, convener. That was my mistake.
Absolutely.
But—
Hold on a minute, Helen. You were doing so well up to that point, minister.
I realise that now.
Are there any sensible questions from members of the committee?
That is not fair, convener.
There are none. I thank Tavish Scott, the Minister for Transport and Telecommunications, and Damian Sharp, who accompanied him this morning.
Meeting continued in private.
Meeting continued in public.
Welcome back.
We are glad to be back.
It seems like only yesterday that you were here.
It comes as welcome light relief after preparing a budget and considering this year's council tax.
I am sure that you do not mean that.
No, I do not—but I thought that I would try it anyway.
I can tell you that it can get much worse than this.
I am happy to clarify issues for you.
The minister made it abundantly clear that the money available is an index-linked and capped £375 million. Indeed, stage 2 of phase 1—as I have been describing it—is actually phase 2. Is that correct?
I will kick off on this question. In the absence of the Official Report of what the minister said, I listened extremely carefully to him and made notes, and my understanding of what he said is that it was the same as our working understanding throughout the process. He said that, within the funding that has been made available, what I will call phase 1A, between Roseburn and Granton, might be considered if patronage is confirmed and if the business case is made as part of the process. That has been our working assumption throughout.
I welcomed the minister's contribution this morning. Indeed, if I were in his position, I do not think that I would be any more forthcoming than he was.
I have made clear my difficulty with all this several times already. The committee has to consider the circular route as a whole; it cannot deviate from that objective when it reports on what it has heard today. My difficulty with the minister's comments is that the original amount for the project, which is now index linked, was supposed to provide not only for the whole circuit but for tramline 2—which is more than this committee is concerned with. I cannot see how the minister is able to claim that money can be clawed back from the project that we are considering, unless the entire project itself is completed.
To be fair, I do not think that the minister was suggesting that he was about to claw money back from the scheme. He was saying that, as far as the Roseburn to Granton corridor was concerned, the Executive wanted the case to be demonstrated before it gave any approval. I understand that perfectly. After all, we all live in the real world. However, the basic fact is that we cannot put one brick on top of another unless we get parliamentary approval for the whole route. I appeal to the committee to think very carefully about the fact that, in order to progress any part of the scheme with a view to completing it, we need the Parliament's approval.
Mr Holmes or Mr Cross suggested earlier that there was potential for commencing phase 1—the Roseburn to Granton link—in line with the waterfront link. It would be difficult for you to take that on board if there was uncertainty about the final amount of money available. All our deliberations on the bill have been based on the fact that TIE has made a business case for the entire circular route. If we are now saying that the business case is open to question and has to be reconsidered, that throws the matter into confusion.
As we have said, and as the minister said, none of the projects in the national programme will go ahead unless a satisfactory business case is in place at the point of funding commitment. This project is no different from any other in that respect.
On the position of the minister and the council, no one is saying that we will spend money on the project regardless. We all want to ensure that further work is done on the business case, and to ensure that the tendering process is complete, so that we understand the figures that we are dealing with. Only at that point will we take final decisions with regard to the project. I sympathise entirely with the minister's position; the Executive will want to see that the Granton to Roseburn element stacks up before it makes any decisions about the amount of optimism bias that could be released from it. That is a fair and understandable position.
It is also worth noting that the council report, which sets out clearly the desire to move saved optimism bias from phase 1 to effectively implement phase 1A, was checked and signed off by the Executive before it proceeded. It would have been very easy indeed for the Executive simply to say, "I'm sorry, but we can't live with that paragraph."
The detailed design of the Haymarket to Granton piece will be undertaken at the same time as all the other design, which means that we shall have the facts on costs and revenue projections when we make a determination and for the financial close. All those things will be decided in the timeframe that has been discussed—in other words, by 2007.
If we are not talking about the entirety of the tramline, we ought not to be talking about the entirety of the £375 million or, depending on index linking, the £500 million. We should be having a discussion about the phased amount being the absolute maximum. If phase 1/2 comes to a figure of only £200 million, that is what the Scottish Executive and you ought to be talking about.
My body language has been interpreted in a number of ways over the years, but that is perhaps the strangest interpretation yet. I repeat that the minister said not that the money would go back into the kitty for redistribution, but that he could not commit to releasing the money for the Roseburn link.
We will look at the big picture once we have scrutinised the fine detail. I find it hard to believe that there are more sceptical people than us in the City of Edinburgh Council, but there we go.
That is what the minister has said.
I am clear that the City of Edinburgh Council aspires to complete the route—I would be astonished if it did not have that aspiration.
Absolutely.
I am equally clear that you will have to make a robust case to the minister for that aspiration, based on patronage and how much you can bring to the table. On that basis, you cannot argue for the Roseburn route to Granton—unless you are going to tell me something different. That argument will be made post-2007, but because the other bit of the tram scheme will not be operational until 2010, you will not know whether the overall financial envelope will cope. We are not talking about a phase 1 part A; we are talking substantially about a phase 2.
The point is that it is our intention to take to tender and final business case stage the airport to Leith and Roseburn to Haymarket stages. Whether the business case, the available funding and Government consent stack up is an issue that we and the minister have said will need to be thrashed out at that stage, but we intend to progress to that point and leave for a future extension the section from Granton Square to complete the loop back to Leith.
That is helpful. How much of the £75 million that you would require to complete the Roseburn corridor section would be dependent on saving from the optimism bias and how much would you get from elsewhere? What is the degree of risk?
I will cover that in brief. The numbers are in the council's submission, but I will reiterate them. At the moment, we expect the base cost of the airport to Leith stage to be £429 million. Therefore, the £535 million that has been mentioned—which is the total anticipated funding—is £106 million more than our base cost for that length of line. If we compare that with the £75 million that we have just discussed, we see that there is a bit of headroom that allows us to be reasonably optimistic about the Roseburn route fitting within the cost envelope. Patronage is a separate issue; that is where the business case comes together.
As there are no other questions, I thank you for remaining, gentlemen. I do not want to hold you back from any budget considerations that you might have.
I cannot wait to get back to the council chambers.
We now move into private to consider our draft consideration stage report. Committee members will recall that, on 5 December, we agreed to consider the draft report in private, as it might not reflect the committee's final views.
Meeting continued in private until 13:39.