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Paul Murphy
Indeed. That is why, in a post-devolution world, the Welsh Government have a huge interest in this matter. I hope that the Minister tells the House that he has been in conversation with his colleagues in Cardiff.
Finally, let me mention what happens to tolls after the concession finishes. Yes, of course, VAT means that there will be money available anyway, and what is collected in VAT should at least go to ensuring that the toll is lowered, but there is more to it than that. Lying behind everything in Government is the dead hand of the Treasury. I spent a decade having to deal with the Treasury as a Minister. Anybody who has been a Minister knows that it wants to get as much money as possible—that is its job—but it is the job of Ministers to obstruct it as far as they can, to ensure that the people can occasionally benefit from a concession.
The Parliamentary Under-Secretary of State for Transport (Mr Robert Goodwill)
If I may help the right hon. Gentleman, he gave a figure of £120 million outstanding at the end of the concession. The projection that I have is of £88 million at the end of the concession in 2018. It will take one or two years to recover this money. Under the terms of the Severn Bridges Act 1992, an update will be given to the Welsh Affairs Committee in April on the accounts of the previous year.
Paul Murphy
The Minister will, of course, have greater knowledge than me of the figures from his Department, but whether or not it is £88 million, they would like it to be £112 million, and probably a bit more than that. Ultimately, the money that is there to pay the concessioner, which is going into the pockets of the Severn crossing company, could eventually be made available to reduce the tolls on the bridges and save people who use it from being burdened. My fear is that there is a huge temptation, whether in the Department for Transport or the Treasury, to retain that money and simply put it back into the public coffers. That would be deeply wrong.
The hon. Member for Forest of Dean made a valid point when he said that the money could be used for infrastructure. However, I disagree, because there is no need for a third Severn crossing. There may be a case for infrastructure around the bridges, but that would be a relatively small amount in general terms. No, the people of Wales and England—and the people of other parts of Europe who use our bridges—should be given the opportunity to have lower tolls when the concession ends. Although the Minister cannot commit himself to that today, I hope that he does not dismiss that outright as the aspiration of all of us.
Nia Griffith
Yes, indeed. Of course, many other firms in Wales are affected by the tolls on the bridge, too. Whether it is a small electrical contractor, a plumbing business wanting to serve customers on both sides, or a large haulage firm, those businesses are at a disadvantage compared with competitors who do not have to use the bridges regularly.
Mr Goodwill
To clarify, on discounts for frequent users in heavy goods vehicles, the Eurovignette directive imposes a 13% cap on any discount for HGVs, and the discount for HGVs on the Severn is near the maximum allowed under that directive. I do not need to mention that hauliers reclaim the VAT on these charges.
Nia Griffith
I was about to come on to the issue that the Minister mentions. He kindly sent me a letter containing that information this week. What I would ask is: how close are we to that 13% limit? Is there any wriggle room at all, and would it be possible to open a discussion on further concessions? I think he said in our meeting that that would be likely only if we had a tit for tat, and traded such concessions off against others. If anything like that were to be suggested, the freight companies would need to be closely involved and see the detail, because they would not want to end up paying much more in the daytime to get a night-time concession if their bills ended up being higher. They are still interested, however; they have said that they would be interested in looking at concessions, even if that means that the tolls continue a little longer beyond 2018.
I question the suggestion that EU law means that freight and ordinary car use charges cannot be varied, and whether that is a competition issue. If all freight lorries use the bridge no matter where they come from, it would not be a matter of having more favourable laws for British-based lorries than for Dutch or French-based lorries. It would be helpful to have a little more information on that.
Mr Goodwill
The current 10% discount, which is offered by way of the season TAG, is based on 22 trips a month; that is quite close to the 13% maximum.
Nia Griffith
Perhaps I could ask the Minister to look at that remaining 3% and see if there is any wriggle room at all, because when we are talking about paying the huge amounts mentioned by my hon. Friend the Member for Blaenau Gwent (Nick Smith), even 3% would make a considerable difference.
VAT is a massively important question. The Minister confirmed in his letter to me that VAT comes off the charge when the crossing is managed by a public, rather than private, company. We would be delighted if that meant an automatic 20% decrease. However, if the rates were to be kept the same, that would be a massive penalty for all the business users who currently reclaim the VAT, because effectively they would have to pay 20% more and would have no opportunity for clawback.
My right hon. Friend the Member for Torfaen (Paul Murphy) mentioned the figure of £112 million. Mercifully, the letter from the Minister says that that has reduced to £88 million. Of course, we on the Welsh Affairs Committee would be pleased if the Department for Transport were to revise that figure downward again. There was an issue about how that was calculated in the first place, and we want to ensure that we get up-to-date information about that. Although the Minister previously said that 2018 was a long way away, firms such as Owens are investing long-term, looking eight to 10 years ahead, and they have to make decisions. The more certainty such firms can have, the better.
The Minister may think that we will have another Government in place in 2018—some of us hope that we will—but I am sure that every Department plans ahead and thinks about what it would do. The Department for Transport is in a position to make the necessary assessment and get hold of the statistics, so that we can have more information about the £88 million being paid back, about when there will be an opportunity for the bridge to be debt-free and just have a maintenance charge, and about what would be done with that maintenance charge.
I am a little concerned by the hon. Member for Forest of Dean (Mr Harper) saying that he would like a levy on the existing bridges—in other words, on people coming into Wales—to fund a bridge further up the river. I much prefer his first suggestion, which was that such a bridge should be funded through general taxation spread across the UK, to the suggestion that we penalise one particular group of users. One of the main bones of contention about the bridge all along has been that such charges are unusual in this country; it is not like in some countries on the continent where most of the motorway network is tolled. That is why there is such great resentment of the toll, and the level of it, in the first place.
We certainly want a little more clarification of what will happen in the future. I would be grateful if the Minister gave us any indication of where we are going, and kept the Welsh Affairs Committee fully updated with any further information.
Richard Burden (Birmingham, Northfield) (Lab)
I congratulate my hon. Friend the Member for Newport East (Jessica Morden) on securing this important debate, which will now always be known as the Roy Hughes memorial debate. I also congratulate the no fewer than eight hon. Members who have participated either through interventions or speeches. In the last speech, my hon. Friend the Member for Newport West (Paul Flynn) even treated us to some Harri Webb poetry.
The Severn crossings clearly concern hon. Members on both sides of the House because they are an important transport link between England and Wales that play a vital role for businesses and the economy, that help people to keep in touch with friends and family and that keep our two countries connected. It is therefore unfortunate that the cost and experience of using the crossings have been a source of frustration for so long.
My hon. Friend the Member for Newport East has raised the Severn crossings previously. For many years she has been pressing for reform of what, in her previous debate in 2010, she called an “expensive, inconvenient and inflexible” system. The issues that she has raised today are very much the same.
I will say something about England later in my speech, but the crossings are a key link in the transport and economic infrastructure of Wales, and they are essential to the Welsh economy and its ability to grow. Approximately 25 million vehicles use the crossings each year. Obviously, nobody wants to pay tolls, but the benefits of the crossings are clear and include increased access to markets, suppliers and consumers, and quicker journey times. It is important, however, that the toll price reflects a fair balance between the cost of better infrastructure and the benefits to the people who use it. This debate has made it clear that the cost of the Severn crossings does not appear to be fair, and it has not appeared to be fair for some time. Road users who rely on the crossings have been hit hard by annual increases and, as my hon. Friend said, an inflexible and old-fashioned payment system.
There is an impact on people. First, the tolls are the highest of any crossing on the strategic road network. As we have heard, the current prices are £6.40 for a car, £12.80 for a light goods vehicle and £19.20 for a heavy goods vehicle. On the Humber bridge, the toll for a car is just £1.50 and the toll for an HGV is £12.
Mr Goodwill
The hon. Gentleman must bear in mind that the toll is free in the other direction on the Severn crossings, so the prices are not comparable in that respect.
Richard Burden
If we do the sums, the point is still made. Whether or not the toll is free one way, the price is clearly still higher. Those amounts are not theoretical. We are living through the worst cost-of-living crisis in a generation and they hit people hard. A lot of attention has been paid to energy costs, fuel bills, food bills and so on, but the cost of transport is a large chunk of people’s household budgets. That has been made worse for domestic users of private motor cars because they have also been hit by the VAT increase to 20%, which has hit the price of fuel, too.
It would be lovely to say that the tolls should just be scrapped, but, as we have heard, that is not necessarily practical. There is a strong case, however, for considering whether there is a way to make the tolls fairer. It is possible to consider a cap on annual increases, which is a model we use for other modes of transport. There might be a way to take regular and local users into account, for which there are precedents. From March 2014, local people eligible for the resident discount on the Dartford crossing will be able to make unlimited trips over the crossing for just £20 a year, thereby ensuring that that toll on the strategic road network does not hinder local mobility.
The Parliamentary Under-Secretary of State for Transport (Mr Robert Goodwill)
It is a pleasure, as always, to serve under your chairmanship, Mr Bone. First, I congratulate the hon. Member for Newport East (Jessica Morden) on securing this debate on the Severn crossings. Before I discuss the tolls on the Severn crossings, I make the point that it has been the policy of successive Governments since 1945 that crossings on estuaries should be paid for by the user rather than by the taxpayer. Successive Governments have taken the view that tolls on all such crossings are justified because the user benefits from the exceptional savings in time and money that those expensive facilities make possible.
It might be helpful if I give a brief outline of the history of the Severn crossings, some of which is relevant to the issues that have been raised. The first Severn bridge was opened by the Queen in September 1966, providing a direct link from the M4 motorway into Wales, with a toll in place for use of the bridge to pay for the cost of construction. In 1986, the Government said that a second bridge would be constructed. In July 1988, they announced that the private sector would be given an opportunity to participate in the scheme, and in April 1990 they announced the selection of the bid led by John Laing Ltd with GTM-Entrepose to design, build and finance the second crossing. That consortium was also to take over the maintenance and operation of the existing Severn bridge.
In October of that year, the concession agreement between the Government and Severn River Crossing plc was formally signed. In February 1992, the Severn Bridges Bill received Royal Assent. The concession agreement was enshrined in an Act of Parliament and commenced in April 1992. Severn River Crossing plc then took over both the operation and maintenance of the present bridge and the construction of the new bridge. The concession agreement was structured so that certain risks were borne by the Government, rather than by Severn River Crossing plc, for example, costs relating to latent defects on the first Severn crossing. By bearing those risks, the Government could finance the construction of the second crossing and maintenance of the crossings at a much lower cost. If those risks had been included in the concession arrangement, the tolls would have needed to be higher or the end of the concession would have been longer than under the current arrangement.
Construction of the new bridge started in September 1992, and the new crossing was opened on 5 June 1996 by the Prince of Wales, almost 30 years after the opening of the first bridge. As part of the concession agreement, Severn River Crossing plc is authorised to collect tolls to meet its financial obligations. The tolls repay the construction and financing costs of the second Severn crossing, the remaining debt from the first existing crossing from 1992 and pay for the maintenance and operation of both crossings. It is worth stressing that that is the company’s only source of income. The concession period is limited to a maximum of 30 years. The actual end date will be achieved when the concessionaire has collected a fixed sum of money from tolls, which is £1.029 billion at 1989 prices.
The Severn Bridges Act 1992 applies a clear structure to the tolls to give the concessionaire confidence that it will be able to meet its liabilities and manage the risks that it accepted through the concession agreement. The toll levels were set for three categories of vehicles at the time of tender and are embodied in the 1992 Act. The Act sets out the tolling arrangements and the basis for yearly increases in the toll rates. Toll rates are fixed in real terms. The new rates are introduced on 1 January each year and are increased in line with the retail prices index using a formula, and rounded to the nearest 10 pence.
The shadow Minister, the hon. Member for Birmingham, Northfield (Richard Burden), asked about the possibility of introducing free-flow tolling on the Severn crossing, as is to be introduced on the Dartford crossings, but that depends on decisions on future charging arrangements that are yet to be taken. For example, it would be imprudent to invest in an expensive tolling system that operated for only three or four years, were the Government of the day to decide to discontinue charging. We would need to assess the costs and benefits of free-flow tolling on the Severn crossing as we did on the Dartford. However, as a general principle, the Government support moving towards more efficient ways of collecting tolls, which benefit traffic flow.
Jessica Morden
As the Minister looks toward the end of the concession in 2018, could he address the VAT issue and clarify what was meant in the letter sent to the Welsh Affairs Committee this week? When the VAT charge comes off the bridges, because they return to public ownership, will that mean a reduction in the tolls, or are the Government planning to keep the tolls at the current level?
Mr Goodwill
I thank the hon. Lady for that question. From 2003, when VAT was imposed, to 2012, about £120 million gross has been collected. However, some business users will have reclaimed a fair proportion of the VAT. It is the case that when this Parliament comes to an end, it would be open to the Government of the day to make a decision as to whether they continue to charge the same fee, or reduce it by 20% or whatever the prevailing rate of VAT. No decision has been made, and I suspect it would be above my pay grade to make that particular decision. It is probably slightly early to consider that point.
Jessica Morden
Will the Minister provide us with an update on the money that has been collected to date, since the VAT changes and the changes in the industrial buildings allowance, so that we can have a full update of how much money the Government have collected so far? I am happy for him to write to us.
Mr Goodwill
Yes, by all means. I have given the hon. Lady the latest figure on the VAT. If I may, I will write to her with a more up-to-date figure on the VAT, if we can get hold of it, and also on the buildings tax that she mentioned.
Mr Harper
On the VAT, may I clarify what the Minister said? I think he said that the Department for Transport can account for the gross amount of VAT collected, but it is not able to ascertain how much was reclaimed. It would be helpful, so that people can see the net amount that the Government have collected, at least to break it down into that collected for car users and that collected for freight. It would be a reasonable assumption that most freight users were VAT-registered and would therefore have reclaimed the VAT. It would be unhelpful for people to assume that the gross amount was collected and retained by the Government, and not to take into account the fact that for freight users, a lot of it would have been reclaimed, or would not have been a cost to their businesses.
Mr Goodwill
Yes, it would be reasonable to assume that most business users reclaim the VAT, so when we write to Members participating in this debate, we will estimate that level. When there is talk of the Government using this as a cash cow, it must not be forgotten that every vehicle saves 52 miles by crossing one of the crossings, but on the long journeys going the long way round, they would actually be paying a fair amount of fuel duty. So it is not simply that the Government benefit from the VAT; there is actually a loss in terms of the amount of fuel revenue that otherwise would have been collected.
I want to stress an important point: the Secretary of State does not have the authority to reduce Severn tolls without amending primary legislation and obtaining the concessionaire’s agreement. The concessionaire would not be able to agree to anything that would affect its net revenue without compensation and agreement from its shareholders and lenders, which would result, if such an agreement were forthcoming, in a cost to the taxpayer. Any discounts or exemptions are a matter for the concessionaire to decide, provided that those provisions comply with existing legislation, such as the Eurovignette directive. Where that is not the case, such schemes cannot be introduced without changes to the concession agreement.
Discounts of 10% for vehicles of over 3.5 tonnes, and 20% for other vehicles, are offered by way of a season TAG, based on 22 trips per month. Blue-badge holders and the emergency services are exempt. There are significant discounts for users, including businesses that make multiple trips per day. Tolls are charged in a westbound direction only, from England into Wales. The current toll prices are: £6.40 for cars; £12.80 for vans; and £19.20 for vehicles over 3.5 tonnes.
Once one-way tolling and the distance saved owing to the existence of the crossings are accounted for, Severn tolls compare favourably with toll levels on other crossings. On the points raised by the hon. Member for Newport East, I can give some examples. The toll for a car is £6.40, but, with the free return journey, it is equivalent to £3.20 for a saving of 52 miles; the Dartford toll is £2 for a saving of 22 miles; and the Tyne tunnel has a charge of £1.60 for a saving of only eight miles.
The hon. Member for Birmingham, Northfield mentioned lorries. In the case of the Humber bridge, lorries pay £12.50 for a saving of 45 miles, whereas on the Severn crossing—if we divide by two for the free return—it is £9.60 for 52 miles. Some of the comparisons made with other crossings in the country do not necessarily bear scrutiny, or perhaps Members can pick their example to support their case.
Jessica Morden
Does the Minister also accept that the Government stepped in recently to the tune of £150 million to reduce tolls on the Humber bridge? If they can do that on the Humber, why can they not do it for the Severn bridges?
Mr Goodwill
If the hon. Lady looks into it in more detail, she will find that the Humber bridge review in 2011 found that the Humber bridge had a unique burden of interest in relation to its original cost of construction more than 30 years ago. Although the bridge cost only £98 million to construct, rolled-up unpaid interest meant that the bridge debt had grown to £439 million by 1992. Such unique circumstances justified the Government writing off £150 million of the £332 million owed to them by the Humber bridge board. I hope that provides some context. Some Members might even remember Barbara Castle announcing the construction of the bridge at a by-election in Hull.
At the end of the concession, the Severn crossings will revert to public ownership. The Government will need to continue tolling to recover the costs that they have incurred falling outside the concession agreement. The Department’s latest estimate is that they will be £88 million at the projected end of the concession in 2018, and it will take one to two years to recover that money. Once in public ownership, VAT will no longer be payable on the tolls.
My hon. Friend the Member for Forest of Dean (Mr Harper) raised various issues. I can confirm that the bridges are indeed a UK asset for the benefit of all UK road users and taxpayers. Much has been said about the Treasury or the Government benefiting from this, but I humbly suggest that it is taxpayers who benefit, and the debt that we have inherited from the previous Government can be reduced by the tolls.
My hon. Friend spoke about maintenance of the bridge, which is of paramount importance. I am well aware of the issue with the cable on the old bridge, which I am pleased to say has now been stabilised, but the toll income already pays for maintenance. On his other point about a new bridge upstream, which would avoid a 33-mile round trip via the M48, there are precedents around the country. There is the Merseylink toll, although those bridges are slightly closer together, and many consider that a new lower Thames crossing could incorporate the existing tolls from the Dartford crossing to make it affordable.
Richard Burden
On the £88 million, I am pleased the Minister has clarified that that is the estimated figure. However, might we have a breakdown of how that is made up? What is the debt that is estimated to remain?
Mr Goodwill
I am more than happy to provide the hon. Gentleman with that information.
In conclusion, no decisions have been made regarding the operation and tolling arrangements for the crossings once the current regime ends. However, the Government have been clear that any future arrangements will need to make proper provision for repayment of Government costs and future maintenance, and reflect the needs of road users in England and Wales. I suspect that this is something that various political parties may visit when they write their election manifestos, although there is nothing to stop the hon. Gentleman making an announcement today about what a Labour Government—were we to get such a Government after the election—would do at the end of the concession, or at the end of the period when the tolls are paid off.
The Government are committed to the successful operation of such vital crossings. They have provided a huge benefit to the Welsh and English economies through quicker access to places and markets. As the concession draws to an end, the Department will work with key stakeholders, including the Welsh Government, affected local authorities, business representatives, the Welsh Affairs Committee, and other interested parties.