Infrastructure Bill [HL]

Lord Bradshaw Excerpts

Thursday 3rd July 2014 Grand Committee

[Baroness Kramer]

My Lords, I will start by referring to two roads. First, the A303 is part of a feasibility study, the details of which should be announced later this year. Secondly, on the issue that was raised about the A1, the noble Baroness is quite right to say that that is advancing. That illustrates exactly some of the problems which we are trying to counter with the work that is going on here. Your Lordships will understand that this clause allows the Secretary of State to appoint a strategic highways company, conferring duties and functions for it to operate as a highways authority. Our aim—I think this is now well understood—is to create a different model to deliver road infrastructure from that which we have now, with a separate legal body from government responsible for our strategic road network, advising government on how it can best achieve its vision for our national network and being responsible for delivering that vision in the most cost effective way. These parts of the Bill are an implementation measure.

We consider the most effective model to be one where a company is created under the Companies Act 2006. I understand that there are questions about why a separate company is needed, so I will take a moment to set out some of the rationale. We have decades of experience across Administrations of different political complexions showing that the current arrangements have not encouraged a long-term approach to planning infrastructure or to securing funding. The noble Lords, Lord Davies of Oldham and Lord Whitty, asked why we do not do it under the existing structure. I say to them that we have lived with the existing set of arrangements for a very long time and it has not worked in terms of delivering the element of long-term certainty that is needed. Funding has been changed arbitrarily—sometimes at very short notice. I think we all recognise this and we recognise that it comes with high costs in efficiency and the quality of our infrastructure. The noble Lord, Lord Berkeley, underscored how Network Rail, with its more arm’s-length relationship—it calls its funding periods “Control Periods”—has delivered significant increases in the efficiency with which it implements new rail infrastructure, and we want to capture the same for roads.

Some noble Lords have asked what our sources were for the numbers. I refer them to Alan Cook’s A Fresh Start for the Strategic Road Network, published in 2011. There are further, more detailed calculations set out in the impact assessment, which is published on the DfT website. That might be a very good source for people who want to understand more of the nitty-gritty around those numbers. However, I do not think that most people looking closely at this will challenge the underlying reality that, once there is a longer-term framework in which to operate, efficiency is far easier to achieve.

Many have raised—not today but in various contexts—the importance of maintenance and balancing new-build and maintenance; looking at the whole life of a road; looking at the longer-term life of the asset; and approaching asset management in that way. It is far more possible to do that with a greater certainty of funding. I will just underscore the problems that we face today. Our road infrastructure, to which the noble Lord, Lord Davies, referred, is now rated only 28th in the world by the World Economic Forum—we all know that hinders our competitiveness. I suspect that arguing for the status quo will not allow us to make the changes needed to get the improvements that our economy requires.

We feel that for long-term funding certainty and planning, it is crucial for the Department for Transport to be able to have a transparent and binding relationship with a separate legal entity that will be set out in the road investment strategy. The RIS—if I can use that short term—sets out the Government’s requirements and investment plans and sets the funding to deliver them. If the Highways Agency remained part of the DfT, then in practice it would be much easier to change. Setting up a strategic highways company as a new company, operating under company law with a well established governance and financial framework, will reinforce the clarity and robustness of the relationship.

The company structures and disciplines will also help support a more commercial approach. We have seen international examples, which are enormously varied, and I have written about them in quite a detailed letter to some Members of your Lordships’ House. For example, in the Netherlands and Sweden, where roads delivery bodies have been given long-term funding certainty and a more independent relationship with transparent requirements, large efficiency savings have been possible. We have all acknowledged that this is not about privatising the roads. This will be a company that has one shareholder, the Secretary of State, and if he ceases to be the shareholder, in effect the company is terminated.

I will try to pick up a couple of the other issues that were raised. We will discuss some of them in more detail as we come to the various amendments targeted on them. My noble friend Lord Teverson talked about echoing the advantages that have come through the Network Rail structure, and that is exactly what I have been describing. I do not think it has to be identical to the Network Rail arrangements. Network Rail came to its current arrangements through the rather strange route of nationalisation, privatisation and part-privatisation. But we can pick up the essentials that seem to be the important levers, and that is what we have been doing.

The noble Lord, Lord Davies of Oldham, seemed to suggest that if we had a national infrastructure commission we would not need any of this. This is really practical, coalface implementation of infrastructure building and maintenance, and it is absolutely crucial. It is not a big strategic sweep—obviously, strategy will be deeply embedded in the road investment strategy—but it is creating the delivery mechanism to make that a reality on the ground.

The noble Lord, Lord Berkeley, asked whether we would have five-year certainty. We will talk in some later amendments about the timeframe for the RIS. At this point I would just say that we have to give a bit of flexibility because we will have a road investment strategy before the company is in place. We can talk about timeframes a bit later.

The noble Lord, Lord Whitty, and the noble Baroness, Lady Neville-Rolfe, raised an issue that, again, I think we will cover in some later amendments, about whether the company could go directly to the financial markets. To do so, it would have to have the permission of the Secretary of State. We have been quite clear that cheaper borrowing is available through the Government. We are therefore not minded to use those mechanisms. We are going to go for the cheapest borrowing. Frankly, in an era when one is trying to bring down government spending on all fronts and watching every penny, that is an entirely appropriate strategy to focus on. It might be possible, with the Secretary of State’s permission, to finance individual road projects directly in the markets but we will be making all those decisions based on the implications for the cost of financing.

The noble Lord, Lord Berkeley, raised the interesting issue of the role that the Office of the Rail Regulator has played, through its enforcement powers, in driving efficiency in the Network Rail system. That is an interesting question which we will want to think about and explore. We are determined that efficiency is going to be one of the major outcomes of this project.

Having covered that range of issues, I hope I have provided the reasons why this clause should stand part of the Bill. I hope very much that your Lordships will support its inclusion.

[Lord Bradshaw (LD)]

The Minister made reference to the Swedish experience of financing roads. I have been involved with it. I was involved with the Øresund Bridge between Copenhagen and Malmö, but it was an estuarial crossing and it cut huge distances off both the road and rail networks. There were huge strategic reasons but the money was raised in the market and people pay tolls through quite advanced technology for the use of it. Are there other examples? Some of the Dutch things are going over water. Are there other real roads that have been invested in in that way?

[Baroness Kramer]

If I may, I will provide my noble friend with more detail in writing. We have provided one letter already, which has been available to a number of your Lordships, that we can happily put in the Library. But if we are not very careful we could get entangled in every road across continental Europe and the different ways in which they have been financed.

It is interesting is that every country you look at does it somewhat differently, sometimes in different political and financial contexts. But what we see as a general current theme is if you can get that transparency and some of that arm’s-length character, and provide certainty of funding, those are the key mechanisms that help drive efficiency, and those are the lessons that we want to learn.

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[Lord Berkeley]

My Lords, I support my noble friend in his Amendment 4, and I shall speak to the other amendments in this group. On Amendment 4, he is absolutely right. The strategic highways company needs to have responsibility for all the things that he has put in the amendment. I remind the Committee that there is very strong evidence that a month or two before the Olympics, when the air pollution on one or two of the trunk roads in London was reaching Chinese levels, the solution by the Mayor was to cover the monitoring points with plastic bags, which of course reduced the level of pollution inside the plastic bags but did not much help anybody else. But this needs to be done by the strategic highways company, and I would suggest that it needs to be supervised by somebody. That may be a role for the Office of Rail Regulation, or whatever it is to be called in future, because these are very important points.

My noble friend is right in his comment about research, but there needs to be some research into non-trunk roads, which are a very large part of the road network. I hope that that can be taken into account as well.

Amendments 6 and 7 relate to the 20 pages of consequential amendments to which my noble friend referred. It relates to something that may have got lost in the search for consequential amendments—the Environmental Protection Act 1990 and the question of which body is responsible for collecting litter on different roads. These two amendments are designed to make sure that the strategic highways do not get left out of the wrapping up; otherwise, we will see them covered in litter from head to foot.

I shall not read out all the parts of my amendment, because everybody can read them, and it probably would not make much sense anyway—unless you put a wet towel on your head.

Finally, my noble friend did not mention Amendment 61, which follows on from Amendment 4 and is to do with the transfer of additional functions to the strategic highways company in Clause 13(2). It covers highways and planning, but I agree that it should cover road safety as well, because that is a terribly important part of it. We will talk about safety comparisons later, but it would be good to see road safety in there, or something like it.

[Lord Bradshaw]

The amendment moved by the noble Lord, Lord Whitty, with which I agree, mentions “speed control systems”. We are considering the Deregulation Bill on Monday, which makes specific provision for a lot of the enforcement of speed and other offences to be undertaken by people who go round with pads rather than the modern method of using cameras. Will the Minister cover that, or at least take it away and get sorted out the apparent contradictions between those two pieces of legislation?

[Lord Davies of Oldham]

Well, my Lords, that is a bumper that whistled past the Minster’s ears. It is an interesting little challenge. I have no views on what the noble Lord, Lord Bradshaw, has said, except that I usually consider what he says to have a modicum of very good sense.

I support my noble friends’ amendments. My noble friend Lord Whitty made a persuasive case for the opening amendment. My own amendment would merely establish a consistent theme for us in this legislation: we want to see the Office of Rail Regulation playing a significant role in the road network. It should publish guidance and have powers to require efficient use of the road network. That is what it does for rail. As the noble Baroness will have noted a few moments ago, I was seeking to extol the virtues of a degree of integration between these two critical features of our transport infrastructure. This is one modest step towards that. The Office of Rail Regulation should promote not just efficient spending but efficient management of the road network. It has earned the approval of many of us through its work on the rail system. There is surely merit in it doing so for the road while furthering the prospects of integration between two main features of our transport infrastructure, which will be an abiding theme of the Opposition’s position on the Bill.

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[Lord Jenkin of Roding (Con)]

My Lords, I am afraid that I was engaged on the Floor of the House for the first part of the Committee’s sitting, taking part in the debate on—

[Lord Bradshaw]

Manufacturing.

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[Lord Berkeley]

My Lords, to some extent Amendment 13 follows on from my noble friend Lord Whitty’s Amendment 4 on responsibilities and scope. There is a strong, if not stronger, argument for having in the Bill a clause which sets out the duties of the strategic highways company, because there is already legislation which puts duties on the Secretary of State or the regulator as regards railways. Some noble Lords will recall the Railways Act 2005 and the Railways Act 1993, which was the basis of privatisation. The duties there included promoting,

“improvements in railway service performance … to protect the interests of users of railway services … to promote the use of the railway network in Great Britain for the carriage of passengers and goods”.

I was very pleased to see that goods got in there. The list of duties continues:

“to contribute to the development of an integrated system of transport … contribute to the achievement of sustainable development”.

I could go on reading out Section 4 of that Act. It very much mirrors what has been achieved by successive Governments and rail regulators such as the Office of Rail Regulation in succeeding years through putting those basic principles into effect. This is quite important, and we have the opportunity to put a similar range of duties on the strategic highways company—or companies, however many there are.

Looking at this amendment, it is important that we start to include the cross-modal issues that I and several other noble Lords spoke about at Second Reading. We should look at modes of transport such as highways and railways—probably cycling and walking as well, and maybe other things in the future—on a cross-modal basis, with the duties to secure something like, as I put in the amendment,

“the economic, social and environmental gains jointly and severally”.

I am sure Ministers could come back with a better version, but I hope this is a useful basis for suggesting what the duties of this strategic highways company should be. Unlocking development is important, as is encouraging occupancy and loading rates for passengers and freight and looking at the need to drive, the need to move around and, of course, its sustainability.

We shall be talking about some of these things in later amendments, but it is important for an organisation such as this one to have duties, which should be in the Bill just as they are for the railways. I have tried to mirror what is in the original Railways Act. It has changed over the years and is in a different format now, but the duties are still there, and if we had something like this for the strategic highways company, alongside the responsibilities that my noble friend Lord Whitty talked about, it would make us all feel a lot more comfortable. I beg to move.

[Lord Bradshaw]

I agree with what the noble Lord, Lord Berkeley, has said, but will add something. You can argue for or against it, but having chosen to go down the route of rail regulation, there is one thing I really would like to be assured about. We know that the motorist—maybe “road user” is the right term—is to be represented by Passenger Focus. That of course covers the railway, bus and tram industries; it has seen incremental growth, and I think the noble Lord, Lord Whitty, had a good deal to do with its genesis. With railways, buses, trams and the other things for which it is responsible, it has a right to get information from the regulated party or from the party for which it is responsible. A train or bus company cannot refuse such a request. I would like to be assured that the strategic highways company, too, will not be able to refuse a request for information from Passenger Focus acting in pursuance of its duties to represent road users. I am quite happy that it should represent them, but I do want it not to be treated any differently from the way it is treated in other industries.

[Baroness Neville-Rolfe]

My Lords, I agree with the point made by the noble Lord, Lord Berkeley, about cross-modal being an important issue. There is a later amendment on the need for co-operation, on which I am sure we will agree. I have some concerns about the notion of duty in that context, because duties impose rights and that can lead to problems. I am also not sure that rail is necessarily the model for road. I always think that when you are looking at a regulatory framework, judgments need to be made in respect of the sector that you are looking at. You need to be careful that they work for that sector, and circumstances are different.

That leads me to my main point. I am always concerned about perverse effects. The clause that is the subject of Amendment 13 could have some quite perverse effects, particularly if it were introduced in this form. Duties, effectively, are like legislation and will give rights, and rights can then generate judicial review, and you could have arguments about whether particular things are sustainable or not. You could then make this process a lot more complicated and expensive, and it would not produce the better agency that is the purpose of the Bill. Will my noble friend comment on this aspect of the proposed amendment?

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[Viscount Hanworth (Lab)]

My Lords, in lending my support to my noble friend Lord Davies, I speak to my Amendment 39. It proposes that:

“The power to set a toll or a tariff on a strategic highway may not be delegated to any company or person but must remain the sole prerogative of the Secretary of State”.

We have heard from the Minister that there are no immediate plans for privatising the highways company, which is set to replace the Highways Agency. However, this does not allay our anxieties about the privatisation of our strategic highways network. Nothing that the Government have said will preclude them from asking private contractors to administer parts of the network under concessions. The contractors would derive their income from tolls.

We need only look across the Channel to see an example of a strategic highways network that is largely under the control of private profit-making agencies. The example is provided by France, where 45% of the motorway network is now operated under commercial concessions, including all the main arteries. This circumstance has been the result of a major sale to private investors of the state’s holdings in autoroute companies, which began in 2005, under the Villepin Government, during the presidency of Jacques Chirac. Initially, the tolls on the roads were set by the French Government, but the private companies have been permitted to make year-on-year increases in the tolls. There is now widespread discontent at their exorbitance and at the excessive profits of the companies, which acquired their assets at knock-down prices. Clearly, the French Government ought to have retained the sole prerogative to set the levels of the tolls.

The only example of a tolled motor road in the UK is the M6 toll road of a mere 27 miles in length, which bypasses the Birmingham conurbation. This is controlled by the Australian company Macquarie, which holds the concession until 2054. In contrast to the French toll roads, this under-used road appears to be a commercial failure. In 2012, the operator, Midland Expressway, claimed to have made a loss of £41 million. I have no way of confirming this figure, which seems to have been exaggerated; there would have been a tax advantage in exaggerating the loss. The recourse of the company was to increase the tolls. This may have increased the company’s revenue, but it would certainly have diminished the traffic on the road, thereby reducing its social utility and increasing the costs of congestion and physical depreciation that are borne by the adjacent M6 freeway.

These circumstances should serve to emphasise a fundamental principle. Road charges need to be set by a central authority with an overarching concern to maximise the utility of the roads. High tariffs should be levied to deter vehicles from travelling on congested roads. High tariffs that deter traffic from using empty roads should be lowered or abolished. It might seem to be redundant to declare such principles at a time when there appear to be no immediate plans to impose additional tolls and tariffs on our roads. However, I believe that such charges are certain to be imposed sooner rather than later.

There are two factors here. The first is the likelihood that this Government, or a future Government, will desire to raise revenue to finance additional construction and maintenance. The second is the availability of new and effective technology that will greatly facilitate road-charging. My concern is that, unless the Government think ahead and resolve to take a strategic oversight of the matter, a piecemeal and dysfunctional system of road-charging will arise that will reproduce the problems that can be clearly discerned in other countries that have already applied tolls and tariffs to their roads.

Finally, whenever private enterprise is charged with undertaking motorway projects, it has been expected to raise the finance for those purposes from the open market. That has certainly been the case for the French toll roads, and it has been the case with our only toll road company, which administers the M6 toll. By going in their own right to the market, the companies have been denied the advantage of the superior creditworthiness of the Government. In consequence, they have had to bear much higher interest rate charges. There should surely be a way of conferring the benefits of the Government’s creditworthiness on all borrowings in favour of investment in social infrastructure, whoever undertakes them.

[Lord Bradshaw]

I shall add some comments to those just made by the noble Viscount, Lord Hanworth. The Government have a very major problem stalking up on them—namely, the lack of tax revenue that they will get from motoring. People are buying cars that are free of revenue tax and of fuel tax—or rather they pay very much less. Therefore, the flow of revenue that the Government are expecting to receive from fuel duty or vehicle excise duty is going to decline quite rapidly.

We are talking about the future of the highways network and we will have to find some other means of financing it. We are talking about the long term, but people are quick to pick up on ways of avoiding tax legitimately. I therefore believe, despite what the noble Viscount, Lord Hanworth, said, that the technology is available to charge people to use roads. How you do it and who sets the toll will be matters for future consideration, and what the noble Viscount said about this is important.

You also have the problem of people diverting away from the tolled road on to secondary or non-Highways Agency roads. Again, the technology exists to prevent most of this, and modern logistics companies cannot afford to send lorries around circuitous routes because drivers’ hours regulations, if properly enforced, mean that most of them programme their drivers to get the maximum out of the 10 and a half hours for which they are allowed to drive. If these people take more circuitous routes to avoid paying tolls, they will therefore bust the drivers’ hours regulations in almost every case.

I am going to speak about this later, but there are a number of strategic issues—one of which is how we pay for the use of roads—which have to be faced, not by the immediate Government who have brought this legislation forward but by successive Governments of whatever colour. They will have to find a method of financing a road network with declining revenues from the present system of taxation.

[Lord Whitty]

My Lords, I have slipped an amendment into this group as well. In a sense, it deals with the same problem—the ability of the new company to raise money on the markets—from the other end.

The reality is that the Treasury will never provide quite enough money out of general taxation to build roads. My noble friend Lord Hanworth and the noble Lord, Lord Bradshaw, have focused on road charging as one way of getting that income. Who would be accountable for that? The Government have said that they do not currently intend for there to be any road charging. Strategically, in the long-term, they may have to revisit that. It is therefore quite important that if, down the line, they do so, the Secretary of State would be able to limit or control the charges which could be raised on those roads; I believe that was the primary purpose of my noble friend Lord Hanworth’s amendment. The French example, with which I am familiar, shows the dangers of not doing so.

That could be done by a Government-owned company as much as it could be done by the private sector, although the temptation may be a bit different. Either way, if the company cannot raise money through charging and it cannot raise money by going to the market to borrow, the pressure on allocation for the strategic investment programme and the Treasury will be acute down the line.

As I have said before, when this proposition was made I thought that one of its advantages might be that the company could raise its own money against future income of one sort or another—capital gains and so forth. Apparently, that is not to be the case. That is a severe limitation on the flexibility of the company and the degree to which it is genuinely independent. Clearly, its access may ultimately be controlled by the Secretary of State. The amendment recognises that, in that it is about the Secretary of State setting the terms on which the company could go to the market. That could include going for public loans or literally going to the market—issuing bonds and getting a return on them, which is, of course, how we built the railways. If you do not have that flexibility, the arguments down the line about how much this year and next year is in the Treasury’s gift and the question of what alternatives need to be considered will always be there, however firmly you might have set the strategy and the expenditure attached to that strategy at the beginning. This would give some flexibility, with a bit of control by the Secretary of State.

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In some ways, the highways company will be treated as if it were local government, because it is a traffic authority as well as a highways authority, just as local government is. Therefore, the issue of how we control local government raising capital applies equally to the new highways company. It may be resolvable only in that wider context. I see no sign, I have to admit, that the Treasury team of the current Opposition is likely to change those long-standing laws, despite my remonstrations with them over the years. But at some point, the logic of having powerful local authorities and powerful independent state-owned companies that are able to raise their own money will dawn even in Great George Street.

[Lord Bradshaw]

I shall build on what the noble Lord, Lord Whitty, has just said. Earlier in the week, noble Lords may have seen a ComRes poll in the Independent newspaper about payment for the National Health Service. The poll suggested that people are prepared to pay more money; it was quite a sizable proportion—51% to 43%, I think. But the condition that they put was that they want the money spent on the health service—and the same applies to highways. It brings up this very old problem about hypothecation, which has to be faced if the health service and the highways system is not to fall into disrepair.

[Lord McFall of Alcluith (Lab)]

My Lords, I support the noble Lord, Lord Whitty, in what he says. The Treasury has been rigid in its application, but there was a great initiative on innovation by the Chancellor in the last Budget, whereby he put £130 billion behind the Help to Buy scheme, which some would call the “help to vote” scheme. That was the Treasury showing real initiative. If the Chancellor can do it for the housing market and show flexibility there, why can we not do it for infrastructure at a time when borrowing is at its lowest ever? If we cannot do it now, we will never be able to do it.