Severn Bridges (Tolling)

Debate between Robert Goodwill and Jessica Morden

Wednesday 5th March 2014 Westminster Hall

[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 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?