We commend the commitment of Government, British Waterways (BW) and individuals over the past decade to improving the waterways network, and their success in doing so. We firmly believe that the waterways network is a vital public asset, and that the Government has a responsibility to keep the network in good order. We are therefore extremely concerned at the implications of likely lower Defra grant levels in the Comprehensive Spending Review 2007 period, from 2008-09 to 2010-11, on BW's ability to maintain the waterways network to an acceptable standard. BW says a funding settlement in which its grant level reduced by five per cent in real terms would result in a £35 million under-spend on major works by the end of the three CSR years alone, and the network would not then be "fully fit-for-purpose". We recommend that BW and Defra work together closely to agree a CSR 07 settlement that ensures the long-term stability of the waterways network. We expect Defra to consider carefully BW's claim that additional capital funding will be necessary for each year of the CSR 07 period if its grant settlement continues to reduce in real terms. We would also welcome the National Audit Office's view on the correct interpretation of the conflicting accounts given by the Department and BW about BW's finances between 2002 and 2012.

Our inquiry has showed that relations between BW and its sponsor department in England and Wales, Defra, have been tense in recent months. The former Inland Waterways Minister strongly criticised BW in public, on a number of grounds. Communication between Defra and BW must be improved. BW relies on Government for much of its funding, and therefore has a responsibility to ensure important business decisions and complex terms, concepts and models are explained clearly to its sponsor Department. The Department must also ensure those officials who deal with BW on a regular basis have a thorough understanding of these concepts, so they can brief ministers accordingly. A new minister is now in charge of BW; we believe this is the perfect opportunity for a fresh start in this relationship. The Department and BW must now both work to improve relations in the final negotiating period of the CSR process and beyond.

We consider it imperative that BW is granted every opportunity to deliver strategies that can help generate more of its own income. We recommend that Government fully support, and provide assistance to, BW in ensuring it achieves its ambitions to operate commercially on other waterways than those it owns or manages. Government should also grant BW an increased borrowing capability. We believe there is a strong case for providing BW with income gained from planning obligations under Section 106 of the Town and Country Planning Act—or from planning gain supplement, if introduced by Government—in respect of the increase in property prices realisable from waterside developments. We fully support BW's desire for a longer-term funding contract with Government to provide greater stability to the waterways network, and remind Government that this was recommended in the Policy Review of 2004-05. Government should ensure such a contract is agreed sooner rather than later. We believe there is a strong case that other Government departments—such as the Department for Culture, Media and Sport, the Department for Transport and the Department for Communities and Local Government—should make a direct contribution to BW's funding, to reflect the contribution BW makes to the agendas of those departments.

Much controversy has surrounded BW's aim to become "largely self-sufficient". Our inquiry has showed that a lack of clarity exists about what exactly BW's ambition to become "largely self-sufficient" means. Both Government and BW need to provide much more detail about what this means in practice and produce a detailed plan about how it can be achieved.

We were extremely surprised to discover that privatisation was one of the options being considered by BW's ongoing strategic options review, and are disappointed we were not informed about this during our evidence sessions with BW. In our view, privatisation is not a serious option: the waterways network is a public asset providing wide benefits to society and some Government funding will always be necessary. It should be ruled out by the Government.