MONDAY 16 APRIL 2007

MR STEVE DAVIS, DR PAUL WOOLLAM AND SIR ADRIAN STOTT BT

  Q354  Chairman: Good afternoon, everyone. Welcome to our evidence session. It may seem somewhat unusual that a group of parliamentarians are actually coming out into the sticks, and it is not here just because I live next door, as some of you realise, this is something that Michael Jack, as Chairman, has pioneered with the Select Committee. We think it works very well because we like to get out and see things and talk to people who would not necessarily give evidence in our more formal proceedings in Westminster. You can all see who we are. I will ask every witness, because obviously you are sitting behind their backs, when they start giving evidence to say who they are and speak clearly and fairly slowly so we can get the evidence fully recorded. It is a delight to have people here and I hope you find it an instructive session. Just as a way of introduction, this is one of a number of sessions that we have held into British Waterways. It was triggered by the issue of the cuts in Defra grant-in-aid, but we are looking much wider than that, which is why we are taking evidence later on from the Waterways Trust to look at the museum and allied facilities. We really want to get a handle on where we are going, not only with BW itself but also with the waterway and canal network. That is something we are not ignoring even though, as I say, we were triggered by the immediate loss of funding. Our first session is with Steve Davis, Dr Paul Woollam and Sir Adrian Stott. I know Steve is going to start, which makes a lot of sense because Steve and Paul have produced, as they have done for me previously, and I know Roger has, evidence that I found very useful in the debate that we held on the cuts. I do not know if you are going to do a bit of a double act, Steve and Paul, and then we will go over to Adrian and we will ask you questions. If you could keep your remarks relatively short because we only have 40 minutes for the session. Thank you very much.

  Mr Davis: Good afternoon. My name is Steve Davis. Firstly, I would like to thank you for the opportunity to present my evidence which was produced with my colleague, sitting on my left, Paul Woollam. I am going to cover the benefits arising from the waterways; Paul will cover the potential threats from cuts in government grant. We believe these cuts threaten the very future of the canals. Our evidence is presented from a boater's viewpoint, but boats add movement and colour and enable others to see heritage structures in operation. I have been boating since 1990 and have seen great improvements and many more people visiting the canals than previously. The canal network is unique to this country and represents a great engineering and commercial heritage. In 1999 the Government published a document called A New Future for British Waterways which recognised the potential of the waterways and committed to help with their revival. That commitment has resulted in the investment of an additional £70 million since 1997. Today we can see evidence that this investment has paid off. The canals now provide the general public with recreational space, they have helped regenerate rundown areas and are also generating real economic benefit. There are now 300 million estimated visits per year to the waterways by people who enjoy free access to what is, in effect, a huge linear national park. The vast majority of these visits are not boat related. Academic studies put the notional benefit of such visits at around £140 million per year but there are also tangible benefits. A study by English Heritage showed canal related spend on the Kennet and Avon Canal to be £29 million in 2002. Extrapolating from this suggests canal related spend across the whole system is in the order of £500 million, of which the Government probably gets a third back in taxes amounting to about £166 million. Deducting the original Defra grant of £63 million leaves the Government with a profit of over £100 million, which is not a bad return on a £63 million grant. Many people visit the canals because of their architectural and ecological heritage. British Waterways is charged with looking after a built heritage of around 2,700 listed structures, has responsibility for 65 Sites of Special Scientific Interest and spends around £110 million per year maintaining the canals. Part of this expenditure maintains these listed structures and SSSIs in compliance with Government guidelines and UK and EU legislation. British Waterways have a key role in ensuring that intergenerational equity is maintained, and this does not come cheaply. Around the inner city canals they have been transformed and Birmingham is an outstanding example with Brindley Place being a showcase for canal led regeneration. Closer to home you have already seen what is going on around Gloucester Docks. Another example of tangible benefit appears in a paper issued by the Scottish Parliament covering the regeneration of the Millennium Canal Link. That paper showed that 1,700 jobs have been created. British Waterways are involved in development schemes driving £6 billion worth of waterside regeneration with the potential for 6,000 new homes. The power of the canals to attract inward investment into rundown areas is well-recognised. In 2005 British Waterways received £9.5 million from local authorities, Regional Development Agencies, Lottery funds, canal trusts and the EU for canal improvement designed to create jobs and housing in local communities. Boating and canal boaters also bring direct economic benefit to the UK. There are around 29,000 boats licensed by British Waterways and these support a boat building and repair business providing around 2,000 jobs. Boat licences and mooring fees generate around £30 million a year for BW either directly or indirectly. Hire boats generate a turnover of around £45 million a year, plus there are benefits to pubs, restaurants and the insurance business. Taken together we estimate boats generate around £165 million a year supporting 4,000 jobs. I submit that the inland waterways under British Waterways' management are delivering tangible benefits in reviving deprived areas, keeping our national heritage up to scratch and creating and sustaining employment. To conclude, I would just like to quote an extract from the conclusions of the 1999 Defra paper, A New Future for British Waterways, which says: "British Waterways is the custodian of a unique part of our heritage. For too long it has been denied the investment needed to develop these assets properly". I submit that we are in danger of repeating that history. Thank you.

  Q355  Chairman: Thank you. Paul, do you want to add to that?

  Dr Woollam: Thank you, Chairman. My colleague, Mr Davis, has given you our views on the benefits that the waterways bring, I will cover our views on the potential threats from reductions in Government funding. I have 44 years experience of boating on the canal network, 34 of these as a boat owner. Recently I have worked with British Waterways to find ways of keeping the local navigations open in winter following funding cuts. In my experience, most boaters think that BW is making significant progress towards improving the network. Historically, BW has been reliant on government grants. I firmly believe that, in the national interest, this should continue to be the case. However, a consistent funding mechanism is now in doubt and this leads to significant threats. First, there are threats to heritage and intergenerational equity. The cut in Defra grant clearly puts heritage restoration projects, such as the Stroudwater Canal, central to local regeneration, at risk. 95 per cent of the 300 million people who visit the canals each year see them as an important part of our nation's heritage. I submit that Government has a duty to fund our canal-based industrial heritage and that Defra's grant should accommodate BW's unique position, as does the DCMS grant to English Heritage. Unless the grant cuts are reversed, the canal system in England and Wales is in danger of reverting to its pre-1980s state, with a significant proportion again becoming un-navigable. Second, there are threats to health and safety through maintenance reduction. Despite government grants, there remains a statutory maintenance backlog estimated at £119 million. Above all else, BW must maintain 2,000 miles of waterways so they are safe and accessible to 20,000 boats and 300 million visits per year. Since the Defra cut, BW has been forced to reduce maintenance on structures that, in many cases, are 200 years old and performing duties that their builders could never have conceived. This suggests the potential for loss of life or serious injury, whilst damage from canal breaches and structural failures will still have to be funded by Government. This makes no economic sense. Third, there are threats to regeneration. Reductions in BW's grant inevitably threaten regeneration projects through loss of investor confidence. A visit to any large-scale regeneration project, particularly if it includes housing, like Gloucester Docks, shows that sales are predicated on a vibrant waterway location filled with boats. However, reductions in BW's ability to maintain and improve the network will ultimately lead to boat owner disillusionment, less boating, less economic activity and less regeneration in rundown, problem cities. So where would BW get funds if its grant were cut even further? BW has told boaters to prepare for significant price rises to compensate for cuts in Defra's grant. As the Committee will know, boaters currently contribute about £30 million per year, directly or indirectly, to BW's income. If we have to fund predicted cuts in government grant, our contributions would rise by over 50 per cent. BW funds the recreation of large numbers of people who make no direct contribution for the upkeep of the facilities that they enjoy. As boaters, we want everyone to benefit from the canals. But not all canal boat owners are wealthy and can afford huge price rises. Government's surveys show that 34 per cent of boat owners have a net annual income of less than £14,000. It is inconceivable that our current £30 million contribution to BW's income could be increased sufficiently to match predicted cuts in government grants. Finally, gentlemen, I would like to draw your attention to comparisons with Government funding of other heritage protection. First, the Scottish Executive has accepted BW's case for increased funding and has confirmed an annual grant increase. In contrast, in England and Wales Defra has told BW to expect a £60 million reduction in grant over the next three years. Secondly, DCMS funds visitors to English Heritage sites at £12.60 per visitor, 60 times higher than the Defra equivalent of just 20 pence per visitor to British Waterways' heritage sites. I urge the Committee to recommend consistent, adequate funding for British Waterways so that our unique canal-based industrial heritage can be preserved for the benefit of future generations. Thank you.

  Q356  Chairman: Thank you. Sir Adrian?

  Sir Adrian Stott: Thank you, Chairman. Five minutes on the future of the waterways starting now is worryingly like the rules of Mastermind, but I will do my best. My name is Adrian Stott. I have been active in boating and waterways organisations since I was a teenager. I own, travel and live in a barge. I have also been a district planning director, had a marketing business and been a management consultant specialising in real estate and the design of organisations. I believe all this gives me a good perspective on the management of the waterways. The Government has recognised the waterways as a significant national asset, however this has not resulted in remedies for their longstanding and increasingly damaging management problems. I dealt with several in my written submission but I will focus on only one for now: finance. Waterways can no longer support themselves through charges on their users, that is why the original canal companies went broke. The Government's insistence on increasing the share boaters must pay is simply driving away the less well-off and making boating an elitist pastime. Government financial support is both essential for the survival of the waterways and justified by the national benefits they provide and to recognise that over 90 per cent of waterways' users are not boaters. Waterways require a certain amount of maintenance each year. This cannot be avoided by not doing it as it simply accumulates. However, degradation accelerates, so catching up costs more. At the extreme, the collapse of an under-maintained embankment can cause not only huge reinstatement costs but also the risk of significant damage to other property and even loss of life. An ounce of prevention here indeed avoids a pound of cure, but the Government is withholding that ounce. To do its job at lowest cost, British Waterways requires a revenue stream that is secure, sufficient and consistent every year. So now the waterways are to be retained, the question is not whether or how much financial support is required but how best to provide it. BW currently depends significantly on government grant but, as the recent cuts show, this is insecure and variable, so it is a fundamentally unsuitable way to finance waterways. BW has developed other sources of income from running boatyards to putting cables under towpaths but it is unlikely that this can ever close the funding gap; waterways simply cannot be viable businesses any more. However, BW does have a funding source which can do the job, its real estate portfolio. Real estate is ideal for financing waterways, it is a long-term asset to match the long-term liabilities that waterways are. The income from it is secure. The property market does rise and fall, of course, but properly structured investment can even out the revenue fluctuations. However, the current portfolio is too small to produce the needed revenue. BW is competent in real estate as a landlord and a development partner. It merits trusting with more property. So the funding solution is provision by Government of a one-time endowment to British Waterways of sufficient additional investment capital to allow complete replacement of the unsatisfactory government grant with real estate revenue. Broad experience elsewhere around the world shows that this approach works. It deserves serious consideration by Government. Of course, improved management of its portfolio is producing a backlash on BW, especially from some boaters when valuable property that they have been using at low rents is redeveloped or moved to market prices. They are seeking to stop this process by discrediting British Waterways and, unfortunately, not all their tactics are respectable. It would be simply improper for British Waterways not to get the best possible return from its assets or to subsidise selected boaters. All claims for such treatment must be explained and refuted to any misled media and authorities. The model BW is built on, a commercial corporation operating at arm's-length from its Government shareholder, is arguably the best available for the waterways. Their return to a Civil Service approach with subjective distribution of benefits, waiting lists, arbitrary cost-cutting and so forth, would be a disaster. Funding under the Government's present approach is inadequate and not cost-effective. The public, the waterways and the Government will all be better off if this is remedied. The cure is clear, known, simple and affordable, it is also long overdue. Thank you.

  Q357  Chairman: Thank you, gentlemen. One thing I should have done, which was remiss of me, was to warn everyone to turn their mobile phones off, which I know you have all done anyway but it is just to reiterate that. If I could start and then the Committee will join in. Could I just ask you very quickly what your view is of the BW clearly stated objective, reaffirmed in the oral evidence that they gave to us, that they are moving towards a position of self-funding at some time in the future. Do you think that is ever a realistic proposition?

  Mr Davis: If I could start. My own opinion is no, it is not. I have never believed that to be the case. When I thought about this a bit more deeply, I did make reference in here to the waterways being just a huge national park. One of the problems is that if you try to leverage the waterways to that extent there will be a great danger that you actually destroy what you are setting out to preserve, and it is for that reason I have come to the conclusion that it just will not work.

  Sir Adrian Stott: The waterways cannot be financially self-sufficient for the reasons I have explained but they really do need to be financially independent. I am suggesting an income stream from the real estate which will be sufficient to cover the gap and the remaining revenue can and should be provided by the waterways themselves, but they cannot possibly cover the whole thing.

  Dr Woollam: My view, I think, is rather different from Adrian's. British Waterways should still get a grant from the Government but what they need to do is set out a long-term plan, a 25 year plan, shall we say, for what needs to be done in terms of maintenance and restoration. The Government should then ring-fence funds to pay for that because what they are doing then is paying for national heritage maintenance and in return my view is that BW should set out to be more competitive and should ensure that the way in which they operate is incentivised to allow the maximum taxpayer return for the money which they are being given.[3]

  Q358  Mr Jack: Sir Adrian, I would like to follow up with you something you just said and also is in paragraph seven of the summary in your evidence. You are strongly in support of what you describe as a "commercially-modelled arm's-length publicly-owned corporation".[4] On the other hand, in your opening statement you made clear that you have a personal commercial understanding of the property business. Given the weight that you put on the property arm and property development of British Waterways as a source of funding, is the business, this commercial organisation, properly equipped and properly structured to maximise the property potential, bearing in mind that according to whose evidence you read they may have assets of anywhere between half and one billion pounds? If you were starting up a property company like that you would be utterly focused on sweating those assets very hard, but the core business is looking after the navigational aspects. I am not clear, and I would be glad for both sets of witnesses' views, as to whether the current structure, skill sets, et cetera, are right to realise the potential of that commercial asset, bearing in mind the core business is running 2,000 miles of waterway.

  Sir Adrian Stott: Some years ago British Waterways was very inept in dealing with its property assets but it has made enormous strides since then and, as I said in my evidence, I think it now does have significant competence in that respect. If you look at some of the projects that it has been and is currently involved with there is clear evidence that is the case with major projects in city centres and much smaller ones out in the countryside. I believe that a businesslike approach overall is the way to get the best efficiency out of the waterways. Most of what Waterways has to focus on is actually running the track and network but any organisation works best if it feeds itself, so I think that having its own property expertise and expanding its use of that will make it much more reliable and effective. It has already got a good property team and I think the marginal cost of having that team manage more property assets is relatively small, so I believe that the endowment I am suggesting is highly cost-effective.

  Q359  Mr Jack: In terms of commercial risk-taking, in other words property developers if they are going to maximise assets under their management sometimes have to take risks which with effectively a publicly-owned body they might hang back a little bit, I am trying to get a feel as to whether the model as you advocate in your evidence is capable of being, in the entrepreneurial sense, as adventurous as a good property company should be taking into account the weight that both sets of witnesses put on the property asset side delivering an enhanced revenue stream to move away from the grant-based financing model which you both question as to whether that is the right way forward. I say that in the context of sustaining the funding.

  Sir Adrian Stott: The revenue stream is composed both of rents and capital gains. Certainly for the capital gains you need to be quite entrepreneurial. One way that British Waterways is approaching this, which I agree with, is to go into partnership with other commercial property companies, quite large ones, where British Waterways brings to the table its unique properties related to the waterways, which these commercial outlets could not gain access to otherwise, and they bring the specific expertise in financing and so forth, which at the moment British Waterways is prevented from doing, it is not allowed to borrow freely, for example. I think these partnerships have been working out rather well.

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