The EFRA Committee inquiry in 2007

1.  Last year, the Environment, Food and Rural Affairs Committee inquired into the work of British Waterways (BW). Our terms of reference were to examine how BW was working towards its ambition of creating "an expanded, vibrant, largely self-sufficient waterway network", in the context of the policies set out by the Government in its 2000 document, Waterways for Tomorrow, the 2004-05 policy review of British Waterways, and recent changes in Defra's budget.

2.  We reported in July 2007. We commended the commitment of Government, BW and individuals over the past decade to improving the waterways network, and their success in doing so. We said that the waterways network was a vital public asset, and that the Government had a responsibility to keep it in good order. We were 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. We recommended that BW and Defra work together closely to agree a CSR 07 settlement that ensured the long-term stability of the waterways network. We expected Defra to consider carefully BW's claim that additional capital funding would be necessary for each year of the CSR 07 period if its grant settlement continued to reduce in real terms. We considered it imperative that BW was granted every opportunity to deliver strategies that could help generate more of its own income.

3.  Our inquiry showed that relations between BW and its sponsor department in England and Wales, Defra, had been tense, and that communication between Defra and BW needed to be improved.

This follow-up inquiry

4.  On 4 February 2008 BW announced that with effect from April 2008 it was withdrawing from the Cotswold Canals Partnership, a collaboration with other partners including Stroud District Council, the South West England Regional Development Agency, the European Union, Gloucestershire County Council, the Waterway Trust and the Cotswold Canals Trust. The Partnership's aim is to restore the Stroudwater Navigation (7 miles/12km) and the Thames and Severn Canal (29 miles/46km) to form a link between the Thames and the Severn. BW said that its withdrawal followed a review of funding commitments for the next financial year and the diversion of significant funds to make progress with the urgent first phase of a repair programme for the Monmouthshire & Brecon Canal in Wales, which was expected to cost about £15 million over four years.[1]

5.  We announced on 22 February 2008 that we were reopening last year's inquiry into British Waterways as follows:

The Environment, Food and Rural Affairs Committee will hold a one-off evidence session on British Waterways (BW), to follow up its work in this area last year (Seventh Report of Session 2006-07, HC 345-I).

The Committee will take oral evidence from both Defra and British Waterways to examine BW's regeneration and restoration role, with particular reference to BW's decision to withdraw from the Cotswold Canal Partnership.[2]

6.  We received an unusually high number of memoranda—124. We are very grateful to all those who took the trouble to respond to our call for evidence.

7.  Most of the memoranda we received fell into one of three broad categories:

• A large number came from BW's regeneration partners around the country. The great majority expressed satisfaction with BW as a partner and support for BW in its work, and asked us to encourage this to continue. The large number of such responses is partly explained by the fact that BW told us that it had suggested to its partners that they might wish to write to the Committee with their views of their experience of working with BW.[3]
• Some supported the repair of the Monmouthshire and Brecon Canal. A few criticised BW for allowing such a breach of the canal to occur and for not having adequate contingency funding.
• A further group expressed concern about the decision to withdraw from the Cotswold Canals project. In these memoranda,

—  Some criticised BW on a number of grounds, including letting down partners, the short notice of the decision given to partners, lack of commitment to the project, risk aversion, and overestimation of future property income

—  Some accepted that the Monmouthshire and Brecon canal needed to be repaired, but thought that the Government should have paid for it or that BW should have asked the Welsh Assembly Government to pay the cost, so that the Cotswold project did not suffer as a result

—  Some people concerned with other projects believed that BW's wider reputation as a partner in restoration projects has been damaged and feared the same happening to them.

8.  This report concentrates on the changes to the relationship between BW and the Department for Environment, Food and Rural Affairs (Defra) over the last year, how decisions on its involvement in regeneration and restoration projects are made and what the decision on the Cotswold Canals Partnership reveals about BW's appetite for risk.

9.  There are several important developments taking place at the moment. The "Status Options Review", commissioned by BW from the consultants KPMG, is being prepared. This will examine whether a different institutional structure for BW could more effectively secure a sustainable long-term future for the waterways. In Whitehall, a new Interdepartmental Working Group is evolving. Finally, the new "Strategic Steer" from Defra to BW has only just been issued. With this amount of further work on the future structure of BW still being undertaken, we will no doubt wish to examine their conclusions in due course.

British Waterways

10.  British Waterways (BW) is a public corporation, established by the Transport Acts of 1962 and 1968, with a main purpose of "managing, maintaining and developing its network of waterways and docks for the wider public benefit". Its network consists of some 2,200 miles of canals and rivers in England, Scotland, and Wales, about half of the UK's navigable inland waterways system. Approximately half the UK population lives within five miles of a BW canal or river, and BW's waterways serve the centres of almost every large town or city. The organisation employs 1,800 staff, based in nine regional offices in England, Wales and Scotland.

11.  BW has estimated that it costs £124 million per annum, at 2006-07 prices, to maintain its network at the minimum acceptable standard. Of this amount, £35 million each year is required for 'major works' on the network, which includes repair work on both principal[4] and non-principal assets, and dredging. About £89 million per annum is required for routine waterways maintenance (minor repairs, vegetation management, customer service provision).[5]

12.  As well as maintaining its existing network, BW is involved in other activities including property development on land adjacent to its waterways, the restoration of derelict parts of the network, and the encouragement of freight transportation on the waterways.

FUNDING OF BRITISH WATERWAYS

13.  As a public corporation, BW operates as "a self-financing trading entity acting at significant arm's length from Government". This means it is required to run its affairs on a commercial basis, consistent with its statutory obligations, powers and objectives agreed with Government. BW therefore earns revenue from boat licence and mooring fees, utility sales, joint venture projects with the private sector and property development on the land it owns adjacent to its waterways. Its total income in 2006-07 was about £189 million. Since its creation, BW has also received substantial levels of Government grant funding. Sponsorship of BW is a devolved matter in Scotland so, since 2000, BW has received grants from both Defra and the Scottish Executive's Enterprise, Transport and Lifelong Learning Department.[6]

14.  In recent years, BW has had success with its commercial activities. Earned commercial income grew by 91% between 2002 and 2006. Commercial income as a percentage of total income grew from 39% to 60% over the same period. Earned commercial revenue is now BW's main source of income (see Figure 1), and BW believes it is likely to remain so in the future. Figure 2 shows the levels of BW's commercial income and Government grant since 1987-88; it clearly shows the increase in commercial income over the past decade.

Figure 1: BW's sources of income in 2006-07—total revenue £188.7 million

Source: British Waterways, Annual Report & Accounts 2006-07, page 1

Figure 2: Government grant to British Waterways over the past twenty years compared with BW's direct income

Source: Defra

15.  There are some constraints on BW's commercial freedoms because of its status as a public corporation. For example, BW is only allowed to operate commercially on those waterways it owns or manages. It is also subject to constraints on its ability to borrow.

2   EFRA Committee Announcement, 22 February 2008 http://www.parliament.uk/parliamentary_committees/environment__food_and_rural_affairs/efra_pn20_080222.cfm  Back

3   Q 1 Back

4   Principal assets are bridges, aqueducts, embankments, tunnels and reservoirs Back

5   British Waterways, Strategic Options Review, May 2007, para 4.1 Back

6   Defra is responsible for sponsorship of BW in England and Wales. The Department says it works closely with the Welsh Assembly Government.  Back