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Select Committee on Environment, Food and Rural Affairs Eighth Report

3 British Waterways' regeneration and restoration work

Benefits of waterside development

42. BW says that the Inland Waterways Advisory Council has estimated that:

In the first seven years after the public investment [in waterside regeneration], the direct economic benefits amount to about £6 worth of direct economic benefit for every pound of public money invested, and that the social and environmental benefits mean that this total benefit is substantially higher […] this is good value for the nation and, by now, the contribution of waterways development to both urban and rural regeneration should be widely recognised.

43. BW adds that this contribution is mostly realised as public benefit rather than direct financial benefit to British Waterways.[37] Defra, however, says that:

BW's investment in waterside property development/joint ventures with partners is supported not just because it might reduce Defra's financial commitment by growing the commercial business but because it can transform local economies and communities and is a strong contributor to regeneration and regional economic performance at the same time as enabling BW to invest more in the waterways over time.[38]

Regeneration and the expansion of BW's network

44. BW's memorandum points to its regeneration work and achievements, and the role of expansion of the network:

There are currently waterside regeneration schemes in progress on BW's network with a total value of approximately £19 billion. BW is participating in about £7 billion of those schemes. That participation takes a range of different forms depending on the size of the scheme, its relevance to the waterway and BW's own landholdings (if any). Planning permission or work on site is underway on 18 major schemes regenerating more than 33 hectares of waterside land. Most schemes are on urban brownfield land. […]

Waterway restoration has contributed to this regeneration success. During the last decade, some 200 miles of restored (or newly built) waterway have been added to the BW network. Currently, despite the difficult decision to withdraw from the Cotswold Canals Partnership […], BW is a partner in five major restoration/new build projects. These are Droitwich Canals, Helix Project (Forth & Clyde Canal), Liverpool Link*, Manchester, Bolton & Bury*, and the Olympic related Bow Back Rivers in London*. Three of these (marked*) are currently being constructed. BW expects these projects to be completed over the next five years and other projects to emerge to take the momentum on beyond that.[39]

45. BW told us in oral evidence that the current economic slowdown meant that proceeds from its regeneration projects were likely to come in more slowly than might have been expected before the summer of 2007.[40] BW aimed to obtain a 15% return on its development capital. In some cases it might not be willing to commit its capital to development projects.[41]

RESTORATION

46. Restoration of canals, as opposed to regeneration involving property development of brownfield sites adjacent to the water, is not usually of direct benefit to BW. It told us that:

Canal restoration may sometimes create opportunities for British Waterways to invest commercial capital on adjacent land to create commercial returns. However, the actual canal restoration is never commercially viable and has to be supported almost entirely by public or volunteer funding. In many cases canal restoration creates increased, albeit marginal, future maintenance costs for BW.

British Waterways' policy is that it does not in principle contribute capital or revenue to restoration projects. That is because the main benefits, both financial and non-financial, accrue to local organisations and people in the private, public and voluntary sectors. It is therefore right that projects should be driven by local enthusiasm and local priorities. […]

In reality, it is rarely possible for major projects to proceed without any funding input from British Waterways, particularly as more detailed due diligence of schemes tends to realise greater risks than were originally identified in outline proposals. Most funders fix their contribution up front before the full risk assessment is complete.

Consequently, British Waterways tends to act as funder of 'last resort' deciding how much to put in on a practical assessment of a scheme's benefits to British Waterways and to the wider community, its deliverability and the likely risk (of cost overruns etc) involved. There is a three stage formal approval process for making decisions to participate in waterway restoration projects.[42]

47. The process BW refers to applies in circumstances where BW may wish to commit more than £100,000 to a project or pay for more than 25% of a restoration project. Stage one can take that figure to £250,000 over five years. Stage two requires approval from the Board for developing the technical and financial feasibility of the project, based on how it measures against 12 headings (including benefits to BW and the network, and wider public benefits). Stage three enables BW to participate in a project to completion but requires 95% certainty on the cost of delivery and commitments from all funders. At present the BW board envisages an upper limit of £2 million for any project.[43]

48. BW says that "The ability of British Waterways to engage in the restoration of derelict waterways has also to be understood in the context of its statutory framework." BW says that the consequences of this framework are that:

BW's first priority for its own resources is to ensure that the commercial and cruising waterways are kept in (and in particular, when out of use, are promptly returned to) a condition that secures their general availability for public use.

Restoration of remainder waterways has to be done almost entirely with third party funds—the extent to which BW can devote its own resources (or carry financial risk/contingencies) is limited by the statutory economic test.

Potential for use as a cruising waterway lowers the threshold for the economic test—but such potential will usually require connection to the wider network, or prospect of a connection within a reasonable timescale.[44]

49. BW's primary remit was not regeneration: that was a "side benefit" of its activity, and that was why it wanted other people's money to go into projects to reflect their benefits to local communities.[45] It was unwilling to be the sole risk-taker in a project but its partners were usually unwilling to share those risks. Other partners often capped their contributions and there was pressure on BW to make a further contribution if the costs of a project rose. It was very difficult to be precise about what the final costs would be at the start of a project.[46]

50. The Inland Waterways Association (IWA) argues that:

British Waterways needs to revisit its strategy towards waterway restoration. Up until two years ago, British Waterways was far more positive in its attitude towards restoration, in some instances taking the leading role. The past two years have seen a significant decline in support at a senior level for waterway restoration.

Evidence at present indicates a BW attitude of "we will join in only if it is profitable for us". There are a number of projects that British Waterways has frustrated, obstructed or been unhelpful about, including the Grantham Canal and Pocklington Canal. IWA believes that British Waterways has an obligation, as the guardian of the nation's inland waterways, to promote and instil confidence in waterways restoration. British Waterways' current over-cautious and retreating stance is short-sighted and ignores the opportunities to develop for the public good.

The Inland Waterways Association believes that BW should be given a far stronger lead by Government, with expansion of the system as a key responsibility. Government should explicitly state that its expectation of BW is actively to support expansion of the waterways network. Expansion of the inland waterways should be established as a key Performance Indicator for BW.[47]

51. Defra's "Strategic Steer" says that:

BW's current vision is to expand the network and the Government remains supportive of this ambition in principle given the possible public benefits described. However the Government is not in favour of expansion if this compromises BW's ability to maintain the existing network through creating additional ongoing financial liabilities. Provided BW is satisfied that any such ongoing maintenance costs can be contained without such a risk, including without putting pressure on Government grant, we recognise that there will be particular circumstances where the multiple public benefits, including those to BW customers, of say connecting two separate stretches of canal can be significant. Restoration of unused canals can also capture the imagination of the public and produce tremendous volunteer resource but clearly—given the financial constraints—we would expect the capital funding to come from other sources than BW and Defra, e.g. RDAs or Lottery funds, and, as noted, that BW would seek to make sure its ongoing additional maintenance costs were covered by future return in some way. This also applies where restoration is to deliver wider regeneration benefits rather than waterways/BW business benefits ie where wider public benefits greatly outweigh future returns to BW. However Defra acknowledges that in exceptional circumstances BW might have to invest some of its capital on a de minimis seedcorn funding basis to get worthwhile projects off the ground.[48]

BW's withdrawal from the Cotswold Canals restoration project

HISTORY OF THE RESTORATION PROJECT

52. The Cotswold Canals Partnership is a collaboration of partners, including Stroud District Council, the South West England Regional Development Agency (SWRDA), the European Union, Gloucestershire County Council, the Waterway Trust, the Cotswold Canals Trust and, until April 2008, British Waterways. The Partnership's aim is to restore the Stroudwater Navigation (linking the River Severn with Stroud—7 miles/12km) and the Thames and Severn Canal (Stroud to Inglesham—29 miles/46km). This would form a link between the Thames and the Severn. Much of the original line remains, but significant lengths are in private ownership. The Cotswold Canals Trust has said that "the restoration of the Cotswold Canals is ranked near the top, if not at the top, of the priority list by waterway bodies and enthusiasts alike. Its strategic place as the missing link between England's two greatest rivers is unique".

53. £11.9m of lottery funding was granted by the Heritage Lottery Fund in January 2006, with British Waterways as the grantee. This formed part of a £27.6m package to restore the six mile section of canal (which has ten locks and six bridges) from Stonehouse to Brimscombe Port. This work would form the first of two phases of the project: Phase 1A would involve the restoration of the Stroudwater Navigation from Stonehouse to Stroud and 4km of the Thames and Severn Canal from Stroud to Brimscombe port, and the establishment of a walking trail to Saul. Phase 1B would see the restoration of the Stroudwater navigation between Stonehouse and Saul Junction. An application to the Big Lottery fund for Phase 1B was ultimately unsuccessful.

54. Stroud District Council, SWRDA, European Union, Gloucestershire County Council, British Waterways, the Waterway Trust and the Cotswold Canals Trust are funding partners in Phase 1A (the Cotswold Canals Partnership). BW agreed to provide matching funds of £6 million in association with the Lottery bid. Given that the normal limit for any single project is £2 million, BW said that this reflected "a strong commitment" on British Waterways' part to help the project go ahead if at all possible".[49] £1.5 million of the £6 million has already been spent.

BRITISH WATERWAYS' DECISION TO WITHDRAW FROM THE COTSWOLD CANALS PARTNERSHIP

55. On 4 February 2008 BW announced that it was withdrawing from the Cotswold Canals Partnership with effect from April:

British Waterways is today (4th February 2008) announcing its decision to withdraw from the Cotswold Canals Partnership from April 2008.

The move follows a review of funding commitments for the next financial year and the diversion of significant funds to progress the urgent first phase of a repair programme for the Monmouthshire & Brecon Canal in Wales, which is expected to cost in the region of £15 million over four years.

Announcing the news, Robin Evans, Chief Executive said: "We have thought long and hard over this decision and know it will disappoint our partners in the project. Ultimately, however, we have a finite pot of money and the needs of our existing waterways must take priority.

"Around 16 miles of the Monmouthshire & Brecon Canal is currently closed and will require significant investment from us over the next 18 months as we undertake a massive repair programme to reopen it. These works are essential for those businesses and communities that depend upon and contribute to the canal and we are committed to getting it up and running in time for the 2009 cruising season. […]"[50]

56. BW told us that the decision was made by the Board at its meeting on 24 January. The minutes of that meeting have not yet been published, but Stroud Town Council's memorandum annexed what it said were the minutes of that meeting obtained under Freedom of Information. These said that as well as the need to pay for the repair of the Monmouthshire and Brecon canal, and "the funding position generally", a crucial factor was the refusal of Stroud District Council to indemnify BW for any non performance in constructing the Brinscombe Port section of the project, leaving BW liable to pay back up to £14m to the Heritage Lottery Fund (HLF). BW thought it was unlikely that HLF would make such a demand, although it was still a risk; more likely, BW thought, was that the HLF and others would pressurise BW to step in and undertake or complete those works.[51]

57. BW's memorandum to us made the following points:

The Board made its decision in the context of BW's statutory duty, Government policy framework, and the funds it would have available over the next three years. It concluded that its participation in the Cotswold Canal restoration was no longer affordable, primarily because of the cost of reopening the Monmouthshire and Brecon Canal;
The Board was required to break even year on year.[52] It had no recourse to borrowing so achieving a balanced cash flow was critical. The Board could not over-commit and run out of money. In addition to the Monmouthshire and Brecon Canal costs, the Board was mindful of the extra costs involved following the flooding in 2007 and early 2008, the need to increase expenditure on repairs and maintenance towards achieving steady state, and cost overrun risks in all its repair and restoration programmes. On the income side the Board noted the concerns of boating customers about recent licence price increases and the opposition to further increases, the state of the wider economy which would be reflected in its earned income going forward and the very tight constraints on public spending;
The cost of the first phase of work to reopen the Monmouthshire & Brecon Canal would be approximately £7 million. The funding required for the Cotswold Canal restoration was expected to be at least £6 million. The Board was concerned that requirements for BW's contribution to the Cotswold Canals project had risen progressively from around £1.5 million to the current figure of at least £6 million;
In making its decision, the Board also took account of its other restoration commitments. These averaged approximately £2 million per project and all these projects would immediately be connected to the existing network, whereas the first phase of the Cotswolds Canals restoration would not be connected until some uncertain time considerably in the future, if at all;
The Board had done all it reasonably could over a number of years to back this restoration and it was with the greatest reluctance it decided to withdraw, primarily because of the costs involved in reopening the Monmouthshire & Brecon Canal;
BW had rigorously costed the work using its wide experience of waterway repair and restoration and had involved its partners in two technical and estates reviews in March and November 2007 and SDC led subsequent property workshops from April 2007. It had never experienced a restoration that came in under budget and that with current predictions for construction cost inflation, a cautious approach to costing is undoubtedly prudent and correct;
Given the time pressures on the Monmouthshire & Brecon Canal repair, BW took the view that it was necessary to be unequivocal in its announcement so that it could move to reallocate funds with absolute certainty. An announcement of a potential problem for funding followed by a slower subsequent withdrawal from the project when additional funding was not forthcoming would have been interpreted as a very hostile act by major funders such as HLF or SWRDA and would also potentially have jeopardised relationships with Defra;
BW was working hard to ensure its orderly withdrawal from the project and the partners' ability to continue to meet the original aims of the project, although it acknowledged this might now be at a slower pace; and
The physical work done so far, and the extensive design, technical and community work that had been undertaken, had laid the foundation for furtherance of those project aims.[53]

58. BW told us in oral evidence that it had not felt able to give its partners early warning of the decision to withdraw funding: not only would it be impossible to determine which partners were important enough to be given early warning, but BW also had to bear in mind that it would be unfair to let a decision affecting BW employees' future employment "seep out". BW's Chief Executive had, however, rung people in advance to warn them of the announcement.[54] This amounted to minutes in some cases and often resulted in a message being left on an answerphone which meant that individuals heard the formal announcement first.

REACTION TO BW'S DECISION

59. The Inland Waterways Association—which campaigns to restore waterways—was "highly critical" of BW's "sudden withdrawal" from the Cotswold Canals Partnership. It believed that BW's action had:

jeopardised the hard work and financial commitment of BW's former partners in the Cotswold Canals Partnership, including the thousands of volunteers giving of their own time and money; and

undermined the confidence of many other organisations either involved, or anticipating being involved, with BW in other waterways restoration projects.[55]

60. The IWA says that the decision came without consultation or warning and was a "huge shock":

[t]his lack of consultation by British Waterways was ill-judged, ill-mannered and left partners flatfooted and unable to respond with alternative plans when contacted by the media […] To date, British Waterways has failed to consult in depth with its partners regarding its decision and has not communicated its thinking, financial situation or other reasons for its decision to withdraw.[56]

61. The Cotswold Canals Trust said that:

Long before the DEFRA funding cuts and the Mon[mouthsire] & Brec[on]problem, BW had been showing signs that they were not wholeheartedly committed to the Cotswold Project. […]

Coupled with inadequate project management came a near obsession with risk and an unwillingness to get the project moving. The minutes of BW Board Meetings in 2005 show that they were anticipating the real possibility of pulling out even then. […]

In January 2006, HLF [Heritage Lottery Fund] confirmed their grant to the Cotswold Canals Project and the works were expected to be complete in 3 years. Incredibly, no project manager was put in place until January this year; the same month BW decided to withdraw. Instead, the intervening two years were occupied by yet more risk reviews either centred around engineering costs or lower potential property development returns whilst a small number of relatively junior BW engineering staff struggled to get the project going in the face of little support from senior management. […]

Delays in the project have wasted about £3m in inflation costs alone. For a long time now, the biggest risk to the project has been the constant review of risk resulting in the failure to get on with the job. The delays have also put other time related third party funding at risk. […]

The Cotswold Canals Project remains entirely viable, technically deliverable and remains highly desirable. CCT and Stroud District Council working together are determined to see the project through and it won't be hard to make a better job of it. The biggest problem we face is keeping the funding package intact. BW is perceived as the national body with all the expertise needed to successfully restore, operate and maintain canals; their withdrawal from any project can therefore have catastrophic consequences. There is already evidence that future funders have already been put off by BW's actions.[57]

DEFRA'S VIEW

62. Defra makes little reference to the specifics of the case, but its view is that:

Given maintaining the existing network is our agreed main priority, Government supports British Waterways' restoration activities only where there are overriding benefits and where new cost streams do not compromise its ability to maintain the existing network in good order. Although restoration projects may bring regeneration benefits, there are ongoing costs to British Waterways which need to be carefully assessed for affordability. In addition, British Waterways often carries the risk of the project when it acts as project manager (in the case of the Cotswolds Canal Project, this had doubled to £6 million and could be more). Whether or not to engage in restoration projects is clearly a matter for the British Waterways Board in the light of the need for it to carefully assess the wide range of costs and benefits and alternatives together with existing pressures. Central government is not well placed to decide between restoration projects across the country or fund them through the grant to British Waterways which is to maintain the canal network. These projects benefit local communities and it is for regional and local funding providers to decide on priorities and what should be supported. Whilst some modest seedcorn funding might be appropriate, Government does not believe it is for British Waterways to carry the risk and responsibility for restoration projects—beneficiaries should share the burden.[58]

63. BW says that under its guidance from Defra, "a decision of this kind is clearly for the BW Board to make".[59] In answer to a PQ from Mr Drew, the Minister Jonathan Shaw said on 18 February 2008:

On Monday 28 January, DEFRA officials advised me that British Waterways (BW) had informed them that the board had decided to withdraw from the Cotswold Canal Partnership. BW asked that we allow them time to inform their staff and the most affected stakeholders in advance of the Press Notice which was issued on Monday 4 February.

We have always made it clear that, whilst we welcomed the project, this was a matter for the BW board. I was aware that BW had many new pressures on their budget, particularly in relation to the Monmouthshire and Brecon Canal breach, and that they were concerned at their overall level of exposure. It is for the BW board to decide how best to manage risk, taking into account both the interests of all stakeholders and BW's public policy objectives.[60]

Under Defra's new "Deal" with BW the organisations have agreed to work together on stakeholder engagement and have adopted "a 'No Surprises' policy, giving advance notice of intent, sharing press notices in advance and problems arising".[61]

Our views

64. BW says that it seeks to expand the waterways network, though not at the expense of the existing network in its care. It has a policy that in principle it does not contribute its own capital or revenue in canal restoration projects, although it accepts that it sometimes needs to act as a funder of last resort, with an upper limit normally of £2 million per project. This approach is reflected in the system BW has had since 2005 for approving funding for such projects. Defra has also recently given BW a clear steer that it should give top priority to maintaining the present network. These factors mean that BW has to be extremely cautious in committing its capital to canal restoration projects. They also mean that such projects are vulnerable to losing BW funding if there are sudden calls for funding to maintain the existing network, as was the case with the Cotswold Canals project. Such decisions may have to be made by BW without it being able to take account of their effect on others, but they will involve lost opportunities to create external benefits such as housing, income and employment, and a great deal of frustration and disappointment in areas whose schemes have funding removed. It is much worse for all concerned for BW to commit money to a restoration project and then withdraw it than not to commit it in the first place.

65. BW and Defra are both well aware of the wider benefits of waterways restoration, but we accept that these benefits generally accrue to local organisations and people in the public, private and voluntary sectors. BW feels that it, rather than its partners, carries the risks associated with restoration projects. This view is certainly not shared by the other partners involved in the Cotswold Canals regeneration. In the present financial climate BW cannot be expected to take on substantial risk in order to secure benefits for others without help from government and its agencies. If there is wider public benefit to be obtained from a restoration project then the public sector agencies responsible for procuring those benefits, not BW, should not only put up the money for the project, but also bear the risk. Defra, in cooperation with British Waterways and other interested government departments and public bodies, should develop a transparent mechanism to score and prioritise public investment in canal restoration according to the external benefits that such spending would create, and should agree principles as to how the financial risks of such projects should be borne.

66. BW should also reappraise the implications for its long term financial strategy of constraining its enthusiasm for restoration projects. Such ventures can provide BW with new income streams when canalside developments on BW land are associated with such projects. It is likely that BW will need increasingly to rely on income from canalside developments in the future. A reduction in restoration projects involving BW may therefore in the long term adversely affect BW's move towards achieving an even greater degree of financial self-sufficiency.

BW'S DECISION TO WITHDRAW FROM THE COTSWOLD CANALS PARTNERSHIP

67. BW's involvement in the Cotswold Canals project from an early stage clearly gave comfort to all its partners that ultimately committed themselves to this project. Their support was a crucial ingredient in enabling the financial consortium necessary to see this project through to completion to be assembled. With this in mind we believe that BW should have consulted earlier with its partners to enable them to consider whether alternative funding could have been put in place before BW's withdrawal from the project was put into the public domain.

37 Ev 1 Back

38 Ev 26 Back

39 Ev 1 Back

40 Q 65 Back

41 Q 69 Back

42 Ev 39 Back