JONATHAN SHAW MP, MR ROBIN MORTIMER AND MS SARAH NASON

19 MARCH 2008

  Q160  Paddy Tipping: The extension of the restoration of the network is really very popular and if more could be done people would be happy, but people who have been in touch with us are unhappy because they are saying that up to two years ago BW were keen and focused on extension but now the emphasis is on property development. Is that a fair comment?

  Jonathan Shaw: No, I do not think that is a fair comment. If we look at Manchester-Bolton-Bury and the regeneration that is going to come there and Liverpool, Stourport, there are examples of where we are going to see the network extended, so I do not think that it is a fair charge to say that they are only interested in property. Obviously the property investment brings with it huge regeneration and I have visited myself those sites in Loughborough and Birmingham. A whole range of different people enjoy the waterways. I have met the various representatives of the stakeholder groups and whether it is in the non-rural areas or in the countryside, the extension of the network continues and continues at a pace.

  Q161  Paddy Tipping: I think I will get you to come and have a look at the Grantham Canal because you are clearly an enthusiast on this, but could I just ask you what the Strategic Steer says about the extension of the network and the balance in that?

  Jonathan Shaw: Our first priority is maintaining the network. It follows, does it not, if we increase the network then that is further pressure on the grant that we give BW. It is always about the balance that needs to be struck. More people are using the waterways these days and there is a whole raft of different organisations and voluntary groups wanting to see extensions to parts of the network, and those have to be weighed up. During the recent adjournment debate a number of colleagues pressed examples from their own constituencies of where they wanted to see investment. In terms of the amount of money that BW have, they have to look at the best opportunities that are going to maximise benefit across the piece, whether that is to people using the waterways, whether that is boaters, whether that is walkers, whether that is regeneration, so those are the decisions that BW has to take.

  Q162  Paddy Tipping: Surely it is right to acknowledge that measuring public goods, such as walking along the waterways or restoration of a habitat, is harder to quantify than is a straight property development scheme?

  Jonathan Shaw: We have important PSA targets in terms of the natural environment. We need to measure that and we do measure that. It is not as straightforward as seeing properties being put up, as you say, but this has to be part of the equation.

  Q163  Mr Drew: If we can move on then to the Cotswold Canal. I have said in all my articles that I was shocked but not surprised. Given we are now led to believe there are these very good communications between BW and the Department, how much knowledge did you have before the infamous announcement at the end of January that they were pulling out of the Cotswold Canal?

  Jonathan Shaw: In the conversations I had had some months previously with BW they were enthusiastic and wanted to see the Cotswold Canal go forward, but clearly following the breach of the Monmouth & Brec they had to consider their priorities, and obviously their priority is maintaining the network, of which the Cotswold is not part. The effect upon businesses and folk living in that part of Wales required them to re-look at their priorities. I knew that when that happened that it was going to be enormously costly, and we did have some discussions about that, but the board met and they took their decision and then they informed the Department. I think that was the right thing. It did not come as a huge surprise given that I knew what the financial situation was and the costs and the immediate imperative of getting Monmouth Brec sorted out. It is very disappointing and I know that BW are disappointed and if it had not been for Monmouth & Brec, we would not be having this discussion.

  Q164  Mr Drew: But does it not at least worry you that effectively you have an organisation that potentially has left an English responsibility to go off into Wales, no matter how direct the repercussions of not bringing their work up-to-date? We know that BW are receiving money from the Scottish Executive. There is a bit of a game going on in terms of the relationship between other territorial administrations and Defra. Defra is hard-pushed for money at the moment and so we have got alternative sources being sought by organisations such as BW. I am not saying that is the reason the breach happened, although we did get some interesting evidence from a civil engineer that I mentioned in yesterday's session alleging that this was down to poor maintenance on the part of BW. It is not a happy scene if you have really got to look for alternative sources of money given again that we have now got a partnership which is in jeopardy which puts at risk £30-odd million. How do you treat this as an English minister, you are a regional minister in the south east, and we have got the potential of some conflict of how you raise sources of money?

  Jonathan Shaw: There is no conflict: I am the Waterways Minister for England and for Wales. Waterways is not devolved to Wales whereas it is in Scotland. Scotland appoint onto the British Waterways board; the Welsh Assembly does not.

  Q165  Mr Drew: So if they get money off the Welsh Assembly that is double funding?

  Jonathan Shaw: They do not get money off the Welsh Assembly.

  Q166  Mr Drew: But what happens if they seek money from the Welsh Assembly?

  Jonathan Shaw: That is a matter for the Welsh Assembly in the same way as Stroud Council will put in money, it is the same for anyone. I do not think that there is any conflict there. I do not think there is a devolution tension there at all. As I say, I am the Waterways Minister for England and for Wales and that has worked well and I do not see that it is about an England/Wales matter, it is about a priorities matter. The Member for Brecon and Radnorshire is not here but he would obviously agree with the priorities here.

  Q167  Mr Drew: It is mainly in Lembit's area by the way.

  Jonathan Shaw: Well, okay, I still think he would agree.

  Q168  Mr Drew: I am not sure about that.

  Jonathan Shaw: I think he would agree that that is the priority in the set of circumstances, but of course whereas they have been pleased with the response of BW, for your constituency, David, I know that is a huge disappointment and I know that that is one that BW shares. You have asked them would they have continued if it had not been for Mon & Brec and they would have done. That is where we are.

  Q169  Mr Drew: Yesterday we had quite a lot of information around the issue of BW's relationship to partnership in terms of a number of canals which have, in previous times, been successfully delivered. Does it worry you at all about the reputation of BW because BW put itself in the position in terms of the Cotswolds Canals as a lead partner, and that certainly has a knock-on effect in terms of Heritage Lottery funding because of course Heritage Lottery funding is dependent upon a lead partner being clearly identified, and if the lead partner leaves that partnership then of course there are some difficulties as to whether that money will still stay in place. What is your advice to BW in terms of other restorations, existing restorations, and whether they should put themselves in the frame as a lead partner?

  Jonathan Shaw: I suppose what is fair to say is look at the track record. This situation with the Cotswolds is not a fair reflection of the record, it is a set of circumstances which an organisation found themselves in, they needed to make a decision and they have done that, but if you look across the piece at some of the examples that I have referred to where they are establishing very, very good partnership working, it has delivered and it will continue to deliver. Certainly when I have visited a number of regeneration projects on the network, there to tell me how well things have worked have been Loughborough Council, Birmingham Council and the RDAs, so the only impression that I have been left with in terms of the visits that I have made and the people I have spoken to is that where BW have gone into a partnership it has been a strong one and, importantly, it has delivered, but not in this case. There is a unique set of circumstances here, one of which is, I repeat, hugely disappointing, but one that had to be taken in light of the priority that they faced, given what happened last summer in Wales.

  Chairman: Could I just bring Patrick Hall in because he has a question he wants to ask.

  Patrick Hall: It is not on the Cotswolds Canals project.

  Chairman: I thought we were going to have the benefit of your view on that.

  Patrick Hall: No.

  Q170  Chairman: Just before we bring you in, Minister I just want to probe you a little bit. One of the reasons why I was looking at your Strategic Steer earlier on was to try and get a feel for the relationship between the wider benefits of BW investment projects and the narrower requirement in the first instance to maintain the canal network and then to do development. When I look at British Waterways' website information, the Liverpool Canal Link according to what is stated here—and Robin Evans will no doubt correct me if I am misquoting here—the Liverpool Canal Link is a £20 million project, and then it lists an impressive number of gains. For example, it says an estimated 200,000 visitors annually to the Liverpool waterfront, spending an extra £1.9 million a year—part of that is going to be in somebody else's pocket but that is quite a lot of spending—and an estimated £2.2 million extra expenditure annually on boating-related activities. It talks about 173 net additional jobs and an extra £3.3 million per annum in net additional gross value added to the local economy; very impressive figures for a regeneration project. When I then went on to the Cotswolds Canals Partnership website, I find that the project that Mr Drew has just been quizzing you about is stated by them at around £24 million, so £2 million difference, and it cites for example redevelopment, two key sites expected to create 600 new permanent jobs, it talks about £83 million worth of private sector investment and it talks from the visitor's standpoint of spending in excess of £500,000. Again, equally impressive. What I am not clear about is how, when it comes to determining the investment decisions, do you value the wider gains? Here we have two projects, one that has happened—the Liverpool Canal Link—and the other, the Cotswolds project, which has been pulled. How do you deal with the valuation of these externalities and what influence do they have in determining which projects get the tick in the box and which do not?

  Jonathan Shaw: The projects do vary in terms of the amount of money that BW are able to put in and obviously the amount that they put in in terms of their exposure to the risk. The Cotswolds Canals project is not part of the network whereas, obviously, Mon & Brec is.

  Q171  Chairman: I appreciate there is an opportunity cost, but the question I asked you was about how you actually value these external gains before we get into the question of the amount of money that happens, because in your Strategic Steer you talk about things like regeneration and regional economic performance as factors which have got to be taken into account, so there must be a method of determining, if you like, the returns. When you look at the returns there is a set of returns for the property development, the things that BW do, and the reason I read out in some detail what the two projects were supposed to contribute to the wider economy, there is a public benefit, they do not come back to BW in the form of receipts, but in terms of the Strategic Steer that talks about regeneration and regional economic performance; quite clearly both projects have a plus point on that. What I am not certain about is in the use of these scarce public funds how, if you like in cost-benefit terms, we rank the projects that are in and the ones that are out, because what I do not know obviously in terms of the Brecon & Monmouth canal is that there may be an even better rate of return than either of these two, but I am not quite seeing from the information in front of me how these rate of return calculations are determined.

  Jonathan Shaw: The amount of money varies from how much BW put in. You have mentioned Liverpool, and I am advised that in the Liverpool venture BW put in £2 million, so that is considerably less than some of the other projects, in particular the Cotswolds. They need to consider and it is for BW to determine how much they are able to put in and how much they are going to get out in terms of the public benefits.

  Q172  Chairman: That is not quite the question I was asking; forgive me if I did not put it correctly. It is how the external gain is valued. For example, if we look at the funders for the Cotswolds Canals, it is quite clear that the South West Regional Development Agency think it is a good deal because, according to the document here, they are putting in £6 million.

  Jonathan Shaw: Yes.

  Q173  Chairman: According to Stroud District Council they think it is obviously a jolly good idea because they are putting in nearly £1.4 million. Sadly I do not have the breakdown of the funding for the Liverpool project, but I suppose it is like everything else if you come down in straightforward cost-benefit terms. I agree with you that BW have limited capital to dispose of and they must therefore look from the narrow BW point of view at what kind of returns they as a business are going to get out of their investment, but these investments and their returns are inter-dependent on what other partners put in, so when you are looking at the project as a whole there is, if you like, both a commercial and a wider economic rate of return, and those must by definition have some influence on the rankings of projects and the willingness of partners to make investments in them. I suppose what I was looking at was you have got this Liverpool one at £20 million, you have the Cotswolds £24 million, similar-sized projects, one is in and one is out: how do we deal with the wider rates of return to the local economy and others?

  Jonathan Shaw: Chairman, can I drop you a note on that? I am getting lots of conversations behind me but I will drop you a note. Finish it off and then I will drop you a note to provide you with the detail as to how BW score it when they make the investment.

  Chairman: That is going to enable us to have a look at these wider gains to the wider economy. Peter.

  Sir Peter Soulsby: Can I just put it in a rather different way?

  Chairman: That is better, that is polite for better.

  Q174  Sir Peter Soulsby: We shall see. You described BW as having to make a judgment about how much they put in and how much they get out in terms of the public benefit. Is it not a problem that often what they get out is a liability as far as BW is concerned?

  Jonathan Shaw: Yes.

  Q175  Sir Peter Soulsby: Is that not really the heart of the problem with this?

  Jonathan Shaw: They need to consider how much risk they are exposed to, that is right, and the liability in terms of the maintenance and so on.

  Sir Peter Soulsby: Actually, there can be enormous public benefits but what BW gets is a liability, and the circle really is not completed so that they get some reward for having taken the risk.

  Chairman: Peter makes an extremely good point and in fact we are very much appraised of the fact that BW cannot go on taking on endless liabilities when they have not got the income to sustain it, that is very clear. Bearing in mind that the Government's overall economic objectives in these kinds of projects is about regeneration and the wider benefits, you could argue that the wider community might want to say "Okay, these wider benefits are worth having so within the great public mix of funding we ought to put a bit more in to make these things happen, a little bit more financial oil to make some of these projects occur because of the greater benefit". Part of that you might say is already happening because other public sector partners quite clearly are investing already, but it is how do you value these externalities, which is the thing that really interests me. If a note on the scoring, as my more elegant and better-informed colleague says, helps us to understand that, please we would like to receive it.

  Lynne Jones: Could I just add to that and could we consider how the private sector that benefits from that investment might be enabled to contribute more?

  Patrick Hall: I said that my point was not about the Cotswolds project, but neither was yours, Chairman.

  Chairman: I have just painstakingly read out from the website and my question was in order.

  Q176  Patrick Hall: The illustration was the wider issue and that is all I was going to deliver, so probably I do not need to go into that detail. I was going to use the example of the Bedford and Milton Keynes Canal which is enthusiastically supported by many people in that area and that would link the Grand Union with the River Great Ouse, so it has got all sorts of wider implications as well as regeneration in one of the Government's growth areas. I suppose it is the same point really, how does one weigh up the costs and the benefits, especially the wider benefits to the economy, in this case probably local and regional. When it comes to making decisions about priorities, do events always have the ability to disrupt like the Monmouth example which has undermined a very good project in the Cotswolds? You made some comments, Minister, about growing the network, but I thought you had cast some doubt on the efficacy of growing the network and the cost-effectiveness of growing the network, but at the same time you acknowledge that there is a growing use of the waterways. If there is growing use of the waterways and there are projects around which can grow the waterways even more and have wider social and economic benefits, then we come back to the point that maybe it is worth growing the network, but we cannot grow the network because we have to maintain the existing one and deal with events. We have to think of a way through to break out of that, otherwise we end up being continually frustrated and wasting energy and not really getting things done. I leave that in the air because, Chairman—and I was not criticising your point by the way about Liverpool—it is the same point. You are going to respond in writing.

  Jonathan Shaw: Do you want me to respond?

  Q177  Patrick Hall: You do not have to. You said you were going to respond in writing and I am just using another example.

  Jonathan Shaw: I will not respond to every question in writing otherwise there is no point in me coming along. We have grown the network—it is about 200 kilometres that we have grown the network—and there are a number of projects that will link up the network and grow the network further. It is a matter for BW to look at as to how they manage that, how they can afford that, because obviously further growth means additional maintenance work. At the moment we do not have the levels of investment that we had a few years ago, that is clear, but we did take full advantage of that and we hope that we will see further growth of the network in the years to come, and part of the process of the status review, talking about borrowing et cetera, will hopefully enable that to happen. That is certainly our aspiration.

  Q178  Patrick Hall: The follow-up that occurs to me on that is that I do not think anyone would sensibly expect British Waterways to fund everything, and in the examples you have given it is a part contribution, but even if there has to be a withdrawal of some of the funding, maybe the leadership role of British Waterways should remain, and yet that has been withdrawn from the Cotswolds project, which undermines confidence from all sorts of other partners. Maybe the leadership role should remain even when sometimes the money or the programme for the money has to be changed. If we had a more positive role of British Waterways supporting the Bedford and Milton Keynes project, even though it is not going to pay for all of it and certainly should not pay for all of it, there is no question of that, then certain other things might follow.

  Jonathan Shaw: They do lead on some projects where they are not necessarily the funders or the key funders, but obviously the organisation has resource issues in terms of the number of people that it is able to deploy around the various areas of the network that it has and the jobs that need to be done.

  Q179  Chairman: We have had the Bedford and Milton Keynes bid, the Cotswolds Canals.

  Jonathan Shaw: This is a surgery.

  Chairman: This is true, but I do not want to leave my colleagues frustrated, so if anybody else wants to talk about their own favourite project I could, Minister, entertain you.

  Lynne Jones: Dudley No 2.