UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 345-iii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

ENVIRONMENT, FOOD AND RURAL AFFAIRS COMMITTEE

(BRITISH WATERWAYS SUB-COMMITTEE)

BRITISH WATERWAYS

Monday 12 March 2007

MR GAVIN DEVINE, DR HEATHER LEGGATE, MR JOHN DODWELL

and MR TIM WEST

MR ROBIN EVANS, MR TONY HALES and MR JIM STIRLING

Evidence heard in Public Questions 207 - 353

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

(British Waterways Sub-Committee)

on Monday 12 March 2007

Members present

Mr David Drew, Chairman

Mr Michael Jack

Sir Peter Soulsby

Mr Roger Williams

________________

Memoranda submitted by Sea and Water and Commercial Boat Operators Association

Examination of Witnesses

Witnesses: Mr Gavin Devine, Director, and Dr Heather Leggate, Director, Sea and Water, Mr John Dodwell, Chair, and Mr Tim West, Parliamentary and Local Government Liaison, Commercial Boat Operators Association, gave evidence.

Q207 Chairman: Good afternoon, everyone. Welcome to the third session of the Sub-Committee's investigation into British Waterways and associated issues. Our first session is one which is going to really concentrate on freight for commercial uses. We have got four witnesses, Dr Heather Leggate, Director of Sea and Water, Gavin Devine, Director of Sea and Water, well known to some of us, Mr John Dodwell from the Commercial Boat Operators Association, who is the Chair, and Mr Tim West, who is the Parliamentary and Local Government Liaison. If I could start with a general question to all of you. I think one of the things which struck us in the evidence we have taken so far, both oral and written, is that there seems to be a very different view on what potential there is to be gained from investing in greater use of freight on the inland waterway system. If I am a potential investor, what would you say to me are the advantages of me moving my operation from road to water or, indeed, even from rail to water, Mr Dodwell?

Mr Dodwell: I would ask you first, Chairman, where your business was and the reason is this. I think you can split the waterways broadly into four categories. You have those off the estuaries, you have what are the British Waterways' commercial waterways, the Aire and Calder up to Leeds, another one up towards Rotherham, the River Trent, the River Weaver, the River Severn and such like, and then you have the smaller waterways. The smaller waterways are limited in some cases to seven-foot widths which gives you a payload on the craft of about 20, 25, if you are lucky 30 tonnes and moving that a long distance the labour economics are against you. However, if you are moving it within an urban congested area, such as London or Birmingham, both of which now have got trade quality partnership studies going on on what can be moved, then it is a completely different matter. Coming back to your basic point, I would say to you change because it is cheaper. There are cases at the moment, Bayford Fuels takes oil up to Leeds because it is 20 per cent cheaper. We have a large amount of aggregates being moved around the country. The aggregate industry is known for a low cost product and, therefore, transport costs have to be low and they do it because it is cheaper. There is obviously the environmental argument which perhaps Heather would like to expand on.

Dr Leggate: Clearly there are other concerns as well for businesses, and John has just mentioned the congestion issue, there is also the environmental issue.

Q208 Chairman: Can you perhaps outline for us what further environmental changes would make marginal waterways really come into the game plan of government and business for much greater use as a freight vehicle?

Dr Leggate: I am not sure we are talking about environmental changes but certainly when you look at the statistics, inland waterways as a form of transport is more environmentally friendly than road and, indeed, rail in terms of carbon emissions and nitrogen oxide. This is appealing to a number of players in the corporate sector in terms of their corporate and social responsibility strategies, and they are looking at the water because of the environmental impact and also in terms of congestion because congestion is becoming such a problem in terms of the roads and lorries on the roads. In fact Sea and Water did a survey which is about to be published of business attitudes to water freight.

Q209 Chairman: Is it possible that you could send us a copy of that because that would be quite interesting?

Dr Leggate: Yes, I can.

Mr Devine: I was only going to echo what Heather said. The point about water freight being a much smaller emitter of carbon is well known and the figure is somewhere between a quarter of the emissions and 20 per cent of the emissions of carbon per tonne kilometre by comparison with road. As Heather says, that is increasingly attractive to a number of players and not just in the traditional sectors of aggregates and waste and so on, but also in the retail sector for products that are not time-sensitive. Even for products which are time-sensitive, the great thing about inward waterways is you can be very certain about when things will appear which is not necessarily the case when they are transported by motorway.

Chairman: Let us look at one particular potential use and that is the Olympics, Michael.

Q210 Mr Jack: I was interested to see in the CBOA's evidence that you say in paragraph 2.10: "There is currently an undoubted opportunity in East London for the development of freight contracts in connection with the 2012 Olympics", and then, low and behold, on 28 February British Waterways issue a glowing press release giving us lots of numbers and telling us how it is all going to be absolutely wonderful and there are lots of opportunities. What do you make of this press release? Is it reality? Is it going to happen? Is it going to realise the potential or not?

Mr Dodwell: Yes, is the answer.

Q211 Mr Jack: Good, we will move on to the next question then!

Mr Dodwell: Perhaps the reason why is that is a good example of everybody pulling together. In the press release you can see the Olympic Delivery Authority mentioned, Transport for London, the local development corporation and, also, organisations like ourselves, Sea and Water and a whole host of other people, including Members of this House, have joined in putting the pressure on to get that lock built. The contract has been placed for the work, so yes, it will happen. That lock will be built to take barges which can take 350 tonnes. The next thing is to make sure it is actually used. I can give you what I hope is some good news, the aggregate industries in the area, Semex, Hanson and the others, have been pressing for this lock and have been pressing for a quick decision so they can then gear up to help the craft because they intend to deliver by water. As you probably know, it is not just the Olympics, there is the much acclaimed legacy which to us means there is a 15-year development programme in Stratford City which is going to be as big as Canary Wharf, so we have got 15 years of construction work and waste to be taken away. Fingers crossed, it will be an example of what could happen in other parts of the country.

Q212 Mr Jack: Let me move on because you have given a very good indication. I do not suppose there are any numbers we can attach to it in terms of the size of freight movements which would be diverted from road?

Mr Devine: The capacity is up to 7,000 tonnes of construction materials a day during the construction phase and that is approximately 140,000 lorry journeys to be taken off the roads and that is 4,000 tonnes of carbon.

Q213 Mr Jack: I raise a speculative thought that there ought to be a mechanism of giving you some carbon credits which could be sold or valued to recognise the transfer to help pay for this type of investment. Has anybody done any kind of clever work? For example, could this be part of the EU Emissions Trading Scheme?

Mr Dodwell: I saw in the previous evidence you raised the point, Mr Jack, so I am pleased to have a chance to answer it. So far as I am aware, in the whole transport sector there is not the equivalent of carbon trading as there is, for example, in power stations. There may be a lot of commercial reasons why people would resist having a carbon trading scheme but it exists in other industries and I would welcome the EU pushing it into the transport sector because there are significant carbon advantages, as you have heard from Gavin.

Q214 Mr Jack: Let us move on because that same paragraph which you wrote enunciated what you gave in your introductory comments about those parts of the canal system which you thought had the best chance of developing new freight movements, but what was lacking was any indication as to the potential in terms of tonnage or substitute road movements. I think one of the frustrations is - and I know British Waterways are going to give evidence now - if I look at page 30 of their annual report, effectively what we have got is about a quarter of a page throughout this quite big document which is devoted to freight and that is it. You think there is potential, what is it? Do you think BW are committed enough to realising that potential?

Mr Dodwell: In terms of potential, if I look at three recent traffics, by recent I mean in the last three, four, five years, Lafarge now move 250,000 tonnes a year from a gravel pit near Newark round to Wakefield. Semex move about the same tonnage on the River Severn around Tewkesbury, around Uxbridge there is about 60,000 tonnes a year which started two or three years ago. There is a new wharf at Willesden on the Grand Union Canal when it runs into Paddington, of particular significance because it is 26 miles there without any locks. That has a construction waste recycling plant there and has already been receiving some construction waste by boat. The expectation is they will crush concrete to make a secondary aggregate and mix it with what we call "primary aggregate". That will mean bringing some thousands of tonnes a year into that wharf.

Q215 Mr Jack: All of that sounds very good, Mr Dodwell, but the facts which have been elicited from a parliamentary answer show that in 2000 we had 4.3 million tonnes of waterway derived freight, but that had dropped to 3.4 million in 2005.

Mr Dodwell: You are referring to an answer, 27 February?

Q216 Mr Jack: Yes.

Mr Dodwell: Good. The main reason there is Ferrybridge Power Station. Ferrybridge Power Station used to receive coal from Kellingley colliery. It had got too much sulphur in so they stopped taking some two million tonnes a year. The new owners have put in a desulphurisation plant. The operators of the craft have kept them. They are a large public company, they would not keep them for no good reason. The expectation - and that is possibly too high - is that traffic will resume maybe not at two million tonnes a year because in the meantime they have received imported coal, but that is the reason for the big drop.

Q217 Mr Jack: From your standpoint, do both of you think that BW is committed to freight, bearing in mind, as I understand it, they closed down their specialist freight department and farmed the work out into various unnamed regional offices? Mr Devine, you are bursting to give us the answer!

Mr Devine: British Waterways faces some challenges in the form of the resources which it has been given this year and going forward and, in our view, it is also answerable to the wrong government department. In that context, we believe that it is unlikely to prioritise an area of work which it perceives as small and possibly the past in advance of something which makes it a great deal of money, which is property development and, indeed, what they are charged by ministers to do, which is to provide access for leisure users. Freight comes down the list of priorities, and it is our belief that in a situation where it faces an extremely challenging resource position it will not prioritise freight under those circumstances. We believe the closure of the freight unit is a manifestation of that.

Q218 Mr Jack: Mr Dodwell, what is your view?

Mr Dodwell: The closure of the central freight department is disastrous. We have taken it up with British Waterways.

Q219 Chairman: Did they consult you about it or was it a fait accompli?

Mr Dodwell: There was no consultation at all or none which I am aware of. One was aware of rumours but there was no consultation. The difficulty is Defra have made it clear to British Waterways that they have got to cut their cloth. There was a parliamentary question in December, I think 19 December, at DfT which said it was up to British Waterways to decide how to spend their money. Those of you who have been in Parliament a long time will recognise a formula but, in practice, if you do not give someone the money they cannot carry out a policy. British Waterways' problem is if the Government will will the money, will will the means, they can then do it. The transfer to the regional people, the regional freight champions as they are called, in our view is lacking in time because they have lots of other things to do, whereas the two people who are losing their jobs were 100 per cent on freight, they are lacking in knowledge and experience, and they will no longer have access to a central fund of knowledge to help them.

Q220 Mr Jack: In your judgment they are just window-dressing really?

Mr Dodwell: I do not think I would go quite that far but they are going to be reactive. If the Chairman rang up and said, "May I take my cargo from A to B?", they would try and help him but they would not go to him.

Q221 Mr Jack: How many of these champions are there?

Mr Dodwell: There is one in each region.

Q222 Mr Jack: So they are not exactly overly stocked with champions, are they?

Mr Dodwell: No. We have made it clear that we do not think this is a replacement. Having said that, and I am sure British Waterways would tell you as well, in the London region the regional people have spearheaded the Olympic lock. It can happen and one reason it has happened is the regional manager has put his personal oomph behind it, but even then they are providing the facility, but it is up to someone else to make sure that cargo gets carried.

Q223 Mr Jack: We have the prospect of an Oxera study into the potential for freight, is this going to be a good thing? As organisations, have either of you been involved in inputting to it? Does it look like it is a serious piece of work to elicit what the potential of freight is or something to provide a smoke and mirrors way of dodging any responsibility for future freight development? What do you think?

Mr Dodwell: I have personally been interviewed by them. I understand that their brief is to review the marginal costing of what it costs British Waterways to maintain their larger waterways for freight. I understand they are looking at competitive prices of road versus water and they are looking at the scope to increase freight. I must say, I find it very confusing to commission this about the same time as you sack your two central freight team. Whilst I hope Oxera will report there is a buoyant future and British Waterways will use it, one does wonder what they are going to say. If one says there is an element of horse and cart here, I suspect the answer you will get from British Waterways is the financial pressures on Defra gave them no choice.

Mr Devine: Can I say that Sea and Water have also contributed to this study and in every other way I agree with John's analysis so I will not take up the Committee's time.

Q224 Mr Jack: Is it going to take into account a cost-benefit analysis of what further investment might be required to realise freight potential? Everybody comes before us so far and says "it has great potential" and gets very enthusiastic but we need to get hold of what I might call "concrete examples" of unrealised potential, either addressing a shortage of wharfage facilities, for example, or pinch-points on the canal. In other words, nobody has come along and said, "For an expenditure of X million you would have Y thousand more tonnes of freight transferred onto the waterways". Mr Devine, you nod sagely as if you are able to provide me with an answer.

Mr Devine: In part it is an answer to an earlier question, which is that unfortunately the information is not there in the way that I am sure the Committee would like it to be, in that there has not been a substantial study of what the pent-up demand for freight is. We can come up with as many examples as the Committee would care to hear of where the demand has led to change and various case studies and so on, but in terms of an overall "There is this potential, which will lead to this number of millions of lorry miles coming off the road leading to this number of savings of carbon", I am afraid that information is not there.

Q225 Mr Jack: Do you believe this Oxera study is going to provide that missing piece of information?

Mr Devine: I am not confident that it will but I remain to be impressed.

Mr Dodwell: The reason I give you is it is only a three-month study and that is not long enough to do that sort of work.

Dr Leggate: That kind of a project is a huge project and it is interesting that Sea and Water have, in fact, been doing a review for DfT on what already exists in terms of the potential for water freight, not just on inland waterways but around the coast as well. Clearly the information is not available and they wanted to look at this with a view to doing such a study or commissioning such a study themselves. Clearly, dare I suggest, departments are not really talking to one another on what studies are taking place and where this all fits in. I think there is an issue here that freight is more in the DfT area and not the Defra area and in fairness to British Waterways, they are funded by Defra and not DfT.

Q226 Mr Jack: Mr West, you were thumbing through a page or two there.

Mr West: Obviously I can supply copies of this. The freight study group report which came out of Waterways does have an appendices of potential traffics that they looked at at the time in 2001, some of which have come to fruition, for example the Semex traffic on the Severn. I think that was probably carried out in quite a broad-brush approach, talking to people within the industry. Again, I would expect, although not having been intimately involved with the drafting, the interpretation of the word "potential" is probably different on a responder by responder basis. It is interesting when you talk about freight potential and who is looking at it, the Highways Agency are currently involved with a working group who are looking at the need for strategic wharfage. This is to facilitate the Department for Transport's policy for the movement of abnormal indivisible loads which are primarily those that are over 150 tonnes. I think it is interesting when you look at government agencies in one form or another, their funding and the way in which they are funded often affects this. Because the Highways Agency are now target driven in terms of congestion, they now have to look at other modes and put potentially their money where their mouth is as they have done in terms of the freight quality partnership study in the West Midlands to at least look/see what could be moved on the waterways both in terms of the commercial network and rivers as well as the broad canals in the urban areas. When we are talking about the funding and the way in which government departments are funded - remembering deficit funding for British Waterways and self-sufficiency I know is something which has been touched on by this Committee before - I think when we are looking at a transport mode we need to look at how other transport modes are funded, how Government sees the benefits and how they can be quantified. Not trying to answer all the previous questions in one go, then you start looking at where they should sit and the strategic nature of the waterways and whether they are, as we would like to believe, part of a strategic transport network and, therefore, where they sit best is obviously the next question which comes forward.

Q227 Sir Peter Soulsby: In your earlier evidence, and certainly in your written evidence, you talked about British Waterways giving priority to property over freight in terms of its priorities when the choice is being made. Certainly the CBOA describe themselves as finding themselves at odds with British Waterways over these issues on occasions. I wonder if you can give us some examples of the sorts of issues which have arisen and where they have arisen where you felt, perhaps, British Waterways has gone for the property interest rather than the freight interest?

Mr Dodwell: Sir Peter, I am afraid there are rather too many but I will try and keep the list fairly short and I will try and keep it related to freight. The Diglis Wharf in Worcester was a busy wharf. You have to look now at wharves to see are they now in the right place and Diglis is a good case of where it is now too much in the city centre. From that point of view, it is a good regeneration site and it is a fantastic property site. In the intervening years the Worcester bypass has been built to the south and it goes across the River Severn. Part of the sale proceeds from Diglis ought to be spent on creating a new wharf by the bridge where the bypass goes over. Nothing has been heard of that at all, so all the money will go into the coffers of British Waterways. At Brentford, I think you previously had evidence of the Brentford Wharf where the last commercial bit is under threat for residential accommodation. In Leeds, we had Lafarge withdraw from Leeds down to Wakefield because their site was on a short lease because the developer wanted possession. Given the way British Waterways are funded, given the way that their board is made up of ten members, two have full-time jobs in property, the Chairman of the board is also Chairman of the property company, it is not surprising that they do look to maximise their property interests, but if they were, say, English Heritage I think they would take a very different view, that their job is to conserve what they have got and to say that development is unsuitable. The financial pressures put on them by as much the Treasury as by Defra force them to do things with wharves which are not in the long-term interest of waterways.

Mr West: Just to expand on the Diglis example, I think it is fair to say that a facility in and around the Worcester area is something which if it was not in existence then the commercial nature of that waterway of the Severn could be jeopardised. There is a reason why they are set out in statute as commercial waterways. There are wharves and access points along them and I think once they have been removed then there are some serious questions needed to be asked about who is looking after this national asset and in which way are they looking at it because it would be very much a retrograde step to isolate and to have regional centres of population which had a good transport network around them which was lost just because there was a shortfall in a budget somewhere.

Mr Devine: Sir Peter, I wonder if I could provide a little context. The context is that British Waterways' property portfolio is worth half a billion pounds and they make nearly £30 million every year from property development. Incidentally, they also make around £17 million a year from utilities and so on. That compares with freight which, according to their annual report, makes only £500,000. Under those circumstances, this is in no way a criticism of British Waterways, it is an entirely rational decision for them to make, to choose to favour property over freight but our obvious concern is, as both Tim and John have said, that by developing on the waterside they block off access for water freight but, also, that residents of these new flats and so on do not like water freight going on opposite and around them. There are examples of facilities being closed or operations restricted for those reasons as well. Then to put on top of that, with the grant reduction they have had the situation only gets worse not better.

Q228 Sir Peter Soulsby: Is it fair to say that the 2005 DfT report on planning for freight on inland waterways has fallen pretty flat? If that is the case, do you blame British Waterways for the lack of impact?

Mr Dodwell: Sir Peter, the report was an excellent idea. Their having produced it, what happened to it, and the answer is not much. Given that it was a DfT/Defra report rather than a British Waterways' report, I think one has to excuse British Waterways for not promoting it. It does cover all the waterways and some of the case histories here are outside British Waterways' network, but it is a problem which I am sure you, as Members of Parliament, come across frequently; the implementation of government policy is sorely lacking.

Q229 Sir Peter Soulsby: Do you think there are ways in which the planning process could be better used to ensure that there is a secure future for freight? For example, as you suggest, when sites for wharves are developed if there was some requirement for replacement?

Mr Dodwell: Sir Peter, the short answer is yes. On the Thames, largely through the efforts of the Port of London Authority, we now have some 50 wharves which are safeguarded for commercial use and it requires a public inquiry to change that. That system ought to be rolled out over the whole country. The Port of London Authority began ten years ago and I have to say in the intervening time we have seen no signs of British Waterways trying to produce a list of wharves which ought to be protected. Yorkshire Forward has commissioned some consultants to produce a list of wharves which might be suitable for protection. The new planning system means that the local plan becomes more important than it was and, therefore, sites have to be designated at that early stage for industrial or employment use rather than residential. Having said that, where a site is being redeveloped then I believe the planners could be stronger on trying to make sure that water freight is used to take out demolition materials and excavated spoil and bring in aggregates and construction steel and in the longer term be used to take waste away. If you have got a big office scheme going ahead you are going to produce a lot of waste and how is it to leave? Through planning agreements and the Section 106 system I think more could be done, but it does require the people who know about the planning inquiries to take the initiative. I said earlier that British Waterways in London are better than most and I know that where they are consulted on waterside planning proposals they do in their comments say, "Have you thought about water?", but that is as far as it goes, they do not pursue it because they have not got the resources to pursue it and for lack of action the thing falls away.

Dr Leggate: I think as well they are not even required to look at it, and something that at Sea and Water we have been working quite hard to do is to recognise that in the planning process there should perhaps be some guidance to look at water and look at connections when you are developing sites so we can encourage more water freight for the construction and the waste material and that just does not happen. We are told that it would be impossible to have some guidance in this area form a national level.

Mr West: It is worthy to note from the previous example of Diglis in Worcester, the planning applicant itself is British Waterways, so talking to the local authority they were not sure who to talk to at the time, some years ago. The freight potential and the use of the water was not something which had come to the planning officer or people within the planning department, the applicant was the navigation authority, so I think it was fair to presume that the freight issue had been looked at.

Sir Peter Soulsby: Chairman, just a comment, it is interesting that we have had very little by way of evidence from local authorities.

Chairman: We have been asking for it but maybe it will come.

Q230 Sir Peter Soulsby: And, as far as I am aware, virtually nothing at all from them on waterways and freight.

Mr West: A number of the local authorities will have a generic freight officer who is involved across the spectrum of freight movement. It is trying to educate those people and trying to ensure that they have the knowledge to be able to put into their documents, their local plans and their structure plans to ensure the waterways are highlighted and the potential for others to come along later is still there as we have touched on in terms of the disappointment with the loss of the central freight marketing team and a significant loss of knowledge and the time that people have spent on committees up and down the country banging the drum and ensuring that you can put a best practice guide together because there are examples, it is just trying to ensure that people are aware of those.

Q231 Chairman: Before Peter goes on to look at governance, can I refer you to an article in Property Week of 26 January which is highlighted by the headline, British Waterways To Siphon Off Canal Sites, and the report refers to up to a third of BW sites being contracted out. I know BW - and we will ask them this when they give evidence after you - have doubted the veracity of this report, but how would you see the potential of a great many sites being contracted out?

Mr Dodwell: Chairman, I had not seen the article but I do read Property Week as I have had interest in property so I well understand the commercial pressures to do something. At the moment we are relying on the planners to hold British Waterways back from unsuitable developments, and the planners do not always get it right or they come under pressure or sometimes at a public inquiry the planners lose. The case at Brentford is a good case. Hounslow Council do not want a residential development there but British Waterways and their partners have persisted. Whether it is one third, I have not got a clue where the figure comes from, but I do think that the British Waterway itself ought to have a fundamental review of its various sites and decide which wharves - and they should do these things in some public forum or through a consultation process - have a suitable use for a waterway use and which, for reasons of history, are no longer suitable.

Q232 Chairman: Have you got any interest at all with potential property developers who would be looking to see if there is any synergy between property developments - obviously, as we have said, there is conflict between residential, but there are other property developers who might be looking at commercial development which could use the water as an attractive aspect of the way in which their commercial enterprises could be encouraged to do slightly different things with an environmental side to it? Is that something you are looking at?

Mr Dodwell: It is not something we are looking at, Chairman, but I will give you two examples which may help you. Peel Ports now control the Manchester Ship Canal and are proposing to have a container wharf in Manchester to receive containers from around the coast. One of the House's other Committees, the Transport Committee under Mrs Dunwoody, had an investigation about five years ago and there was a property developer there, whose name I am afraid escapes me, who was interested in putting up warehouses, et cetera, where waterways and motorways were close to each other, so there were people interested and I hope there will be. If you want a warehouse or a factory near a motorway junction it does not have to be at the waterway junction. If it is half a mile from the canal it is useless because of the cost of transporting the goods; if it is by the canal the extra half mile to the motorway is immaterial, so site location becomes crucial.

Q233 Chairman: What about Sea and Water then in terms of the synergy between commercial waterway development and commercial property development? Is that something you are actively looking at?

Dr Leggate: We have always been campaigning to safeguard wharf areas because it is something which encourages water freight and once the wharves have gone it is very difficult to get them back, so it is something that we are campaigning quite hard to safeguard. As John suggested, we would support a national plan to try to safeguard wharves across the country.

Mr Devine: Very recently we have been in direct contact with developers, builders and so on, to gauge their interest and try and talk to them about the issue and encourage them to look at it. It is a long way down the list of priorities for some of these people.

Q234 Chairman: Why?

Mr Devine: I do not know why.

Q235 Chairman: Given that people like to live alongside waterways, why do businesses not like to operate alongside waterways?

Mr Devine: I was going to finish my sentence to say but it is rising up that list.

Q236 Chairman: You should know we always interrupt!

Mr Devine: The Olympics is a clear example of this. Maybe it is a pious hope but it is a hope that it will be a beacon to others to show them when they are undertaking a major development that this is a way to transport large loads in and out of potentially very congested areas.

Q237 Sir Peter Soulsby: Can I come back again to a fairly fundamental issue which was in the written evidence and we have touched on it a number of times today, and it is about which department has responsibility for British Waterways, which department acts as its parent? Clearly with your interests the Department for Transport perhaps is more appropriate. Do you think it is just as straightforward as moving it to the Department for Transport or do you think something more fundamental is needed?

Mr Devine: We appreciate that British Waterways has a large number of interests and a large number of stakeholders to satisfy but, for our purposes, we would like British Waterways to operate rather more like the Highways Agency than anything else. An analogy might be at the moment British Waterways operate in a way as if the Highways Agency was saying that our priority was to get people to visit our motorway verges and to develop our service stations rather than concentrate on the road, to stop people developing alongside the road and to ensure that there is access to the road. We do not think it is as simple as just passing it over to DfT in that way because there is clearly a range of stakeholder interests in what British Waterways does. It is a major part of regeneration in a number of cities across the country, it is an important provider of leisure services, it has a significant contribution to the conservation and biodiversity which it makes and that is why our view is there should be a shared responsibility between Defra, DfT and DCLG in something which we describe as a new water transport unit. I have to say, the history of new cross-departmental units being set up is not a particularly auspicious one, but that for us would be the ideal. Certainly, we would like to see DfT having some responsibility for the commercial waterways.

Mr Dodwell: We take a slightly different approach, Sir Peter, partly because we share the doubt about a cross-departmental body. I think the Parliamentary Waterways Group was told a little while ago that when DETR broke up on the Friday British Waterways were going to go to ODPM and on the Monday they were told it was Defra, clearly a finely balanced decision and one which I suggest was fundamentally wrong. Defra has no interest in transport. Even though the Secretary of State is a keen advocate of climate change control and wants to do something about transport, his Department has done nothing. Indeed, it has cut British Waterways' grant so they had to get rid of the central freight unit. To us, DfT ought to have prime responsibility for the transport side of the inland waterways. It has responsibility for ports, rail, road, and it is quite illogical that it does not have the responsibility. The waterways themselves, I think on balance we come down to the Department of Communities and Local Government. A lot of what we have been talking about is to do with planning, regional authorities and certainly British Waterways as a whole has a lot to do with regeneration. I think that is where on balance we could see it come, it could be DCMS but I do not think so. The whole thing needs to be looked at in far more detail than I have just in these last two or three minutes, but there are some of us who would say anywhere but Defra, please.

Mr West: I think it would be useful to suggest that wherever the departmental responsibility for the waterways were to sit there is a need within the Department for Transport to have in their logistics policy division a significant interest in inland waterways. As has just been highlighted, there is Government policy scattered around within a number of documents. It is a transport mode, yet I do not see banks of officials working to promulgate that. When you see the work and effort which has gone into some of the central Government initiatives that are road-based, I think it would be fair to say on a sliding scale where is the corresponding impetus behind water freight policy? There was the suggestion for the freight study review, there were a number of positive recommendations which came out of it, some which were agreed with by Government, but where is the follow-through on that? Wherever the waterway system sits in terms of the Navigation Authority, it is a transport mode and, therefore, you would hope it would warrant significant amounts of officialdom and people driving forward what is a transport agenda.

Q238 Chairman: You say that but surely the difference with waterways is that within reason with roads and even rail and even air people do not go along to walk alongside it, to view the tourist opportunities, to see the ways in which you can build funding settlements on the back of what is a very pleasant environment. This is what marks the waterways out. I accept particularly the point which Mr Dodwell said, having made the point, it does not sit very neatly with Defra, neither does it sit very neatly with any other department. That may be a particular challenge and that is what we are trying to get to the bottom of, but surely one of the great advantages is it does transcend these different areas and there are lots of income generators if someone could get their act together properly to be able to draw from those different areas more successfully than has been the case in the past. Is that not a realistic proposition?

Mr Dodwell: I think there is no one department which covers everything British Waterways does, so it is a question of finding the one which fits best. I am not too concerned about freight barges and the heritage areas. In your constituency, Chairman, when your local canal is restored, I do not expect to see it flooded with freight barges, there are too many locks for a start.

Q239 Chairman: Watch this space!

Mr Dodwell: But if you look a little further, the Gloucester and Sharpness Canal and the river up to Worcester, that is a completely different kettle of fish and I see no contrast at all.

Mr Devine: Chairman, I agree with your analysis and we at Sea and Water do and that is why we have proposed a water transport unit. As John says, it does not fit neatly anywhere. From our perspective, we would like to see the commercial waterways being considered as part of a wider strategic framework by which freight is carried around this country and waterways having a position in that and that means DfT having some level of responsibility for British Waterways. Whether it is the mother department perhaps is another question.

Q240 Chairman: Can I thank you for your evidence. As I always say, what you said cannot be unsaid but you may have additional points which you wish to raise that did not come to mind at the time of giving evidence and we are more than happy to receive supplementary evidence. We have already asked for a copy of the investigation that you have carried out where we would be very interested to get business perceptions of the waterways. Can I thank you for giving evidence and if you would now exist stage left we will get BW into the hot seats.

Mr Dodwell: Chairman, one last point, I do not know whether your Members would be interested in seeing some commercial freight opportunities? I know you are going to Gloucester for your open meeting.

Chairman: If you would like to talk to Eugene from BW, he is trying to fix up something else for us to see in the London area, so there may be some possible linkages there. Thank you.

Memorandum submitted by British Waterways

Examination of Witnesses

Witnesses: Mr Robin Evans, Chief Executive, Mr Tony Hales, Chairman, and Mr Jim Stirling, Technical Director, British Waterways, gave evidence.

Q241 Chairman: Welcome. We have three fairly well known characters who have been sat through at least some of the earlier session so they should get a tenor of what sort of things we have been asking others, but we have now got BW in the hot seat. It is a pleasure to welcome Robin Evans, Chief Executive, Tony Hales, Chairman, and Jim Stirling, Technical Director from BW. If I could make a start and look at some of the figures which you have kindly presented us with so we can get an understanding of some of the ways in which you have to deal with the immediate current problems of the reductions in Defra expenditure but also the wider strategy which you have told us is moving towards self-funding, and I am sure that will be picked up as we go through the questioning. Can I ask you a couple of fairly specific ones to begin with? In terms of the financial situation, looking over the years 2004 through to the current year, whilst it is interesting to look at what cuts you face in terms of Defra funding, your direct income does spike in 2005/2006, going up from £93.1 to £129.9 million and then back down this year to £112.6 million. Why was there that spike last year? That makes it quite difficult to run a business; we are talking about quite a dramatic change in your bottom-line revenue. Robin, why has that happened, and what sort of difficulties does that make for you given that is then compounded with some of the grant cuts which you faced?

Mr Evans: Some of that issue is to do with the amount of money we get in from third parties, particularly restorations which we spend. If we have got a particular project on we will get a lot of money in and we will spend it, and so we gear up to a degree for that and we can deal with that fluctuation. The other inconsistency which is going to come more and more is our ventures which we get income from, not on a regular basis like a rent, but we get dividends when they complete a particular development and complete a particular task, and they issue dividends as a profit from that particular activity. Those come in lumps because they may take three years to build, develop out and sell something, then they will make a profit and they will give a dividend, so once every three years you may get a lump sum of money. These things are not terribly difficult for us to deal with when we can see them coming. If we can see them coming we can gear up for them and we can plan accordingly, it is when things happen which we did not know about and fluctuations happen which we had not planned that cause us a difficulty.

Q242 Chairman: My second question is regarding your supplementary evidence on network and asset management which, I have to say, was a rather opaque paper and I think it is probably best if I ask Jim Stirling. Looking at point 3.7, the sentence that started that particular section says: "Because the focus was on the elimination of what we termed as Safety Backlog, the Statutory Arrears of Maintenance were initially expected to rise to about £187 million, then to begin to fall as we began to invest more heavily in our arrears". Could you unpack that for me because I have got some specific examples from my own constituency that I wish clarification to know this whole area of arrears maintenance which is your day-in day-out business because if you do not maintain the network people cannot use it, you cannot raise income from them, and the whole thing goes into decay? Can you explain that sentence?

Mr Stirling: When the concept of arrears was first raised in 1997 there was a subset of arrears which caused us more concern which we referred to as Safety Backlog. We focused initially and had additional government funding to remove the Safety Backlog which I think we did in March 2004 and, therefore, there is no Safety Backlog now as a subset of arrears.

Q243 Chairman: Can I be clear then, is that because there is not any Safety Backlog or that is because you have redefined what a Safety Backlog is?

Mr Stirling: No, it is because we have removed the Safety Backlog.

Q244 Chairman: So there are no safety issues per se in the network?

Mr Stirling: No, we do not believe so.

Q245 Chairman: I am sorry to bore the Committee with this but I understand a little bit about it from my constituency knowledge. Let us take two issues in the arrears to principal assets schedule which, again, you kindly sent to us, which is quite a difficult document unless you relate it to your own experiences. Let us take two of the ones which I know something about where we have got the repairs to the Sharpness Tidal Basin and Patch Bridge in Slimbridge. Are these figures that are presented to me the figures of what work needs to be done and it will be done in due course of time or is this a wish list of things which might be done at some future moment in time but you have not got the money and you certainly have not got the money since you have had the reductions in Defra grant funding?

Mr Stirling: The list you have got in front of you, Chairman, has near the right-hand end the year in which it is our intention to carry out the work, if you have got the same schedule as I have.

Q246 Chairman: I have not got the same schedule. It gives me a proposed delivery, understandably there is not much blue because that is this year.

Mr Stirling: The blue is this year, yes.

Q247 Chairman: These are actual planned expenditures which will take place?

Mr Stirling: Yes.

Q248 Chairman: I understand that because I expect both the Basin and Patch Bridge to be done over the next year but that is something which is finite, it will be done despite the funding issues?

Mr Stirling: It is in the programme and that is fundable within the finances we know about just now.

Q249 Chairman: In terms of the £100 million backlog of maintenance, how much has that been hit now? We saw the parliamentary answer to Charlotte Atkins about what is being delayed in terms of some of the proposed backlog which was going to be done, but how much slippage, not intentionally, is there now in the yellows that you have highlighted in the document there or have you now rejigged your whole programme accordingly?

Mr Stirling: The document you have is rejiged in the light of what we now know. During the financial year, which is just finishing at the end of this month, we reduced the major works programme by £5 million, some time in the autumn, to allow for the Defra cuts.

Q250 Chairman: How long is that position sustainable for?

Mr Stirling: It all comes down to confidence, if you like, as to when the job can get done. You can always move everything, slip everything by a year.

Q251 Chairman: So, given what you said earlier, that there is no safety issue, this is just about potential of the network being more together than would be the case if it got inevitably delayed further?

Mr Stirling: That is correct. Because of our knowledge of the assets we know which ones we can afford to slip and which ones we can least afford to slip, and we can improve if we need to the inspection regime on something that has slipped if we think it needs to be further inspected because we have a robust regime in which we do that, and therefore for a limited time, two-three years, you can cope with sliding jobs if you have confidence that you will catch up on them.

Q252 Chairman: Just on that point you have to be very careful you do not give the wrong message to Defra, which is: "Keep slipping the figures" because obviously Defra will think: "Well, you know, we can give them a whack of £8 million off this year; what is to say we do not give them another whack of £8 million?" And I know it is to do with features that are going to lead into this where we go to the terms of the Comprehensive Spending Review, but that is a dangerous message, is it not?

Mr Evans: On that, we believe it is our job to make Defra very well aware of the reality of the situation, and the reality is that with £100 plus million spend on the waterway you cannot say that one, two, or five million less one year is a disaster. What we have been saying very clearly is that an underspend on the waterway, if built up, could lead to a situation which could become unmanageable, and we are very clear about that. This is not something that is sustainable.

Q253 Sir Peter Soulsby: On that point, have you tried to quantify the impact of that build-up over a period of years in terms of what will be noticeable on the waterways and what the economic impact of it might be?

Mr Evans: That is very difficult for us to do. Sometimes we refer to works which are above the water and below the water, which is not strictly true, but the vast majority of our users see what is above the water - getting the grass cut, the hedges cut, the towpath, the locks working. A huge amount of expenditure goes under the water in weirs, in repairs, in piling, and even though they are not under the water things like maintaining mechanical bridges, et cetera, so a lot of the time these things look as though they are OK. If the mechanical bridge works it works and you will pass through it, but actually it is becoming less and less reliable and it is that standard of maintenance which concerns us, because reliability will deteriorate, confidence will deteriorate, and when that happens investment and attractiveness - people coming on to the water, people wanting to invest on the water, people wanting to set up businesses on the water and buy their own boats - all begin to turn the wrong way. We are saying we have a network which is fit for purpose, it works, you can go along it, it is perfectly usable at the moment, but there is a point when all that becomes too difficult and the maintenance becomes such that it loses its attraction, and that is our concern.

Q254 Sir Peter Soulsby: I should remind perhaps Members, of course, that I do have a small boat on British Waterways' network moored in one of their marinas, and in the past I have been vice-chairman of the board of British Waterways, so I am hoping to get some answers to questions today that I did not when I was a member of the board! That having been said, Chairman, beyond the postponement of the maintenance work that has been talked about, could we just hear something about the likely impact of the grant reductions and whether, indeed, the grant reductions were to blame for the recent job losses we have heard about, or indeed the closure of the freighting link that we were focusing on earlier on. To what extent are these cause and effect, or were these things that perhaps BW would have done in any case?

Mr Evans: We have consistently said that we are constantly looking to run British Waterways as efficiently as possible and that will require us, and we want, to look at the ways we operate and who works for us and how we work. I have no doubt that as we bring in new ways of working, as we bring in new technology, as we look to structure ourselves differently, we would have reduced our work force. What happened was, though, the cuts which happened immediately prior to this financial year and during it, and as importantly the mood music of what was going to come in the future and what was likely - that these cuts were not going to be one-offs and are likely to be sustained - made me and my executive team look to take decisions which could rapidly bring us back to a position where we could spend the money we needed to spend on the track, and therefore we brought forward some of the job losses which would have happened by natural wastage over time into one year. As far as the freight unit is concerned, that is a case in point where there were very few, if any, people in British Waterways not working hard and not doing something worthwhile, and it is very difficult while running the organisation, the waterways, to pick those people that we can do without, but if I do not cut the amount of money we spend on our offices, the number of people we employ and the number of cars we have it means less money goes on to the network, and that is the difficult balance we have to make. It was my judgment that those people were doing good and valuable work and we would have liked to have kept them mostly, but to ensure that we have the right amount of money to go into the repairs and maintenance of the waterway we had to make those people redundant.

Q255 Sir Peter Soulsby: I am aware that it might be quite difficult for British Waterways because obviously I would expect they are still fairly anxious to maintain good relations with their parent department, but I do wonder what has been said about the mood music for the years to come, particularly as we go into the Comprehensive Spending Review. What indications have you received from the Department about their hopes, or indeed their fears, for the future?

Mr Evans: I think we could say that their expectations are that their settlement from Treasury will at best be what they call flat cash, ie the same amount of cash that they had this year for the next three years. I think those whose departments have settled have settled at that; that is their best estimate and they could not get worse, so I think the mood music to us is that at the very best it will be flat cash, but it is probably likely to be a little less.

Q256 Sir Peter Soulsby: Have you had discussions with them about alternative bases for funding British Waterways, other ways of ensuring that British Waterways put on a rather more secure stable financial footing with them?

Mr Evans: Yes, we have had discussions with them on a number of issues. We have talked to them about having a longer term contract, and those discussions we were having with them we are not pursuing at the moment because neither party can commit to the sort of money that it is anticipated being available. We have also talked about doing other things whereby we could be given more powers or change some of the restrictions in the way we operate, so that we could grow our income further than it can be at the moment, and all those are under active discussion with the Department.

Q257 Chairman: Can I give you one simple example which is the waterways museums? They are desperate to get some help because of competition from free entry to certain national museums and that really would be something they are seeking from CMS. What sort of access do you get to other departments besides Defra, or does every other department say: "Don't trouble us. Your parent department is Defra, and if there is any money forthcoming it has to come through that channel"?

Mr Evans: They do not usually say that, Chairman. They usually say: "If you can find one of our existing programmes which meets what you want and what we want, then let's talk about it." So if DCMS have a programme with £10 million in it to help ailing museums which are losing money they are very happy to take an application from the Waterways Trust to help them, but almost never is a department prepared to come up with a new programme or a new scheme specifically designed to assist us in one of the areas we are looking for assistance, so it is quite difficult to get that money from different departments.

Chairman: Let us move to income.

Q258 Mr Jack: You have sort of lifted the veil for a fraction of a second on discussion about ways in which your operating circumstances could be amended which might enable you to do things which you currently cannot do, and you say these are being actively pursued, which is a terribly ministerial way of doing it. Can you tease out a bit more and tell us what you mean by that, and give us a flavour as to what it could mean in terms of additional income?

Mr Evans: By way of example at the moment British Waterways is not allowed to act on any waterway other than the ones that it owns or manages, so if we are marina operating experts we have a partnership with a pub company to build waterside pubs and we have some waterside development expertise which you know about, we are not allowed to use any of that expertise for any of those joint ventures on waterways we do not own or manage, so there is a sort of artificial restriction --

Q259 Chairman: Is that legal or proprietorial?

Mr Evans: That is statutory.

Q260 Chairman: So even if someone came to you and said: "We will pay you a bundle of money for your consultancy and expertise..." --

Mr Evans: I am sure we can give consultancy but we cannot do our business.

Q261 Sir Peter Soulsby: The Environment Agency were telling us the other day that they cannot do it on their waterways either. So, in fact, neither of you can?

Mr Hales: No, they cannot.

Chairman: We will try and tease out that issue from ministers.

Q262 Mr Jack: Let's explore what that means because almost you are challenging in a funny kind of way the basis of British Waterways and its estate trading enterprise, and you are almost tempting us to ask the question: "Could the whole way in which the waterways were managed be completely reconfigured?" I get the impression you are rather a sort of frustrated property company that would like to do lots with your assets and spread your wings as opposed to necessarily starting from the point of view of maintaining a national asset and trying to add to the limited sums of central money that you derive by way of income from a variety of sources.

Mr Hales: We are a waterways company and we see the property assets to be totally integral with the development of the waterways. Talking about our vision our vision is to be increasingly self-sufficient, and it is about the speed which one gets there. In an ideal world where we would like to get to is that in 2012 we would like to have only 25 per cent of our money coming from the Government and the rest of the money being self-generated ourselves. We do not like dependency; it leads to perhaps a lack of entrepreneurism and a lack of innovation in the whole approach to the way we run our activities. How do we get to that 25 per cent? One assumes, firstly, that we get rid of the backlog and we stop having these very expensive assets which are in poor repair to put right; secondly, that we have a contract going forward which gives us a period to plan, and we would look for a seven year contract, because clearly it is not good use of British Waterways' management time, or money, or indeed the taxpayers' money, when one is planning on an annual basis or even a quarterly basis of what we have had to do because of events in the last 12 months, and the third element is then to increase commercial powers, which Robin has largely mentioned, but also the ability to borrow as well --

Q263 Mr Jack: The reason I am probing you on this is that there are two distinct ways in which you can go, one of which is the one you have just described within a governmental framework. The other is the same kind of message I was hearing from water companies in yesteryear, one of the arguments about the dreaded "P" word, "privatisation", which is that we have all of these assets; we are struggling to get enough money to invest so if we were not completely free of this and we have lots of other things to generate income, we can rid ourselves of the constraints of public borrowing, raise lots of money and do lots of exciting things. Now, if somebody were to suggest that as a model, putting aside whether you agree or disagree with it, could it be a model that could run the waterways?

Mr Hales: I think the biggest users of the waterways are the people who use the towpaths, whether they are using them to walk the dog, go for a jog, walk to work or coming out of their flats. Those people use the towpaths for nothing; there is no realistic way of getting an income out of those people. That is really where the Government funding, I would suggest, is going, to support that use.

Q264 Mr Jack: One of the things I struggle to find, either in the accounts or the evidence, is what does it cost to provide that public good?

Mr Evans: It costs the difference between what we earn and what it costs to run the waterways.

Q265 Mr Jack: That is an answer which says there is a difference between two numbers but what I am not seeing is something that breaks it down so that I can reconcile the actual cost of keeping the towpath under way, doing all the safety measures to stop people falling in the canal where they should not, et cetera. It cannot just be as neat as the difference between two numbers.

Mr Evans: I think in the paper we gave you supplementary evidence and we talk about steady state, which is our model for trying to work out what it costs to run the waterways in good condition, and we put that at current prices at £124 million a year. You can divide that by 2200 and come up with a figure per month.

Q266 Mr Jack: But what I am trying to get at is that if you say the assets are used by people who do not pay, how much does it cost to buy that bit of the good? That is what I was interested in.

Mr Evans: I do not think we have ever done that because to answer your other question about privatisation or where we are going and whether we are a property company, we are essentially about maintaining and preserving 2200 miles of 200-year old network for the nation for the future. That is where all our money goes and that is our driver. Everything else is incidental to that and we want to earn more money so we can put more money back into that maintenance.

Mr Jack: That is very good. I am deliberately just poking away to see what your reaction is because we have heard the same thing about the 100s of miles of Victorian sewers and the need to keep them in good condition from Thames Water, from United Utilities - everyone is in the "Let's keep the Victorian asset going business" and you are no exception in that respect, and those boys have gone out and got shed loads of billions of cash and charges whizzing up but they have managed to sort themselves out. Have you ever evaluated alternative models to see if any of them would stack up by way of, if nothing else, justifying that the current one is the one and only way in which we can run our waterway network?

Q267 Chairman: And can you link that with the point I made in the previous session about the article in Property Week which talks about you contracting out a third of your canalside land ownerships? Is that something you are looking at? Is that a separate issue? Is this a misleading article?

Mr Evans: Very definitely. That article was about contracting out the management of part of our portfolio so that managing agents would send out the rent demands, do the rent reviews, do the building inspections and repair the roofs when they leak. That was about managing out the management and not parting with any part of our waterway estate, so that is where it was misleading.

Q268 Mr Jack: Can I come back to my question now? I am salivating at the thought of the answer you are going to give me about it! Tell me why this model is the model.

Mr Evans: At the moment we are a public corporation and we are in the public sector, and we have public duties and objectives, and that is the model that I am set the task to make work and to make as efficient as possible.

Q269 Mr Jack: But that does not actually answer my question. Are you going to get there?

Mr Evans: What I am saying is have we ever looked and said: "Here is another better model"? No.

Q270 Mr Jack: Why not?

Mr Evans: Well, it is one of the things that this current funding issue and the future funding of the waterways is making us consider, whether we need to look at different ways of operating.

Q271 Mr Jack: This is very interesting. What could those be? What other models exist that might enable our waterways to be freed from the constraints that colleagues have identified in terms of your subvention from Defra and the finite amount of money you can raise from your commercial activities? What other models could there be?

Mr Evans: There is a range you could conceive for British Waterways. I used to work for something called Historic Royal Palaces in the Department of Culture Media and Sport which was a fully fledged government department. It began to make more money and it became a charitable trust. The property is still owned by the Government but Historic Royal Palaces have a management agreement, I believe, or they certainly did, to run those palaces. That is a model that I have seen before. I have not thought about how well it would work on the waterways but some form of trust may work.

Q272 Chairman: What about share ownership? What about the Post Office model, and this idea that they are going to offer their employees a share ownership as part of the business? Could you offer your users a share ownership as part of the ownership of the heritage of the canal network? Is that a feasible idea?

Mr Evans: I do not know.

Q273 Chairman: That is not one of the models you have looked at?

Mr Hales: We cannot see a way that there will not be some level of public funding, because part of what we are is a linear park. One does not want to put British Waterways into a neat little box, whether it is a transport company or a linear park or a regeneration company. It is many things but one of them is a linear park, and to keep that asset open for the public to enjoy is going to require public money. It would be a major change in the model if we did move to a seven-year contract with certain agreed outputs with Government.

Q274 Mr Jack: I am just exploring because "linear this and that" is called railways, and we have seen there are different funding models for the provision of railway services using assets of a similar vintage to yours. The reason I am probing is not to ask for fine detail; it is just that the prospect is of continuing pressure, flat cash, and the way things are going is if you guys carry on developing your property income - and it is very impressive what you have done in terms of the growth in income - the people you would be dealing with in Defra will form a very straightforward conclusion, that they might just ease up here and there, let you sweat the assets a bit more, and you can carry on making up the difference.

Mr Hales: We believe that is the right way to go. The issue at the moment of today is about the steepness of the curve.

Q275 Mr Jack: What sort of rate of return are you looking for on your assets?

Mr Hales: What we want to do is to get rid of the backlog, and then we are in a good position to go forward. What we are concerned about today, and what particularly our users are concerned about today, is that the great progress that is being made to get the canals in a better state than they have ever been means the curve is going to go down.

Q276 Mr Jack: What rate of return on your assets are you looking for?

Mr Hales: We look at various rates. From a pure canal point of view we are not looking for a rate of return on that. From our property assets we look to compete with or to match the IPD return, which is the benchmark return for property.

Q277 Mr Jack: And do you?

Mr Hales: Yes, we do, and we have been doing.

Q278 Mr Jack: Is there a doubt that you might in the future not be able to do that, or do you want to do better?

Mr Hales: We certainly want to match it, and the board sets the management that target.

Q279 Mr Jack: What pressure have you for asset disposal, because there are asset disposal figures in your balance sheet and if you carry on selling off the assets then you are not going to have any to derive an income from.

Mr Hales: But they are recycled.

Q280 Mr Jack: But into property or maintenance?

Mr Hales: They are recycled into property to generate better returns to improve the maintenance going forward. It is absolutely fundamental that we have a set of assets that we believe it is right and the board believes it is right that the management work hard, not just financially but in terms of demonstrating --

Q281 Mr Jack: Am I right in saying that apart from the loans you got from the National Loans Fund you are not allowed to lever these assets?

Mr Hales: Correct.

Q282 Mr Jack: Is that something that is a real constraint?

Mr Hales: We would like to be able to borrow against them, sure.

Q283 Mr Jack: Why do people say you cannot? Is that simply because of the corporate structure you have?

Mr Hales: Yes.

Mr Evans: It is all about borrowing in the public sector and it counts against the public sector borrowing limits.

Q284 Mr Jack: Why not get rid of all these wretched loans here, because they are all somewhat expensive?

Mr Evans: We are. As they end we pay them off.

Q285 Mr Jack: You are not allowed to pay them off quicker? Because you have free cash in the balance sheet.

Mr Evans: We are funded to pay those loans, so as they come up we are paid. That is a sort of separate part of our grant.

Q286 Chairman: Who do you mainly borrow from?

Mr Evans: We can only borrow from Government.

Q287 Chairman: So these are all internal. I am sure government would be only too pleased.

Mr Evans: No because if we borrowed more money, it would be like asking for more grant; it comes ---

Chairman: No. What I am saying is would Government not be keen for you, if you could find a way, to pay those loans off more quickly, as Michael is suggesting?

Q288 Mr Jack: It is only £10.5 billion. In terms of the size of your business it seems a bit odd. In terms of the rate of interest on £10.5 billion worth it runs from as low as five up to ten and a quarter per cent, and it just seems to be a waste of money.

Mr Evans: We are funded separately from that. Government made a commitment to us some years ago that they would fund and terminate those loans as and when they come up, and that they do, so those are not really costing us at the moment.

Q289 Mr Jack: So it is the Government who is giving you money, but it still comes out of the Treasury pot?

Mr Evans: It does.

Q290 Mr Jack: In other words, if you are looking to get money on the side of the balance sheet you want it on, if Government could accelerate this process it would be to your advantage?

Mr Evans: They are own loans so they are paying themselves to pay their ten per cent interest.

Q291 Mr Jack: But at the end of the day it comes out of the big pot called "government expenditure"; that was the point I was making. On regional development agencies, how much of a strategic arrangement do you have with them? They have their redevelopment programmes and their investment programmes for different parts of the country; you have some very attractive waterway sites; how much in terms of long-term strategic co-operation can you have when you are under quite a lot of short-term pressure to realise profit from your property portfolio?

Mr Evans: We try and have a lot of strategic engagement. Whenever we have a board meeting we always try and have a tour the day before with a dinner in the evening and invite local business connections to that dinner, and always invariably the chairman or chief executive of the regional development agency is at that dinner. Our local business units have relationships with those local regional development agencies, and we are looking at where they are going strategically to try and match our strategic aspirations as well. Where the points of discussion are between ourselves and the regional development agencies is that the regional development agencies are funded to enable regeneration. The mere fact it happens is good business for them. We require to get a return from our investment because we are in the business of getting money back into the waterways. So if an RDA puts £10 million into a scheme and something happens, they are happy, but if we put £10 million into a scheme we must get a good, commercial return on that because what we want is not the regeneration - which we love, but if that happens we get no return on our investment; we just have less money to invest in the waterways.

Q292 Mr Jack: So there is a potential conflict of interest which might mean that a waterside asset that you would like to develop cannot be because, from your standpoint, the rate of return is not right but there is a friction because the regional development agencies say: "We want that piece of area redeveloped"?

Mr Evans: I do not think there is a conflict; I think there is a difference between exactly the nature of ourselves - that they would like us to be more public sector in their thinking and do public good without worrying about the returns. We need the returns.

Q293 Mr Jack: So is it more a question that they, perhaps from the DTI point of view, have to look at the way that they use their funds in a different way, recognising the commercial requirements you have?

Mr Evans: We work very closely with them and we almost always come up with the right solution, so EPE and the regional development agency are funding a lot of infrastructure works for our Gloucester Quays redevelopment. We could not do that. The scheme would not have got off the ground, we would not have attracted a commercial partner, we would not have proceeded if we had to pay for a new bridge and a new road and some other major infrastructure works, and that is now being funded.

Q294 Mr Jack: Just going back to your relationship with Defra, on a continuing basis who do you deal with at Defra?

Mr Evans: I personally deal with a senior civil servant and her boss, a director.

Q295 Mr Jack: Could you give some names?

Mr Evans: Sabina Mosner is my day-to-day contact, and her boss has been someone called Robert Lowson, but he has just left.

Q296 Chairman: Who was with Sir Barry Gardiner?

Mr Evans: There is a director-general above them, and then - yes.

Q297 Mr Jack: So how often do you meet with Defra? Quarterly? Or what?

Mr Evans: I am probably on the phone to them most days. I probably have meetings with them at the moment once a week. Maybe more than that.

Q298 Mr Jack: So what goes on at these meetings? That is a high level of contact. What are you telling them about?

Mr Evans: There are two streams of discussion; one is about future funding and that is an issue where we have been trying, I hope successfully, to explain what the figures mean, what our needs are and what our fears are, and that is one strong stream of discussion; the other stream of discussion is how to go about monitoring the performance of British Waterways. They put £60 million plus into us each year; they are entitled, quite rightly, to ensure they get value, and they want to quiz us and want our reports on what we are doing, and see how we are progressing.

Q299 Mr Jack: So they are deeply knowledgeable about this, are they, and always ask the right question and probe you in the right way? Are you perfectly satisfied with the relationship you have with the people you have these almost daily conversations with? Is it sweetness and light? Is everything good?

Mr Evans: More recently they have been assisted by the shareholder executive in their dealings with us, because Defra acknowledge that a lot of what we do is alien to their day-to-day business.

Q300 Mr Jack: So you are reporting to a department on something that is alien to their activity?

Mr Evans: I said some of our activities are alien to their day-to-day activities.

Q301 Mr Jack: Does that cause you a little bit of a problem in that your sponsor department is not entirely au fait with what you are doing?

Mr Hales: The funding issues that are broadly in government and in particular have been well-publicised in Defra have obviously put pressure on the relationship we have had. We have traditionally enjoyed an extremely positive relationship with Government and with Defra and the ministers, and the normal basis of contact, or formal contact, is once a quarter at a performance review meeting to discuss performance and annual budget and the corporate plan, which the shareholder executive and the Defra officials attend.

Q302 Mr Jack: So no ministers?

Mr Hales: No. We will see ministers probably twice a year on a normal basis.

Q303 Mr Jack: And there is positive interacting with lots of requests from ministers about what you are doing? Are they asking the right questions?

Mr Hales: On a long-term basis we have an excellent relationship with ministers and ministers have seen British Waterways as not only a much-loved and a good organisation but one that is capable in its execution, and is capable of executing in quite a number of different ways. Of course there are frustrations in this but that is the reality of, to some extent, ministerial changes in that different ministers will have some different prioritisation in their approaches, but overall it has been a good relationship.

Q304 Chairman: So how did you find out about the grant cuts? Robin, did you take a phone call from the Minister, or did you take a phone call from the Director-General to say: "Look, Robin, sorry, but it is a tough year this year, you have to take a hit in some areas. Can you come back to me and let me know how you are going to do this"?

Mr Evans: Generally our relationship is such that my day-to-day contact, Sabina Mosner, would be telling me: "It is going to be tough, Robin, I don't know what is happening quite yet but don't expect a Christmas present."

Q305 Chairman: So the Minister does not ring up and say, "I want you to understand I am totally committed to the waterways but I have problems, and I have to do the difficult job of saying to you that you have to take £8 million or so out of your grant budget this year". Does that happen?

Mr Hales: Traditionally we have had good notice before the start of the year as to what to expect --

Q306 Chairman: That did not happen this year.

Mr Hales: It did not, and it would then be confirmed and we would be asked not to spend the last 10 per cent. This year we were given slight warning that there were some issues and then given 48 hours. A letter came through - I got a phone call actually because Robin was away - saying that we had 48 hours to produce our response.

Q307 Chairman: That was from the Minister, or not?

Mr Hales: No. An official.

Q308 Chairman: That is not a lot of notice to change one's budget.

Mr Hales: It was not a lot of notice. An exceptional year.

Chairman: We will ask the Minister whether it was a very exceptional year or maybe a year that can be overcome. Roger?

Q309 Mr Williams: When I asked a minister from the Wales Office what effect cuts in British Waterways' grants would have on canals in Wales he told me that as the total Defra budget was going to remain the same the Barnett Formula would deliver to the Assembly exactly the same amount of money as was planned originally. Actually I told him I thought he was rather badly briefed to give that answer! As I understand it now, British Waterways is a non-devolved matter in Wales but is a devolved matter in Scotland?

Mr Hales: Yes.

Q310 Mr Williams: Could you perhaps tell us why that is the situation?

Mr Hales: I do not think it is really up for us, as to why at the time the Scottish Executive were given broader powers than the Welsh Assembly. I would suspect that in Scotland there are more canals and therefore it is a bigger issue than in Wales where very much they are on the border.

Q311 Mr Williams: Can you perhaps tell us how it works in the devolved nations in terms of expenditure? I notice in your accounts you have a separate Scottish account but I have not really had a chance to have a look at it. Perhaps you can help us with that.

Mr Evans: In Scotland it is devolved. The Scottish Executive are the funding government department, so Scottish Executive vote us money each year, as Defra gives us money in England and Wales. We run Scotland as a separate business unit; we have our own Scotland director and the activities in Scotland are all separately accounted for. We regard ourselves as British Waterways and we have a central administration, a central executive, who look after the whole, and we have certain directors like Jim Stirling, who is technical director for the whole of British Waterways, so his responsibilities extend up to Scotland, but delivery on the ground is run separately in Scotland. We also have in Scotland a British Waterways Scotland Advisory Group, local people coming together three or four times a year to advise the Scottish director on Scottish issues to make sure we understand what the local circumstances are, what the issues are in Scotland, what is required. Wales is not a devolved issue so it is part of our grant from Defra, but the whole of Wales is managed within our Wales and Border County Business Unit. That extends to beyond Wales, so it is not the only thing that that business unit does, but it runs all its waterways in that business. We do not separately prepare accounts for Wales; we regard Wales and Border Counties as the most cost-effective business unit for the canals in Wales and those just over the border, so we run those just as a part as we do the other eight business units in England and Wales.

Q312 Mr Williams: In terms of some of the partners you would work with, presumably in Wales, some of those would be devolved responsibilities like regeneration and local government. What sort of contacts and what sort of consultation do you have with players like that, like local authorities and so on?

Mr Evans: We have very good relationships in Wales, we work very hard to build up relationships with other public bodies in Wales, and we have good contacts with the Welsh government and I will be able to provide you with a copy of the plan we have put together of the future for waterways in Wales, which we have built up with other executive agencies and the Welsh government, and we work with local authorities very well indeed. As you know, we are trying to get money to restore the Montgomery canal and we have other projects where we are trying to develop and promote Waterways in Wales. That is what the document is called which I will send you.

Q313 Mr Williams: As I understand it, licences for people who have boats on waterways accounts for about 20 per cent of your direct income and probably about 13 per cent of your total budget or total income. Boaters seem to think that they pay more than their fair share in terms of the cost of their licences. How do you respond to that, and how do you justify the level of licences and the total contribution they make?

Mr Evans: We are very conscious that what we are good about is having boats on the canal. Boats create the vibrancy, the colour, the attraction. Waterways without boats would not be the waterways we have today. People would not want to buy the houses and live, work and play by the waterways if there were no boats going up and down, so it is absolutely critical for us to maintain and, indeed, hopefully grow the number of boats on the waterways. At the same time it is an incredibly expensive network to run, 2200 miles of 200 year old infrastructure, so what we are trying to do is create the right level of payment for those users. They cannot possibly pay for the total cost of running it - it is simply unaffordable to put the whole cost to them - so we are constantly looking to set charges that we consider are at a level which will continue to encourage people to buy and own and use boats, and at the same time help to defray the very large costs of maintaining the network, and that is a balance which we are constantly reviewing.

Mr Hales: They basically pay in two ways. One is the licence fee and the other is the moorings. On the moorings we are able to establish a market rate because there are a large number of suppliers.

Q314 Mr Williams: In the Comprehensive Spending Review 2008 everybody has agreed that public finances will be tightened rather than relaxed. Which user group do you think would be most affected by a tightening of the public finance?

Mr Evans: I think anyone who pays British Waterways for a service or facility will probably see those costs rising as we seek to maintain the right amount of level of income, the right investment, going into the waterways, so those who pay directly may see some increase. Of course, of those who do not pay us, and it is a bit like you heard before with the CBOA, some will see a reduced service from us. We will have to cut back, as we did our central freight team. We are trying desperately hard not to cut back the amount of grass we cut, the litter we pick, the graffiti we remove and the water we manage. It would be very sad if those users saw a change. Even though they do not actually pay for it per use they pay for it through tax, so I am trying very hard to see that those users will not have an effect from the cuts.

Q315 Mr Williams: Other users use the towpath for activities. What is the legal status of a towpath? Are there any public rights of way on it?

Mr Evans: There are public rights of way on it. The whole network is not a public right of way, but there are large parts of it which are. We encourage and welcome people to come on to the waterways and use the towpath.

Q316 Mr Williams: If you were going to raise any finances for the use of the towpath then the legal status of the towpath would be an important element. If somebody has a right of way on a towpath they are hardly likely to respond very well to somebody charging them a ticket to go on it.

Mr Evans: That is part of it. Equally difficult is the sheer cost of management of trying to enforce some sort of access payment on to our towpaths, because you either have to have lots and lots of people, which I suspect would cost you more, collecting it, or lots and lots of fencing which would certainly be unwelcome and unattractive, and probably uneconomic too.

Mr Hales: It is totally against our philosophy. One of the drivers is to attract more people to come into and enjoy the waterways even on health benefits, which the Scottish executives have put quite high on their list, getting more people walking, running, and jogging along the towpaths. That is what we want.

Q317 Mr Williams: Do you have any conflict of interest, I have seen it, between cyclists and walkers?

Mr Hales: Yes.

Q318 Mr Williams: How do you try to resolve that if you cannot charge them? I would have thought charging would have been a really good way of resolving that.

Mr Evans: We have acute problems in London, particularly since the July bombings when a lot of people started to use the waterways to ride to work, and at certain times of the day there are parts of the network in London which we worry about. We deal with that by putting a lot of effort working with Transport for London, and we are working very well with them now to try and designate other cycle routes away from the canal where there are pinch points. We have days when we put a lot of our people on to the towpath who talk to regular cyclists to make them aware of the dangers of going too fast, going round bends, under bridges without notifying bells; we work very hard to try and reduce the conflict but the use of cyclists is certainly a concern for us at certain times of day on the towpath. We did until relatively recently have a rule where you had to have a licence to ride a bike on the waterways but quite frankly the cost of collection and administering that was prohibitive, and it was not having any noticeable effect in making sure that people who did have licences behaved themselves or rode any more sensibly.

Q319 Mr Williams: Presumably horses are allowed there because of the horse drawn boats  that ---

Mr Evans: I am sorry to interrupt but we are very particular about that. We do allow horsedrawn boats, we think that is wonderful, we like to encourage that wherever we can, but people are not allowed to ride on our towpaths, partly because they cause a lot of damage but partly because of the dangers of a big horse in a narrow hedgerow with water and nowhere to go. So we discourage riding.

Q320 Sir Peter Soulsby: There has been I think a 7 per cent growth in the number of licensed boat holders. Do you anticipate it will slow down?

Mr Hales: No.

Q321 Chairman: Despite loss of red diesel, and loss of additional mooring sites because of investment and so on?

Mr Hales: I suppose that has to have some effect but all our projections are that there is this historic growth of two per cent a year and the basic underlying reasons remain. A growing population, particularly 50 year old plus, are coming into this market in very significant numbers.

Mr Evans: We anticipate that we need more than 10,000 new berths on the waterways over the next ten years to meet with demand. It is very much a part of the economy.

Q322 Chairman: You can provide that?

Mr Evans: We cannot, that is why we launched our Marinas Investment Guide earlier this year to attract new private sector investment on to the waterways.

Q323 Chairman: That is a partnership with the private sector.

Mr Hales: Absolutely, because we cannot afford, and we do not think it is our role, to invest our short money in providing marinas, and it is something the private sector does very well indeed.

Q324 Chairman: Could you send us a copy of that?

Mr Hales: Certainly.

Mr Evans: You were asking the other day about the forecast of demand. There are some demand models in there.

Q325 Sir Peter Soulsby: What about the holiday hire boat industry? They have expressed a lot of concerns about the lack of maintenance having impact on their business? Do you share those concerns, and what do you see are the trends in holiday hire? Is that something set to grow?

Mr Evans: Holiday hire is essential. It is a really critical activity for us, not only because there are over a thousand boats which pay us their licences and it is quite a lot of money for us but also we know from research that people who buy boats have generally hired a boat first of all, and that is how they have got into boating. It is the way into boating. So as a feeder stream it is essential that holiday hire boating retains and grows, or at least stays the same if it does not grow. In recent years there has been a lot of growth in time share on the waterways and there have been a number of companies which have grown quite successfully, so although over the last ten years hire boating numbers have decreased, a lot of time share boats have come on to the waterways and so that has almost but not quite compensated. We worry very much with our operators about the future: we are acutely conscious that they operate in a difficult environment and they rely almost totally on us to ensure that their livelihood can survive. If we do not provide water in the canals and they do not operate they cannot operate, and we are acutely aware of that. This year for the first time we undertook a very comprehensive survey of all our business customers to understand what their needs are and what they expect from us and how we can do better, and we are actively pursuing that. Every general manager in every business unit has a list of clients and it is their job to manage those clients in those waterway businesses which are relying on our activities, so we are acutely aware of how important they are and we want to grow them, and we are doing what we reasonably can to ensure that they survive and thrive.

Q326 Sir Peter Soulsby: One of the previous witness was talking about the potential for opening up some of the less crowded parts of the waterways, and I think they gave us the example of the northern part of the Birmingham network with the Lichfield & Hatherton as one of the links into that. Is there indeed potential for doing that, and is that something that is affected by reduction in the revenue of British Waterways?

Mr Evans: There are parts of the network which are much more heavily used than others. The Birmingham canal network is relatively under-used and we try very hard to attract more people to use it, but it is a mainly urban environment and traditionally the boater wants to boat and cruise and stay on the more rural waterways. The Leeds & Liverpool canal is another very under-used canal in the north of England and we are very keen to attract more canal boaters up to those parts, so there are areas where we would like to see more people and we try and encourage that.

Q327 Mr Williams: The facilities you provide and maintain are very popular with the public and readily enjoyed. Have you ever considered having some sort of voluntary subscription scheme or some membership to allow people to express their satisfaction and enjoyment that they get?

Mr Hales: People can belong to the Waterways Trust, so we are keen on that. We are certainly very keen on supporting all the voluntary organisations, the Waterway Recovery Group. They cannot belong to British Waterways.

Q328 Mr Williams: So how much finance and resource do these voluntary bodies bring into the network?

Mr Evans: That is a figure I do not have. Their enthusiasm alone is worth millions and millions of pounds to us. They are the people who are responsible for ensuring the waterways did not disappear for ever in the '60s and they have campaigned vigorously and strenuously and loudly ever since, and they are the ones almost always who are behind the initial thoughts of restoring a waterway and getting the momentum behind that which we help with and join in.

Q329 Mr Williams: I was not so much thinking of people actively involved in restoration, but the more casual user, and some way in which they could on a voluntary basis support what they so obviously enjoy.

Mr Evans: My Chairman is very keen on increasing the amount of volunteer help in British Waterways, and it is one of the tasks he has given me and the Executive, to see a sharp growth in the amount of volunteer activity. Traditionally we have been slow at attracting that, primarily because of the safety issues of working and the sort of work the volunteers can do and supervision, because it is all about working near water with machinery and everything else. That explanation is not an excuse; that is not right; we need to break down those barriers and we need to grow and bring more people on, and we are in active discussions with ENCAMS, which is the old Keep Britain Tidy, the Groundwork Trust, IWA and a few others like BCTB to bring those sort of well-trained, well-organised, well-disciplined volunteers on to the network. I would get those people on to the network and demonstrate to ourselves as well as to everybody else that we can have many other people. I used to work for the National Trust and I think they are absolute masters at attracting volunteers, and we need to copy their success.

Q330 Sir Peter Soulsby: One of my parliamentary colleagues asked recently about the Bedford-Milton Keynes link. Is that still on the British Waterways' agenda, because there they had the opportunity to make a link that does not exist and make new cruising possible.

Mr Evans: It is one of the projects that has been given money by the Big Lottery Fund to develop its thinking. It has recently received I think £250,000 to develop its proposal so it can go back to Big Lottery and it is bidding for a £50 million Living Landmarks lottery grant. British Waterways is not at the moment taking the lead in that; the Bedford-Milton Keynes Trust is the lead along with the Council. We are right in there providing the technical support and any other support they want, but it is very much on the waterway restoration agenda, or the new waterway agenda.

Q331 Mr Jack: Can we all put our little bit in? The opening up of the northern section is now down in the report --

Mr Evans: It is! I walked it about two months ago, and it is an excellent project.

Mr Hales: You illustrate exactly one of the dilemmas we have. We do not have the cash to support widespread restoration. We support all of it morally and in terms of providing technical assistance wherever we can, but we do not have the cash to be able to support many initiatives like this. They have to be driven locally.

Mr Evans: Part of our problem is that we work very hard to put funding packages together. They take a lot of time and it is one of the things we like to think we are quite skilled at, bringing a lot of funding partners together to create a funding package. All those people who give us money will say: "That is the money, there is nothing more, it is your risk now", so for a £25 million project we will get the money and it will all add up to £25 million. If actually during the execution of the project it becomes £26 million that is our risk. Now, we can deal with that on a small number of projects but we cannot have a large number of projects with that risk because if they do go over, and these are big technically difficult challenging projects spread over a number of years, any money we put into those restorations just means it is less money we are putting into our existing network.

Q332 Chairman: Can I mention one point you have not mentioned at all? I pop along annually to the Saul boat gathering, which for a small canal trust restoration body raises quite significant money. Have you thought about going big time into the events area? You could do Handel's Water Music all round the country, and weddings on water - this is serious money. One event can raise you, if you know what you are doing, several million pounds. You have venues that some private sector organisations would die for.

Mr Hales: I think we have to be careful as to how far we stretch our management skills.

Q333 Chairman: You do not have to do it. You just do it in partnership with somebody.

Mr Hales: We have done events at the Falkirk Wheel which the Scottish Executive are delighted to fund because it is building on a major tourist event. It does cost some money and it is not our money. We have done events at Canary Wharf; we have turned it into a beach scene in the summer with support from Mr Livingstone and the London Authority.

Q334 Chairman: And that makes you money?

Mr Evans: No.

Mr Hales: It brings in people. We have found no way yet of making money out of events. If you can introduce us to somebody who would like to partner with us and give us ten per cent as a facilitator we would be delighted to do it.

Mr Evans: If I thought for a moment there was a chance of a tenth of a million pounds profit from an event we would be doing it. All our experience is it is not easy, we do not have the venues, Saul Junction and festivals like that are absolutely fantastic but they are all run by volunteers and that is why they make money, because all the hundreds of people involved in that, before and on the day, receive nothing for their efforts and it all goes into the profits. If you take British Waterways or a professional organisation all that has to be paid for and therefore it is very difficult to make money from events other than in event venues.

Q335 Mr Jack: Moving on to freight, you heard our earlier exchanges so you know the areas we are interested in, and I think we have heard some encouraging messages about the potential for waterway development both during the construction phase and thereafter with the Olympics, but there is that sort of nagging feeling that the old freight side is all a bit of a bore because it does not raise much money, as your report indicates. If you look at the column inches devoted to freight in it, they are very small and column inches for everything else is very large. It strikes me it is all in the "rather too difficult" column.

Mr Hales: There is a market out here: why is freight not going on to the waterways? The market is not irrational. The great transport companies are not choosing to put freight onto the waterways because at the moment it is not economically sound in most of the cases. We are not running those companies but one might hypothesise that. First, most freight today goes through containers and particularly the narrow waterways are not capable of moving containers because the bridges are too low, so there has to be a separation. I am being prejudicial in these remarks but it is a bit romantic to talk about major freight on the narrow waterways. The question is whether there is a serious freight opportunity on the broader waterways, the Aire & Calder, the Trent, the Severn and the Scottish canals. There may be. The fact is at the moment we spend a million pounds a year in extra dredging and we get half a million pounds back. We have had a very disappointing response out of the dredging of the Severn; I think there has been one movement of aggregates down there as a result of the expenditure there.

Q336 Chairman: I know a bit about the history of that and, to be fair, you did market it quite strongly, so why was it there was such a poor response?

Mr Hales: I am suggesting that the economics at the moment are not there to move freight seriously on the water. You have asked the question a number of times about carbon emissions and there is one sixth of the carbon emissions moving freight on the water, so if there is a way of finding a value which is ascribed to a transport company, not to British waterways, which changes the economics of moving goods according to the amount of emissions they are making, that creates the environment where it may be more attractive for freight to go on the waterways because of course we would love it.

Q337 Mr Jack: You heard Sea and Water in response to my probings about this Oxera study, and they were not exactly very complimentary about the fact there seemed to be rather a short timescale from what they thought might be potentially a very interesting area to evaluate. And I think that is the thing that has been frustrating. Every witness so far has extolled with enthusiasm the potential but when you come up with: "Where is it? How much is it? What does it cost? Tell us the facts", it all evaporates. Is this Oxera study going to answer these things definitively?

Mr Hales: It will take us a lot further forward. We are conscious that there is a lot of opinion expressed. I have expressed an opinion to you. The fact at the moment is we spend a million, we get half a million, there are very few movements, the amount of tonnage is going down - why is that? Because the market does not want to use it. We could have more wharves but what would be the point of them at the moment?

Mr Evans: Can I also say what we have to remember is we are just a part of waterway transport. It is estuarial, intercoastal - it is joining it all together. People often say to us: "Why are you not driving freight? Why are you not making a difference?" Well, we can where we happen to have water against a place of origin, a gravel pit or where waste is produced --

Q338 Mr Jack: In these matey little chats you are having with Defra every week, do they not say: "Yes, we agree with you, there are some really good environmental gains to be made; our friends in other parts of government have got some money to put by this; we will ring up the Department of transport or the DTI and see if we can get a bit of cash to compensate you for these extra costs you are having to incur to open up some of the waterways and perhaps a bit of marketing"? Do you ever get any kind of hint that Defra are vaguely interested in assisting you on this?

Mr Evans: They are very sympathetic and I think they have traditionally found it is as difficult to find sources of money from other government departments as we have.

Q339 Mr Jack: So you can unequivocally say, just to strip away that beautiful diplomatic language, that the answer is Defra have tried and failed?

Mr Evans: I think it is for them to say more than me.

Q340 Mr Jack: I think I can take that as a "yes".

Mr Hales: The exception is the Olympics. There are huge amounts of aggregates going in; it is an area where, frankly, the roads, almost whatever the cost, could not have taken it. We have all worked really hard to get this off the ground and we are hugely excited about it being a showpiece, but it is exceptional. The Department for Transport have not actually signed up yet but we think they will and we have gone ahead without it, so it is yet another risk that we are taking on the chin. This is the theme that keeps coming through, that we are having to take more and more risk with less and less resource.

Q341 Mr Jack: That is a little bit concerning, that your sponsor department, Defra, have not nailed down the Department for transport. When I read the press release and all these glowing comments by ministers extolling the virtues: "Olympic Minister says the restoration of the neglected waterways of the Lea Valley will be vital to achieving our commitment to make London 2012 environmentally sustainable" - I am falling over looking at the enthusiasm.

Mr Hales: We are doing it.

Q342 Mr Jack: And the Department for Transport have not signed up yet?

Mr Hales: They should do, but they have not as of today.

Q343 Mr Jack: What happens if they do not?

Mr Hales: We will carry the risk.

Mr Evans: That is when we would expect our Defra colleagues to come in and seriously help us sort out that issue.

Q344 Mr Jack: So really the question of freight is: Like to do more, does not make much money, possibility on some canals, study will give us a better indication but it is still to a certain extent the poor relation in terms of where your management time is going, management time focusing on leisure and property, maximising the assets in that direction?

Mr Hales: We do not expect and do not think there is anything we can do our own to get freight back on to the water. It will require a change by government of the economics by something like an emission tax or some other statutory subsidy to put freight back on to the water. What I am suggesting to you is that rather than that being looked at as some sort of broad "Let's get freight on", let's concentrate on those areas of the greatest possibility. The Manchester Ship Canal - not our water - is clearly a wide canal which is a possibility; the Aire & Calder is a possibility; it would be great to see the Severn actually get going as a possibility.

Mr Evans: Just to add something to what you have said, I would not want you to think that we are not actively trying to promote freight. We really do want freight and one of the ways in which we can really help is if planning authorities' strategic plans said more about water, and we have a strategic planner who has done road shows to every planning authority and continues to do them extolling the virtues of water and making them put water in the plans. Also, when big infrastructure projects come along it would be really important for the planners to say: "This infrastructure project can go ahead but 15 per cent of materials must come by water, if that is a possibility". We had an example up in Scotland recently where there is a new hydroelectric station being built and we came on that too late and were not involved, and simply because the contracts were virtually let and they could all bring it by road we failed to bring it by water. If the planners had said: "You can build this but 20 per cent has to come by water - slam dunk, we are there. We are also working with Yorkshire Forward and trying to get containers from Humber, Goole, into Leeds. It sounds easy but it is not. We have them into Leeds but we cannot get them back at the moment because they are too light and too high in the water and cannot go under the bridges, and that is quite an issue because you can say: "Well, fill them up", but that is all money. So that is where we are working really closely on strategic planning with regional development agencies. So we are really enthusiastic but also realistic and it is my job and Tony's job, if we have a hundred pounds to spend, to see where we can get best value for it for the public.

Q345 Chairman: That brings me to a very important point because, as Peter said in the previous session, the one area where we have been seriously underwhelmed by evidence is local government. We have gone back to the LGA and they are now going to put in a late submission but we did not have one local authority that extolled the virtue of the waterways, which is peculiar. Take my own, for example. I could have got them to write something but when you think of all the local authorities that have waterways passing through them and we have serious regeneration schemes under way and have had in the past, why do you think local government has been apparently oblivious to this inquiry and did not see this worthy of at least a covering letter to say: "Great, we want more open waterways". Not one. Is that your fault, or theirs?

Mr Evans: It is certainly not mine! As you just said, and as you well know, there is a list as long as your arm of local authorities who are passionate about waterways, who work with us really closely, where waterways have helped transform large areas of their cities, towns, and if you go to them --

Q346 Chairman: So why did they not write to us?

Mr Evans: I just do not know, Chairman, but if you want me to write to them and tell them ---

Q347 Chairman: Well, certainly perhaps some proactive marketing, because it just does not look good.

Mr Evans: Well, Daventry City Council six weeks ago launched a plan to build a new canal from the Grand Union into Daventry, because it sees that as the only way Daventry can have some identity and survival for competing with Northampton and Milton Keynes, so here is a local authority passionate about bringing a canal into its town centre.

Q348 Chairman: Do you meet with the LGA at all?

Mr Evans: I do not. I am about to set off on a roadshow to meet all the chief executives of all the major local authorities that we go through, but we do not have much to do with the LGA.

Q349 Chairman: And that is something you need to put right?

Mr Evans: We will certainly look at that.

Q350 Chairman: It would help us because we might then get a submission from them in due course. If I can conclude, then, on relationships with the customer, certainly you heard what I said in the first part when we were talking to Sea and Water and the Commercial Boat Operators and it was interesting that they said there was no consultation over the issue of your winding up of the freight unit. Do you not think it remiss of you that you did not consult formally with those who, at the very least, stand to probably do less well because of your unwillingness to carry on with that part of your business?

Mr Evans: I thought about that when you asked the question, and whether that was a fair criticism. I think I am still of the opinion that it is my job to manage and organise British Waterways in the best way I think fit and most effective, and I think that was an operational issue for within British Waterways. We were just changing the way we operated from having a central freight team to putting accountability into the nine business units, so I do not think on that occasion it was necessary to consult with the CBOA. They wrote to me afterwards and we had a very constructive meeting with them and discussed ways of jointly working together since then, but I do not feel on that occasion we were wrong in not consulting.

Q351 Chairman: In terms of the leisure side of the business I think I just about understand the various different organisations, but it is a pretty confusing picture out there. From all the evidence we have received they quite like the relationship; some individual boat owners have been critical of BW in terms of what you have said and done about the cuts, but would you see some benefit in terms of streamlining the way in which you consult with the leisure industry and, indeed, those who are volunteers for the various leisure parts of that industry?

Mr Hales: I do not think we can tell them how to organise themselves. One of their great strengths is there is a large number of local organisations and they are federated. The Inland Waterways Association is clearly the biggest one.

Q352 Chairman: You have IWAC, but how much notice do you take of them? Not every organisation has its own statutory body that you presumably have to consult with.

Mr Hales: There is IWAC, which is there to advise government on all the waterways.

Q353 Chairman: But you must talk to them, surely?

Mr Hales: Yes, we do. The most important one to us is the British Waterways Advisory Forum which brings together representatives of the IWA, the cruisers, even the Horse Boat association is represented on that, and we meet twice a year to discuss broad issues and will consult wherever necessary on individual ones. We are very conscious that the strength of the waterway movement is in those vital passionate users, particularly the boating community, and we go out of our way to have close relationships with them.

Mr Evans: We work really hard to be open and accountable. We have local meetings; each business unit has meetings twice a year with local people open to the public to discuss issues, they can raise anything; we have regular national boating issues meetings so that people who are enthusiasts who have particular issues about boating aspects can come along and talk about those; we have recently merged in with boating and we have a separate one about towpath issues; we have an annual meeting with the British Waterways Advisory Forum; we are really keen. We talk with our customers, we do a lot of market research to understand what our customers talk about and feel, so this is very important to us, and I am pleased that the response you say that you are getting back is that generally it seems to be working. Of course there is more talking and more consultation that they would like, and I think trying to get that into proportion is always the challenge.

Chairman: Gentlemen, I have no more questions and I am sure as a Committee we thank you for the robust way in which you have defended what you have had to say. This is not quite the end of our relationship in as much as you will be no doubt contributing to our day in Gloucester to find out what is happening in practical terms. As I say to every participant what you have said I am afraid will stay said, but there may be additional evidence you will want to provide us with. We certainly could do with a copy of the marina book, which I certainly have not seen and would like to see. I thank you for what you have said; we will write our report and hope that we may at least keep the waterways up the agenda. Thank you.