Written evidence submitted by the Department for Transport (SEV 08)

We welcome the opportunity to contribute to this inquiry. In particular the Government would like to share how we intend to progress discussions about the future of the crossings.

DfT works closely with Highways England (HE) who manage the relationship with the concessionaire (Severn River Crossing Plc, aka ‘SRC’) on behalf of the Secretary of State for Transport. We asked HE to provide some information to help draft this response.

• The Government is committed to the efficient and safe operation of this vital national infrastructure that provides a crucial link between England and Wales.

• The Severn Bridge and Second Seven Crossing are operated under a concession agreement, which is expected to end in early 2018, when the crossings will revert to public ownership.  

• A challenge for the Government will be to put in place a fair plan that balances the needs of users and taxpayers so that on-going operational and maintenance costs are met in the long-term.

• Costs (currently estimated at £63m) will have been incurred by the taxpayer outside of the concession agreement and this amount needs to be recovered. 

• Another challenge for the Government is ensuring that any future plan effectively manages traffic levels and takes account of the economic impacts.

• With the above in mind, the Government proposes to halve the tolls when the Crossings come back into public ownership, subject to consultation.

• DfT will launch a consultation later this year, proposing toll levels, and providing users with information about options being looked at including free-flow tolling, and providing greater clarity on future operation and handover arrangements.

• DfT has begun listening to the concerns of key stakeholders about the future operation of the Crossings.

1. The first Severn Bridge was opened in September 1966, providing a direct link from the M4 motorway into Wales, with a toll in place for use of the bridge to pay for the cost of construction. It continually operated above capacity and in 1986 the then Government stated that a second bridge would be constructed.

2. The private sector was encouraged to get involved and a selection process led to a concession agreement between the Government and SRC. The concession agreement was enshrined in the Severn Bridges Act 1992 and commenced in April 1992. SRC then took over the operation and maintenance of the first bridge and the design, build, financing and ongoing operation and maintenance of the second bridge.

3. Under the terms of the concession agreement SRC took on existing outstanding debt of £122 million and construction costs of £330 million (excluding VAT) for building the new bridge, which was opened in June 1996. In return SRC is authorised to collect tolls from both Crossings to meet its financial obligations. The concession agreement is valid until SRC has generated a defined amount of revenue or for a maximum of 30 years (whichever comes sooner).

4. The concession agreement was structured so that certain costs, including latent defects, for the first Crossing were paid for by the Government. So far the Government has incurred approximately £63 million to cover these costs. The Severn Bridges Act allows for continued tolling until all accumulated costs are repaid. This point was made clear during the passage of the legislation. 

5. HE expect that likely resurfacing of the first bridge after the end of the concession period will cost in the region of £12 million spread across the 2018/19 and 2019/20 financial years.

6. More generally, HE report that the Crossings are in a relatively good condition. With any structures of their size and complexity there will always be defects but a series of HE technical audits confirm that SRC does inspect and maintain the Crossings in accordance with the concession requirements.

7. Users of estuarial crossings benefit exclusively and considerably from the exceptional savings in time and money that these expensive facilities bring, and it has long been Government policy that they should be paid for by the user rather than the taxpayer. 

8. The Government has set out its commitment to cutting toll prices when the Crossings return to public ownership. At Budget 2015 the Government announced that the higher toll prices for vans and small buses will be abolished, and that VAT on tolls will no longer apply and the tolls will be reduced by the equivalent amount. At Budget 2016 the Government went further and made a commitment to halve the tolls.

9. The Severn Crossings are used by more than 25 million vehicles each year and provide the main highway link between South Wales and England. DfT is currently undertaking more detailed economic analysis that will be published later this year alongside our consultation document about the future of the Severn Crossings. We hope responses to that document will aid our understanding about how different groups including businesses, local residents and tourists are impacted by reductions in toll charges and other changes.

10. The Crossings already provide users with exceptional savings in time and money. Prior to their construction drivers travelling to Chepstow from the south of England would have used the A40 and A48 adding an additional 50 miles on today’s journey via the Crossings. Furthermore, the value of the Severn Crossings in terms of the cost per distance saved is relatively similar to other estuarial crossings – as can be seen in the table below.

11. The Government recognises the importance of the Crossings for users, the surrounding economies and also the wider Welsh and English economies. Against this backdrop the Government’s command paper on the future of Welsh devolution published in February 2015 states: “Based on current predictions, the Severn Crossings will return to public ownership in 2018, and the Government committed in its Road Investment Strategy (RIS) to work with the Welsh Government and others to determine the long-term future of the Crossings. Any future plans should both ensure the long-term maintenance of the bridges and provide the best support to the local economies in Wales and England.”

12. DfT has begun some initial scoping discussions with HE about what would need to be done to secure continued safe and efficient operation of the Crossings once they revert to public ownership. We intend to provide more information about this in our consultation later this year.

13. The challenge for the Government is putting in place a sustainable plan that balances the needs of users and taxpayers. This means the Government will have to consider how quickly costs incurred by taxpayers should be repaid and how to ensure that the long term costs of providing this infrastructure can be met through tolling.

14. The table below shows the revenue, VAT and operational costs for the last 5 years.

15. DfT expects the concession agreement to end and the handover of the operation of the Crossings to be completed by early 2018. We are keen to discuss and agree a more precise timeline with relevant stakeholders.

16. Some modelling work to assess the impact of different toll regimes is being finalised. DfT plans to present the results alongside a formal consultation later this year.

17. There are a number of known issues that we will bear in mind when assessing the impact of changes in toll levels.

18. One of the main issues is that congestion on the M4 in Wales at the Brynglas Tunnels can be serious. The Welsh Government’s proposals for the M4 Corridor around Newport would remove this bottleneck. But this scheme, if it proceeds, would not be complete until Autumn 2021 at the earliest.

19. Another issue is throughput at the tolls. If the queuing times at the two plazas are unequal, the HE control room staff use the variable message signs (VMS) to “divert” the traffic to the least busy route.

(Note: as one of the two M48 westbound lanes is closed until August for inspection of the main suspension cable VMS is not currently being used).

20. Currently, road users can pay by cash or credit/ debit card at the toll booths. SRC introduced facilities for card payments in September 2010.

21. Having completed some trials, SRC are rolling out contactless card readers. Transaction times for contactless card transactions without a receipt are eight seconds faster.

22. Users can also choose to have a “tag” in their vehicle, which is automatically detected and lifts the barriers. There are tag-only lanes to speed the passage of vehicles with tags, and having a “season” tag gives a discount for regular users.

23. SRC do not accept fuel cards or normal toll payments by phone (except to top up TAG accounts).  

24. As a general principle, the Government supports moving towards more efficient ways of collecting tolls which benefit traffic flow.

25. A move towards free-flow tolling is something that has been suggested by some stakeholders. DfT intends to make an informed decision about whether or not to implement free-flow tolling by looking at all the costs and benefits. An initial assessment is underway and we hope to share indications of feasibility in our consultation later this year.

26. The consultation will provide an opportunity for stakeholders to share their views on free-flow tolling and other payment and pricing options that could help maximise the efficient operation of the Crossings.

09 June 2016