The Department's objectives
9. The provision of a bridge between the mainland and Skye to be paid for mainly by tolls on users was an objective of Government policy. The overall objective was to have as soon as possible a privately tolled crossing to deal with the problems of congestion and delay associated with the former ferry service. The Department also aimed to keep tolls at or below the former ferry fares in real terms and they wanted a deal that allowed tolls to cease within 20 years. They aimed to achieve value for money through the process of competition for the project deal, and they expected the competition would also ensure a satisfactory design for the crossing.[4]
The primary objective
10. Clearly the Department achieved the primary objective, given that the bridge was opened in 1995 six years after they first accepted responsibility for the project, against the background that they had stated[5] that they would not have provided a publicly funded bridge until well into the next century, if at all. We note that opening the bridge provides a number of benefits compared to the former ferry service. As well as the elimination of congestion and delay associated with the ferry, these benefits include shorter journey times, improved reliability in bad weather and the elimination of charges once the concession is terminated.
11. The Department told us[6] that the previous Government had had no plans for a publicly financed fixed crossing to Skye. Accordingly, the choice the Department faced was either to continue with the ferries and upgrade them or to provide a tolled bridge. They said[7] also that the local authorities and all but one of 17 community councils concerned preferred the bridge with the tolls to the alternative of carrying on with no bridge; and that the prospect of a tolled bridge with tolls no higher than ferry fares was put very clearly to the public inquiry which accepted those proposals.
The level and duration of tolls
12. The Department told us[8] that they believed the contract would enable the concession to be paid off, as intended, within 20 years and with tolls no higher in real terms than the former ferry fares. Although how long within this period the concession will run depends on traffic flows, and it is still early days, the Department told us that the latest figures continue to suggest that the project will be paid off in between 14 and 17 years.
13. The operator of the former ferry service was Caledonian MacBrayne, a Government owned company which continues to provide other ferry services in and around the Highlands and Islands of Scotland.[9] Given that the Department's objective was to keep tolls at the same level in real terms as the ferry fares, we asked why the company were able to increase ferry fares on the Skye route by more than inflation between 1991 and 1995 when the bridge opened. The Department told us[10] that this was a matter principally for the company and that, though the Department set the external finance limit for the company within which the company had to work, they would not directly influence the company's increases in fares.
14. They acknowledged,[11] however, that the Government had an interest in the link between fares and the economy of the islands. They told us that the Government had asked Highlands and Islands Enterprise to investigate this aspect in the light of the current year's increase in fares across all the company's routes.
Recent changes in discounted tolls
15. In July 1997 the Government completed a review with Highland Council of current toll levels for the bridge, as they had undertaken in their manifesto for the General Election.[12] The Secretary of State's objectives for the review were to reduce the impact of the Skye Bridge tolls on those with a frequent need to cross the bridge, and to bring tolls for those users to a level that was generally acceptable within the limits of what was affordable given other pressures on public expenditure in Scotland.
16. The Department told us[13] that as a result of the review they proposed a 50 per cent reduction in discounted tolls for cars and motorcycles, and a 25 per cent reduction in tolls for commercial vehicles and public service buses. The consent of the operator was required to make these changes, however, and the Department had not completed the necessary negotiations to permit any changes in tolls before this Committee took evidence in public in November 1997.
17. Subsequently, following the completion of the negotiations with the operator which the Department announced in December 1997, the Department provided us with information[14] about the new agreement which will reduce substantially the discounted tolls with effect from 1 January 1998. For example car drivers may now purchase books of 20 toll tickets for £26 giving an effective single toll of £1.30, compared to £2.44 previously for those who purchased books of 10 tickets priced £24.40.
18. The new agreement provides for the Department to compensate the operator for the reductions in income that they expect as a result of the additional discounts they now offer. The Department told us[15] that they have estimated that they will pay the operator between £380,000 and £560,000 a year, though the compensation in any year is dependent on traffic in that year and other factors and is not known with certainty in advance.
19. On the basis of these estimates, and reflecting the Department's previous forecast that the concession will end between the years 2009 and 2013, the National Audit Office estimate[16] that over the remaining life of the concession the Department's further payments as a result of the new agreement may total between some £2.8 million and £3.4 million in 1991 prices.
20. The Department told us[17] that the operator will benefit from additional toll income from any additional traffic which the new discounted and substantially reduced tolls may generate, but could lose income to the extent that the new discounted tolls encourage users who would have paid the full toll to move to a discounted toll.
21. The Department told us[18] that the new agreement recognises the benefits to the operator from traffic generated by the lower tolls by capping the Department's payments to the operator at £600,000 in current prices and at current traffic levels in any one year. We note, however, that if payments to the operator are below this level, i.e. at the level the Department expect, the operator will get the full benefit of any increased traffic generated by the lower tolls.
The design of the crossing
22. The Department relied on competition to propose a design which would be consistent with their environmental and aesthetic requirements for the bridge.[19]
23. Following objections and because of the novelty of the proposals, there was a public inquiry to examine the proposals put forward by the operators in their bid and provisionally accepted by the Department. Though the proposals did not attract unanimous support, the report of the inquiry in 1992 was satisfied with the design subject to some modifications which have been carried out largely at the Department's expense, amounting to some £4 million.
24. We asked the Department why they and their advisers on aesthetic and environmental matters did not anticipate the design issues and objections which were considered at the public inquiry and which added significantly to their costs. The Department said[20] that they had involved the advisers almost from the outset, and they had set out hoping that they would be able to reach agreement with all the parties concerned. The Department said that they did not think they could have predicted the criticism of the Royal Fine Art Commission for Scotland that the bridge proposal did not come up to international standard.
25. We asked the Department why, nevertheless, they could not have anticipated some changes, given that it is not unusual for a public inquiry to produce such results. The Department said that at the time the tenders were submitted there had been an acceptance amongst the advisers of the proposals and it was subsequently that pressure came through for change so they had been right in assuming at the point when the bids arrived that the design could be delivered as proposed.
Conclusions
26. The Department achieved their primary objective, the provision of a privately financed tolled crossing to Skye. Compared with the former ferry service this has brought a number of benefits to people travelling to and from Skye, including shorter journey times and a more reliable service in bad weather. The Department did not fully achieve their other objectives in relation to the level of tolls, the duration of the concession or the design of the bridge. Our reservations on these are set out below.
27. The Department expect traffic to continue to grow at a rate that will allow the bridge to become toll free within 14 and 17 years from opening, with tolls kept below the level of the former ferry fares. But we note that the contract which the Department signed does not guarantee that the bridge will be toll-free within the Department's 20 year target period, nor that tolls will remain lower than their target level.
28. Following the Government's decision to set lower tolls for regular users of the bridge, the Department's further payments to the operator of some £3 million over the remaining life of the concession will count towards the £24 million target revenue for the operator. While the new payments do not increase the total revenue the operator will receive, they may increase the operator's profits from the project. This is because, given the target toll revenue, the operator's profits depend on the length of the concession: the shorter the concession, the shorter the period for which the operator must bear the operating costs of the bridge, and hence the higher the profits.
29. We would have expected the Department to have negotiated a revised agreement for tolls which minimised their own extra costs and which was financially neutral for the operator. But there is no assurance that this will be the case. Because the new lower tolls are likely to generate extra traffic, over and above the levels there would have been under the original toll regime, the operator is likely to reach the £24 million target revenue sooner than previously expected. And because the new agreement does not take full account of this likely earlier flow of revenue, this means that the operator's profits are likely to be higher than previously expected.
30. The principal test of the Department's objective to ensure a satisfactory design of the crossing was the outcome of the public inquiry which in 1992 examined the proposals put forward by the operators and the objections that had been made to them. The Department were not wholly successful here, since the design did not attract unanimous support, and while the report of the public inquiry endorsed the design this was subject to a number of modifications which were carried out largely at the expense of the Department.
4 C&AG's Report para 2 and Figure 1 Back
5 C&AG's Report paras 8-9 Back
9 C&AG's Report paras 5 and 3.15 Back
14 Evidence, Appendix 1, pp 20-25 Back
16 Evidence, Appendix 3, p26 Back
17 Evidence, Appendix 1, pp 20-25 Back
19 C&AG's Report Paragraphs 2.5-2.9 Back
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