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Merseytram

I have considered very carefully all the information that Merseytravel has provided for Merseytram Line 1. I provisionally approved a Government contribution of £170 million, in cash terms, towards the cost of Merseytram Line 1. That commitment remains if the scheme can be delivered at that cost. However, it has become increasingly clear that there is a problem with the cost of the scheme. The public sector cost has increased by 40 per cent. since I gave provisional approval, and that is for a smaller scheme. In December 2002 the scheme was given provisional approval at a public sector cost of £225 million, in cash terms, with a capped DfT contribution of £170 million. In November 2004 Merseytravel advised the Department that the public sector cost was £325 million. The Department's contribution was then presented as £204 million. That was for a reduction in scope, compared with the scheme we approved. If the northern loop was still included, that would have added around £25 million to the costs, bringing the cost increase for the original scheme to over 50 per cent. In February 2005 Merseytravel submitted a claim for £4.2 million towards the preparatory costs incurred. This was in addition to the £204 million contribution it was seeking from the Department. In February 2005 it also became clear that Merseytravel would seek additional funding from the Department if its proposal for a finance lease did not proceed as proposed. This assumed the Department would pay all its contribution upfront and allowed Merseytravel, in effect, to take advantage of the leasing company's tax allowances, providing Merseytravel with an extra £30 million but at a cost to the Government and taxpayer. The Department advised Merseytravel that this was an unusual arrangement for the public sector, which would need careful consideration within Government. I have concluded that I cannot approve it. The Department told Merseytravel in March 2005 that under the new approach to approvals a final decision on whether to fully approve the scheme would not be made until the prices and risk allocation were firm, based on negotiated terms. erseytravel advised the Department in May 2005 that, following negotiations with the preferred bidder, the total public sector cost was £315 million. But with the proposed local contribution of £77 million, the Government's contribution would be £238 million. Last summer Merseytravel was confident of delivering the scheme for the agreed Government contribution of £170 million. Since last November, when Merseytravel put forward a revised public sector cost of £325 million, the Department has kept closely involved with the way the costs have developed. Merseytravel has managed to bring the costs down at the margin, reducing the total funding requirement by £10 million. However Government's contribution remains at some £238 million—40 per cent. more than the original capped figure of £170 million. I appreciate that Merseytravel has made every effort to keep costs under control. However, it is clear that costs remain significantly higher than those that I approved, and that this scheme is an expensive way of delivering these transport benefits for Merseyside. Whilst I support tram schemes, I cannot do so at any cost. In the light of all the information I have therefore concluded that I cannot approve the proposal for Line 1. I recognise that transport investment is needed in Merseyside to tackle the current problems and to support the future growth of the city. We have committed over £200 million to transport improvements in Merseyside over the last five years, and I intend to continue to support good value schemes in the area. The £170 million that I committed to Merseytram Line 1 remains available if the scheme can be delivered at that cost. If it cannot, a great deal can still be done for Merseyside through other transport improvements; the Department would welcome a discussion with Merseytravel to develop a good value package of improvements, especially for improved public transport for the areas that would have been served by the tram. The funding will be there for the right proposals.