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Chapter 22. The Dartford Crossing - Forerunner of the Private Finance Initiative

Volume 1 Part 8
Brief résumé of Chapter 22:
The Dartford Crossing - Forerunner of the Private Finance Initiative

Sir Alan Bailey KCB, MA, BPhil
formerly Permanent Secretary, Department of Transport

Because of the existence of the tax base as security the cost of finance for investment is usually less if the nation's government raises it than if it is raised in other ways. For this reason, until the twentieth century was nearly at its end, it was the prevailing view in government that what it should provide in physical facility for the nation would be provided with maximum advantage to the economy if contained within the financial resources obtained by government; and that the performance of the nation's economy in the world's competition would only suffer if government took too much.

This firmly grounded view was familiar to Sir Alan Bailey as one who had a career in H.M. Treasury, with two years in the Cabinet Office, rising to 2nd Permanent Secretary, before becoming Permanent Secretary of the Department of Transport for his final 5 years in the Civil Service. (Thereafter, in the 1990s a sense of transport's importance would bring him to the Board of London Transport, and a sense of history to the office of Honorary Treasurer of the History of Parliament Trust.) After Sir Alan had left the Treasury, government policy changed to accept, even encourage, "Private Finance Initiatives" (PFIs) to undertake with private and even foreign sourced funds additional investments accepted by the Treasury as serving the national interest provided that, after allowing for considerations of efficiency, they would carry no consequent risk for public finance.

Chapter 22In the case of the Dartford river crossing a resonant historical question was raised; would it be to the nation's greater advantage if a facility which government recognised as desirable for the nation were to be provided at a greater cost of private credit, compared with any such additional cost (expressed net) publicly borne? Arguments on this first surfaced in government in 1924 when Sir Maurice FitzMaurice's beautifully drawn proposals for a Dartford-Purfleet Crossing were first presented to the Ministry of Transport. In 1923-24 Stanley Baldwin's Administration took a decision of principle to try to avoid any private tolls which, as Chapter One reveals, was largely on Sir Henry Maybury's advice from within the Ministry. Later crossing proposals followed in 1930 and 1937. Subsequently the motorway systems proposed by the CSS and the ICE saw routes to the Midlands ending at Purfleet. War Cabinet decisions of 1943 and 1944 progressed our motorway system and a better ventilated design for Dartford's tunnel. County Councils had borrowing powers and could enhance them with parliamentary powers to levy tolls. Kent and Essex sought them in 1930, 1937 and 1956 and 1960 - before the first tunnel opened. Decisions on the route and depth for the tunnels entailed liaison with the Port of London Authority which, since 1909, has been concerned with this geological context and the passage of the shipping here.

Sixty years after Stanley Baldwin's decisions of principle about road finance, and after a second Dartford Tunnel opened in 1980, the M25 neared completion. Sir Alan Bailey then became involved in reassessing the proper concerns of public sector finance and how the public interest would best be served in providing the necessary extra capacity. He describes here how and why this important decision was taken. It is now clear, from the relationship between the Dartford bridge's capital cost of £120m and its net revenue from tolls (from the tunnels and the bridge), that material economic gain was there to be secured from the motorway system. It would have been forgone if another crossing over the River Thames had not been built. To anticipate that outcome was in effect to speculate on its design, on its cost, and on its future usership. The Directors of the Dartford River Crossing Ltd were prepared to take those risks in 1987. Alongside their bridge, the first built downstream of the City of London since 1894, they have provided well for the future. Within the tunnel crossings they provided for radio signalling to vehicles in transit, albeit this has only been used to date to allow the operation of car radios rather than to control traffic.

Its Directors initially believed their work would eventually confer a toll-free heritage for, since the bridge's opening in 1991, traffic and turnover has continued to grow reaching about £64 million a year. This has justified the initial borrowing assumptions and the costs of 200-300 employees concerned with toll collection. However, recently the terms of the borrowings and judgements made by the Dartford River Crossing Ltd and their bankers, the Bank of America, may prove to have lost some lustre if a ruling from the European Court of Justice prevails to the effect that VAT should have been paid by the British Government to the EU on such tolls. Several Member States of the European Union, including the United Kingdom to which the principle is alleged to apply, do impose tolls. Yet these are also contexts where VAT's incidence had yet be applied and accepted by each national Government. The ruling relating specifically to the United Kingdom's estuarial crossing tolls was delivered in a document entitled "Opinion of the Advocate General Alber - Case C-359/97" of the European Court of Justice on 27th January 2000 - long after the decision to build the bridge at Dartford was implemented. It followed some elements of compromise and bargaining apparently affecting a judgement of retrospective liability. The judgement relates to the period after 1986 and explicitly mentions the arrangements made for the Severn, Dartford, Tyne, Erskine, Forth and Humber crossings as ones to which its decision now applies. As the Queen Elizabeth II Bridge at Dartford has since been followed by other PFIs for tolled estuarial crossings, namely, the second Severn Bridge and the Skye Bridge, the question whether the Opinion C-359/97 of the European Court will apply there too requires resolution, not only in relation to tolled estuarial crossings but also in relation to other busy roads subject to congestion charges.

While Dartford River Crossing Ltd will cease to exist past 2002, similar new tolls will be imposed by the DFBO builders of the Birmingham Northern Relief Road. Consequently congestion charges, now approved in principle for London, may well bring to the fore the European Court of Justice's ruling over VAT due on the A282's tolls and other tolled crossings.