The future of British Waterways

THE Inland Waterways Advisory Council (IWAC) is concerned that the serious difficulties that face government and BW in managing the transformation to a 'third sector' have not been fully addressed.

Whereas the potential advantages of creating a third sector body have been well publicised, the problems have not yet been resolved, and for this reason the  IWAC (an independent statutory body created  by the Natural Environment and Rural Communities to advise Government, navigation authorities and other interested persons on matters relevant to Britain's inland waterways)  has published a Position Paper as advice to government and BW and as a contribution to the developing debate.

We publish it in full:

British Waterways: the proposed move into the third sector

The proposals

British Waterways (BW) launched its statement 'Twenty/Twenty Vision' in April 2009 and opened the debate on the possibility of a move into the third sector. From that time IWAC has been closely involved in the debate and the various consultations. Following a presentation by Robin Evans, Chief Executive of BW, to IWAC in September 2009 and a detailed debate with senior management of BW, IWAC wrote to BW in October 2009 offering advice to BW about the suggested move. Since then BW has consulted widely, refined its proposals and has now sought Government support for its plan.

The Government's position

On 21 June 2010 Richard Benyon, the Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs, made a statement to the House of Commons giving the Government's position:

"The Government considers civil society has a very valuable role to play in delivering public services as part of our commitment to creating a Big Society. We will therefore be continuing to look in detail at whether a third sector model would be appropriate for British Waterways, including the possible inclusion of the Environment Agency's navigations as the other navigation authority grant aided by Government. My department will be engaging a wide range of stakeholders in this work (and liaising with the Scottish Government). However I must make clear that, given the Government's overriding objective of reducing the financial deficit, no decisions on such a change will be taken until after the forthcoming Spending Review."

IWAC'S advice

After participating in the consultation meetings, having gained a detailed understanding of what is now proposed and in the light of the statement made by the Minister, IWAC has produced this position statement which is intended to assist the Coalition Government and BW in reaching a robust conclusion on the proposals.

Although many of the public statements have tended to treat BW's various proposals as part of a single package, in fact BW is suggesting two separate but related policy changes.

1. BW wants to change its culture so that it is closer to its partners, users and local communities.
2. BW wants to change its status so that it ceases to be a public corporation and becomes a charitable organisation within the third sector.

This paper deals with each proposal separately because IWAC does not believe that the two issues are necessarily interdependent. BW may well be able to change its culture and method of operation while staying within the public sector. Moreover, becoming a charitable organisation will not, in itself, ensure that BW becomes closer to partners, users and local communities.

Part 1: Moving BW closer to partners, users and local communities

BW has explained that it wishes to improve and deepen BW's relationship with all its partners, users, local authorities, community groups and the voluntary sector. IWAC welcomes this approach. The need for a substantial change in the way BW carries out its work has been evident for some years.

BW's aspiration to create an organisation that is more outward looking, more deeply embedded in each community, more responsive to local needs and which develops increased opportunities for volunteering is strongly supported by all IWAC members. We are keen that the process of change moves as quickly as possible and that the enthusiasm of partners and stakeholders for this reform is mobilised to full and early effect.

Welcomes the decision

IWAC welcomes BW's decision to pilot the new approach with communities along the Kennet & Avon Canal. To maintain the momentum IWAC suggests that another waterway, with rather different characteristics, is quickly chosen for a second pilot.

In order to emphasise BW's determination to work more closely with local communities we also suggest that BW moves forward with other preparatory work. For example the mapping of waterways by local authority area, with a simple guide showing the specific public benefits that are being delivered to local people by their particular waterway, would be extremely useful as a prelude to discussion in each community. In launching each local consultation, BW should explicitly state that its aim is to find ways in which the particular waterway can better serve the needs of local people.

Applies good practice

The lessons learnt from the pilots will be very important in guiding BW through the organisational and other changes that will be necessary. So it is very important that BW applies good practice at the outset by consulting thoroughly about the form of future pilots and by involving a wide range of relevant groups in discussions about the lessons that will emerge from applying the new philosophy.

Changing the culture of an organisation is difficult. The training commitment will be heavy and the cost of building local networks and partnerships will be a considerable drain on staff resources. Many difficulties will arise and some partners and stakeholders might be reluctant to accept that BW is genuine in its determination to change.

BW needs to show that it is prepared to experiment with new methods of work which are consistent with the new philosophy. Perhaps BW should consider involving users and relevant third sector bodies more directly in the management of particular waterways and visitor attractions.

Waterways community of the Board

Expanding the Board of BW to include more people with direct waterways community engagement would demonstrate BW's commitment. An important symbolic act would be to set up a new Consultative Council with a defined place in BW's decision making process. The Consultative Council's membership should include third sector organisations and volunteering groups.

IWAC believes that these changes in culture and practice are very important and should proceed whether BW remains in the public sector or is transformed into a third sector body. Members of IWAC would be delighted to help in any way that is appropriate.

Part 2: Transforming BW into a charitable organisation within the third sector.

Transforming BW into a charitable organisation in the third sector has many attractions. As a public corporation, BW is subject to a number of restrictions and disabilities. It cannot independently borrow money against its assets and, as a publicly funded body, is not well placed to raise money from the public by way of donations and legacies.

As a third sector organisation BW could remodel its governance structure to give greater influence to local authorities and other potential partners. There are several important examples of third sector organisations acting as steward for the nation in operating and conserving great national assets and, with the right level of resources and appropriate governance, BW could be just as successful.

Third sector is desirable

For these reasons, IWAC supports the principle that a move to the third sector is desirable and could bring important advantages. We are reassured by the statements from BW and from the Waterways Minister that the intention is not simply to move BW into the third sector but to create a new third sector body in place of BW.

However this recognition that a major transformation is needed confirms the extent and complexity of the changes that are necessary. IWAC members are anxious that, in spite of extensive consultation, several substantial practical problems have not yet been resolved. The challenges are formidable and IWAC sets them out in this position paper in the hope that solutions can be found and that risks can be mitigated.

The three biggest challenges concern:

• the financial stability of the new third sector body;
• the governance of the new body;
• the scope of the new body.

Financial stability

To explain the nature of the change that is proposed, senior managers of BW have stated that the aim is to create a 'National Trust for the waterways'. The image is compelling and many commentators and users have supported this aspiration.

Transforming BW into an organisation that looks and operates like the National Trust or some other well regarded third sector body is certainly possible but the massive nature of the change needs to be recognised.

Comparisons between organisations with differing operating arrangements are always difficult. Nevertheless the contrast between BW and the three third sector bodies is striking. Most of the National Trust's income and the overwhelming majority of the income of RSPB and the Royal Palaces comes from donations of one sort or another and from membership and admission income.

Massive transformation of finances

Only 11% of BW's income comes from these sources. By contrast BW receives about 33% of its income from grants while the three third sector bodies each receive less than 6%. To turn BW into a 'National Trust for the waterways' will require a massive transformation in the finances of BW.

BW has a number of disadvantages compared with the National Trust. The National Trust can raise subscriptions from members by offering free entry to its extensive portfolio of properties; BW has no similar opportunity. The National Trust will rarely accept major properties into its care unless the property comes with a significant endowment; BW has insufficient endowments to meet the liabilities of its existing network, although its commercial property portfolio makes a vital contribution in this respect.

The National Trust has massive land holdings which produce a large income from leases and tenancies; BW's land holdings are more modest and without a guarantee that they would remain under BW's control, BW's financial position becomes untenable.

Securing donations from the public

These limitations explain why BW has concentrated heavily on the possibility of securing donations from the public once it moves into the third sector. The current thinking suggests that an annual figure of some £15 million could be achieved after ten years of fund raising.

Many supporters of the move to the third sector might have expected a more rapid improvement in BW's income. However the work undertaken by IWAC suggests that a cautious estimate is appropriate. In many charities, fund raising success has been built over many generations and the raising of funds requires the development of new skills that BW does not possess and the resolution of problems that BW has not faced. Donors often wish to direct their money towards a favoured project which may not accord with BW's overall strategy; securing and using donations effectively poses many legal and reputational challenges.

BW's main opportunity might be to follow the example of the National Park charities where money is specifically raised for the local amenity rather than going to a more remote national organisation. To achieve this outcome would require significant changes in structure. These problems are challenging and IWAC can see little prospect of the move to the third sector leading to an early rapid increase in income; the build up of income is likely to be a gradual process.

Doubts about the financial stability

The implication of a slow growth in donation income raises doubts about the financial stability of the new third sector body. Two years ago KPMG estimated that BW had insufficient income to maintain its waterways in a proper state and that the annual deficit was nearly £30million. If donations reach £15million annually and all other income levels remain unchanged, the new third sector body will start to cut back the annual deficit by small but increasing amounts during the next decade.

However if government reduces its funding by an amount greater than the rather modest expectation of donation income, the precarious financial position of the new third sector body would worsen. This will raise a number of serious concerns including whether the Trustees of the new body will be content to continue in post.

Guaranteeing the necessary level of funding

The key question is whether the UK Government will support the change in BW's status by guaranteeing the necessary level of funding until the new organisation can secure new sources of income. For some time the Treasury has tended to focus on the property portfolio and the Minister's parliamentary answer of 24 June offered some reassurance on that issue:

"For the third sector model to work, British Waterways will have to have access to its estate, or a large proportion of it, for it to gear up funding for sustainable funding in the future. I can assure him that it will not proceed unless it is locked in, in that way. Those are the negotiations that we are taking forward with British Waterways."

Retention of the property portfolio

The financial stability of the new third sector body requires not only the retention of the property portfolio but also the retention of funding equivalent to the Grant in Aid (GiA) currently paid to BW. There has been some suggestion that the UK Government's preferred outcome is for the new body to retain the property portfolio but to lose, year on year, an increasing part of current GiA. This could mean, for example, that the new third sector body might need to sell part of the property each year to make up for the lost grant which, in turn, would reduce its opportunity to earn development income in the future.

Later this year IWAC aims to publish a report setting out the options that are available for the funding of the inland waterways of England and Wales. Our expectation is that we will identify new sources of income for BW. The additional income sources will be useful and should help to reduce BW's deficit but will not be large enough to replace GiA.

Government funding will need to continue

Our examination of the income figures drives us to the conclusion that if the new third sector body is to maintain its waterway network at the present state of service and maintenance, the existing level of government funding will need to continue while the new third sector body strives to develop the sources of income that, in the longer term, might make it more independent of government financial support.

Governance

Establishing a fair and effective governance structure for the new third sector body is far from straightforward. IWAC believes that, as a matter of principle, a third sector waterways body should be democratic in both structure and outlook. However achieving this ideal with sufficient safeguards to avoid a takeover by sectional interests is likely to be more difficult than has been so far been explained by either BW or Defra.

Many respected third sector organisations base their governance structure on the creation of a sizeable membership. Members join because they have a strong commitment to the aims of the organisation, and sometimes because they receive membership benefits and concessions. In many instances members elect the whole or part of the organisation's governing council.

Comparison shows difficulties

A comparison with the National Trust illuminates difficulties that could be faced by the new third sector waterways body if it strives to become a membership organisation. The National Trust has added to its membership base by offering members free admission to its properties; the new waterways body would have no such opportunity because access to the waterway corridor is free and likely to remain so.

BW's key clients are boaters and anglers, many of whom might become members. On its own, that would create a rather narrow membership base. The new waterways body could attempt to increase membership numbers by introducing a low subscription rate which might appeal to a wider cross section of the population. This would probably be worth doing but success would depend on the new organisation being widely perceived as worthy of charitable support. In the absence of membership concessions, boaters and anglers would probably dominate the membership.

Having a narrow membership base would very likely lead to serious difficulties. The core justification for a third sector organisation to run the waterways is that the waterways would be run for the benefit of the community at large. A governing body overwhelmingly made up of boaters and anglers would be unlikely to achieve this objective; it would inevitably focus on matters of direct interest to these user groups, and whenever there was a conflict between the perceived needs of boaters or anglers and other members of the community, the governing body would probably appear partisan and unrepresentative.

Male, white and over 55

Some other problems are obvious to waterway insiders. It happens that the vast majority of boaters and anglers are male, white and over the age of 55. A governing body elected from this membership is unlikely to be diverse either in terms of gender or ethnicity. The practical implications of having decisions about the future of a great national asset reached by such a narrow section of society are obvious and the reputational risks to the new third sector body are likely to be considerable.

In the light of these concerns IWAC has concluded that the constitution of the governing council should include not only elected representatives of the membership but a substantial number of nominated representatives from widely respected relevant organisations, such as The National Trust and English Heritage, as well as user organisations such as the Ramblers Association and RSPB. The aim should be to achieve a balanced governing body, with boaters and anglers fairly represented but with other groups that have a legitimate interest in the well being of the waterways also being appropriately represented. This should include representatives of local authorities.

Government is very important

The role of the UK Government is very important. If our advice is accepted, UK Government will be providing financial support to the new waterways body at least for a transitional period. The exact nature of the financial arrangements have not yet been decided but, if primary legislation is to be avoided, it would seem necessary for the ownership of the assets to remain in the public sector with a contract being signed to give the new third sector body a long lease to run the waterways.

The content of this contract would be of great importance. Not only would it need to give the new third sector body the necessary level of financial security, but it would also need to set out principles to guide the work of the governing council and the trustees.

UK Government has the responsibility to ensure that the waterways are developed in the wider public interest. On this basis the UK Government will wish to ensure that the aims and objectives of the third sector body include commitments to take account of the needs of local communities, to adopt policies that encourage access to the waterways particularly amongst those groups who rarely use the waterways at present, and to operate efficiently.

Increased openness by BW important

The aims of balanced representation and wide involvement should be reinforced with imaginative action at local and regional level. BW is considering the creation of local advisory groups and, providing the participants are drawn from across the community, the advisory groups should contribute to a much stronger feeling of local involvement. The promised policy of increased openness by BW management at all levels will also be important.

A committed policy to recruit more volunteers to undertake a wide range of activities would increase local engagement. An IWAC Report planned for publication in the autumn of 2010 will draw lessons from organisations with a first class record of working with volunteers and suggest ways to recruit and involve more volunteers to work on the inland waterways.

Waterways Trust

The changes in BW's culture and status will inevitably raise questions about the future role of the Waterways Trust. The Trust was set up to undertake many of the tasks that are planned to be part of the work of the new third sector body and one suggestion is the Waterways Trust should pass its functions to the new organisation at an early stage. However IWAC has seen no evidence that the implications of such a move have been fully considered. Early attention needs to be given to this relationship and a solution should be found that enables the new third sector body to benefit from the knowledge and experience gained by the Waterways Trust.

Scope of the third sector organisation

When BW first launched its statement 'Twenty/Twenty Vision' in April 2009 and opened the debate on the possibility of a move into the third sector, the proposals related solely to BW and no other organisation was involved. However in the months that followed, Defra began to develop a proposal that the navigation responsibilities of the Environment Agency be transferred to BW and become part of the new third sector body at the outset. The Minister confirmed that this transfer was under consideration on 24 June 2010 in his reply to a parliamentary question:

"We will be looking in detail at options for a third sector model that will be appropriate for British Waterways, including the possible inclusion of Environment Agency navigations."

Advantages in bringing the two together

There are several advantages in bringing the two largest navigation authorities together. The new third sector body would become overwhelmingly dominant in the development of waterways policy; the Environment Agency navigations would be freed from the political, financial and commercial restrictions that apply to a Non-Departmental Public Body; some financial savings could be expected to be made in administrative and staffing costs.

On the other hand the drawbacks of widening the scope of the third sector proposal need to be considered. The problems involve a mixture of financial and political issues.

Thames boaters to oppose amalgamation

The largest navigation operated by the Environment Agency is the non-tidal River Thames above Teddington. The service standards provided to users, including the staffing of all locks, are higher than the service standards on the BW navigations. Thames boating organisations are apprehensive that an amalgamation could lead to a reduction in the high service standards that they currently enjoy. The Thames boaters have decided to oppose an amalgamation unless guarantees are given that service standards are maintained.

In practice any reduction in perceived service standards on the Thames would be difficult to accomplish. An attempt by the Environment Agency in 2008 to reduce the number of residential lock keepers on the Thames was strongly opposed by users and by a group of local MPs led by Theresa May MP and Martin Salter MP. The Environment Agency eventually withdrew the proposals and gave an undertaking that in future all the locks would be staffed by residential lock keepers.

Higher standards higher cost

An amalgamation would therefore mean that the third sector body would take over a high standard, high cost operation with little opportunity to make cost savings in the foreseeable future. The Environment Agency is able to sustain the operation because its Flood Risk Management budget meets the cost of the Thames weirs, on the basis that the weirs have a significant role in flood defence. The new third sector body is unlikely to have access to this budget and will either have to fund the whole operation out of its normal revenue or will have to negotiate some arrangement for control and funding of the weirs with the Environment Agency.

Some observers might expect that the new third sector body would fund at least part of the Thames operation by internal savings resulting from the merger of BW and Environment Agency navigations. However, BW and Environment Agency navigations operate in different parts of the country with little overlap and duplication in staffing.

Modest saving

In other circumstances an expansion in the size of an organisation might be expected to lead to a proportionate lowering of head office costs, but in this instance the Environment Agency navigations are already part of a large organisation and relatively low head office costs are borne by the navigations. IWAC's conclusion is that some savings will be available but they will probably be modest.

One of IWAC's responsibilities is to act as a conduit through which the views of waterway users are conveyed to the UK Government. Our understanding is that most waterway organisations support a merger of BW and the Environment Agency navigations at some stage. However IWAC understands that the Thames boaters are strongly against an early amalgamation and many representatives of other waterway organisations are anxious that attempting to accomplish the merger at the same time as BW moves into the third sector might well overload the management of the new organisation and lead to an extended period of uncertainty and confusion.

Conclusion challenged by IWA

IWAC understands that this conclusion is challenged by IWA, the largest users' organisation, which strongly supports the amalgamation of BW and Environment Agency navigations from the outset. IWAC believes that these disagreements need to be discussed as a matter of urgency. Unless a solution is found which commands widespread support, arguments about the amalgamation will overshadow the whole project. Members of IWAC would be happy to take part in and, if required, to chair these discussions.

The needs of the whole inland waterways sector

IWAC's work on funding issues will come to a conclusion with the publication of our Funding Options Report later this year. In that Report we consider the future of the whole inland waterways sector. We trust that any decision about the future status of BW will be taken with a full recognition that there are arguments for a wider programme of reform.

So any change in the status of BW should be made in a manner which facilitates and does not inhibit other desirable reforms in the future. Our Funding Options Report is intended both to add to the debate about the status of BW and also to place that debate in the wider context of the needs of the whole inland waterways sector.

Conclusions

BW should move as quickly as possible to change its culture and to move closer to its partners, its users and to local communities. This change in culture is not dependent on a move to the third sector, and should be implemented whether or not the move to the third sector takes place.

As part of the change in culture BW should consider involving users and relevant third sector bodies more directly in the management of particular waterways and visitor attractions, expanding the Board of BW to include more people with direct waterways community engagement and set up a new Advisory Council with a defined place in BW's decision making process. The membership of the new Council should include local authorities, third sector organisations and volunteering groups,

Should be substantially different

In principle a move to the third sector is desirable and would bring important advantages. However the new third sector body should be substantially different from BW in practice, organisation and governance.

If the transformation of BW into an effective third sector body is to be successful three substantial practical problems have to be resolved:

1. Financial stability

The new third sector body has to achieve financial stability by building up new sources of income including donations and legacies;

Building up the new income sources will be a gradual process and adequate government funding will be necessary for a substantial transitional period;

2. Governance

The new third sector body should be democratic in both structure and outlook;

The membership base of the new body is likely to be narrow and the governing council should include, as well as an elected element, a substantial number of nominated representatives from widely respected relevant organisations, such as The National Trust and English Heritage, as well as representatives of local authorities and user organisations such as the Ramblers Association and RSPB;

As the ownership of the assets will remain in the public sector, the contract which provides the lease to run the waterways should give the new third sector body the necessary level of financial security and set out principles to guide the work of the governing council and the trustees. These principles should include commitments to ensure that the waterways are developed in the wider public interest, that due account is taken of the needs of local communities, that wider use of the waterways is encouraged and require the new body to operate efficiently.

Local advisory groups drawn from across the community should be set up to contribute to a much stronger feeling of local involvement. The management of the new body should be based on the principles of participation and openness with a renewed commitment to recruit more volunteers to undertake a wide range of activities.

Early attention needs to be given to the role and future of the Waterways Trust so that the new third sector body can benefit from the knowledge and experience gained by the Waterways Trust.

3. Scope

The advantages and drawbacks of an amalgamation between BW and Environment Agency navigations taking place as part of the creation of a third sector body should be carefully balanced and urgent discussions should take place to resolve the disagreements between the user organisations on this issue. Members of IWAC would be happy to take part in and, if required, to chair these discussions.

Decisions about the future status of BW should be taken with a full recognition that there are arguments for a wider programme of reform. Any change in the status of BW should be made in a manner which facilitates and does not inhibit other desirable reforms in the future.

September 2010