The future of British Waterways - Biggest challenges

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.