Policy paper

Terms of reference

Updated 11 July 2023

This was published under the 2019 to 2022 Johnson Conservative government

Applies to England and Wales

1. Context of the grant agreement

The Canal & River Trust (the “Trust”) was created in 2012 (by way of a Transfer Order and Scheme under the Public Bodies Act 2011) as an independent charity to take on the responsibilities and assets of British Waterways (“BW”) in England and Wales.

Defra and the Trust entered into a 15-year grant agreement on 28 June 2012 (with a subsequent amendment agreement on 13 December 2013 to clarify the definition of investment assets), to support the Trust to deliver its charitable objects, which included the preservation, protection, operation and management of around 2,000 miles of inland waterways for public benefit.

The grant agreement comprises, annually, a core grant of c£39million and an additional £10million which is conditional upon the Trust meeting certain minimum requirements (standards of safe waterways, towpath condition and flood management). The grant is adjusted each year by a variation of price clause described in Section 2 and Schedule 1 of the grant agreement which reduces in real terms after the financial year 2021 to 2022.

Additionally, the transfer from BW to the Trust included an expendable endowment of BW’s investment assets portfolio, valued at c£460million in 2012 and now valued at c£850million in 2019 to 2020 restricted by the terms of the grant agreement. The purpose of this endowed investment asset portfolio was to provide a long-term revenue stream to substantially contribute to the cost of maintaining and operating the Infrastructure Property in perpetuity. The purposes included: to generate revenue for the Trust over the long-term to spend:

• on the permitted activities, charitable objects and statutory or grant agreement obligations
• for urgent and unexpected infrastructure failures or events such or risk of imminent failure (but subject to the requirement to make a plan to replace the capital value of funds expended over time by way of charitable fund raising from the revenue account or from other available resources)
• to provide balance sheet strength for the Trust to enable borrowing and pensions management

The overall purpose of the grant is to support the Trust’s charitable objects set out in the trust settlement, and to maintain the inland waterways network and infrastructure through the delivering permitted activities set out in the grant agreement (Schedule 2).

A memorandum of understanding, also entered into between the Trust and Defra in 2012 set out Defra’s objectives for funding under the grant agreement at the time:

i) To reduce dependence on government grant and to foster increasing self-sufficiency, by providing access to new charitable income streams and stimulating new efficiencies. Over time, to increase overall funding available for the waterways. A prerequisite for this is to support the viability of the Trust – especially in its early days - and so minimise the risk that government has to intervene to take responsibility for the waterways from the Trust

ii) To move the long-term cost of maintaining the inland waterways and associated heritage infrastructure (estimated at around £4 billion in nominal net present value terms) from the public sector to civil society

iii) To support localism and give waterways’ users and communities greater involvement in the management and long-term sustainability of the waterways

iv) To safeguard:

• the canals and associated heritage infrastructure through the Trust Settlement, in perpetuity, for the benefit of the nation
• free pedestrian access to the towpaths

v) To ensure that the waterways continue to deliver and increase public benefits across the areas of:

• public safety
• public access, recreation, amenity and health
• environment
• urban and rural regeneration
• heritage

2. Review of the grant agreement

The grant agreement made provision for a review to take place to consider whether, and if so, the extent to which, there is a case to continue to support by grant, the public benefits provided by the waterways under the Trust’s stewardship after the financial year 2026 to 2027, which is when the existing 15-year grant agreement period ends. This review is stipulated to take place in the financial year 2021 to 2022 and includes (but is not limited to) provision of land drainage, flood mitigation and other public safety benefits.

Defra is under no obligation to increase the amount of the grant as set out in the grant agreement, or to extend the grant beyond the end of the term (that is, beyond 2027), subject to the outcome of the 2021 to 2022 review.

3. Scope and methodology of review

The grant agreement requires the SoS to look back at whether the grant funding has been value for money and whether there is an ongoing requirement for government intervention to fund the Trust.

The review will draw on government best practice set out in the Treasury’s 5-Case business case nodel and the Green Book. In order to enable a fully evidence-based assessment to inform the decision specified under the grant agreement on future funding arrangements, the review will look at the parameters set out in the original grant agreement and associated documentation within a broader strategic, economic and political context and wider evidence base.

Defra and the Trust have agreed that the grant review will be divided into 3 component parts:

a) Evidence-based assessment of the Trust’s performance and delivery since its inception in 2012 – as set out in the grant agreement and other documents published in 2012

b) Looking ahead to consider the case and context for any future funding arrangements

c) A broader review of the extent to which the strategic context has evolved since 2012 and or is likely to evolve in the future

a. Evidence-based assessment of the Trust’s performance and delivery since its inception in 2012 – as set out in the grant agreement and other documents published in 2012

In terms of the first component, the grant agreement provides that the 2021 to 2022 review will take into account, amongst other matters, the Trust’s performance of its obligations arising under the grant agreement. This includes consideration of the charitable objects and permitted activities, as well as management of the investment assets and pensions indemnity. The review will take into account the Trust’s performance of its obligations arising under the grant agreement. The review will involve an evidence-based assessment of the extent to which Defra’s investment and policy objectives have been realised.

The explanatory memorandum to the 2012 transfer order contains further insight on how the government will approach the 2021 to 2022 review. The explanatory memorandum sets out a number of “key evaluation questions” which are relevant to the evidence-based assessment of the extent to which Defra’s objectives have been realised:

• to what extent have the success criteria been met?
• to what extent have there been unintended consequences?
• what are the costs and benefits, in hindsight and going forward?
• is government intervention still required? Or has the market changed as a result of the policy?
• evaluation of the success of the Trust in generating additional income
• delivery of civil society benefits, including increased community engagement and volunteer support
• assessment and interpretation of key performance data and trends

Defra and the Trust have agreed that this first component will also seek to identify any additional or unintended benefits and costs that have arisen and may also extend to a review of the Trust’s operational delivery and governance framework. A consideration at this stage will be whether the evaluation addresses BW performance prior to transfer as a counterfactual.

This part of the review is an evaluation of past (and present) performance and will be guided by best practice principles from the Magenta book.

b. Looking ahead to consider the case and context for any future funding arrangements

Defra and the Trust have agreed that the second component will include, amongst other matters:

• projections and assessment of the Trust’s ongoing financial sustainability (including, but not limited to: an assessment of investment assets, pension liabilities, income and expenditure streams)
• the Trust’s long-term operational and business plans
• risk assessment including the heritage and asset base. Consideration will be given to cost pressures and easements from external factors on these risks and responsibilities. delivery of public goods and benefits whether government intervention is still required
• an exploration of options for any future funding arrangements, including, but not limited to: impacts, benefits, risks, opportunities and sensitivity analysis

This part of the review will assemble, collate, test and interpret evidence and analysis, and will be guided by the best practice principles from the Green Book.

c. A broader review of the extent to which the strategic context has evolved since 2012 and or is likely to evolve in the future

Defra and the Trust have agreed that the third component will consider the extent to which the strategic context has evolved since 2012 and or is likely to evolve in the future. This may include consideration of any future funding arrangement for the Trust within a wider strategic context, including but not limited to: the role of the waterways in society; the government’s broader policy objectives and priorities; long-term recovery from, and impact of, Covid-19; and or through the identification of new or obsolete benefits.

Defra may choose to consider the grant review within a wider strategic context regarding other inland waterways and/or navigation authorities including the Environment Agency.

The strategic context agreed under component part c may influence the approach to evidence gathering under component parts a and b, whilst also maintaining focus on the primary objective of the grant review to consider whether, and if so, the extent to which there is a case to continue to support the Trust by grant beyond 2026/27.

4. Sources of evidence

The grant agreement requires the Trust, on request, to provide Defra with further information, explanations and documents as Defra may reasonably and proportionately require in order for it to establish that the grant has been used properly in accordance with the grant agreement.

The grant agreement also requires the Trust to permit any person authorised by Defra reasonable and proportionate access to its employees, agents, premises, facilities and records, for the purpose of discussing, monitoring and evaluating the Trust’s fulfilment of the terms of the grant agreement. If required by Defra, to provide appropriate oral or written explanations to persons authorised by Defra.

The persons authorised by Defra may include, but are not limited to: Defra officials, Other government department officials, Ministers, individuals from arm’s length bodies of Defra, independent consultants, or subject matter experts.

The review will be evidence based and will draw on material from a wide range of sources. Defra and the Trust have agreed that evidence sources will include (but are not limited to):

• data and information the Trust already holds (for example, asset registers, financial records, customer surveys, environmental monitoring records etc)
• existing or newly commissioned study data or metrics gathered by the Trust, including the Trust’s Outcomes Measurement Framework
• independent analysis, assurance, technical surveys and assessments, financial and commercial advice, research and data collection
• other advice, evidence, expertise and testimonial (that may also be drawn from customers, the public, stakeholders, independent experts and other government departments)

Defra and the Trust have also agreed the following in relation to the sharing of information between each other and third parties for the purposes of the 2021 to 2022 grant Review:

• to ensure protection of the Trust’s intellectual property rights and confidentiality obligations to third parties in any information and documents it is requested to provide
• to ensure that any processing of personal data complies with the Data Protection Act 2018 (GDPR)
• to co-operate and to take into account each other’s concerns in responding to requests under freedom of information legislation

5. Timing of the review

The grant agreement provides for the review to take place in the financial year 2021 to 2022 and for Defra to issue a report setting out the conclusions of the review with regard to continued support of the Trust by grant beyond the term of the grant agreement on or before 1 July 2022.

Defra and the Trust have agreed the following indicative timetable leading up to this date (to be kept under review as the grant review progresses):

1. June 2020 – April 2021 – planning and initial evidence collection
2. April 2021 – September 2021 - continued evidence collection and analysis
3. September 2021 – July 2022 – elaboration of the grant review by Defra (in consultation with Ministers, the Treasury and the Trust)

6. Governance and resourcing for the review

Defra and the Trust have agreed that the review will have regard to the wider legal and regulatory framework, including but not limited to the Trust’s obligations as a statutory undertaker and navigation authority, charity law (including the oversight of the Charity Commission), environmental law and health and safety regulation.

Defra and the Trust have agreed the following principles of working together on the grant review:

• adopting a transparent, collaborative and constructive approach, recognising that they are each independent organisations with their own respective stakeholders and duties
• maintaining regular communication, with clear requests for information and realistic timeframes for responses
• involving the right amount of resources and people to maintain an agile and proportionate approach to the grant review
• providing advance sighting and an opportunity to comment on any published statement or commentary of the progress or outcome of the grant review
• taking account of the impact of any Covid-19 lockdown and social distancing requirements, restrictions on non-essential travel and face-to-face meetings
• staying focused on the core objectives of the grant review

The review will be led in Defra by the Inland Waterways Team, which forms part of the Commercial Policy Division within the Floods and Water Directorate. The Senior Responsible Officer will be the Director for Floods and Water Directorate and the Deputy Director for Commercial Policy will provide strategic and policy oversight.

The Defra team will be supported with specialist advice from policy, analysis, commercial, legal, property, project management, finance, engineering, strategy and external affairs teams from across the Defra group, wider government, and through consultants commissioned to support the grant review.

The Board of Trustees has delegated the Trust’s support and engagement on the grant review to the executive team within the Trust. Throughout the duration of the grant review, the Trust will provide a balance of high level strategic and focused support including from those with relevant expertise as and when required. The Trust will keep its Board of Trustees informed and involved in the grant review process, as necessary.

The progress of the grant review will be an item on the agenda of all regular future review meetings (held three times every year) under the terms of the grant agreement.

7. Report and publication

Defra’s report on the conclusions of the grant review will be published on GOV.UK on or before 1 July 2022. The report will set out conclusions with regard to continued support of the Trust by grant beyond the term of the grant agreement. The decisions set out in this report will be made by the Secretary of State for the Department for Environment, Food and Rural Affairs, with Treasury endorsement.

Defra shall share a confidential, interim version of the report and early findings with the Trust in a timely manner before publication, incorporating reasonable time for discussion and feedback into the report delivery timetable.