South Yorkshire taxpayers have been left to pick up a£115m bill for construction of the Sheffield Supertram despite the government's 'clear unequivocal promise' that it would foot the entire cost, London's high court heard yesterday.
Sheffield, Barnsley, Doncaster and Rotherham councils say that if they suspected the government would go back on its promise at the expense of local taxpayers they would never have agreed to the Supertram project in the first place.
Now the councils, along with the South Yorkshire Passenger Transport Executive and Authority, are asking high court judge, Mr Justice Dyson, to hold transport and environment secretary, John Prescott, to the commitment made by the former Conservative government.
'Rightly or wrongly they embarked on Supertram in the belief that whatever the outcome of the construction and privatisation of Supertram, no significant part of the cost was going to fall on local taxpayers,' he said.
As the Supertram benefited only Sheffield and its environs, Barnsley, Rotherham and Doncaster councils 'could not and almost certainly would not' have embarked on the project had they known the government would go back on its commitment, he added.
It was the 'understanding' of all four councils that local taxpayers would have to foot no part of the bill and 'had their belief been otherwise Supertram would simply not have been built,' Mr Mawrey said.
He told the judge the primary issue for him to decide was whether or not the council's belief that the government would foot the entire construction costs 'accurately represented what had been promised by the government, or whether they (the councils) were deluding themselves.'
He said it was the government's case that 'we did not promise to pay for any shortfall in the construction costs of Supertram and, if you believed that, you were mistaken.'
'Was the belief these councils undoubtedly held and undoubtedly relied upon mistaken?' Mr Mawrey asked the judge.
The councils' stance was that 'the government must honour its promise and it must make arrangements for the payment of the£115m shortfall,' he added.
The Conservative government had 'freely entered into' an obligation to cover the full cost of the project and the councils had a 'legitimate expectation' that the Labour government would honour its predecessors' commitment, he claimed.
The promises made by the government created a situation 'analogous to a contract' on which the councils were entitled to rely, he added.
The court heard it had originally been envisaged that part of the cost of the Supertram project would be recouped by privatising the system after construction was completed on time and to budget.
But the 'stark truth' was that, in its early years, the system had run at a heavy deficit and no private company had been willing to come forward to operate it without subsidy.
By 1996 it had become clear that none of the capital cost of the scheme would be recouped through privatisation and there would be a£115m shortfall.
After 'protracted negotiations' it had been agreed at the outset that Supertram would be privatised as soon as possible - something on which the government insisted - but that local taxpayers would have to pay nothing towards the cost of the scheme, said Mr Mawrey.
The project was to be funded in part by direct government grant and in part by 'non-trading credit approvals' which involved increased rate support grant being paid to the four boroughs.
The difficulties over privatisation had created an 'unfunded debt' which Mr Mawrey claimed should now be 'made good' by the government.
If the government does not stump up, the four councils estimate that South Yorkshire tax-payers will face increases of about£40 in their annual council tax bills for as many as 30 years.
David Elvin, for Mr Prescott, told the judge the government's policy had been consistent throughout and no binding promise had ever been made that no part of the cost of the project would fall on local taxpayers.
The four councils never agreed to shoulder any part of the risk that there might be a shortfall in the£240m cost of constructing the
Sheffield Supertram, London's high court was told.
It had always been Sheffield, Rotherham, Doncaster and Barnsley Councils' 'bottom line' during protracted negotiations with the Conservative government in the late 1980s that local tax-payers should not have to contribute a penny to the cost of the project, said Mr Mawrey.
As the Supertram benefited only Sheffield and its immediate environs, Rotherham, Barnsley and Doncaster Councils would have found it 'politically impossible' to back the scheme if there was any risk that their tax-payers might be left with a bill, he added.
Initial hopes that the project might be partly funded by European Community cash or private enterprise had come to nothing, said Mr Mawrey.
And, as the Supertram ran at a substantial deficit in its early years, plans to recoup part of the construction costs through privatisation had also failed to materialise because no private company had come forward to operate it.
Mr Mawrey said the negotiations between the council and the government had taken place against a background of revolutionary changes in the structure of local government finance in the late 1980s, including the introduction of the ill-fated poll tax.
The councils were 'feeling their way with an extremely new system' which had not been designed to deal with such a major project which could only be expected to yield any income or capital return several years in the future.
The Manchester Metro system, which was being built at the same time, had been designed and constructed by private businesses which later recouped their costs by taking the profits of operating the system for a fixed period.
But the South Yorkshire councils had 'taken an entirely different route' with the South Yorkshire Passenger Transport Executive building the Supertram itself on the basis it would be quickly privatised on completion.
A special Act of Parliament had been required to provide the statutory powers needed to go through with the project and both the councils and the government had been feeling their way on untested ground, added Mr Mawrey.
He told the judge the 'theme' running throughout the negotiations had been that 'the entire project had to be financed at no cost to ratepayers.'
'The political imperative was that South Yorkshire ratepayers were not going to be paying for the Supertram. That was the constant factor throughout the negotiations. It must have been apparent to all those negotiating that the room for manoevre was very limited,' Mr Mawrey added.
The people of Barnsley, Rotherham and Doncaster 'were never going to see a tram ever' and would never have backed the project if there was any risk they would be left to pick up any part of the bill.
Mr Justice Dyson intervened to say: 'It seems to me on any view there was an intention of both parties that no cost should fall on local ratepayers. The fundamental issue is 'who took the risk of a shortfall?''
Mr Mawrey replied: 'We say the local authorities did not agree at any stage that they would or could take any part of the risk.'
The court heard the failure of privatisation plans has led to a£115m shortfall in the construction costs and, if local taxpayers have to
foot the bill, they can look forward to inflated council tax bills for years to come.
Mr Mawrey told the court it was the government's case the councils had 'deceived themselves' into believing that a binding commitment had been given that no construction costs would fall on local taxpayers.
The hearing continues.