The Scottish Government has said it will withhold £72 million for the trams project, in light of Edinburgh City Council's decision to take the tram only to Haymarket instead of St Andrew Square.
Ministers are now of the view that this represents a fundamental change to the basis on which the Scottish Government originally agreed to contribute up to £500 million.
Finance Secretary John Swinney said:
"The Government had the obligation to give the tram project a further £72 million. Ministers have made clear to the City of Edinburgh Council today that in light of the council's decision last Thursday, which takes the project far, far away from the original concept that ministers committed funding towards, that we're not prepared to make that money available."
He added: "It's time for the council to think long and hard about where it's going with this project. What's clear is the Government will not be funding a project that just goes to Haymarket. It is now down to the council to come forward with new proposals, which will be considered on their merits."
Referring to the £500 million grant, Transport Scotland Director Ainslie McLaughlin says in his letter to Edinburgh Council Chief Executive Sue Bruce: "It was made clear that this was an interim arrangement which was entirely at Ministers’ discretion and which could be withdrawn at any time and would not extend beyond 31 August 2011."
The following is the full text of the letter:
Dear Ms Bruce,
GRANT OFFER TO CITY OF EDINBURGH COUNCIL FOR CONSTRUCTION OF PHASE 1 OF THE EDINBURGH TRAM NETWORK
I refer to my previous letter of 30 March 2011 intimating that the above grant agreement between The Scottish Ministers and The City of Edinburgh Council would expire on 31 March 2011 and as such, Ministers’ obligations to make payments in support of the tram project would cease from that date.
Notwithstanding that, Ministers agreed on an interim basis to continue to make payments under the terms of the existing grant agreement to support the Council while negotiations were ongoing with the Bilfinger Berger, Siemens and CAF Consortium toward the resolution of the contractual dispute which would take the tram to St Andrew’s Square. It was made clear that this was an interim arrangement which was entirely at Ministers’ discretion and which could be withdrawn at any time and would not extend beyond 31 August 2011.
In light of the Council’s decision on 25 August 2011 to take the tram only to Haymarket, Ministers are now of the view that this represents a fundamental change to the basis on which the Scottish Government originally agreed to contribute up to £500 million. It will result in the tram requiring a significant ongoing public subsidy, which is damaging in public expenditure terms. In these circumstances, I have to advise you that Ministers are not prepared to make any further payments to the project and will not extend the existing grant arrangements beyond 31 August 2011.
If the Council wishes to make further proposals that are consistent with the basis of the original agreement given by Ministers, these will be considered on their merits.
Yours sincerely,
Ainslie McLaughlin
Director