Examination of Witnesses (Questions 26-39)
MR RICHARD
GEORGE, MR
ALASTAIR HANTON
AND MR
KEITH BUCHAN
27 JANUARY 2009
Q26 Chairman: Good morning. Thank you
for coming in. You will have heard a bit of the last witness's
evidence. We are up a time deadline and need to finish at 12.10.
Can you begin by giving us your general verdict on the Pre-Budget
Report?
Mr George: Absolutely. I think
the Pre-Budget Report was a real missed opportunity because we
have not really had such a level or such an opportunity for increase
in spending, and I suppose it was timed to coincide with the very
public discussion on climate change. Certainly that is the theme
the Chancellor was using when he described the fiscal stimuli
he was investing in. Sadly, what came away was the idea that economic
growth can only be obtained by investing in high-carbon industry,
certainly so far as transport goes. Even the stimulus that they
went for—mostly investing in road construction—is
not, either because of the long lead times—you are talking
2011-12 before construction will start—and also the number
of jobs, type of jobs and length of jobs that will be provided
is not the kind of measures we need. They are very high in capital.
What we really need are revenue projects, which employ people
now and get people working. I suppose the equivalent example is
digging a ditch and filling it back in again—filling potholes
is the best example you can think of that in a practical sense
would boost the economy and provide jobs. We really should be
on the pathway to low-carbon transport; instead, we had guidance
for the regions, saying: "The way to go if you want to boost
the economy is build roads." Two-thirds of the investment
in transport was entirely road building. The remainder was a very,
very small amount of rail freight and the moving forward of a
pre-announced purchase of train carriages, which came at the exact
time that the regions are deciding on future of transport for
the next 10 years, and many of those schemes were promoted as
schemes that were not under consideration, entirely road schemes.
The Transport Secretary and the Chancellor have turned to the
regions and said: "If you are looking for guidance, fund
road building." That is exactly where we do not want to be
if we want to hit our 80% targets. It is a missed opportunity
really, and also does not provide the stimulus that we need.
Q27 Chairman: In terms of the speed
with which jobs can be created, are there opportunities in rail
investment that offer a more rapid job creation than roads?
Mr George: Rail has got much higher
revenue costs. You need staff to check that the tracks are being
maintained; you need staff to man the ticket desks and drive the
trains, which is not the case with roads. I think light rail has
an awful lot of projects—Mersey Tram springs to mind immediately
and has been ready for years, and also some of the schemes that
were considered in the Manchester TIF, the transport innovation
funding that occurred in December—these are all schemes
that are ready to go. There is no need for extensive public inquiries.
The road schemes that are chosen often have strong local groups
opposing them, which generally draws out the process. Going forward,
any public transport certainly has much higher revenue costs and
therefore more job creation.
Q28 Joan Walley: Given your objective
of moving towards a low-carbon budget, particularly looking at
transport and integrated transport, can I ask you about the Government's
position on the Heathrow expansion? Given that part of the justification
is to help secure jobs now and for the future, can I ask what
your analysis is of the economic impacts of the Heathrow expansion?
I am not talking about the just proposed third runway but about
the construction work that would be underway in order to achieve
that runway.
Mr George: Absolutely. It could
not have been a more bizarre statement and position to be in.
The assumption that jobs will be created by the third runway and
that this will bring us out of recession assumes that we are still
going to be in a recession around 2015, which I do not think any
of us would want! This is tied with the fact that the economic
benefits—the calculation are very interesting, shall we
say. They count, for example, benefits to non-UK residents as
part of the overall package of benefits, which is against Treasury
guidance, and certainly is not the kind of thing we should be
relying on to sort the economy out. They also do not use the Stern
figure for CO2 costs—the Stern figure for the
cost to the economy in CO2 impact. If you calculate
all these together, the World Wildlife Fund reckons that instead
of having a 5 million benefit, you are looking at a 5 million
deficit.[2]
Also, when they are calculating the tax input, 3.7 billion of
the benefits come from air passengers, and the new rate increases
that to 5 billion. What they failed to take account of was the
fact that any money they have spent on tickets and aviation tickets
would otherwise be being spent on general goods. There is no VAT
on a plane ticket. There is 15% VAT on almost all other goods
and services, so there is a huge amount of lost revenue that ought
to be calculated in the full tax account.
Q29 Joan Walley: I just wanted to concentrate
on the jobs issue, given that you were present for our previous
witness where we had just got to the point about economic growth
and whether that was sustainable.
Mr George: Again, the jobs that
are created are not being created for the better part of half
a decade. There is no construction work taking place now. We have
got a full public inquiry to go through, which is expected to
last a good number of years. There is no planning permission yet.
None of this will happen in the immediate future. The idea that
Heathrow would otherwise be losing jobs is—I simply don't
believe it, to be entirely honest. The industry is in decline
at the moment because of the recession, but there is no idea that
Heathrow will close without a third runway. I find it very hard
to believe that that many jobs will be transferred away from the
airport. That is also ignoring the tourism deficit we have in
the UK—I think it is between 17 billion and 19 billion.
That is the amount of money spent abroad by British citizens versus
tourist revenue brought in; far more is spent by people transferring
their holiday from destinations in the UK to France and Spain,
which is entirely made possible by the growth in short-haul aviation.
It is an enormous deficit. This is more Mr Hanton's area of expertise.
Mr Hanton: The expansion of aviation
which the Government is planning will roughly double the tourist
deficit. At the moment about twice as many Britons go abroad for
their holidays as foreigners come here; so the doubling of that
deficit between now and 2030 will, we calculate, cost the UK economy
about 700,000 jobs. To put that into perspective, over that 20-year
period, on average that is 35,000 jobs a year because of the tourist
deficit, even calculating that there will be more people, but
not a huge number more required to run the expanded airports.
That is roughly the figures. It is quite against the statement
that jobs will be created; they will actually be lost.
Mr George: It is also worth saying
that this is a very expensive project—9 billion to 13 billion,
depending on whose estimates you believe. If you spend that much
money on almost anything you will create a fair amount of jobs,
but aviation and to a certain extent road-building is very capital-intensive
and most of that money is going on buying—setting concrete,
building terminals and buying materials. If you invest in anything
like that in revenue-heavy jobs, you create far more jobs, simply
because you are not spending so much on the materials required.
Mr Buchan: Can I say a word about
the Heathrow decision because I think it is important in all this
that we get our forecasts right! The big issue for me on Heathrow
is whether the forecasts of future aviation demand are correct.
Let me give just one example from the most recent document. It
says in that document that full account has been taken of the
change in the UK exchange rates. The exchange rates are absolutely
critical in forecasting demand for aviation because it affects
the cost of the whole trip, not just the air fare, and that is
what has a major effect on people's choices. The document says
it takes account of the most recent exchange rates, but if you
read the small print carefully it actually uses the 12-month average
ending in September 08. It gives a dollar price of $1.97 and a
euro price of €1.31. It is very important that when we look
at the foundations on which this investment is built, that we
are very careful about the small print and fine detail of what
has been done. If I could conclude by saying on aviation that
I do find it remarkable that the Heathrow case economically is
so weak, there is a lot of attention given to environmental problems
with it, but we have major doubts over whether this is a low-risk
investment for the future.
Q30 Mr Chaytor: In terms of the £1
billion on transport infrastructure that was announced after the
Pre-Budget Report, what is your estimate of the proportion of
that that would be genuinely green transport infrastructure?
Mr George: Of new money, £54
million of the total 1 billion investment was money that was not
promised for anything else and was going to something other than
road building, and that is a small amount of tinkering in North
London in regard to rail freight. It is a drop in the ocean because
of what we need if we are going to shift HGVs and their goods
on to rail. The only other non-road announcement was 300 million
for train carriages, which is part of the package of investment
in rail carriages promised in the 2007 White Paper. It is a re-stating
of existing money. To a certain extent, the managed motorway schemes,
the hard shoulder running schemes, are greener than road widening,
which is about the best you can say for them. They have got some
advantages. They do not require huge land-take and you are not
generating as much traffic. But the overall impact will be an
increase in CO2 and traffic, and they do not tackle
the problem of congestion, 80% of which is in urban areas, where
you cannot build roads and you cannot have people driving on the
hard shoulder because there is no hard shoulder. It is also fair
to say that it is not an economic stimulus at all because of the
lead-in times. These projects are not ready to go. Many of them
are in the very early stage of planning. We became very worried
when we started to hear rumours that there were roads to be fast-tracked
because what appeared to be happening is that the Transport Secretary
or his officials were phoning the regions and saying, "What
road projects do you have? We need some quickly."—without
really any strategic thought. We have had for the best part of
two years a long, ongoing discussion through two departmental
documents Towards A Sustainable Transport System and Delivering
A Sustainable Transport System. It is under consultation at
the moment and is supposed to lay out a clear pathway towards,
as I say, a sustainable transport system; and yet what it appeared
to be was a ring-round, saying, "What have you got we can
build?" There was very little analysis of whether these schemes
were deliverable, whether they were even considered as regional
priorities. The regional funding advice process is underway at
the moment. It is 10 years looking forward, giving the regions
an opportunity to choose whatever they like for transport. It
is incredibly road-heavy. One estimate has the least, east midlands,
between 65 and 95% road building. Just as this was underway, as
the regions were compiling their first round of advice, we had
a huge amount of investment in road schemes, making road schemes
easier to fund, because they were part-funded as part of the small
... initiative. The advice they are sending is, "please go
ahead, build road schemes, ignore all the Treasury guidance that
we have just published about needing to consider CO2;
if you want economic growth we need to build roads". It is
something we have been fighting very hard against—both the
idea that we should build roads at all because of CO2
emissions, but also the idea that the road to prosperity comes
from road-building. It was the worst possible thing that could
have happened at the worst possible time if you are looking to
moving towards a greener transport system.
Q31 Mr Chaytor: At a time of rising
unemployment and significant recession, you do not think it is
at all legitimate to invest in infrastructure projects that can
be delivered! It is not as if these have no priority. Picking
up your point about picking up the phone and ringing transport
authorities, these are projects that are in the pipeline and in
transport authorities' long-term plans. You do think there is
any validity in re-ordering those strict priorities as a means
of keeping employment levels higher than they would otherwise
have been!
Mr George: You are absolutely
right; there is a real need to bring forward transport schemes
but they have to be schemes which conform to Government objectives
and policies. A very good example is bringing forward many light
rail schemes, ready to go that often—
Q32 Mr Chaytor: How many light rail
schemes are ready to go?
Mr George: I have to admit I am
not a rail expert—my area of expertise is road building—but
there is a wide variety of schemes that have been worked up. The
problem with—
Q33 Mr Chaytor: Surely light railway,
for example, is a classic example of something that takes a much
longer lead-in time than widening a road or building a by-pass
that has been planned for many years?
Mr George: Yes and no; it depends
on how far the scheme is along. I would be happy to come back
and list the schemes we think would be ready within the next year.
These road schemes are not schemes that can be delivered quickly;
they have got at least a one-year or possibly two-year lead-in
time. There are jobs out there—the Department for Transport's
Smarter Choices transport package that we heard Professor Jackson
talking about beforehand is a very good example of this. We know
that if you pay people to engage the public in discussion around
transport, targeting their local area, they will make a shift—10%
car use, for example, as a result in the sustainable demonstration
towns. Also road maintenance is a massive issue all around the
country. Motorists, cyclists, pedestrians, are very happy to see
that go on, and at the moment the amount of money paid out in
compensation for people injured or vehicles damaged by collisions
as a result of holes in the road is as high as local authorities'
maintenance budgets. If we had invested in that, that can provide
people with jobs tomorrow because there is always a need to fill
in the road and get them to a decent standard, and it is the kind
of work that could then feed into construction jobs or those sort
of jobs that can then feed into these—be it road-building,
light rail, train, or whatever construction schemes, when they
become ready in a year or two. But none of the measures that were
promoted in this £1 billion can be done now; they all have
a couple of years' lead-in. These are conservative estimates—but
that is roughly when we might be coming out of the recession,
but none of these measures tackle the problem now.
Q34 Martin Horwood: I am disappointed
you say you are not a rail expert because that is the area of
my question really, which was, if part of your alternative strategy
is to invest in rail rather than roads, which I would certainly
agree with, whether it is those kinds of projects like light rail,
which have some problems but which have enormous potential—or
the big dramatic projects like high-speed rail links to Scotland
or the West, or smaller scale faster return links like my personal
favourite, the redoubling of the Swindon to Kemble line, but those
kinds of local infrastructure plans that which can increase capacity
quite dramatically. Maybe your colleagues will want to come in
on this, if it is not your bag particularly.
Mr Buchan: I think it is true
there are a lot of light railways. The one in South Hampshire
for example has got to quite an advanced stage. There has been
a lot of to-ing and fro-ing and a lot of speech about whether
they be bus-based or rail-based, and there has been a lot of change
of mind in the Government, really as to what is flavour of the
month. There are some complications there, and that needs to be
sorted out because some of the light rail schemes were, quite
plainly, by the conventional cost-benefit analysis that the Department
for Transport uses, very good value. The South Hampshire one is
4:1 which is a fairly stunning cost-benefit ratio. The trouble
is that there has been a lot of to-ing and fro-ing and there does
not seem to be a proper national framework in which these things
can proceed. I have mentioned the to-ing and fro-ing between—should
we have bus rapid transit or light rapid transit, which is often
taken to be the heavy tram end, but there are a whole range of
opportunities in between for doing this. I think that in this
country we have slightly suffered from not having a consistent
policy, which would lead probably to some bus rapid transit, probably
to some tram schemes and probably to something in between sometimes.
There has been a general failure of policy in that regard. On
the rail side, it is crucial to look at the speed issue very,
very carefully and robustly; but before we get to that issue there
is the issue of capacity, at the local level and at the national
level. Capacity is probably the key issue rather than speed. We
have seen some excellent speed improvements although I know there
is some issue as to whether track work is completed properly.
We have seen some schemes now for a relatively modest investment
and I do think that capacity is the first line of attack. That
is what is required. What speed that capacity runs at needs another
study, and I think that study will come in due course. At the
local level there is a need for investment. I would like to reiterate
the emphasis on Smarter Choices because that does deliver both
jobs and benefits much faster than any form of infrastructure
investment. If we had a go at the sort of Smarter Choices programme
tomorrow, within six months we would have people out on the road,
on the street, actually putting these schemes into action. In
terms of the speed of implementation and support and creation
of jobs, those sorts of initiatives are very good.
Q35 Mr Caton: You have talked about
the Secretary of State's announcement about Heathrow and increasing
road capacity; what about what he said in that same announcement
about the high-speed rail link to Scotland and indeed the investment
in ultra low-carbon cars?
Mr George: There has been an awful
lot of fixation on high-speed rail as the solution, and I think
we need to step back somewhat and work out what the problems are
and whether high-speed rail can address them. High-speed rail
will certainly solve your London to Edinburgh trips, if that is
as far as the line is built. It is unlikely to solve people going
to Birmingham, which is only as far as the current plans are going.
You are missing out the Manchester/Leeds section, which has real
capacity issues that could be solved by high-speed rail. The further
you extend it, the more of the aviation market you can divert
and the more CO2 reduction you can get. However, we
need to solve capacity across the board and improve services across
the board. If high-speed rail is implemented, it is not going
to make it easier for people to get to work or travel around their
local area. As we have seen on the London to Ashford line, where
they have spent on high speed rail services, we have seen huge
increase in rail fares, though, which is now dissuading people
from taking trains. It is no good running every train because
they are fast. We need to go back and look at how we fund and
structure the current franchise system. I know that the 2007 White
Paper reduced the amount of Government subsidy for services which
led to above-inflation fare rises for the unregulated tickets,
which is again moving people off the rail back into cars and planes.
Until we can tackle that price parity issue and until we can increase
capacity across the board so that people do not hear horror stories
in the newspapers about cattle-truck conditions—for the
most part they are not really experiencing those—but where
they are, they are very iconic and dissuading people from using
rail—even including building high-speed rail will not attract
people back into railways. If it is unaffordable, people will
still continue to fly.
Q36 Mr Caton: What about the ultra
low-carbon cars?
Mr George: It is certainly part
of the solution. I am sure Keith will be very happy to talk about
the impact and the Grid, and moving people to electric vehicles,
but despite to the King conclusions it is not quite as rosy as
it looks. My understanding of the measures was that in part they
incentivise people to borrow to buy. That is kind of what has
got us into this economic crisis at the moment, and I am not entirely
sure whether we should be making it easier for people to borrow
at all at the moment. I am not an economist, but perhaps what
we ought to be doing is using the current fiscal system we have
in place with the level of taxation and level of VED that we have
on vehicles rather than encouraging people to get further into
debt for a car they may not need on the grounds that the loans
are now available.
Mr Buchan: I think the real issue
is to move the whole vehicle fleet into a more efficient form.
To do that you need to ensure that when cars are replaced, they
are replaced with the most efficient vehicles. That needs to run
not just to a few interesting efficient vehicles, but it needs
to spread into the whole of the car fleet. We have a problem in
that the recession will slow down the replacement rate, so all
the forecasts of improvements by replacing inefficient cars with
efficient cars will have to be revisited. In terms of the structure
of what the Government has done, which is not to put the VED up
but keep the first year tax in place, and have fuel duty raised,
is the right structural approach, because it is at the point of
purchase that one wants to influence behaviour, and then it is
the amount of fuel duty you are interested in. The VED is fairly
indirect in operating on those two key items. Structurally, they
have not gone as far as we would like but I think that structurally
it is the correct way, which is to penalise inefficient purchase
at point of sale, and then to encourage more economical driving
and less use through fuel duty. Richard mentioned the electric
vehicle. I have noticed, going round to various meetings on transport
that the electric vehicle has become suddenly a new magic bullet.
We have to look at this very, very cautiously. If you think of
about 15 million vehicles coming home in the evening from work
and plugging in at the same time, the very lowest charge rate
would be something equivalent to four electric kettles and you
would have to keep them plugged in for six hours. The idea of
peak flow on the Grid as opposed to the 24-hour average, which
the King report was based on, would mean something like a two
to three-fold increase in peak generating capacity. Given that
we are going to be struggling to maintain our power generation
capacity when our already dirtier coal-fire stations are shut—I
think one has to be very, very careful about encouraging a particular
sector. Research and development is fine, but, really, we have
to move the mass of cars into a more efficient box. In the short
term hybrid vehicles would be very beneficial—but it is
going to come slowly even if we do sort out getting credit moving
in the economy. The replacement rate will still slow down.
Q37 Mr Challen: There has been some
discussion about the Government bailing out the car manufacturing
industry in the US as well as here of course. If that were to
take place it would be conditional upon producing models with
lower emissions.
Mr George: Absolutely. One of
the opportunities being afforded by the economic downturn—one
of the few silver linings—is that the Government has the
ability to say to the banks and car manufacturers: "We will
give you this money, but here are the conditions; we need you
to stop lobbying against the EU CO2 limits and start
bringing them in faster" and we also need to see heavy investment
in high skills jobs as well as the manufacturing. We need to ask
ourselves why the car manufacturers should be singled out when
carriage manufacturers, tram manufacturers and the like are not.
They are equally British-based manufacturing with similar levels
of skills, and they are also transport related. They are not the
iconic brands that we see—Jaguar Land Rover is a good example—but
also Jaguar Land Rover is one of the most polluting, the most
prestige forms of vehicle out there; and whether we want to be
committing ourselves to another 10 or 15 years of large numbers
of CO2 heavy four-by-fours specifically associated
with those brands for the sake of preserving an icon. This is
something that needs further discussion.
Q38 Mr Chaytor: I think Jaguar is
the one that is in contention here. Even if they said they could
produce a new luxury model with, say, 15% reduction in CO2
emissions, you would still oppose that in principle!
Mr George: We do not oppose it—I
think we need to make sure that any bail-out enables Government
policies, and if we could use the bail-out as an opportunity to
shift the more—I do not use the word "stubborn"
in terms of resisting but stubborn in terms of the harder-to-tackle
areas of the market for these niche vehicles, and start using
the investment to get good research and development and really
show the rest of the world how you can make cars that appeal to
that audience but that are also low in emissions and low in particulates.
That would be fantastic and that would really be something to
work for. In the absence of that, it is a very odd decision to
single out car manufacturers for receiving bail-outs in the absence
of similar bail-outs for the rest of the manufacturing industry.
Q39 Joan Walley: In relation to aviation
and tax, can I ask for your views on the Treasury decision not
to charge air passenger duty into a charge per plane rather than
per passenger?
Mr Hanton: We were very disappointed.
It would, for the first time, have imposed tax on air freight.
The background is that the Treasury deficit on aviation is about
£10 billion a year.
2 Note by witness: The WWF reckons that instead
of having a 5 billion benefit, you are looking at a 5 billion
deficit. This was stated as 5 million benefit and 5 million deficit
during the evidence session, which was incorrect. Back
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