House of Commons - The major road network

The major road network - Transport Committee Contents

5 Investment and funding

The financial climate

45. Transport has enjoyed a 2.25% real-terms annual growth in funding throughout the current Comprehensive Spending Review period (2007-2011). However, in the current financial climate, it seems unlikely that this growth rate will be maintained beyond that period. In his December 2009 Pre-Budget Report, the Chancellor noted that significant spending restraint would be required in subsequent yearswith public spending expected to grow by just 0.8% annually between 2011-2014 compared to a 1.5% real-terms annual growth between 2007-2011.[72] The Pre-Budget Report brought forward certain planned capital investments to 201011, including investment to increase motorway capacity, in order to support economic growth and competitiveness.[73] Commenting on the PBR, the Institute for Fiscal Studies (IFS) stated that:

In the absence of new measures to reduce spending on benefits and tax credits, we estimate that spending on public services and administration would have to be cut in real terms by 3.0% a year on average in 2011-12 and 2012-13 and by 2.7% a year on average in 2013-14 and 2014-15.[74]

46. The Government has promised to protect certain priority spending areashealth, schools and overseas aid. The IFS estimates that such protection would require average cuts of 12.9% in other departmental budgets in the two years 2011-13. The Minister told us that "we will be waiting for a Comprehensive Spending Review (CSR) in order to assess any impact [on spending by] departments. In the first instance we have our long-term spending profile and we are working within that."[75] The next CSR is widely expected in the second half of 2010.[76]

47. The recent White Paper on High Speed Rail states unambiguously that, whilst existing programmes will seek to maximise capacity on the existing major road network, the Government sees high-speed rail as the best way to increase capacity and reduce journey times on city-to-city travel.[77] The announcement on high speed rail was most welcome, and indeed overdue, but with a total price tag of up to £30 billion, there is a risk that savings will be made elsewhere on the transport budget to compensate. As construction is not expected to start until 2017, and to be phased over some 10 years, the Government has implied that spending on high speed rail will not impact on other areas of transport investment in the short to medium term. However, it is possible that short-term spending reductions will be made to compensate for increased spending later.

48. We accept that difficult funding decisions will have to be made in the coming years, but we urge the Government to ensure that the safety and maintenance standards of the major road network are not compromised. As the Eddington study demonstrated, transport infrastructure is critical to the generation of economic growth. It is therefore important that investment in, and maintenance of, basic infrastructure, such as our major road network, is not put on stand-by. With vastand very welcomefunds likely to be invested in high speed rail over the next two decades, the Government must guard against the temptation to neglect the major road network to reduce costs. The major road network serves a wide range of needs and communities, and it is only a relatively small proportion of journeys on our major roads that could be transferred to rail, let alone high speed rail.

Rates of return and assessment methods

49. The Eddington Transport Study: The Case for Action states that "national government should take a rigorous and systematic approach to policymaking, by focusing on objectives and delivering high return schemes, rather than modes or technologies".[78] The report concludes that funding should be allocated to projects providing the best rate of return, and advocates that social and environmental costs be included in the calculations of costs and benefits. Accordingly, the case for the proposed north-south high speed rail network is based on a calculation that it offers better value for money than "all but the smallest packages of road developments".[79] Once environmental costs are added to the mix, the case for high speed rail becomes even more persuasive.[80]

50. That is, of course, easier to state as an objective than it is to realise. There are numerous estimates of rates of return and we have heard conflicting evidence about this. The RAC Foundation and the AA both argued that spending on road building and improvement had the highest rate of return. Edmund King of the AA told us that "if you look at some of the missing links in the road network they give returns of 10 to 1, and indeed higher, and many of them are much higher than rail schemes or tram schemes."[81] The RAC Foundation provided estimated average Benefit Cost Ratios (BCRs) of different types of transport projects, as set out in Table 2 below.Table 2: Estimated average Benefit Cost Ratios on capital investment

Type of infrastructure for investment Benefit Cost Ratio

Highways agency roads 4.66

Local roads 4.23

Heavy rail schemes 2.83

Light rail schemes 2.14

Local public transport schemes 1.71

Source: RAC Foundation, Rates of Return on Public Spending on Transport, Report Number 09/103, June 2009, Table 2 (drawing on data from the Eddington Study)

51. Not all of our witnesses believed that the true benefits of road schemes outweighed costs so favourably. John Elliot of TAG[82] did not agree that road building had the best rates of return, and he suggested that the Department's modelling used to calculate rates of return was sometimes less robust than assumed. He suggested that modelling processes were highly volatile, and what came out of the models depended entirely on what one chose to put into them. Indeed:

There are so many assumptions in the modelling that have created these economic values and I think they are pretty suspect. I am not saying we do not need something to assess between different schemes but at the moment I think the system is very suspect.[83]

52. We understand the conclusion of The Eddington Transport Study, that the Government should focus investment on transport schemes that produce the highest rates of return, irrespective of mode, taking account of emissions. Securing the best possible value for money has never been more important than in the current economic climate. However, whilst rates of return are helpful in making marginal choices between similar options, they do not on their own provide a coherent, long-term strategy. There will be times when wider policy objectives will also influence investment decisions. Environmental and social concerns and strategic vision must also be taken into account alongside the economic impact of particular transport policies. It is important the Government is clear when decisions are being made to meet wider policy objectives. Where this is the case, it needs to ensure that the impact of investment is monitored to ensure that the objective is being met. The trade-off between economic benefits and other benefits should be transparent and in accordance with stated policy aims.

53. At the national level, the main mechanism for appraising potential investment in transport before funding is allocated has been the New Approach to Appraisals (NATA) system.[84] NATA is designed to allow "the costs and benefits of schemes to be appraised against the contributions that they make to our national transport goals".[85] The five Government aims for transport: environment, safety, economy, accessibility and integration are all taken into account through the appraisal. However, some witnesses were highly critical of the system. John Elliot of TAG[86] told us that NATA was:

...a very complicated black box that I think has been taken too far away from the political system. It is not understandable by the average person. It is hardly understandable by people that have used it and you get very silly answers. The whole methodology of the assessment I think is suspect.[87]

54. The Government must clarify the basis on which it assesses and allocates funding to infrastructure projects. Mechanisms for allocating funding to transport schemes should be transparent and give greater weight to economic benefit.

Funding mechanisms

THE NATIONAL LEVEL

55. With the publication of Building Britain's Future, in June 2009, the Government announced that a new body with strategic oversight of infrastructure development would be established. Infrastructure UK will have responsibility for identifying:

the country's long term infrastructure needs across a 5-50 year horizon, take stock of where current plans are taking us in the long term and analyse where more could be done, considering the interdependencies between different types of infrastructure.[88]

In July 2009, the Chief Secretary to the Treasury, Liam Byrne MP, announced that Lord Davies of Abersoch would lead the development of Infrastructure UK.[89] The December 2009 Pre-Budget Report stated that Infrastructure UK would be based within HM Treasury and "bring together [the Infrastructure Finance Unit] TIFU, HM Treasury's Public-Private Partnership (PPP) policy team and the capabilities within Partnerships UK (PUK), which support the delivery of major projects and programmes". The aim is for Infrastructure UK to be operational in the course of 2010, and one of its earliest objectives is to help develop a funding model for the development of the new high speed rail line between London and the West Midlands.[90]

56. The Department for Transport seemed uncertain about the impact of the new body, Infrastructure UK, on transport planning and investment.[91] Martin Jones, Head of Strategic Roads Division, pointed out that "we are at a relatively early stage in government in establishing how that organisation will operate and what its remit will be".[92] We are concerned that the Department for Transport appeared not to be involved in discussions about the remit of Infrastructure UK at the initial stages. Infrastructure UK could have a critical impact on strategic transport investment. It will have the opportunity to improve the co-ordination of infrastructure decisions across Government, facilitating more coherent and strategic decision-making. We look forward to hearing, in the course of 2010, precisely how Infrastructure UK is going to achieve this and how it will improve decision making on transport investment.

THE REGIONAL LEVEL

57. The main funding mechanism for transport schemes at a regional level is through the Regional Funding Advice and Allocation process. Department for Transport policy is that budgets and investment decisions should be devolved to the level of government where the economic impact of the decision taken is felt mostbe it national, regional or local authorities"with local authorities and regions given the power to respond to local challenges and improve economic outcomes".[93] Each region can submit their prioritiesadvicefor regional investment in areas including transport, housing and regeneration. The Regional Funding Allocations for regions forms part of the Comprehensive Spending Review.[94]

58. There was some support among witnesses for the aims of the Regional Funding Allocation process. Mick Laverty, of Advantage West Midlands, told us that within the financial means available, the funding allocation mechanism ensures at least some degree of co-ordination between local development in terms of housing and jobs and transport infrastructure.[95] However, Jack Semple of the Road Haulage Association claimed that "the current system is not working", something he believed would develop into a bigger issue in the future, as large regional schemes swallowed the majority of RFA funding, pushing other important schemes further back.[96]

59. The Minister, Chris Mole MP, strongly supported the Regional Funding Advice process, saying "the RFA mechanism is the most robust way of informing ministers in the Department of the priorities that exist within a region, whether that is between roads, rail or public transport schemes."[97] No method of allocating finite funds will satisfy everyone. However, we are pleased that there seems to be general support for the Regional Funding Allocation process. We welcome the introduction of a mechanism which has allowed regions a bigger say in what infrastructure investments should be prioritised and which looks across the transport modes.

72 HM Treasury, Pre-Budget Report 2009: Securing the recovery: growth and opportunity, Cm 7747, December 2009, see for example para 1.38; See also: http://www.hm-treasury.gov.uk/bud_bud09_press01.htm Back

73 HM Treasury, Pre-Budget Report 2009: Securing the recovery: growth and opportunity, Cm 7747, December 2009, para 4.27 Back

74 The Institute for Fiscal Studies (IFS), The IFS Green Budget, February 2010, p 183 Back

75 Q 310 Back

76 The Guardian, Treasury plans to set out £11bn government spending cuts, 4 March 2010; see also The Sunday Telegraph, Budget 2010: Labour to put off spending cuts until after the general election, 13 March 2010. Back

77 Department for Transport, High Speed Rail, Cm 7827, March 2010, pp 1213 Back

78 HM Treasury and Department for Transport, The Eddington Transport Study: The case for action: Sir Rod Eddington's advice to Government, December 2006, p 7 Back

79 Department for Transport, High Speed Rail, Cm 7827, March 2010, para 2.48 Back

80 Department for Transport, High Speed Rail, Cm 7827, March 2010, para 2.61 Back

81 Q 17 Back

82 Formerly known as the Technical Advisors Group. Back

83 Q 199 Back