House of Commons - Transport and the economy

Transport and the economy - Transport Committee Contents

2 Relationship between transport and the economy

The Eddington Transport Study

Analysis

9. The long-term relationship between transport and the UK's productivity was investigated by Sir Rod Eddington in 2006 in a major study for HM Treasury and the DfT.[11] The Eddington Transport Study was a detailed, expert study and we have not tried to repeat the underlying economic analysis. It was not without its critics and we have not treated it as a blueprint, to be adhered to in all cases. It is, however, an important work and provides a useful reference point for our inquiry. We have explored whether conditions have changed significantly since the report was published and, if so, what the implications might be. It has been helpful that a number of those experts who advised Sir Rod Eddington have submitted evidence to our inquiry.

10. Eddington concluded that

There is clear evidence that a comprehensive and high-performing transport system is an important enabler of sustained economic prosperity....

He identified seven main linkages by which transport improvements had an impact on economic growth.These were:

Improved business efficiency, notably by travel time savings, improving journey time reliability and travel quality;
Stimulating business investment and innovation by supporting economies of scale and new ways of working;
Agglomeration economies which bring firms closer (in space or time) to other firms or workers in the same sector ;
Improved labour market efficiency, enabling firms to access a larger labour supply, and wider employment opportunities for workers and those seeking work;
Increasing competition by opening access to new markets, principally by integration of world markets;
Increasing domestic and international trade by reducing trading costs, and
Attracting globally mobile activity to the UK, by providing an attractive business environment and good quality of life.[13]

11. Eddington concluded that the UK's existing transport network was largely complete in terms of its coverage and that the greatest benefits from transport investment were likely to come, domestically, from focusing on reducing congestion and relieving bottlenecks on road and rail networks; and, globally, from increasing international connectivity. He estimated that, if left unchecked, the rising cost of congestion would cost the UK economy an extra £22 billion per annum by 2025.

EDDINGTON'S RECOMMENDATIONS

12. Eddington recommended a "sophisticated policy mix", with investment decisions based on a rigorous policy process, without favouring any particular mode. He recommended that new investment be targeted at heavily-used areas and corridors showing signs of congestion or unreliability, with the following three strategic economic priorities:

Congested and growing city catchments;
Key inter-urban corridors, and
International gateways (ports and airports).[14]

13. He strongly endorsed the use of pricing mechanisms, particularly road pricing, to make better use of the existing network. Eddington was much less enthusiastic about schemes for which there was little existing demand and was disparaging about what he termed "grand projects", such as high speed rail. Although he concluded that connectivity within the UK was generally not a barrier to growth, he judged that improved international connectivity would be important for accessing emerging markets, such as China.

14. He demonstrated that transport investments of the type he recommended had large benefit to cost ratios (BCR). Although he was addressing strategic economic issues, he noted that the BCRs of small-scale schemes were often better than for larger schemes. He strongly supported a broadening of the assessment criteria to capture the wider economic impacts that were not included in conventional appraisal of proposed projects. The economic case for addressing climate change within transport policy, as set out in a parallel report by Sir Nicholas Stern,[15] was fully accepted and Eddington recommended that it should be incorporated into the appraisal process.

CHANGED ECONOMIC CONDITIONS

15. There have been a number of changes in economic conditions and transport demand since the publication of the Eddington Transport Study in 2006. In particular:

Economic output, measured by GDP, is lower[16] than the levels assumed by Eddington and future growth rates are also projected to be lower;[17]
Fuel prices are higher than assumed;[18]
The amount of public money available for transport investment and operations is now considerably lower;
Transport demand levels are somewhat lower than forecast, although there is considerable variation across and within modes;
HGV traffic is lower yet light van traffic has increased substantially;
Car traffic has grown more slowly than forecast;
Overall demand for rail travel has proved relatively resilient to the recession,[19] and
Air travel and port traffic has been significantly reduced by the recession but growth is now returning.

ANALYSIS STILL VALID?

16. Despite changes in economic conditions and transport demand, the predominant view of our witnesses, including the DfT, academics, business groups, local authorities[20] and transport professionals[21] was that Eddington's broad analysis of the linkages between transport and the economy held true. The DfT's conclusion was that, despite the lower rates of GDP and transport growth, Eddington's analysis that well-targeted investment in transport remained an important contributor to all of the above mechanisms remained valid:

17. The Campaign for Better Transport and others noted that the transport intensity[23] of economic growth had reduced.[24] The Northern Way had identified regional differences: "Every point of economic growth in the North led to transport demand growing more strongly in the North when compared with the South."[25] Professor Phil Goodwin pointed out that car use per person had been stable or falling for some years and suggested that a peak in car traffic may have been reached.[26] The DfT accepted that car traffic was growing more slowly than in previous decades but still forecast that total car miles would continue to rise—at an average rate of 1.1% per annum until 2035—based on growth in GDP and population and falling real costs of driving.[27]

18. We sought the views of our witnesses as to whether the lower rates of economic growth and the lower volumes of vehicles, passengers and freight traffic implied that investment levels could or should be reduced. Dr Marsden and Professor Mackie responded that, under such circumstances, the BCR cut off for project approval should be raised and that the case for capacity-related investment was relatively weakened.[28] However, the extensive list of potential projects, promoted so strongly by industry, local government and others, suggests that there is no shortage of schemes that might meet a higher threshold and be deserving of funding, as Professor Glaister indicated.[29]

19. Business groups, such as the Confederation of British Industry (CBI) and the Federation of Small Businesses, strongly endorsed the fundamental point that the links between economic growth, competiveness and a good transport system remained strong. Not only did they believe that investment in transport could have good economic returns, but they also considered that investment in transport was one of the most economically productive areas of public spending. The CBI was critical of what it saw as the UK's historic low levels of government investment in transport infrastructure, relative to its existing and future competitor countries. Whilst accepting the need for fiscal restraint it favoured maximising investment in transport using new funding models. The CBI called for public infrastructure investment, including transport, to be restored to 2.25% of GDP over the Spending Review period.[30] Unite also called for increased levels of spending on transport infrastructure and operations. The view that the UK had underinvested in transport was endorsed by others, including local government. According to the Local Government Association (LGA):

....because the UK has under-resourced transport over the long term, a backlog of major investment needs remains, and the priorities identified by Eddington [...] continue to be salient today.

20. Although there was general agreement about Eddington's analysis and three broad priorities, we received a range of views about:

its current application at local level;
how regional economic imbalances should be addressed;
the scheme appraisal methodology which plays a large part determining which schemes go forward, and
the implications of certain elements of Eddington's "sophisticated policy mix", particularly road pricing, being ruled out by government.

We address these aspects in subsequent sections of this Report.

21. A fundamental conclusion of the Eddington Transport Study was that a comprehensive and efficient transport system was vital to the UK's economy. Despite GDP, traffic volumes and public spending being at levels somewhat lower than Eddington envisaged, it is clear to us that investment in the transport system remains a high priority in order to support economic growth. Congestion on road, rail and air networks remains a major constraint on growth.

Integrating transport with economic development

22. Despite the general agreement amongst our witnesses about the important linkages between transport and the economy, some emphasised that increased transport spending did not lead automatically to greater economic growth. Mr Chris Riley, a former Chief Economist at the DfT, said that it was unwise to expect too much from transport schemes:

23. Professor Henry Overman said that 'transformational' impacts were rarely achieved, even with very substantial investments. He cited the Humber Bridge as an example:

Box 1: Hull

Hull lies on the north coast of the Humber Estuary in Yorkshire. It has a resident population of 262,400 people (2009); 14.4% of the economically active population are unemployed (2009-10).

Kingston upon Hull City Council, a unitary authority, is seeking improved access to northern ports: schemes include improvements to the A63 Castle Street in Hull and the A160 on the south bank of the Humber. It is also seeking upgrades to strategic roads, including the A164, A1079 and A15, to reduce the 'remoteness' of Hull. The toll for a car crossing Humber Bridge is £2.70 and the local authorities and others are seeking a reduction through removal or reduction of the toll debt.

The Port of Hull, owned and operated by Associated British Ports, has strong short-sea trade links with continental Europe, Scandinavia and the Baltic and worldwide deep-sea trade. It is the UK's leading softwood timber port and the Humber's only passenger port.

Most bus services in and around Hull are provided by EYMS Group; Stagecoach also operates services into Hull. Bus and rail services are linked at the Transport Interchange. Since 2000, Hull has been served by a direct rail service to London, operated by First Hull Trains, an open-access operator.

Sources: Hull City Council (Ev 231) and Hull Labour Market Profile, September 2010

24. Professor Roger Vickerman outlined some of the difficulties in predicting and assessing the economic impacts of transport investment.[34] "Beware of simple answers with transport because each case is different." He gave examples of schemes from the European continent that had resulted in significant economic benefits and others which had not. The first high speed rail (TGV) line between Paris and Lyon, built principally for capacity reasons, had brought substantial economic benefits; however, the high speed rail (AVE) line between Madrid and Seville had failed to meet its economic regeneration objectives for Seville.[35] Professor Tomaney said that Spanish cities had undertaken economic development planning in association with the development of the high speed rail network but this had not been successful in the case of Seville.[36]

25. We considered other examples. Mr David Bull of Birmingham City Council pointed to the important role of transport schemes, including relocating roads, in supporting major investments such as the Millennium Point (an engineering, technology and education centre) and the Science Park which "had had a major impact on the city." Transport was also integral to schemes outside the city centre, such as major employment sites at Selly Oak and, potentially, at Longbridge.[37] The Minister of State for Transport, Rt Hon Theresa Villiers MP, cited upgrades to the Jubilee line and the Docklands Light Railway which successfully supported investment and job creation at Canary Wharf.[38]

Box 2: Birmingham
Birmingham lies 110 miles north-west of London, in the West Midlands. It has a population of 1 million people. During the past decade it has experienced unemployment levels above those of other English core cities, partly due to the closure of the Longbridge car works.
Birmingham is located at the centre of the Midlands motorway network. It is on the West Coast mainline and is served by two rail lines to London; High Speed 2 would provide a third. It has one of the largest bus networks in England, largely commercially operated by National Express which also operates the Midland Metro tram service between Birmingham and Wolverhampton.

26. It was notable that many of our witnesses, from local government, academia and elsewhere, placed a new emphasis on the need to integrate transport and economic development, reflecting the difficult economic conditions in recent times. Councillor Timothy Huxtable told us how Birmingham City Council had combined the transport and regeneration portfolios. Similarly, Councillor Peter Box CBE, Chair of the newly-formed LGA Economy and Transport Board, said:

27. Sir Robin Wales, Mayor of the London Borough of Newham, described the dislocation of national economic development and transport policies at Stratford. Despite the investment of £210m in Stratford International station, no trains stopped there and the station was unused. He outlined the substantial potential for economic growth in east London, based on high speed rail services and, as he saw it, the need to design transport schemes to address development needs more directly.[40]

REBALANCING THE ECONOMY

28. The Government has frequently cited "rebalancing the economy" as one of its major economic objectives, not least in relation to transport.[41] Rebalancing seems to have a number of dimensions:

Reducing reliance on the public sector and creating more private sector employment;[42]
Reducing reliance on the banking sector and boosting other industries, including manufacturing,[43] and
Reducing economic disparities between regions—the "north-south divide".[44]

29. The Government has used the objective of reducing the north-south divide as a major argument to justify transport investment, particularly High Speed 2 (HS2). Evidence from organisations in the West Midlands, the north-east and north-west of England and Scotland[45] showed support for high-speed rail and a strong desire to be connected to the network in order to spread the economic benefits. The Minister, Mrs Villiers, told us that "[...] high-speed rail I believe will provide a major boost to our efforts to address the long-standing prosperity gap between north and south."[46] However, the HS2 business case does not include an assessment of the project's regeneration impacts and so it is difficult to assess to what extent HS2 is likely deliver regeneration or rebalancing.[47]

30. The Minister accepted the need to integrate transport and economic development strategies but currently it seems that economic development aspects are being left to local authorities. Her answer did not convince us that there was an explicit government economic development strategy to accompany its proposals for the construction of HS2.[48]

31. Transport investment can play a vital role in supporting economic growth and regeneration. However, as Eddington demonstrated, economic growth does not follow transport investment automatically. Where transport is being used to stimulate economic growth, a proactive approach to economic development planning is required. To be effective, transport and economic development strategies must be fully integrated. The Government must ensure that where it approves transport schemes designed to stimulate economic growth and rebalance the economy, they are supported by convincing economic development strategies. For major schemes that the Government is promoting itself, such as High Speed 2, it must work with local and regional bodies to develop effective economic development strategies that integrate with its transport proposals.

The need for policy clarification

A coherent framework

32. The Eddington Transport Study was not merely 'another study': it had some far-reaching consequences. In response to Eddington, the Government of the day issued a new transport policy statement, Towards a sustainable transport system,[49] restructured the DfT and revised its transport investment priorities on the principles set out in the Study. It also launched a programme of studies and pilot schemes. The DfT's subsequent report, Delivering a sustainable transport system, identified the 14 national transport corridors connecting the 10 largest conurbations and the 17 international gateways on which investment would be focused.[50] Many transport professionals[51] regarded this as the de facto basis of the national policy statement on national transport networks which the then Government was intending to publish in 2010 and which the new Government has indicated that it will publish at some point.[52]

33. The previous Government abandoned attempts to introduce a national road pricing scheme after encountering public opposition. Instead, it opted to encourage local authorities to introduce local congestion charging schemes, and provided support for this through its Transport Innovation Fund. However, no scheme was introduced.[53] We previously acknowledged the political and technical difficulties that any government might face in introducing road pricing.[54] Following a change of Secretary of State for Transport,[55] the then Government also changed its position on the issue of high speed rail, rejecting Eddington's advice on this issue. However, the underlying policy approach was retained.

TAKING A SELECTIVE VIEW OF EDDINGTON

34. Mrs Villiers told us that the Government took a selective view of the Eddington Transport Study. She accepted that "some of the work" produced by in the Eddington Study was "useful and still valuable". However:

35. Rather than working from a set of policy objectives, the current Government has decided to support certain major schemes and to rule others out. In particular, the Government has supported the HS2 rail project to link London with Birmingham and cities in the north; and it has supported Crossrail, Thameslink and Tube upgrades in London. It has ruled out road pricing and additional runways in the south-east of England. The transport investment programme, announced following the 2010 Spending Review, was widely seen as favouring rail over road, suggesting that the Government was not taking a mode-neutral approach to investment decisions.[57]

36. Efficient pricing of transport demand was a fundamental part of the policy mix recommended by Eddington. He described road pricing as a 'no brainer'. This was largely because he saw cities as the main generators of economic wealth and the locations where a reduction in congestion would have the greatest economic benefit. Professor Goodwin and other witnesses said that the absence of road pricing had significant implications for Eddington's analysis and the benefits likely to be derived from large road schemes. He described it as investment that "made things worse more slowly" rather than "making things better".[58] Professor Wenban-Smith said that, without road pricing, the main outcomes would be additional traffic and a more dispersed population.

37. The removal of road pricing from the policy mix is perhaps the most significant change since the Eddington Transport Study was published. The DfT has not explained the full implications of removing this policy option for Eddington's conclusions or for the new Government's strategic policy framework and they remain unclear.

CALLS FOR CLARIFICATION

38. Given the priority that the Government has placed on transport investment to support economic growth, the lack of an explicit policy framework was a concern raised by a number of witnesses to our inquiry. Mr Michael Roberts, Chief Executive of ATOC, said:

39. Professor Glaister, when asked about the RAC Foundation's priorities for transport investment, expressed a similar view:

Representatives of the aviation and tourism industries were particularly critical of the Government's lack of strategy with regard to aviation,[62] despite the praise for the economic benefits of UK aviation from transport ministers[63] and the Prime Minister's call to boost the UK's attractiveness as an international tourist destination in order to create jobs and to rebalance the economy:

Organisations outside London were concerned about the impacts on international investment in the regions as a result of the limited and reducing number of services to Heathrow from airports within the UK. Investments in international gateways have been shown to have some of the highest economic BCRs, with benefits exceeding costs by average ratio of six to one.[65] The closure of London Heathrow airport during the severe weather in December 2010 showed the vulnerability of the UK's international connections, with consequent impacts on businesses and passengers.

40. Much investment in transport, particularly in ports and airports, is promoted and funded by the private sector. Many witnesses from the business community were anxious to see greater clarity and stability in the planning system. A system of national policy statements was introduced under the Planning Act 2008 to increase certainty regarding the development of nationally important infrastructure, including transport. Although the Government has said that national policy statements are of great importance, the national policy statement for ports remains in draft and the Government has said that it will not issue a national policy statement for airports, as planned by the last Government.[66] The Minister has confirmed that the Government intends to "take the process forward with Parliament before the summer recess."[67]

41. It is disappointing that the UK's international gateways—major ports and airports—do not feature more prominently in the Government's strategy for transport and the economy. We call on the Government to clarify how it intends to address the needs of businesses for increased international connectivity, in London and the regions.

THE CASE FOR A NEW TRANSPORT WHITE PAPER

42. The links between transport investment and economic growth are varied and complex. Improved transport can improve business efficiency, stimulate investment, increase employment opportunities and provide access to new markets. Eddington's analysis and broad conclusions were generally endorsed by witnesses to our inquiry. The Government has rejected some of his key recommendations and it has not published any alternative analytical framework or assessment of how it will deliver its economic objectives. As such, the Government lacks a coherent policy framework in the very area in which the Government claims to be concentrating its efforts and resources. The continued delay in producing national policy statements for transport widens the policy gap. The January 2011 White Paper Creating Growth, Cutting Carbon[68] related only to the £560m Local Sustainable Transport Fund.

43. The Government must explain the nature of the economic solutions that it is seeking to deliver through transport spending and how the schemes that it is supporting will achieve these aims. A detailed set of objectives and a robust analytical framework are required against which proposals can be assessed. Large sums of money are involved and difficult choices have to be made. We recommend that a White Paper be published, clarifying the Government's objectives for all transport spending and the criteria it will use for deciding between different claims on the available resources.

11 The Eddington Transport Study: The case for action: Sir Rod Eddington's advice to Government, Summary Report, December 2006 Back

12 Ibid, pp 1 and 11 Back

13 Ibid, p 15. Eddington referred to these as microeconomic drivers. Back

14 Ibid, p 7 Back

15 Stern Review of the economics of climate change, HM Treasury and Cabinet Office, 2006 Back

16 Some 10-15% lower according to Dr Marsden and Professor Mackie. See Ev 131 Back

17 Ev 228 Back

18 Ev 131 Back

19 Q 410. ATCO announced 1 February 2011 that passenger numbers were at their highest peace-time level since 1922. Back

20 Ev 221 Back

21 Ev 139 Back

22 Ev 228 Back