3 Spending priorities|
Support for investment in transport
44. Real levels of transport spending increased substantially
over the past 10 years. Chart 1 below shows how UK transport spendingcapital
and resource, at all levels of governmentmore than doubled,
rising from £11.2 billion in 1999-00 to £23.1 billion
in 2009-10 (at 2009-10 prices). Chart 2 shows a similar picture
for spending in England only.
45. Despite these substantial spending increases,
many witnesses referred to a legacy of under-investment, raising
questions over past approaches to the economic co-ordination problem
as it applies to transport. Councillor Jon Hunt, Chair of Centro,
for example, described the extensive and "pressing"
needs of the West Midlands area.
In addition, one investment often generates further demands.
For example, it was argued that in order to achieve the full economic
benefits from HS2, enhancements to regional rail services in the
West Midlands and Yorkshire would be required.
46. Table 1 shows the DfT's budget over the Spending
Review period. As we have noted, the Department secured a better
settlement than the average funding outcome across Government
but the list of transport needs and potentially worthwhile schemes
presented to us would add up to a great deal more than current
funding limits. Demand will always outstrip the funds available:
so long as major projects are funded centrally, government has
to choose between competing projects. We sought to establish if
spending priorities could be identified.
|Table 1. 2010 Spending Review, Department for Transport capital and resource budgets
||2010/11 - 2014/15 % reduction2
|Local government funding:
| Local sustainable transport fund
| Integrated Transport Block Grant
| Major local enhancement schemes
|London Transport grants
| Regional growth fund
|Local government funding3
| Local Sustainable Transport Fund
| Transferred to CLG formula grants3
|Local Private Finance Initiative
|London transport grants
| General TfL grant
| Investment grant
| Regional Growth Fund
| Departmental Administration
|VED Collection & Enforcement5
1 The Government's spending review process allocated capital according to a bottom-up appraisal methodology; baselines for 2010/11 for individual programmes are therefore estimates and inflated baselines for subsequent years are not available. Therefore savings against baseline do not apply.
|2 % reductions compared to the 2010/11 baseline adjusted for inflation
|3 These payments transfer to DCLG budgets and are therefore not included in DfT's total Departmental Expenditure Limits.
The baseline includes funding for demographic pressures on Concessionary Fares in later years
|Source: Transport Spending Review Press Notice, Department for Transport, 20 October 2010.
Strategic economic priorities
47. There was a general consensus that the three
broad strategic economic priorities (urban, inter-urban and international
gateways) identified by Eddington remained relevant. The Government's
position on these priorities was much less clear and the Minister
declined explicitly to endorse Eddington's priorities. The DfT's
written evidence was sparse on the question of priorities, referring
only to the Spending Review and broad principles such as reducing
the deficit and cutting waste. We probed our witnesses as to whether
specific types of transport scheme (by mode, size, location etc.)
could be identified as more likely than others to serve the objective
of growth and decarbonisation.
48. Professors Tomaney, Wenban-Smith and Goodwin
all argued that the best long-run investments were in urban schemes,
although public transport schemes did not always perform well
on the DfT's appraisal criteria. Professor Goodwin also claimed
that small-scale projects tended to have the best economic returns,
a point endorsed by the Local Government Officers Technical Advisers
Group and others.
49. Professor Tomaney argued that the economic recession
had had a bigger impact in the north than in the south and that
this should give rise to new priorities, particularly in favour
of increased urban public transport schemes within and between
the cities of the north in order to boost their capacity for economic
50. Transport spendingcapital and resource
combinedper head in London in 2008-09 was over twice the
average for England and almost twice the UK average (Table 2).
London has enjoyed substantially higher levels of transport capital
investment than other parts of the country, increasing by 44%
between 2004-05 and 2009-10, faster than all other parts except
Scotland and the east of England. This trend looks set to continue,
with major investments in Crossrail (£15 billion), Thameslink
(£5.5 billion) and the Tube upgrades (£6 billion).
The higher levels of transport capital investment in London were
offset somewhat by slower growth in resource (revenue) support.
51. Of course, London's transport network serves
not only Londoners but also large numbers of tourists, commuters
and others from outside London; passenger numbers are expected
to grow substantially in the near future. Transport for London
emphasised to us the high economic returns achieved by investment
in London's transport system and the contribution that this makes
to the UK economy. The Northern Way, however, challenged some
of the assessments by London First (cited by Transport for London)
and argued that investment in schemes in the north of England
could produce equal or higher returns, as demonstrated by the
strategic highway schemes which the DfT has agreed to fund. The
Northern Way also pointed to the significant increase in demand
for rail services in the north and lower capital costs for rail
schemes outside London.
|Table 2: Identifiable UK expenditure on transport by country and region
||of which: capital
||2008-09 per head, indexed1
||% change 2004/05 -2008/09
||2008-09||% change 2004/05 - 2008/09
||outturn (£m)||outturn (£m)
||outturn (£m)||outturn (£m)
|Yorkshire and the Humber
|UK identifiable expenditure
|1 UK identifiable expenditure = 100
|Source: Table 9.8e and 9.16 PESA 2010; HM Treasury GDP Deflator
52. There was a general view that a 'balance' of investment in
different transport modes was the best strategy although witnesses
were not in clear agreement about the 'correct' balance. As noted
earlier, organisations representing business were in favour of
more transport investment for all modes and reluctant to express
negative views about any particular mode. However, the Federation
of Small Businesses was clear that, for the majority of its members,
the priority was to improve the road network, with rail and air
improvements relevant only in some locations. We were struck,
however, by the evident support by the business community in Birmingham
for public transport enhancementsmainly but not exclusively
to railsuggesting that businesses as well as local authorities
in major cities see public transport as the long-term priority
for city centres.
53. Despite the fact that twice as many journeys
are made by bus as by rail each year, buses featured much less
frequently in the answers from our witnesses. Much of this may
be due to the fact that bus services depend on resource spending
and operational subsidy, and not on capital investment decisions
by government. The 20% reduction in Bus Service Operators Grant
(BSOG), combined with a tightening of concessionary travel reimbursement
rules and reductions to local authority formula grant, was a serious
concern to the bus industry, local authorities and passenger groups.
We are investigating the impact of these changes in our inquiry
into the funding of bus services.
54. The freight sector, also easily overlooked in
discussions of priorities but so important to the UK economy,
requires a mix of investments to improve its efficiency and capacity.
Mr Gazzard, representing the Chartered institute of Logistics
and Transportation UK, described the high impact that some relatively
small interventions could have, for both road and rail freight.
He suggested that the rail freight network could be "transform[ed]
for £200 million."
Ms Lindsay Durham, Head of Rail Strategy at Freightliner, explained
that the priority for rail freight was improved rail connections
to the major ports, particularly Felixstowe and Southampton. She
favoured selective improvements to existing lines.
When asked about the possibility of a dedicated freight route
from the Channel Tunnel to Glasgow linking all the main conurbations
of Britain and capable of carrying full-scale lorry trailers on
trains, the Secretary of State said he was "very happy to
consider any proposals and particularly innovative proposals,
innovatively financed, will certainly be considered, yes."
55. Professor Overman recommended against over-committing
to one particular mode or particular type of scheme. He recommended
that the emphasis should be on how schemes were appraised
and selected. Different areas required different solutions and
local circumstances were extremely important. Broad statements
about the merits of, say, road versus rail were not always helpful
in making spending decisions. Each proposal should be assessed
on its merits. For example, whereas there is considerable scope
for increasing the share of freight that is carried by rail, we
heard how the nature of the container traffic at the Port of Hull
did not make rail an attractive option for some of this business.
56. For the first time, 'alternatives to travel'
have been included in the portfolio of a transport minister.
Oxfordshire County Council challenged 'civil service silos' to
alleviate transport problems by promoting a network of high-speed
broadband across the country.
The Transport Planning Society and the Local Government Technical
Advisers Group advocated greater priority for electronic communication,
smarter choices and behaviour change measures.
57. Priorities tended to be clearer within modes.
The aviation industry, beyond its concerns about the constraints
on airport capacity in the south east, was concerned about the
impacts of increased air passenger duty (APD), visa costs and
delays to international passengers at UK Border Agency control
points. The Northern Way concluded that adjustment to APD was
the most viable public policy lever available to the Government
to support services from regional airports and urged the Government
to consider regionally-banded rates of the duty.
The DfT, in conjunction with other government departments, is
addressing issues relating to the quality of the passenger experience.
Mrs Villiers also told us that ministers were providing analysis
to the Treasury on the impacts of APD on transport demand but
she would not share with us the Department's views.
58. The Association of Train Operating Companies
(ATOC) emphasised that its first priority is investment in the
existing rail network, particularly improvements to line speed
(which help generate revenue) and measures to reduce overcrowding.
ATOC supports long-term expansion of the network, including high
speed rail, but it is concerned that an enlarged network might
not be affordable.
59. There did not appear to be a single priority
for roads. There were calls for investment in new highway schemes
within and between urban areas, and for an increased focus on
maintenance of existing roads. Businesses and local authorities
in Hull argued strongly for an improvement to a major road (A63
Castle Street) to reduce delays for port traffic and to reduce
the severance that the existing road created between the city
centre and the waterfront. Norfolk Chamber of Commerce advocated
dualling of the A11 (a scheme approved in the Spending Review)
and the Northern Distributor Road, i.e. road enhancements within
and between urban areas.
60. The local authority Association of Directors
of Environment, Planning and Transport (ADEPT)
told us that maintenance of existing assetsroads, traffic
control systems, etc.was the current priority for many
local highway authorities and felt that maintenance had been underplayed
in the Eddington Transport Study. Oxfordshire County Council said
that, due to the spending squeeze, almost all its highways capital
funds were being allocated to highways maintenance.
Local roads are of crucial economic importance.
PRIORITIES DEPEND ON CIRCUMSTANCES
61. Given the complexity of our transport system
and the diversity of circumstances across the country, it is no
surprise that a nationally-applicable hierarchy of priorities
between or within scheme types cannot be identified. There needs
to be a broad policy framework to guide and coordinate strategy
within and across areas and modes. Within this framework, priorities
need to be determined and decisions made at the appropriate level:
locally or regionally, and only in limited cases by central government.
We note the calls for local authorities, or groups of authorities,
to be given greater control over transport budgets and spending
decisions. Dr Marsden and Professor Mackie endorsed these calls,
suggesting that the threshold for government approval of schemes
should be raised from £10m to £100m. These calls seem
to be in keeping with the Government's overall approach to devolving
responsibilities and reducing micro-management of local authorities.
Such a high threshold would, however, exceed the transport spending
of many local authorities and might require the establishment
of robust sub-national groupings of local authoritiessomething
we consider in Chapter 5.
62. No one mode or one type of scheme is the answer
to promoting economic growth in every part of England. National
government is not well placed to decide what is best for a local
area. We support the moves towards increased local control of
budgets and decision-making and recommend that the Government
consider raising the threshold for government approval and appraisal
of transport schemes.
Financial arrangements and distortions
63. The types of scheme that are promoted and approved
depend not only on needs and benefits but also on institutional
and funding arrangements. The existence of separate funds, their
criteria, the division between capital and resource (revenue)
expenditure, and mismatches between scheme funders and promoters
can all affect the prioritisation process.
GREATER FLEXIBILITY AND CERTAINTY
64. The Government says that it "will no longer
micromanage local authorities by dividing their funding into numerous
It has reduced the number of grant streams for transport-specific
projects to four main sources:
- Major schemes (capital);
- Highways maintenance (capital);
- Small transport improvement schemes (capital),
- Local Sustainable Transport Fund (capital and
All other revenue grant will be paid via the Department
of Communities and Local Government's Formula Grant mechanism.
65. The Government has also introduced greater flexibility
of spending for local authorities through a reduction in ring-fencing
in local government grant. In principle these simplifications
allow those closest to the situation greater flexibility, certainty
and ability to determine their own priorities. However, some areas
of local government spending are still ring-fenced, such as schools
and education transport. Within the context of an overall reduction
in local authority grant of 28%, the impact of the flexibility
may be felt most heavily on other areas, including transport.
ADEPT suggested that, amongst other impacts, cuts of 50% in rural
bus services could result.
It also pointed to the potential "vicious circle" of
increasing costs and deteriorating road conditions if insufficient
sums were spent on preventative maintenance.
66. Local government is seeking even greater local
control of budgets, including those for transport. Mr Geoff Inskip,
Centro, insisted that the West Midlands was not seeking more government
money but greater control over the amount it was allocateda
single funding pot.
The advantages would be greater certainty of funding, local flexibility,
and a confidence in timescales that would make it easier to attract
private sector funding.
67. The Government has introduced a Local Sustainable
Transport Fund worth £560 million over four years, from which
£80 million will be available in 20011/12 to local authorities
through a competitive bidding process. This will comprise both
capital and resource funding.
The resource funding is recognised to be vital for these types
of scheme. Keith Buchan, Transport Planning Association Director,
made the point that packaging these schemes into a single fund
should help to demonstrate that, taken together, small-scale schemes
can have a sizeable impact.
In the light of the evidence that we received endorsing the economic
benefits of small schemes, this is to be welcomed.
68. Nonetheless, witnesses expressed concerns that
the overall level of resources for small scale, high value schemes
was being reduced disproportionately.
The Local Sustainable Transport Fund needs to be seen in the wider
context of cuts to funds that would previously have resourced
these types of scheme. These include the Integrated Transport
block grant (down from £450 million in 2010/11 to £300
million in 2011/12),
grants previously administered by Cycling England and the 28%
reduction in local authority formula grant.
69. The initial impact of the Government's cutbacks
in transport funding seems to be that small schemes, such as sustainable
travel plans, are being reduced disproportionately, despite their
high benefit to cost ratios. Cuts to travel planning staff have
been amongst the first to be implemented by local authorities.
As noted above, some local authorities are focusing resources
70. It seems likely that, despite their often
high benefits, small schemes, including sustainable transport
schemes, may be cut disproportionately as a result of the new
transport funding arrangement. We will be watching to see whether
the Local Sustainable Transport Fund reverses this trend. Road
maintenancea spending area where short-term cuts can increase
long-term term costsis also of concern.
71. The financing arrangements and disparities between
who pays for transport projects and who benefits can also influence
the priorities of transport bodies. Excluding expenditure on rail,
most funding for transport is raised by central government and
spent by local government. As Professor Overman explained, these
factors can distort the decision-making process:
If you are Manchester, Leeds and Birmingham local
authorities I can see why you think that HS2 is a fantastically
good idea. If we think about where the benefits of that are going
to be, they are going to be in those areas, whereas at the moment
how we are going to pay for it is left rather vague. I assume
potentially quite a lot of this will come from public expenditure;
whereas, if you think about the intra-urban schemes, a much larger
chunk of this potentially falls on the local authorities affected.
That provides a skew on decision making that is more general.
72. A system where all relevant stakeholders, including
the tiers of government and the private sector, contribute to
scheme costs might remove some of the distortions. Professor Wenban-Smith
outlined the situation in Germany where federal, state and local
authorities jointly funded schemes. In his view, this was a better
arrangement. The DfT's policy has been to require local authorities
to contribute 10% of scheme costs. Some local authorities have
recently offered to meet a higher percentageup to 40%for
schemes in the development pool.
This may reduce the distortions described above although it may
also place those authorities unable to make higher contributions
at a disadvantage.
CAPITAL-RESOURCE SPENDING BALANCE
73. HM Treasury distinguishes between resource (current)
expenditure and capital expenditure (investment). Resource expenditure
is deemed to provide no tangible lasting asset; capital expenditure,
by contrast, results in a lasting asset that yields benefits over
an extended period. For example, road safety publicity would be
classified as resource expenditure whereas the installation of
a new pedestrian crossing would be classified as capital.
74. The view of witnesses to this inquiry was that
the distinction between capital and resource spendingwhile
understandablecould function in an arbitrary way and should
be as flexible as possible. Large capital schemes often need to
be accompanied by activities that require resource expenditure,
and projects funded from resource budgets could have high and
lasting benefits and be introduced more quickly than capital projects.
Hull City Council warned against the dangers of investing in capital
schemes without adequate resource funding support:
There would also be little point in delivering
expensive capital schemes if insufficient revenue were then to
be available to cover running costs as is likely to be the case
with prestige public transport schemes and has historically been
the case with the Humber Bridge.
69 Earlier data for England are not available at this
level of detail. Back
Q 167 Back
We drew attention to this issue in a Transport Committee, Priorities
for Investment in the railways, Third Report of session 2009-10,
HC 38, 15 February 2010, p 13. Back
Q 109 Back
Ev w27 Back
We cited similar figures, provided by pteg, in the appendix to
our earlier report, Transport Committee, Priorities for investment
in the railways, Third Report of Session 2009-10, HC 38, February
Q 311 Back
Qq 210, 254 Back
Transport Committee: Inquiry into bus services after the spending
review. The first oral evidence session was held 25 January 2011.
Q 419 Back
Qq 210-226 Back
Transport Committee, Secretary of State's priorities for transport,
Transcript of oral evidence, 26 July 2010, Q 39 Back
Q 142 Back
The Under Secretary of State, Norman Baker MP Back
Ev w88 Back
Ev 187 and Ev w27 Back
Mr John Jarvis, Northern Way, speech at Transport Times conference
(A new strategy for Aviation), London, 26 January 2011 Back
Q 412-3 and Ev 259 Back
Formerly the County Surveyors Association Back
Ev w88 Back
DfT, Business Plan 2010-11, November 2010, p 4 Back
Local Transport Today, 29 October 2010, p 5 Back
Q 454 ff Back
Ev 151 Back
Q 183 Back
Q 189 Back
Local Transport Today, 24 December 2010, p 3 Back
Q 378 Back
Q 450 [ADEPT] and Ev w27 [TAG] Back
Local Transport Today, 24 December 2010, p 3 Back
Local Transport Today, 23 July 2010, p 1 Back
Q 24 Back
Local Transport Today, 24 December 2010, p 1 Back
Ev 231 Back