House of Commons - Transport and the economy

Transport and the economy - Transport Committee Contents

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 spending—capital and resource, at all levels of government—more 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.[69]

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.[70] In addition, one investment often generates further demands.[71] 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.[72]

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
(nominal expenditure)	2010/11 (Baseline)	2011/12	2012/13	2013/14	2014/15	2010/11 - 2014/15 % reduction²


Capital (£m)¹
National roads	1,571	1,244	921	877	1,041
Rail	3,778	4,109	4,896	4,662	4,532
Local government funding:	1,618	1,554	1,503	1,465	1,664
of which:
Local sustainable transport fund	n/a	30	40	60	80
Maintenance	871	806	779	750	707
Integrated Transport Block Grant	450	300	320	320	450
Major local enhancement schemes	199	418	364	335	427
London Transport grants	n/a	424	352	184	0
Other programmes	719	400	410	292	281
of which:
Regional growth fund	n/a	165	100	-	-

Capital Total	7,686	7,731	8,082	7,480	7,517

Resource (£m)
National Roads	1,124	1,118	1,016	998	947	-23%
Rail	-337	-87	-247	-483	-435	n/a
Local government funding³	473	378	401	413	420	-28%
of which:
Local Sustainable Transport Fund	n/a	50	100	100	100	n/a
Transferred to CLG formula grants³	n/a	303	276	288	295	n/a
Local Private Finance Initiative	170	195	239	311	320	71%
London transport grants	2,764	2,804	2,803	2,699	2,404	-21%
of which:
General TfL grant	1,934	1,943	1,922	1,795	1,517	-28%
Investment grant	892	861	881	904	928	n/a
Other programmes	1,091	1,007	907	1,131	884	-27%
of which:
Regional Growth Fund	n/a	-	-	200	-
Departmental Administration	295	272	252	233	216	-33%
VED Collection & Enforcement⁵	191	189	190	191	191	-9%

Resource Total	5,141	5,299	5,033	4,971	4,436	-21%
Notes: 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.

Identifying priorities

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.[73]

Location

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 growth.

50. Transport spending—capital and resource combined—per 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).[74] 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.[75]

Table 2: Identifiable UK expenditure on transport by country and region

Transport expenditure of which: capital

2004-05 2008-09 2008-09 per head, indexed¹ % change 2004/05 -2008/09 2004-05 2008-09 % change 2004/05 - 2008/09

outturn (£m) outturn (£m) outturn (£m) outturn (£m)

2009/10 prices

North East 516 613 70 19% 263 326 24%

North West 1,918 2,004 86 4% 863 1,039 20%

Yorkshire and the Humber 1,010 1,312 74 30% 482 676 40%

East Midlands 948 1,001 67 6% 457 575 26%

West Midlands 1,370 1,423 78 4% 629 788 25%

East 1,108 1,424 73 29% 628 973 55%

London 4,453 4,962 192 11% 2,140 3,039 42%

South East 2,198 2,437 86 11% 1,350 1,726 28%

South West 1,063 1,253 71 18% 538 708 32%

England 14,585 16,430 94 13% 7,350 9,850 34%

Scotland 1,825 2,772 158 52% 835 1,232 47%

Wales 912 1,074 106 18% 365 504 38%

Northern Ireland 378 548 91 45% 128 274 113%

UK identifiable expenditure 17,699 20,824 100 18% 8,679 11,859 37%

Notes:

¹UK identifiable expenditure = 100

Source: Table 9.8e and 9.16 PESA 2010; HM Treasury GDP Deflator

TRANSPORT MODES

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[76] for public transport enhancements—mainly but not exclusively to rail—suggesting 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.[77]

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."[78] 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.[79] 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."[80]

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.[81]

56. For the first time, 'alternatives to travel' have been included in the portfolio of a transport minister.[82] Oxfordshire County Council challenged 'civil service silos' to alleviate transport problems by promoting a network of high-speed broadband across the country.[83] The Transport Planning Society and the Local Government Technical Advisers Group advocated greater priority for electronic communication, smarter choices and behaviour change measures.[84]

WITHIN MODES

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.[85] 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.[86]

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)[87] told us that maintenance of existing assets—roads, 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.[88] 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 authorities—something 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 complex streams".[89] 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), and
Local Sustainable Transport Fund (capital and revenue).

All other revenue grant will be paid via the Department of Communities and Local Government's Formula Grant mechanism.[90]

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.[91] It also pointed to the potential "vicious circle" of increasing costs and deteriorating road conditions if insufficient sums were spent on preventative maintenance.[92]

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 allocated—a single funding pot.[93] 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.[94]

SMALL SCHEMES

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.[95] 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.[96] 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.[97] 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),[98] 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.[99] As noted above, some local authorities are focusing resources on maintenance.

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 maintenance—a spending area where short-term cuts can increase long-term term costs—is also of concern.

LOCAL CONTRIBUTIONS

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:

100

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 percentage—up to 40%—for schemes in the development pool.[101] 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 spending—while understandable—could 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:

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69 Earlier data for England are not available at this level of detail. Back

70 Q 167 Back

71 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

72 Q 109 Back

73 Ev w27 Back

75 Q 311 Back

76 Qq 210, 254 Back

77 Transport Committee: Inquiry into bus services after the spending review. The first oral evidence session was held 25 January 2011. Back

http://www.parliament.uk/business/committees/committees-a-z/commons-select/transport-committee/inquiries/

78 Q 419 Back

79 Qq 210-226 Back

80 Transport Committee, Secretary of State's priorities for transport, Transcript of oral evidence, 26 July 2010, Q 39 Back