Written evidence from Dr David Metz (TE 56)
1. This submission starts by considering the
Committee's question: "Are the current methods for assessing
proposed transport schemes satisfactory?" I argue that current
methods are no longer fit for purpose and suggest a better approach
which would result in different expenditure priorities.
METHODS FOR
INVESTMENT APPRAISAL
2. The conventional approach to appraising investment
in schemes to improve the transport system focuses on the expected
saving in travel time, which accounts for of the order of 90%
of conventional monetarised benefits. Such time savings are supposed
to be valuable to employers since more productive work is possible
from employees, and to individuals since they are free to pursue
other desirable activities. The monetarised benefits are set against
the costs of a scheme in the cost-benefit analysis which plays
a central role in the Department for Transport's (DfT) appraisal
methodology, as employed also in the Eddington Report.
3. The DfT's National Travel Survey (NTS) allows
personal daily travel behaviour to be tracked since the early
1970s, as shown in the Figure (page 2). Over this period, the
average number of trips has remained about 1,000 per person per
year. Average travel time has also held steady and is currently
about 370 hours per person per year, or an hour a day. It is evident
that the large investment in transport infrastructure - £100 billion
over the past twenty years at current prices - has not resulted
in time savings. Rather, the benefit has been taken, in the long
run, in the form of increased access, as seen by the greater distance
travelled, from 4,500 miles per person per year in 1972-73 to
7,000 miles currently[161]
(there has been a small downturn in distance travelled in the
last two years, probably due to the recession). This has come
about largely through private investment in more and better cars
and public investment in more and better roads, permitting higher
average speeds of travel and hence greater distances traversed
in the same amount of time. Travel time savings are transient,
and not a sound basis for estimating the benefits of investment
in long-lived infrastructure.
4. The average distance travelled has not increased
since about 1995, despite the economic growth of the following
decade. Moreover, car use per capita has stabilized at about 6,600 vkm pa
since 2002. Travel and economic growth have thus become uncoupled,
after two centuries during which they increased in parallel. It
seems unlikely that the average distance travelled will increase
in the future, which lessens the requirement for further investment
in transport infrastructure[162].
5. The long run benefits of investment in the
transport system are access benefits which arise from bringing
people and locations nearer in time, permitting more choice of
destinations. In recent years, conventional transport appraisal
has recognised "Wider Impacts", which are economic benefits
arising over and above travel time savings benefits. Agglomeration
benefits are one class of such benefits, reflecting the accessibility
of firms and workers to each other. Agglomeration benefits are
therefore access benefits which are appropriate to consider in
appraising proposed schemes. In contrast, time saving benefits
to travellers are inappropriate since, not only are they transient,
but they neglect the key features of access benefits which are
specificity to locations and having consequences beyond the travellers
who are supposed to save time.
6. To illustrate the argument, consider London's
Docklands, once the centre of the capital's commercial life.
The coming of containers displaced the port activity down river
and the historic docks were abandoned. Construction of the first
phase of the Docklands Light Railway in 1985-87, at a modest cost
of £77 million, put Docklands on the map, demonstrating
ready access to the City (currently 10 min from Bank to Canary
Wharf). This prompted huge private investment in a new financial
quarter, regenerating the area and relieving space pressures and
high rents in the City. The Jubilee Line Extension increased
public transport capacity, as did extensions to the DLR, with
the result that the highest paid group of workers in Britain make
minimal use of the car to travel to work (there are only 3,000
parking places for 90,000 workers at Canary Wharf).
7. Public investment in transport in the Docklands
was necessary to support private sector investment in commercial
and residential property and public space. The transport investment
can be seen as catalytic, making an essential contribution to
the economic growth and urban regeneration outcomes. It would
be pointless to attempt to compute the benefits of investment
in the Jubilee Line Extension by estimating the savings of travel
time to those who use this line.
8. The recent renovation of the section of the
London Overground connecting Docklands to Dalston Junction, a
low income district in East London, provides a further example
of the role of transport investment in urban regeneration. The
23 minute journey to the financial centre has prompted a
£160 million private sector investment in residential
and commercial property as part of the Dalston Junction redevelopment.
The monetary value of time saved by travellers misses the point
that the benefits of the transport investment depend on consequential
private investment and as such are substantially specific to particular
locations and accrue in part to land owners, property developers
and the occupiers of new properties.
9. The case for any particular transport investment
cannot therefore be considered in isolation from the likely consequences
for access, land use and private sector investment. Conventional
appraisal methodology, as endorsed by the Department for Transport,
largely disregards such "secondary" consequences, focussing
instead on transient travel time savings. Such "silo thinking"
is convenient but mistaken. It leads to the funding of schemes
justified by small time savings (a few minutes) experienced by
large numbers of road users. However, such schemes are unlikely
to make a demonstrable contribution to economic growth. A number
of transport analysts have recognised the limitations of conventional
appraisal methodology and are discussing how the wider consequences
of new schemes might best be included; at present, the feasibility
of alternative approaches remains unclear.
10. To assess the case for proposed transport
investment financed from public funds, one approach worth considering
is to adopt the methodology employed by other Departments, which
is to assess the relative cost-effectiveness of different means
of achieving a particular policy objective. Although the Treasury's
Green Book on Appraisal and Evaluation in Central Government recommends
cost-benefit analysis in preference to cost-effectiveness analysis,
in practice it seems only the DfT that routinely attempts cost-benefit
analysis for the generality of its schemes. Central Government
programmes of investment in health and education facilities, in
social housing, prisons, defence establishments, etc, are appraised
in terms of the cost effectiveness in achieving desired outcomes.
I consider next some of the main desired outcomes of transport
investment relevant to the wider economy (there are others, such
as improved safety, which could be analysed in a similar way).
OBJECTIVES OF
TRANSPORT INVESTMENT
11. One important objective of transport investment
is to support economic growth directly. Here the need is to identify
schemes having a strong likelihood that they will contribute to
economic growth by catalysing substantial private sector investment
in commercial and residential property. Ideally, the public sector
investment should be conditional on private sector commitment.
There is likely to be greatest confidence that this can be achieved
where the main benefit is expected at a particular geographic
location.
12. A second objective of transport investment
is to improve the operation of the transport system, thereby indirectly
assisting economic growth. A common type of scheme in this context
is the widening of a trunk road where the motivation is to reduce
congestion. However, in practice, the benefits of such investment
are taken in the long run in the form of increased access, as
road users take advantage of the higher speeds from reduced congestion
to travel further, the additional vehicle-kilometres adding to
traffic - known as "induced traffic" - so that the amount
of congestion and the resulting time delays are not much affected
(although the location of congestion is likely to change). This
is the origin of the maxim that we can't build our way out of
congestion.
13. Road pricing is advocated as a means of reducing
congestion (not discussed here, given the small likelihood of
adoption in the near future). The rationale of road pricing is
to deter those road users who attach relatively low value to travelling
at times of peak usage. There are, however, other means of achieving
this outcome. When asked in surveys, road users say that the
main problem with congestion is the uncertainty of journey time
and that their main means for minimising such uncertainty is to
vary the starting time to avoid peak traffic. Decisions on when
to start out are largely based on past experience of traffic conditions.
Real time traffic information linked to GPS navigation systems
is increasingly becoming available to facilitate such decisions,
with predictive algorithms being introduced that will further
assist the road user. Given that the main perceived problem
with road traffic congestion is the uncertainty of arrival time,
advice on probable journey time, based on good predictions of
traffic conditions, is a relatively low cost, uncontroversial
means of meeting the objective of improving the operation of the
road network[163].
14. A third objective is to cope with the projected
growth of the population, from the current 62 million to
about 70 million by 2030. As noted earlier, per capita daily
travel has held steady since 1995 at about 1,000 journeys and
7,000 miles per person per year. Heavy goods vehicle traffic
has also not grown over the past decade. There has, however, been
growth in light goods vehicle traffic, for reasons which are not
well understood (but may be connected with the growth of the service
sector of the economy), hence future growth is uncertain.
15. Accordingly, the main known factor determining
future growth of traffic is population increase. However, as
regards investment in the transport system to respond to such
demographic change, much depends on where the additional people
will live and work. If additional homes are build on green field
sites, on the edge of existing settlements, then the residents
will want car-based mobility and there will be a need for further
road capacity. On the other hand, if the additional homes come
into being within existing urban areas - on brown field sites
or through more intensive use of existing properties - where the
opportunities for additional road capacity are very limited, then
investment in public transport is the more attractive response.
16. The population of London has increased by
about a million over the past twenty years, during which time
the proportion of journeys by car has declined (50% in 1993, 41%
in 2008) while the proportion of journeys by public transport
has risen (24% and 33% respectively). This decline goes against
the historic trend for car use to rise with increasing incomes.
The population of London is forecast to grow by a further 1.25 million
by 2031, involving an additional 750,000 jobs, mainly in the inner
boroughs, and accordingly car use is projected to decline further
to 37%. Considerable investment in public transport in London
is planned, both to cope with population growth and to relieving
overcrowding, subject to finance being available[164].
17. A fourth objective for investment is to reduce
carbon emissions from the transport sector. This involves the
support of electric and hybrid vehicle technologies and their
deployment, support for electric charging infrastructure, and
support for the decarbonisation of the electricity supply system
to power electric road and rail vehicles (although the latter
is usually not seen as being for the Department for Transport).
A helpful way of assessing the relative attractiveness of technologies
to reduce carbon emissions is to estimate Marginal Abatements
Costs, which are the cost per tonne of carbon dioxide saved by
the candidate technologies[165].
This is evidently a measure of cost-effectiveness.
18. These four objectives for transport investment
are distinct. There is no appraisal methodology which allows
projects meeting such different objectives to be compared one
with another, nor with projects with multiple objectives (such
as High Speed Rail) There needs therefore to be high level judgements
about the relative importance of these objectives, taking account
of the attractiveness of the schemes ready for investment, with
financial resources allocated accordingly.
19. Given the present climate of financial stringency,
and given the relatively mature transport infrastructure that
exists, high levels of new investment in the transport system
are probably not the biggest priority at present. Nevertheless,
it is important to plan for both population growth and carbon
reduction over the medium term, as well as to maintain and better
utilise the existing road and rail networks.
CONCLUSIONS
20. Travel time savings are not a sound basis
for appraising the value of a proposed transport investment.
Time savings are transient. In the long run, the benefits are
taken as enhanced access.
21. Per capita daily travel has been stable in
Britain since 1995 and is not likely to increase in the future.
Travel demand and economic growth have become uncoupled. Future
travel growth will be due to population increase, although the
form this will take will depend on whether the additional inhabitants
are housed on green- or brown-field housing developments. The
experience of London demonstrates that dynamic growth is compatible
with declining per capita car use.
22. Transport investments will contribute to
economic growth when they catalyse private sector investment at
particular locations. Transport schemes that are publicly funded
in the hope of stimulating economic regeneration, but which are
nor conditional on private investment in commercial property,
risk yielding poor value for money compared with other possible
uses of the funds.
23. The best means to deal with road congestion
is to deploy technologies that supply reasonably good estimates
of predicted trip times to road users in advance of their journeys,
to help them avoid unanticipated delays.
24. The best way of appraising the value of potential
investments is to assess likely cost effectiveness in meeting
policy objectives.
Dr David Metz,
visiting professor,
Centre for Transport Studies, University College London; formerly
Chief Scientist, Department for Transport.
September 2010
161 The NTS excludes international travel by air.
Back
162
See D. Metz, "Saturation of demand for daily travel",
Transport Reviews, 30(5), 659-674, 2010. Back
163
See http://www.limitstotravel.org.uk/documents/Metz_PN_draft_22-10-09.pdf
Back
164
Mayor's Transport Strategy http://www.london.gov.uk/publication/mayors-transport-strategy
Institutional arrangements outside London are less favourable
for the strategic planning of transport investment in the light
of expected demographic change and economic growth. Back
165
The Committee on Climate Change uses this approach, see
http://www.theccc.org.uk/other_docs/Tech%20paper%20supply%20side%20FINAL.pdf
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