Written evidence from Centro (TE 62)
Centro is the West Midland Integrated Transport Authority,
we promote and develop integrated transport across the seven West
Midlands Metropolitan Authorities of Birmingham, Coventry, Dudley,
Sandwell, Solihull, Walsall and Wolverhampton. From April 2011
Centro will also take responsibility for the coordination and
delivery of the West Midlands integrated transport strategy -
Local Transport Plan Three.
Our aim is to transform transport so that the people
of the West Midlands have a world class integrated transport system
provided by a best in class organisation. Centro seeks to ensure
everyone in the region benefits from an effective transport system
that meets the economic, social and environmental needs of the
West Midlands.
SUMMARY OF
KEY POINTS
Centro believes an efficient transport system is
an essential prerequisite of a successful vibrant economy. This
was well illustrated in the Eddington report and despite the economic
slowdown we believe the case made by Eddington that transport
investment should be focused on the major conurbations is still
relevant.
However, in order to maximise the benefits of an
efficient transport network it is essential to target investment
on those areas which not only deliver the connectivity required
for people to access jobs but also to establish a basis for rebalancing
the national economy, address social inequality, contribute to
other sectors including health and help the UK significantly reduce
its carbon footprint to meet global and national targets. In order
for this to take place the role of transport needs to re-evaluated
and re-prioritised as an area of Government spending which can
bring far wider benefits than traditional thinking has allowed.
High Speed 2 (HS2) provides a good example of how
transport can have a direct impact on the economy of an area through
its potential to attract investment, broaden travel horizons and
labour markets and ultimately act as a major catalyst to rebalance
the national economy. HS2 will provide high quality access to
attract investment in the West Midlands and beyond, regenerate
Birmingham city centre and boost the wealth and economic output
throughout the region. HS2 therefore needs to be recognised as
a national priority for investment over the forthcoming years.
However, whilst HS2 provides a major opportunity
for the UK in the longer term it is important to recognise and
understand the broader role that transport can play in the shorter
term. Centro believes the way transport and in particular public
transport is currently prioritised and evaluated is misleading
and does not reflect the true role and impact good transport initiatives,
including rail and light rail schemes can have directly and indirectly
on the local and national economy. There is a growing recognition
of the role transport can play in addressing health issues such
as obesity through active travel and respiratory problems through
improving air quality. This is just one area where the wider role
transport can play in addressing cross sector issues is not currently
recognised fully enough either through funding allocations or
appraisal of initiatives.
Cities will play a crucial role in delivering sustainable
economic growth but in order to facilitate this, a number of key
issues need to be addressed. These include how transport can be
delivered and enabled to ensure cities are shaped in a way which
can promote sustainable growth. Funding mechanisms such as Accelerated
Development Zones (ADZs) recognise the role that enabling infrastructure
can have on attracting investment, delivering future growth and
ultimately ensuring an urban renaissance can take place and occur
in a direction which promotes sustainable travel. This principle
has been recognised in London through the expansion of DLR and
is being promoted further in Paris through their Land Use Masterplan
for the city.
This shift in how transport initiatives are delivered
and the growing need for this to happen faster is exemplified
in the role that transport will play in the UK achieving their
carbon reduction targets. Road transport accounts for almost a
quarter (22%) of all UK CO2 emissions therefore whether investment
is made through capital or revenue funding the need to reduce
carbon levels and the role transport can play in addressing this
means the emphasis on this investment should be public transport
which can attract investment and usage.
Question 1—Have the UK's economic conditions
materially changed since the Eddington Transport Study and, if
so, does this affect the relationship between transport spending
and uk economic growth?
1. The key change to economic conditions since
the Eddington study is the slowdown in the economy and the fiscal
deficit resulting in affordability becoming the key constraint
on transport investment. We are not aware of any research being
undertaken to examine if Eddington's recommendations should still
be considered valid.
2. However we believe there is a strong case
for supporting the view that Eddington took for the following
reasons:
- (i) The appraisal of transport schemes takes
place over 60 years and there is no reason to believe that similar
economic conditions to those in place when the study was undertaken
will not prevail for most of this period.
- (ii) Eddington highlighted the relationship
between economic prosperity and a successful transport system.
As outlined below we believe that the economic impact of transport
investment should be a key criterion in selection of schemes as
a successful economy will result in rising tax revenue making
schemes more affordable and allowing further investment in the
future.
- (iii) The growing move to decentralisation
and funding through Local Enterprise Partnerships with strong
business representation would favour transport schemes with a
strong economic growth bias.
3. A key point highlighted in the study was that
the strategic economic priorities for long-term transport policy
should be growing and congested urban areas and their catchments;
the key inter-urban corridors and the key international gateways
that are showing signs of increasing congestion and unreliability.
We believe that this is still the case as these are the areas
where transport constraints have the potential to significantly
hold back economic growth and will offer the best economic return
given investment.
4. Regional and national economic performance
relies heavily on the productivity of cities because of their
concentrations of infrastructure, assets, high-value business
and jobs. For example, the Birmingham economic area (the City
Region) produces more than half of the entire region's economic
output, whilst Leeds and Sheffield's combined account for more
than two-thirds of Yorkshire's (Ref 1).
Question 2—What type of spending should
be prioritised in the context of an overall spending reduction,
in order best to support regional and national economic growth?
5. At the current time there is considerable
pressure to reduce the level of public expenditure. It is therefore
of paramount importance that where the Government does spend money
it achieves high levels of benefit. These benefits should be line
with Government objectives, for example supporting the emphasis
on transport schemes supporting economic growth and reducing carbon.
As highlighted above we believe that if investment is to be reduced
in the short term then it should be focused on urban areas, the
driver of the UK economy.
6. In a situation of high Government deficit
there is a strong case for ensuring that investment levels are
not neglected and that cuts focus on expenditure where the direct
impact on future prosperity is low.
7. A key area in which any Government can, and
needs to invest in order to produce a prosperous economy is transport,
which in many cases is capital intensive. The Eddington Report
(Ref two) provided many examples of this relationship including
- (i) a 5% reduction in travel time for all
business and freight travel on the roads could generate £2.5
billion of cost savings - some 0.2% of GDP.
- (ii) 55% of commuter journeys are to large
urban areas. 69% of business trips are less than 15 miles in length.
- (iii) 89% of the delay caused by congestion
is in urban areas.
8. Government inevitably has to be a major funder
of infrastructure. At the time of writing webtag guidance is suspended
and under review. As the revised guidance will be a key determinant
of the type and level of transport investment many of the recommendations
in this submission relate to suggested changes to the appraisal
guidance and the approach taken to appraisal.
9. Traditionally transport appraisal has been
based on welfare benefits. Where a cost benefit ratio exceeded
2:1 the investment was deemed to be high value for money and assuming
that it was affordable and deliverable the project stood a good
chance of being progressed. While relying on benefit cost ratios
for project selection and prioritisation has its limitations this
has been a key part of the decision making process for many years
and it is likely to remain so in the future.
10. We believe there is the potential to simplify
the appraisal methodology particularly for schemes below a certain
threshold say £20 million. However for all schemes we feel
there is good potential to simplify the process through greater
testing of options at an early stage deciding on a preferred option
and developing that scheme in detail. In the past too much time
has been spent on detailed appraisal of one or more alternative
options even when it is clear which would be the final choice.
In addition we feel there is also scope for speeding up the decision
making process by DfT as delays often give rise to the need for
reappraisal as guidance or circumstances change over time. Addressing
both these issues would have the following benefits:
- (i) Early achievement of welfare benefits.
- (ii) Early achievement of economic benefits
and tax income generated.
- (iii) Reduced scheme preparation costs for
promoters. As nearly all scheme promoters are within the public
sector this will further reduce public expenditure even if this
impact is not fully felt by Central Government.
11. Suggestions for detailed changes to the appraisal
methodology are outlined in the methods for assessing schemes
below.
12. Over recent years there has been growing
recognition within the transport industry that the economic impact
of transport investment has not been fully recognised. The Department
for Transport recognised this in part, and were planning to include
a wider economic impact assessment in scheme appraisal from April
2010. Due to the election and change of Government the revised
guidance was not implemented.
13. The wider economic impact assessment aimed
to quantify the following benefits
- (i) Agglomeration,
- (ii) Labour market impacts; and
- (iii) Benefit of increasing output in imperfectly
competitive markets.
14. These were to be quantified in terms of net
national impact as opposed to local and regional impact. While
this was the prime definition of interest to Government there
was recognition that benefits which accrued in areas of deprivation
could be considered of greater worth and the appraisal guidance
attempted to quantify the impact of benefits on different areas
and groups in society. The wider economic appraisal did not impact
directly on the benefit cost ratio but was designed to be a supplementary
tool within the decision making process.
15. While the approach planned by DfT was welcomed
by the transport industry there is a growing body of evidence
supporting the view that it did not fully quantify the wider economic
impacts. This is a view which Centro shares. We believe that given
the high deficit there is a case for prioritising schemes which
provide a strong economic stimulus and provide future tax revenues.
We outline below our views on how the appraisal process could
be modified to achieve this. It should be noted that it is not
designed to replace the welfare test (ideally modified as in the
response to question 4) but to complement it. Maintaining the
welfare test acts as a guarantee of value for money.
16. The importance of transport investment to
business to overcome the two key problems of lack of capacity
on transport networks and inability to operate reliable services
was clearly highlighted by the CBI in 2009 in a report assessing
the state of UK transport networks and the concerns of businesses
in regard to these issues. (Ref 3)
17. An efficient transport network has the ability
to add to GDP and a poor one can reduce it with consequent implications
for taxation and welfare spend.
18. There are considerable benefits to be had
by targeting investment where, in addition to providing welfare
benefits, it can support economic growth. As noted above the DfT
has recognised the benefits of agglomeration and how reduced travel
costs can increase the available pool of labour.
19. As transport makes an area more attractive
both to businesses and those who wish to work in those businesses
this can influence the number and type of businesses that choose
to locate in that area.
20. In terms of productivity it is important
that transport links businesses to pools of labour which meet
employers' needs. Much has been made in recent years about transport
addressing worklessness and while it is true that good transport
connections can reduce this, it should be recognised that this
issue has many causes of which poor transport is just one. However
in the case of unemployment and particularly structural unemployment
(within a wider region) transport has the ability to address this
issue quickly. Achieving this benefit may require larger scale
schemes such as improvements to the heavy and light rail networks
which expand the viable commuting region around major cities especially
those outside London where longer distance commuting is less common.
21. The potential for schemes such as this exists
in many areas. For example in the West Midlands investment in
the Camp Hill Chords would allow an expansion of inter regional
rail services. In addition new suburban services to Tamworth,
on the Camp Hill Line to Kings Heath and on the Sutton Park line
would also be possible. The benefits would include:
- (i) Expanding the labour market. For example
there would be a much improved rail service from the large and
expanding town of Tamworth. There would also be a station at Castle
Bromwich which is an area of high social deprivation. A scheme
such as this has the potential to provide better links across
an area which incorporates a wide range of social mix and skills
levels which is what is required to meet the needs of business.
- (ii) Changes in the sectoral mix. As noted
above good rail connections improve the productivity of businesses
and the mix of those businesses. This could be of great benefit
to the GVA of the West Midlands. In a recent report (Ref 4) The
West Midlands Regional Observatory highlights that "the most
significant contributors to the regional economy are the lower
value added private sector activities". The same report also
highlights characteristics of individual towns in the region highlighting
that Tamworth has historically been associated with low value
added activity but that it is now diversifying its economy. There
would be a considerable benefit from better linking the town to
other major centres. Nuneaton is recognised as another town with
similar characteristics. This also is linked with a major scheme
bid for a rail scheme upgrading the Nuneaton Coventry rail line.
- (iii) Schemes such as this and the expansion
of the Midland Metro into Birmingham City Centre would also provide
agglomeration benefits especially for the main regional centre
of Birmingham. Work undertaken for Centro by CEBR showed that
extension of the Midland Metro would have annual benefits of £47
million per annum in 2021 (2006 prices).
22. Many other cities have major transport projects
with well researched economic benefits. This does indicate that
in many cases if the aim is to invest in schemes which will add
to economic prosperity that the emphasis should be in the major
conurbations. This should include areas outside the South East
which in many cases already has good transport connections. Outside
London the costs of construction and operation are likely to be
lower and in the longer term the tendency for the London economy
to overheat will be reduced improving the UK's international competitiveness.
This is likely to be of increasing importance in coming years
as countries with lower cost bases such as Eastern Europe and
in the Far East have increasingly skilled workforces. Such a policy
is also in line with the current Government's plans to rebalance
the economy. In a speech given by David Cameron on 28 May 2010
(Ref 5) he stated:
23. "Today our economy is heavily reliant
on just a few industries and a few regions - particularly London
and the South East. This really matters. An economy with such
a narrow foundation for growth is fundamentally unstable and wasteful
- because we are not making use of the talent out there in all
parts of our United Kingdom"
24. In addition to benefits for business the
economic benefits from vibrant economic centres spread throughout
a region. High Speed Rail has the ability to act as a catalyst
for investment and will play an important role in bridging the
economic divide between London/South East and the rest of the
country if a comprehensive network is delivered. Analysis produced
on behalf of Centro (Ref 6) into the economic benefits of High
Speed Rail between Birmingham and London show that if the high
speed line is combined with changes to local and regional and
national rail services the benefits to the West Midlands economy
more than double and the benefits are much more widely distributed
throughout the region with each worker, on average, earning around
£300 more per annum.
25. The bus has an equally important role to
play in supporting the economy. In the West Midlands over 300
million journeys are made each year. Many of these are vital journeys
to work or leisure trips involving spending which supports the
local economy. As noted in the response to question 3 the bus
can play a key role in reducing worklessness. In many areas of
the country it is the only alternative to the car for journeys
where walking or cycling is not practical. It is therefore imperative
that if the economy is to thrive and be accessible to all continued
investment in the bus network and associated infrastructure measures
such as bus priority need to be maintained.
26. In summary the case for continuing to invest
in transport infrastructure is strong. Given the importance of
access to cities and the increasing importance of reducing carbon
levels the emphasis should be on public rather than private transport.
Question 3—How should the balance between
revenue and capital expenditure be altered?
27. The history of transport investment by Government
in the UK outside London has focused on capital schemes. This
is especially true in the bus and light rail industries. There
is a saying that transport scheme promoters are "capital
rich and revenue poor".
28. Revenue expenditure has the ability to impact
service levels, quality and frequency. Where changes in these
areas are desirable they can be implemented much more quickly
than capital schemes giving faster returns. An example from the
West Midlands is the £1.5 million which is being put into
improving the number, frequency and hours of operation of buses
around Birmingham Airport and the National Exhibition Centre.
In this case funding is coming from the private sector. It is
aimed at improving modal split in favour of public transport.
For example public transport links from North Solihull (an area
of high deprivation) to the airport have been poor and for the
many shifts at the airport which begin around 0400 services are
nonexistent. The new services will allow those without a car to
access jobs for the first time with benefits for those seeking
work and the airport businesses that have difficulty in recruiting
for positions where pay is low.
29. Capital schemes give rise to revenue funding
needs as maintenance arises. Some local authorities are discouraged
from seeking capital funds due to concerns about revenue implications
(Ref 7). A DfT study also noted that rates of return of 30:1 can
be achieved from some revenue funded schemes such as personal
journey planning (Ref 8).
30. The private sector has the potential to provide
some funding streams. For example in Japan 30% of non fares revenue
comes from property, advertising and consultancy compared to 5%
in the UK. (Ref 9). Funding may also be available from Business
Improvement Districts or through Accelerated Development Zones.
31. The key benefits of revenue investment are:
- (i) Benefits achieved much quicker than through
capital investment,
- (ii) Ability to withdraw or switch investment
if returns do not materialize,
- (iii) There is the opportunity to offer improvements
to the public transport network,
- (iv) Costs likely to be lower than for capital
schemes at least in the short term where funds are limited,
- (v) Fewer objections as no capital works
and construction involved,
- (vi) Rates of return comparable to capital
schemes; and
- (vii) Adequate revenue funding ensures capital
schemes well maintained and that good schemes are not put off
for fear of revenue liability.
Question 4 - Are the current methods for assessing
proposed transport schemes satisfactory?
32. There are a number of detailed changes and
additions which we would welcome within the welfare appraisal.
Detailed consideration of these is beyond the scope of this submission
and we will submit views when consultation on the new guidance
takes place. However some of the key changes we would welcome
are outlined below:
Health Benefits
33. Many public transport schemes encourage greater
physical activity and therefore can offer significant health benefits.
As these projects have the ability to reduce the financial burden
on the health sector and have been shown by a number of promoters
to have excellent business cases it is recommended that funding
for suitable transport schemes could be redistributed from health
to transportation budgets. Cycling and walking schemes have the
potential to reduce health costs and wider economic losses by
reducing the physical inactivity that contributes to a range of
chronic diseases. (Ref 10).
Carbon
34. The UK has passed legislation which introduces
the world's first long-term legally binding framework to tackle
the dangers of climate change. The Climate Change Bill was introduced
into Parliament on 14 November 2007 and became law on 26 November
2008. The act includes a legally binding target of at least an
80% cut in greenhouse gas emissions by 2050, to be achieved through
action in the UK and abroad and a reduction in emissions of at
least 34% by 2020. Both these targets are against a 1990 baseline.
35. Road transport accounted for almost a quarter
(22%) of all UK CO2 emissions in 2007, an increase from the 1990
baseline position unlike a range of other industries such as energy
supply and business emissions, which have fallen over the same
period.
36. The low value of carbon used within the DfT's
methodology means that the impact is often lost within a scheme
appraisal. This means that schemes with a positive carbon impact
have little impact on the overall business case and schemes with
a negative carbon impact but large time saving benefits e.g. new
road schemes can be prioritised above them. This is a significant
issue if the UK is serious about meeting its obligations on climate
change. We propose it is addressed by reviewing the value attributed
to carbon within appraisal and also by providing additional funding
(outside the transport budget) for schemes which will make a significant
contribution towards achieving these targets. (Ref 11)
Smarter Choices
37. There are no plans to include factors such
as ticketing within the appraisal framework despite DfT having
commissioned research into the benefits associated with such measures.
38. On the basis of what is outlined above, Centro
welcomes the recent Government announcement on the creation of
a Local Sustainable Transport Fund which appears to very much
support these principles and those outlined in the Campaign for
Better Transport's Carbon Reduction Fund Proposal.
Question 5—How will schemes be planned in
the absence of regional bodies and following the revocation and
abolition of Regional Spatial Strategies?
39. The West Midlands has a history of working
productively and effectively together. Through a thorough analysis
of the problems and opportunities it faces the Metropolitan Area
has a clear view of the most appropriate interventions it needs
to implement and support its Growth Agenda.
40. In the case of transport, the emerging Local
Transport Plan 3 (LTP3) provides an integrated transport strategy
which reflects the distinct challenges and opportunities across
the Metropolitan Area. LTP3 sets out the transport requirements
needed to deliver the regeneration and growth strategies of the
West Midlands through an understanding of the transport issues
and a close alignment with Local Development Frameworks. Post
2011, LTP3 will form the basis of a balanced integrated transport
package of measures which will provide the platform for the connectivity
required to deliver success in a changing economic environment.
41. However, current structures are not optimal
for economic development, regeneration and transport and therefore
the Metropolitan Area is not performing to its full potential.
Following the Local Transport Act (2008) the West Midlands conducted
a transport governance review which highlighted that transport
strategy setting and delivery is currently fragmented. This will
improve with the ITA having responsibility for the delivery of
LTP3 for the Metropolitan Area from April 2011. However the link
between regeneration, the low carbon economy and transport means
there is an overriding imperative to ensure transport and regeneration
strategy are fully integrated—do nothing is not an option.
42. The new coalition government came to power
in May 2010 and announced the abolition of a number of regional
structures in favour of Local Enterprise Partnerships (LEPs).
Transport will play a vital role in the success of LEPs to delivering
improved economic performance. It is therefore essential that
decision making and strategy setting are fully aligned and on
this basis the ITA have developed a proposal for a Commission
for Integrated Transport which could work in partnership with
the LEPs to ensure transport is prioritised and delivered effectively.
43. The Commission for Integrated Transport (CfIT)
would assume the role of strategy setting, planning and commissioning
the delivery of transport interventions across the LEP areas embracing
the journey to work area.
44. The foundation for this would be the planning
of an optimal integrated transport network coordinated across
a number of LEPs - the Integrated Transport Strategy for the travel
to work area would meet the economic development aspirations of
those LEPs in the context of transport. This would include a funding
strategy, coordinating integration between transport modes and
ensuring transport fulfils its full contribution to the delivery
of economic growth and regeneration priorities. In order to ensure
coordination of strategic transport planning functions protocols
will be put in place with Network Rail and the Highways Agency
to ensure coordination of transport strategy setting and delivery
across the area.
45. Further discussion is needed on the membership
of CfIT, however it is envisaged that membership would come from
both local authorities and the LEPs within the CfIT area. The
LEPs would help secure the funding and through CfIT would commission
the delivery of transport initiatives through a number of delivery
"agencies" including local authorities for highway works
and Centro for public transport. This proposal would advance how
transport strategy is set and delivered within the West Midlands.
REFERENCES
(1) Driving Economic Recovery: The Core Cities
- A new partnership with Government, September 2010
(2) Sir Rod Eddington - The Eddington Transport
Study - December 2006
(3) CBI - Time to Change Gear: Assessing the
UK Transport Networks - February 2009
(4) West Midlands Regional Observatory - The
West Midlands Economy Post Recession: Key Issues and Challenges
- Final Report June 2010
(5) "Transforming the British economy: Coalition
strategy for economic growth" - speech made by David Cameron
on 28 May 2010.
(6) High Speed Rail and Supporting Investments
in the West Midlands: Consequences for Employment and Economic
Growth, KPMG for Centro, June 2010
(7) Local Transport Planning and Funding - UK
Parliament Transport Select Committee - 2006
(8) Department for Transport - A Review of the
Effectiveness of Personalised Journey Planning - 2005
(9) Focus - Chartered Institute of Logistics
and Transportation - June 2000
(10) An Analysis of Urban Transport - Cabinet
Office - November 2009
(11) Review of Low Carbon Technologies for Heavy
Goods Vehicles - Ricardo plc - March 2010
(12) Campaign for Better Transport Carbon Reduction
Fund: A Proposal for the Department for Transport's Carbon Reduction
Strategy - April 2009
September 2010
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