Further written evidence from the Northern
Way (TE 34b)
INTRODUCTION
1. The Northern Way has made two previous
submissions to the Transport Committee's on-going inquiry into
Transport and the Economy. The first of these was in response
to the original call for evidence and was submitted on 22 September
last year. A supplementary response was submitted on 24 November
reflecting developments following our 22 September submission,
namely the conclusion of the Spending Review on 20 October, subsequent
ministerial statements on local major schemes and the Highways
Agency's programme, the publication of the National Infrastructure
Plan, as well as the Government's 4 October announcement on high
speed rail. John Jarvis, Northern Way Transport Director, in addition
gave oral evidence to the Committee at the 30 November hearings.
2. Since the submission of our written evidence
and our appearance before the Committee at the end of November
further relevant data has been published which the Northern Way
considers the Committee would find helpful as it develops its
findings.
3. A theme of the Northern Way's written
and oral evidence is that well specified transport investments
in the North can deliver comparable returns to transport investment
in the South East. The relative economic performance of alternative
investment opportunities has also been covered by a number of
other submissions and witnesses.
VALUE FOR
MONEY OF
HIGHWAYS AGENCY
SCHEMES
4. Between Christmas and the New Year for
enhancement schemes for the strategic road network considered
as part of the Spending Review, the Department for Transport and
the Highways Agency published details on their assessments of
costs and benefits that informed Ministers' decisions on which
schemes would be supported, which would be remitted to the Highways
Agency for further work and which would be cancelled. While data
for each scheme has been published on the internet, it is not
available in a single location. We have, however, collated the
data and this is attached as Annex A. The information is presented
for:
- ¾ Table
1: Schemes to be prepared for start of construction in the current
Spending Review period.
- ¾ Table
2: Schemes to be prepared for start of construction in future
Spending Review periods.
- ¾ Table
3: Cancelled Schemes.
5. Schemes in the three Northern regions
are highlighted in yellow in these three tables.
6. The Value for Money indicator used by
the Department for their Spending Review assessment is the ratio
of "Adjusted Net Present Value (NPV)/Future Capital Cost".
When considering this measure there are two important points to
note. First, this measure is not the same as a Benefit Cost Ratio
(BCR) and it cannot be directly compared with a BCR, such as those
derived for road enhancement proposals promoted by local authorities,
or those for rail and urban public transport schemes, or indeed
previously published BCRs for the HA schemes considered in the
Spending Review. Second, as part of the Spending Review process
the benefits of the HA schemes under consideration have been adjusted
to capture an amended approach to benefit assessment that takes
into account revised values for carbon emissions as well as wider
impacts (such as agglomeration), an assessment of reliability
impacts and landscape impacts. No details on the adjustment methodology
have been published.
7. Using the Adjusted NPV/Future Capital
Cost as a measure of the relative value for money of the Highways
Agency programme, it can be seen from the analysis presented in
Annex A that supported enhancements to the strategic road network
in the North perform well against the DfT's measure and comparably
with enhancements elsewhere in the country. For enhancements to
the strategic road network, this additional evidence supports
the case that well specified schemes in the North can deliver
equal, if not better, returns than schemes in the South.
8. Two questions naturally arise, namely:
how does the value for money case for investments in the strategic
road network compare with proposals for investment in urban public
transport schemes or in the national rail network, and how does
the case for investment in urban public transport schemes or in
the national rail network in the North compare with the South?
The first of these questions was touched upon by the Secretary
of State when he first appeared before the Committee on 26 July
to answer questions on the Government's transport priorities.
Responding to a question from Lillian Greenwood (Q30), the Secretary
of State said:
"You have surmised that a strict cost benefit
analysis would benefit London. I think probably the clearer answer
is that a strict cost benefit analysis would mean that you would
be putting most of your money into the strategic highway network
rather than into investment in roads and other forms of transport."
VALUE FOR
MONEY OF
LOCAL AUTHORITY
PROMOTED MAJOR
SCHEMES
9. As part of the Spending Review process
the DfT has also considered and made adjustments to the BCR of
local authority major schemes. On 4 February the DfT published
the outcomes of this assessment in its document Investment
in Local Major Transport Schemes: Update. The adjusted BCRs
had previously been shared with scheme promoters on a case-by-case
basis. The data shows that using the DfT's adjusted BCRs, local
authority promoted road and public transport enhancements in the
North return comparable returns on investment as schemes elsewhere
in the country.
VALUE FOR
MONEY OF
RAIL SCHEMES
10. We are not aware of any published comprehensive
compendium of the value for money assessment of supported rail
schemes, for example rail investments that form part of the committed
Control Period 4 programme.
COMPARATIVE VALUE
FOR MONEY
OF ALTERNATIVE
INVESTMENT STRATEGIES
11. In the context of the Spending Review decisions,
it is difficult to draw any conclusions from published data on
the comparative value for money assessment of supported schemes
across modes and between Highways Agency and local schemes. The
issue of comparable value for money was considered, however, as
part of the Eddington Transport Study. A casual inspection of
the Eddington analysis could lead to the conclusion that the return
on investment in inter-urban schemes is greater than that for
urban networks and that within this category, enhancements to
the strategic road network offer greater returns than investments
in rail. There has also been work that has looked at the comparative
value for money of different scales of investment which has led
some to conclude that smaller investments offer better returns
than more capital intensive ones.
12. We would counsel against both these interpretations.
There are two reasons for this.
13. First, caution needs to be exercised when
comparing the BCRs calculated for different transport modes and
for different scale schemes. The need for caution is independent
from the on-going debates that have been aired before the Committee
on the appropriateness or otherwise of the Department's approach
to cost benefit analysis, such as the questions around the merit
of including the monetary value of small time savings. Rather,
it arises simply because there are questions around the comparable
accuracy and precision of benefit estimates calculated using different
methodologies (and it is inevitable that the benefits for different
types of scheme will be calculated in different ways).
14. Second, the BCR (and also the Adjusted NPV/Future
Capital Cost measure) does not capture all the benefits and costs
of a scheme. This is why as a multi-criteria framework the New
Approach to Appraisal (NATA) allows qualitative and non-monetised
quantitative impacts of a scheme to be captured. As we set out
in our original submission, the Northern Way strongly supports
the conceptual approach of NATA as well as its further development
so potential GVA benefits are encompassed.
15. This second issue is particularly pertinent
to the Northern Way as the DfT's approach to cost benefit appraisal
adopts a restrictive assumption that there is no impact of a scheme
on the distribution of population and employment, nor on the sectoral
make-up of employment. Rather, it assumes that population and
employment are static between do-minimum and do-something scenarios
and that economic gains arise simply because of increased efficiency
and productivity. This means that the BCR does not necessarily
capture the principal impact that the Northern Way is seeking
to bring about, ie sustainable economic development of the North
towards the level of more prosperous regions by growing the North's
economy faster.
16. The conventional approach to calculating
BCRs means that transport investments that are focussed on relieving
existing or forecast congestion, and/or deliver significant journey
time savings for established flows deliver strong benefits. However,
transport investments that are focussed principally on securing
economic development through supporting and facilitating structural
changes in the make-up of population and employment do not necessarily
deliver a strong benefit stream in the conventional framework.
This has a further consequence, namely scheme promoters are reluctant
to bring forward such schemes for consideration for major scheme
funding as they consider the risks of not achieving funding as
too great (noting that scheme promotion is time and resource intensive
for a local authority).
17. Given that there are these economic impacts
beyond wider impacts that are already encompassed by the DfT's
approach to cost benefit analysis, there has been interest in
recent years in the development of techniques to assess the impacts
of transport investment on GVA. We touched on this at the oral
hearing. Work has been undertaken by the Manchester authorities
in the context of their proposals to enhance the city region's
public transport network and the Northern Hub, by Greengauge21
looking at high speed rail and by the Northern Way looking at
the productivity impacts of connectivity improvements in the trans-Pennine
corridor. Last year the Northern Way commissioned the Institute
for Transport Studies at Leeds University to consider the theoretical
basis for this work and review the various methods that had been
applied. We referred to this in our original evidence as well
as at the oral hearing.
18. In summary, the conclusions of this work
are that while techniques to calculate the GVA impacts of transport
investments are in their infancy, the work to date indicates that
GVA impacts can be very significant, indeed much bigger than the
benefits calculated using conventional methods. Also and very
importantly, the review found that GVA benefits of rail investments
can be large and overall the evidence thus far suggests that on
a per traveller basis rail investment has a greater productivity
impact than road investment. Also the review identified that a
prioritisation on the basis of GVA per pound spent would give
a different answer to prioritisation based on conventional benefits
costs ratios.
19. From the ITS work and the wider evidence
base, the Northern Way has concluded that there are no grounds
to suggest that prioritising on the basis of GVA benefits per
pound would favour the South over the North and that well specified
transport investments in the North have equal if not greater potential
to deliver GVA benefits per pound invested when compared with
investments in the South East.
20. As can be seen from the value for money assessments
that underpinned the Department for Transport's Spending Review
assessments and have been published to date, a similar conclusion
must be drawn from considering conventional benefit cost benefit
assessment, namely there are no grounds to suggest that prioritising
on the basis of conventional economic benefits per pound spent
will favour the South over the North and that well specified transport
investments in the North have equal if not greater potential to
deliver conventional economic benefits per pound invested when
compared with investments in the South East.
REGIONAL EQUITY
21. A further issue not addressed by considering
the BCR alone is the question of regional equity. The Government
has set out its goal of rebalancing the economy away from the
South East as well as promoting private sector growth in areas
that currently have an above average reliance on the public sector
for employment. In this context, where benefits arise is an important
consideration, not just the size of those benefits and the return
on capital (although it would, of course, be sensible to maintain
a requirement for a minimum expected return on public sector investment).
At present, there is little clarity on how issues of regional
equity are, and will in future be, factored into Ministerial decision
making.
Annex A
Table 1
SCHEMES TO BE PREPARED FOR START OF CONSTRUCTION
IN THE CURRENT SPENDING REVIEW PERIOD
Table 2
SCHEMES TO BE PREPARED FOR START OF CONSTRUCTION
IN FUTURE SPENDING REVIEW PERIODS
*Note as per DfT source, "Information on Highways
Schemes—data release", DfT website: "One scheme,
M25 Junction 30, has no NPV. This was because none of the explored
options for the scheme were preferred, and the process of identifying
options for this scheme is ongoing. The scheme is at a particularly
significant point on the strategic road network, and qualified
for inclusion as a post-2015 scheme on this basis alone."
Table 3
CANCELLED SCHEMES
*Note as per DfT source, "Information on Highways
Schemes—data release", DfT website: "Two schemes,
A21 Flimwell to Robertsbridge and A47 Blofield to North Burlingham,
were removed from the forward programme at the request of Regional
Assemblies. The decision to formally cancel both schemes was taken
in response to this, and was separate from the wider process of
analysis and prioritisation."
February 2011
| 
