Session 2010-11
Publications on the internet

To be published as HC 473- i

oral evidence

taken before the

Transport Committee

Transport and the Economy

Tuesday 19 October 2010

Professor Henry Overman, Professor John Tomaney and Professor Alan Wenban-Smith

Professor Phil Goodwin, Mr Malcolm Griffiths and Mr Chris Riley

Evidence heard in Public Questions 1 - 74



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Oral Evidence

Taken before the Transport Committee

on Tuesday 19 October 2010

Members present:

Mrs Louise Ellman (Chair)

Kelvin Hopkins

Kwasi Kwarteng

Paul Maynard

Angela Smith

Iain Stewart

Julian Sturdy


Examination of Witnesses

Witnesses: Professor Henry Overman, London School of Economics, Professor John Tomaney, University of Newcastle, and Professor Alan Wenban-Smith, Birmingham City University, gave evidence.

Q1 Chair: Good morning, gentlemen. Would you like to identify yourselves for our records, please? Could I start at this end?

Professor Henry Overman: Henry Overman from the London School of Economics.

Professor Alan Wenban-Smith: Alan Wenban-Smith, Urban Regional Policy, Birmingham City University.

Professor John Tomaney: John Tomaney, Newcastle University.

Q2 Chair: Thank you very much. The last major study into transport and the economy was the Eddington report in 2006. Do you feel that that report is still relevant today?

Professor Henry Overman: Yes, I think it is. My take on this is that we are richer than we were when Eddington was being written, even if the growth rate has been lower than during the time of Eddington. The decisions that Eddington was looking at were about the long-term impact in transport in this country, and I don’t see that much has changed. I think the emphasis on gateways, inter-urban corridors, relieving congestion, still stands. I think the advice to be realistic about the benefits and not commit yourself right at the beginning to one particular mode of transport, as the solution to all your problems, is correct. So basically, I think that the recommendation still stands.

Q3 Chair: Any comments, Professor Wenban-Smith?

Professor Wenban-Smith: I have a slightly more sceptical view, in the sense that I think Eddington’s priorities were correct, dealing with the problems of conurbations, of inter-urban corridors and international gateways. But the trouble is, the actual priorities, in terms of schemes, depended on a system of cross-benefit analysis that has been very heavily criticised and I think, in many ways and respects, is quite misleading. It was also made in the context of road-user pricing being part of the package. Eddington himself would describe that as a no-brainer. Without road-user pricing, his priorities would inevitably lead to more congestion as people take advantage of the additional road space to spread themselves further over the landscape, which is what tends to happen. So I think Eddington’s priorities are fine but the actual list of schemes that descends from that is much more doubtful.

Q4 Chair: So you don’t think the absence of road pricing, and less economic growth than predicted, has a material effect on his recommendations?

Professor Alan Wenban-Smith: No; on the contrary. I am saying that, without road pricing, Eddington’s priorities would lead to more congestion, more dispersion, more CO2 production, and so on. It would be less good for the economy without road pricing.

Q5 Chair: Thank you. Professor Tomaney, do have any views on Eddington and how we should see it today?

Professor John Tomaney: Yes. I largely agree with Eddington’s essential analysis that there is a relationship between transport connectivity and economic growth. I think what has changed is the economic conditions, quite markedly. They have changed in terms of the lower overall level of growth-as Henry has already pointed out-and I think that is significant. Economic conditions have changed, in that there are clearly going to be less resources available for major transport investments.

In addition, I would like to draw attention to what I think may prove to be one significant development. That is that the current economic conditions have had a very distinctive geography attached to them. We’ve seen the recession having a bigger impact in the north and in the south. In thinking about the future of transport investments, that should obviously be part of any serious consideration, especially given that we now have a Government who are committed to rebalancing the national economy away from an alleged over-dependence on financial services in the south-east of England. The role of transport in all of that, if we take the essential premise of Eddington, is going to be critical to achieving that objective, so I think some things have changed.

Q6 Chair: So what lessons would you draw from that? Is there any particular type of transport investment that should be supported, rather than another one?

Professor John Tomaney: There are many kinds of transport investments that ought to be supported, but I think critical would be those that support the improvement of urban transport systems and the connectivity of city regions, particularly in areas like the north of England-say, between Leeds and Manchester-which raise the possibility of the development or the agglomeration of further economic activities in the north and may play a part in rebalancing the national economy, if that’s the key policy objective.

Q7 Chair: Should investment go into new schemes rather than maintaining existing ones? Is there a choice to be made there?

Q8 Professor Henry Overman: I think there is a choice to be made. That is a question that is not sensible to try and answer in a general sense. This is one of the crucial lessons from Eddington that I just see slipping further and further away from us, which is that we need to be making these decisions on a project-by-project basis. So there will be some new investment that clearly, given where we are with public expenditure, should not be being made. There are projects that were on the books that we could easily be ditching. Likewise, there is some recurrent expenditure on existing commitments that we are compelled to get rid of. But the idea that somehow we can-in the abstract-make a decision between the balance of these two things I think is just impossible. We need people who know what the projects are delivering to be making these decisions on a project-by-project basis, not on an overall broad-

Professor Alan Wenban-Smith: I might be able to add a bit to that. I should say I’m not a proper professor; I’m not an academic, I’m not an economist. My credentials are very much having been a local government officer responsible for exactly the sorts of things you have been talking about: transport planning in places like Birmingham and Newcastle, as it happens. This kind of question, the balance between new projects and maintaining what you have is very difficult and very important. It deals with one of your questions later on about the balance between revenue and capital projects. There is a huge volume of revenue spending necessary to keep the existing stock in good heart and doing its job. At the margin, the question of whether you can better spend the money by investing in a new project, that has capital charges spent over a long period of time, is something that, as I think Henry said, is not something for a general judgment. It’s something you need to make as a judgment in the circumstances of your particular patch.

I used to be chairman of the Chief Engineers and Planning Officers Group of the West Midlands and what we did was to put together our programme of balance, small, large and revenue schemes, and it cannot be done from Whitehall would be my view.

Q9 Kwasi Kwarteng: This is a double-barrelled question. We have all read the Eddington report and my understanding is that he is very, as you say, focused on project-by-project and looking at where the difficulties are, and then trying to solve those, as opposed to having these blue sky grand projects. Surely there is scope for these big projects that the Government have. I take an extreme example. Before we had aeroplanes. Once aeroplanes were invented, clearly, there would be a decision to build an airport. There is no way you can do a cost-benefit analysis of that, if you haven’t had any experience of what aeroplanes could do. That’s an extreme case. I am not saying something like that is going to happen any time soon. But surely there is some scope for thinking outside this sort of project-by-project, what I might call a nodal focus on particular problems and solving those in a book-keeping kind of way. Do you have any thoughts on that?

Professor Alan Wenban-Smith: Sorry; you may have misunderstood what I said. I didn’t mean that every decision must be done on a sort of-

Q10 Kwasi Kwarteng: No, sorry, I am not asking a question on what you said. I’m asking a general question.

Professor Alan Wenban-Smith: Okay, perhaps some of my colleagues would like to-

Professor John Tomaney: I think there is international evidence that strategic investments in big transport infrastructure can have economic development impacts. We can find that sort of evidence around the world. We’re finding it particularly in the newly industrialising countries at the moment. There is plenty of evidence of that. These arguments are certainly being deployed in the north of England, for instance. The future of Teesport and its disconnection from national transport networks; the relative difficulty of getting goods in and out of the port to markets in other parts of the UK has been emphasised as a lost opportunity, in that sense. There are opportunities to make investments in that port, which potentially relieve burdens on infrastructure in the south, but they’re not going to be justified probably using traditional cost-benefit analysis. On the contrary, when those methods are applied, then these sorts of investments are shown not to have a sufficient return. I think your point is a fair one but, nevertheless, there is no general rule I think; that would be my view on this. The decisions that are taken in the end are often strategic, political ones rather than narrowly economic ones, in that sense.

Professor Henry Overman: One of the problems is that people tend to take their pet project and basically try to justify support for it, on the basis that it will be transformational, and many of these claims for projects that will be transformational do not materialise once we go ahead and invest large amounts of money. I was in Hull; the Humber Bridge was supposed to transform the economy of that part of the world. If you go back and look at the narrative, that is what it was going to do and it didn’t. I still think there is a strong argument for thinking about the main benefits of transport being from: how many people are going to use it, how much faster, safer and environmentally friendly their journeys are going to be. Sometimes that might be terribly hard to predict for something new but, at the end of the day, the benefits of the airports do come from people who use them.

Kwasi Kwarteng: You could not possibly model that; that is my point. At some level, you have to have a strategic decision.

Professor Henry Overman: I think this is right. In the time I have been on Eddington, advising DFT and High Speed 2 afterwards, the point I have consistently made to them is that our understanding of those wider economic benefits is still limited. The rush to bolt it all into the traditional cost-benefit analysis rather misses the point that, at some level, we need to be making strategic decisions about this, and then using the cost-benefit analysis to help inform those strategic decisions, plus other forms of evidence on those things. I do think a mistake that DFT made was to rush to try and incorporate all of those things into its formal appraisal process, which I believe has probably added more noise than signal in the process.

Q11 Chair: So what you are saying is that you are agreeing there is a need for strategic decisions and they need some provision, but that can’t always be accommodated in the formula that we have?

Professor Henry Overman: I think formal cost-benefit analysis remains a good check on the extent of the claims that are being made for things. We may well then decide that other evidence that we have-particularly for some big decisions-says, "Well look, we’re just going to overrule this". But still, looking at how many people we think are going to use it, how much faster their journey is going to be, how much more environmentally friendly and how much safer, is still a useful cross-check to be done. We then may want some process for making strategic decisions where that is one part of the information set that we use.

Q12 Kwasi Kwarteng: Just to clarify, what you are saying is that we shouldn’t solely use cost-benefit analysis nor should we solely go on this sort of big picture, strategic decision making, but we should somehow use them in tandem. Is that what you are saying?

Professor Henry Overman: I think, particularly for larger schemes that are going to be very expensive, cost-benefit analysis forms part of the set of information that you would gather to make a strategic decision.

Chair: It is not as sturdy. Is it on this?

Q13 Angela Smith: It is on that question. The statement you have just made, I think helps clarify things a little, because I was beginning to think that perhaps you were recommending an approach that is reactive in many ways, which will continue to intensify the regional disparities that we suffer from in this country in terms of economic performance. Perhaps you would like to comment on that, Professor Overman.

Professor Henry Overman: I take it this way. Let’s take High Speed 2; let’s take a concrete example to motivate the discussion here. I think, broadly speaking, the evidence that High Speed 2 will lead to a reduction in disparity is pretty limited. Taking the evidence that we have, which is the cost-benefit analysis-which delivers pretty low benefits to costs for High Speed 2-plus the wider evidence that people bring to bear, which seems to me to make a series of claims about benefits of High Speed that I don’t think stack up. So then, let’s offset that against going to Manchester, Leeds, Newcastle, Bristol and doing investments in those cities, so focusing on identifying a whole group of intra-urban transport. I think, if we looked at that carefully, we would find that the broad suite of evidence that we bring to bear would be much more favourable to those intra-urban projects than it would be to High Speed 2. You set out your objective-

Q14 Chair: You are illustrating that, which is helpful to us, but you’re also making an assumption about choices there. Professor Tomaney, do you want to comment on this?

Professor John Tomaney: I broadly agree with Henry on the point that the evidence that HS2 will have a positive impact on rebalancing the national economy, to use the current jargon, is not really there. I think the international evidence suggests that, where you make these big investments in this kind of infrastructure-particularly high speed train networks-as important to the investment in the infrastructure itself is investment in the conditions of the nodes around the lines that stimulate economic benefit and economic development. There is some evidence from European high speed train systems, and from Asian high speed train systems, that this is a critical ingredient, and in the debates around HS2 I haven’t really seen that discussed. This points to the need for understanding transport in a wider economic development context, rather than just simply a single investment designed to have an immediate impact.

Q15 Julian Sturdy: My point is following on from what we have been talking about. I agree with the comments about pet projects. I have been a local councillor and seen that in action in the Department for Transport. So I think you make some very good points there. In the wider context, is it possible to say what types of transport schemes have the largest benefit on the economy? I am not talking regionally; I’m talking nationally here as well to try and get away from this pet project argument.

Professor Alan Wenban-Smith: I think the important thing is to get away from the proposition that transport benefits are the only benefit that matters. We tend to talk in terms of user time savings, accident savings, operating costs, that kind of thing. The important effects on the economy are knock-ons from that, or indeed quite independent of that in some ways.

To my mind, one of the things that would make the biggest difference to the national economy, in terms of transport, would be investing heavily in public transport systems in our big cities, because it is strikingly clear that we’ve failed to do that for 50 years now. If you look at continental Europe, and cities of similar size to Birmingham and Newcastle-cities I’ve done a lot of work in-their productivity, relative to the national level, is streets above our UK experience. I think it is down to the failure to take advantage of a lot of people in a relatively limited space, which good public transport is absolutely critical to. You don’t need to look further than London to see the productivity benefits of having good public transport. To my mind, that is something truly transformational that we could and should do and we’ve failed to do.

Q16 Kelvin Hopkins : This is interesting because I thought I was in a tiny minority of HS2 sceptics. The opportunity costs of producing this railway line, which would save a tiny amount of time between major cities, as opposed to investing in improvements elsewhere, I think is considerable and I am glad to hear what you have had to say. Is it not the case, that if we could get some of the freight off the existing main lines, dedicate them to fast rather than high speed passenger, we would do much better? I am thinking of 140 mile an hour working on the east coast main line, with a couple of loops and quadrupling the track at Welwyn, to solve the problem on that side of the country; 135 mile an hour working on west coast main line with, again, some improvements to overcome those problems, and a dedicated freight line that takes all the freight off. That seems to me a much more sensible approach than HS2.

Professor John Tomaney: I’m not a railway engineer so I’m going to pass on that.

Q17 Chair: We’re not having an inquiry today into HS2 but it is relevant to some of these issues. Can we consider the general issue-which I think you have answered-about looking at local improvements as well the major schemes? In today’s situation, with all the economic problems here, how important do you think it is to look at local improvements on schemes, whether they be rail schemes or other schemes? How significant are they in terms of the economy? That is the question that we are looking at here.

Professor Alan Wenban-Smith: My view, having had the responsibility of bringing together transport, economic planning and spatial planning in real places, is: it is absolutely crucial that those things are joined together. It is a real problem achieving that level of integration. We did it for a while in the West Midlands but sadly it petered away because there are separate cultures, separate Whitehall silos that each department relates to, and it is very difficult to get that connection. We did, in fact, produce an integrated transport policy. We had it agreed in government that we would have one bag of money, not six different bags. It didn’t survive the onslaught of the civil servants, I’m afraid. These are separate pockets of money and you can’t put them into one pair of trousers.

Q18 Paul Maynard: Professor Overman was mentioning earlier about the need to make strategic decisions, to look not just on cost-benefit analyses but on additional measures. What role do you think national policy statements could have in improving the quality of decision making, and how would the national policy statements themselves need to be improved as a tool of good public policy? Following on from that, given they are national policy statements and given the abolition of the regional development agencies and the statutory functions of the regional local government leaders boards, how do you see the regional voice of transport priority making now taking place? How is that going to occur or how could it occur, given we seem to have a blank sheet at the moment?

Professor John Tomaney: If I take the last point first, I think you’ve identified a really big issue. We’re replacing the regional spatial strategies, which were an attempt to integrate some of these questions, which Alan has just mentioned: land use, transport, economic development planning. They were flawed in some ways but they were an effort to do that. We have certainly seen the end of those but we’re potentially facing a situation of the creation of Local Enterprise Partnerships, of which I think, at the latest count, there are some 56 proposed. I think that there are some big issues about how they’re going to operate, because, in principle, they are entitled to bid for transport powers for their local area. My reading is that very few of the Local Enterprise Partnership proposals contain very specific suggestions, in relation to transport and in relation to the kinds of powers that they would like to exercise, although the Secretary of State, Mr Pickles, says that they potentially can have whatever powers they want.

Taking my region, one scenario would be that you would have a multiplicity of small Local Enterprise Partnerships covering part of the region where you can very readily identify the spillovers, in terms of transport planning, from one place to the next. At the moment there is no mechanism for resolving the potential tensions. So, for instance, in Tyne and Wear you have potentially three Local Enterprise Partnerships and yet the urban transport system-the Tyne and Wear Metro-running through all three of those. What will the mechanisms be for ensuring a rational use of resources in relation to public transport in these areas? These are huge open questions. You have identified an important issue but I don’t know the answer to them, I’m afraid.

Professor Henry Overman: I broadly support the move to LEPs but I think there are two things they are not set up to do very well: the inter-urban transport schemes that have impacts on the wider environment, and housing decisions. I think in many circumstances, with the larger inter-urban schemes, it’s hard to see-in areas where the LEPs are fragmented across the area that is going to be affected by the scheme-how they will reach a decision on this. I think it will have to go back to the DFT with input from the Local Enterprise Partnerships.

Q19 Chair: It doesn’t seem to quite fit with the localism agenda, does it?

Professor Henry Overman: There are a bunch of decisions that you will be able to push down to LEPs, which will be the perfectly appropriately vehicle for making them. But LEPs are not the vehicle for making decisions about inter-urban corridor investments, for example. Those will just have to come back to the centre with input from the affected Local Enterprise Partnership.

Professor Alan Wenban-Smith: It is absolutely right. Subsidiarity cuts two ways. Certainly it is very important to devolve appropriate decisions, so that things can be joined up better, but there are some decisions that necessarily have to be taken at national level: national corridors, the balance between regions, for example. It’s very bad for the UK, as a whole, for regions to be grossly unequal and that’s something that is absolutely inalienably a national responsibility.

Q20 Paul Maynard: I have a specific question, about whether national policy statements were an appropriate vehicle to achieve that regional rebalancing and whether they are working well at the moment and, if not, how they could be improved?

Chair: We have had a national policy statement on ports and it is very unclear quite where that is going. We are waiting for national policy statements on national networks. No mention has been made of that since May, so we don’t know what is happening with that one. Do you think this is an important concept in developing transport and for the economy?

Professor Alan Wenban-Smith: It potentially could be and should be. The only example I have is the national policy statements on energy that were missing any kind of sub-national dimension at all. I remember asking Ed Miliband, when he was Secretary of State, "If generation is going to be wherever it needs to be, because that is where the wind and the tide is and the structure of industry is changing, so consumption is going to be wherever that ends up, how come you can have a national policy statement that doesn’t say anything about the potential of the mismatch between these things?" He said, "Good question. I don’t know the answer".

Professor Henry Overman: At the very minimum, I think what they will need to do is to set out the rules of the game for all these LEPs that are going to be making decisions. That will be an important role for national policy, to make it clear to the Local Enterprise Partnerships, or whoever is making these decisions, what the framework is within which they are going to be making them. So I do think that national guidelines here will need to move away from saying, "We think you should do that" to, "Here is the broad framework within which we think you should be making these decisions". So we tell people what we are going to do about carbon pricing, so that they know how they need to be taking that into account when they are making their local decisions.

I would see us moving towards those things, trying to set the frameworks within which decisions are made, rather than saying, "We think we’re going to do this port here and that port there". Although there will still need to be some decisions along those lines where these are big national decisions. But generally speaking, I think they are about the framework, setting the framework within which these decisions need to be made, rather than giving very explicit guidance for the decisions.

Q21 Chair: Professor Tomaney, do you have any views on this?

Professor John Tomaney: I think what we’re talking about is where the limits to localism lie and the extent to which central Government are prepared to draw limits around what localism can do. The rhetoric from Government at the moment is that there will be no limit to localism, as I understand it-reading the speeches from Ministers-but, as my colleagues are pointing out, there are practical limits to localism. One is that Local Enterprise Partnerships are very small but don’t represent functional economic regions. Some of them do but many of them don’t. There will inevitably be a situation where Government have to come in and resolve difficulties, spillovers between different jurisdictions, if you like. Then there are big questions; carbon pricing is a good example, or about investment in capacity in renewable energies, and so on, that Government will have to be clear about. I think at the moment that isn’t part of what we’re hearing from Government, but I suspect that perhaps dragged kicking and screaming it will have to be part of Government policy.

Q22 Iain Stewart: In a way you’ve touched on the question I wanted to ask, and that is to introduce the "who pays" element into who shapes the strategic objectives and prioritises the specific schemes? What is your view of the mix between public investment from general taxation, business-led private investment and the user contribution? From those three broad categories, who should be the one that drives the choices that we have to make?

Professor John Tomaney: It would seem to me that the likely mix of these is going to differ quite radically around the country. There are already significant private contributions to big infrastructures in London, for instance, or at least resources raised at a local level. It is very much more difficult to see how significant private investments in major infrastructure will occur in, say, the north of England. There may be possibilities in relation to, for example, Manchester, but in many other northern cities the scope for significant private investment seems to me to be much more limited than it would be in the south of England. So I think that is a crucial point.

The same would also be true of user charges. The capacity of northern towns to generate significant user charges, I think, is obviously going to be a lot less than is the case in the south. If we’re moving in the direction of more user contributions, a greater role for private investment in this process, then we’re probably going to see very increased regional differences in the provision of the transport infrastructure.

Chair: Mr Stewart, do you want add anything?

Iain Stewart: No. I’m interested in the other panellists’ views.

Professor Alan Wenban-Smith: I think it is very important that there is a connection between who pays and who makes decisions. It is a bit artificial saying, "We are going to localise decision making but all the money is going to come from centre". That doesn’t work in my opinion. You have to find some way of raising the money more locally, whether or not it’s from users-and that is obviously potentially a major target if you move towards road user pricing in all sorts of different forms. But there are other means-tax interim financing; land value taxation-of supporting local infrastructure investment. Those would all make a lot of sense, and it would give a lot more muscle and purpose to the whole spatial planning system if those were part and parcel of it.

At present, the ways of getting money out of developers are pretty accidental in their incidence. Some local authorities are very good at it; some are very bad at it. It is almost a lottery and you get a lot of free riders. There are real problems about that. As John Tomaney said, it means that parts of the country that may need infrastructure at least are able to get the money from that kind of source to support it. It’s a mess. I think we’d be much better off moving towards local sources of finance of the sort I have mentioned, and much more responsibility for local raising as well as spending of that money.

Q23 Chair: Professor Overman, would you like to comment on this?

Professor Henry Overman: Broadly speaking, I agree that we need to have the people who are making the decision on this more closely connected to the financing of it. Inter-urban versus intra-urban has always been an issue. To use High Speed 2 as an example again, if you are-

Q24 Chair: Can we have another example as well?

Professor Henry Overman: If you are Manchester, Leeds and Birmingham local authorities I can see why you think that High Speed 2 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. This is always the claim that was made for buses over light rail, for example. Financing things does create rather large distortions in the decision-making process.

Q25 Chair: What conclusions do you reach then, in answer to the question, on the implications of methods of financing for decision making on investment?

Professor Henry Overman: I think I am in line with what the others have said. We have to try and extract the user benefits as much as possible. That includes people who get uplift on their land values, but also the people using it, so those seem to be two ready sources that we’d need to be extracting from. This is why I’m in favour of road pricing. Then we need to make the decision on the balance depending on the context of the project.

Q26 Kelvin Hopkins : Isn’t there a striking contrast between Britain and continental Europe in all transport, in that we have privatised and fragmented our railway system; we have privatised and deregulated our buses? Organising integrated, planned transport systems, when that is the situation, is much more difficult.

Wasn’t it the case that in Tyne and Wear, for example, they were just about to get an effective integrated bus and local rail system and it was all privatised and it fell apart? Isn’t there a lesson for us all in this? Indeed if we looked at the one project where major private finance was involved, the PPP on the Tube, this turned out to be an expensive disaster. Indeed on a recent visit to SNCF, SNCF has said, "Yes in France when we say ‘PPP’, we mean public, public, public".

Chair: So what is the role of private funding for economically beneficial transport schemes?

Professor Alan Wenban-Smith: I would step back a little bit further from Mr Hopkins’ question, because I think what he is saying-maybe I am misinterpreting here-is that you need transport to be part of a bigger story about what we’re trying to do. Tyne and Wear is very much a case in point. I was in charge of strategic planning in Tyne and Wear at the time and I remember it well. There is a problem there. When you fragment these things, you don’t get the benefit.

What is interesting, I think, when you compare with continental Europe, they spend a lot more money on transport generally, both public and private transport: it is not either/or. I think it is no accident that they treat transport as part of the whole business of building their cities or building their countries, not as something separate, which is what we do. So they get a lot more support for transport spending, because it is much more broadly based. I think there is a lesson for us in that.

Q27 Chair: Does the current thinking encompass wide enough benefits? Is it looking beyond the specific scheme?

Professor Alan Wenban-Smith: Yes. It is about the question we started with, about the difference in the cost benefit of particular schemes, the bigger picture. I think what is critical of the bigger picture-and Henry has made the point very well-you get pet schemes supported by their transformational effects. It is like the iconic buildings that make me reach for a gun, I have to say. There is a need to have a line of logic connecting what you are going to do with the transport field, with the effect you are producing, and to adduce evidence about how those effects will work out. That is a much broader, more strategic kind of thing than cost-benefit analysis.

Q28 Kwasi Kwarteng: I just wanted to clarify something. You are saying we should have a more strategic approach, as they have in continental Europe?

Professor John Tomaney: Can I just give an explanation on this? Privatisation and fragmentation are not necessarily the same thing. There is a great diversity in the mix of public and private in the provision of transport infrastructures across Europe and around the world. Privatisation can exist with integrated transport planning. There are many examples of that. Significant parts of the transport infrastructure in Sweden are privatised but there is a highly integrated transport planning system. The same could be said in Germany and the same could be said in Japan. So privatisation does not preclude integrated transport planning. It has done in this country but it is not the inevitable outcome.

Q29 Julian Sturdy: Professor Wenban-Smith, you said something a few moments ago regarding developer contributions not working. I would just be interested in your views on that within your previous profession within local government and a local authority. It is something that I have seen regularly and it frustrates me. Personally, I think local authorities need to think longer term over section 106 funding and things like that, but do you think there should be any more powers for them to try and use the money better? Quite often there are time constraints over how they can use it, so they think short term rather than long term and that is causing problems.

Professor Alan Wenban-Smith: It is a very bitty source of finance. It is almost accidental. All kinds of local site factors come in; it is about what you need to do to develop the site at all, and things of that nature. It is so constrained. I tried in Birmingham to get, for example, a levy from section 106 into a fund for building light rail.

Julian Sturdy: Absolutely, yes.

Professor Alan Wenban-Smith: The legal advice was, "Yes, you can do it but it’s going to be blooming difficult and you’ll have to have some way of spending it in a much shorter term than you are likely to accumulate the relevant amounts of money". So there are real major difficulties about that.

I think there is a need for a different form of local finance. A community infrastructure levy was one such. I hold no candle for that in particular. Land value planning taxation seems an obvious one. It is very local and very specific. Various forms of development levy could be erected. There is always a difficulty about that, in that some places are enormously profitable to develop and other places struggle to develop at all; the incidence of the value you can get does not match the needs in any particular way. So it needs a serious look on a broader basis, and some equalising between places with different potential.

Professor Henry Overman: My feeling on section 106 is that a big part of the problem is that these are negotiated on a project-by-project, site-by-site basis. If you look in the area of housing, which has some interesting parallels here, a large number of local authorities raise zero effectively from section 106 agreements with developers. If you speak to housing developers the interesting thing is most of them are in favour of section 106 over anything else. I have always thought that should tell you pretty well everything you want to know about how well section 106 extracts development gains from the developers. So I think that a move to something that is more systematic, and relies less on the individual negotiating skills of the local authorities, probably is the thing that we will have to do if we want to extract more of this benefit. Again, I am not tied to one particular model. It seems to me there are many difficulties as you start to do that, but it does seem to me that section 106 has not achieved either in housing or in infrastructure development.

Q30 Julian Sturdy: So there has to be some changing of the system?

Professor Henry Overman: I think generally we need to move away from the section 106. I think that it was nice, in the sense that it gave flexibility to negotiate locally what you might want to achieve but, in practice, it hasn’t ended up extracting from developers the windfall benefits that they are accumulating as a result of planning decisions.

Q31 Julian Sturdy: For the major projects?

Professor Henry Overman: I think for most projects. So I think there is a serious-

Julian Sturdy: Yes. It goes back probably to what you said about the pet projects, because it tends to go on to pet projects rather than major projects that can benefit the areas.

Q32 Paul Maynard: You were speaking earlier about comparisons with Europe, which sounded quite interesting, and particularly the amount of extra money they are spending over there. Is that occurring at a sub-national level of government, those spending decisions and spending activities? Secondly, do the economic and social benefits derived from that extra transport spending match up to the amount of extra spending? Is it delivering value for money in your view?

If you could take the example of the AVE network in Spain, my understanding was the decision was only taken to build that network, on the proviso that the Spanish regional governments constructed economic development plans that were considered to be credible by central Government before a decision was made to then go ahead with that network. How important do you believe the existence of credible economic development plans are before any decision is taken to go ahead with a project? Would it be wrong to wait and say, "Let’s decide to go ahead with a project" and then, "Oh can we have an economic development plan too?" Is it not the case that one needs to precede the other for the full benefit of the transport spending to be obtained? That is a very long question, sorry.

Professor Alan Wenban-Smith: Just starting with the continental experience, I think the level of decision making is very important. The German system, I think is particularly interesting, in that any particular major project is likely to have funding from the federal government, the Laender, the regional government and the locality. They negotiate a funding package between them, each of them having the objectives they want to see reflected in the final scheme. It is a very collaborative way of working.

I’m particularly familiar with the system in Hanover that I visited a couple of times and it’s enormously impressive. I’ve not seen any formal cost-benefit analysis of it but they spent a lot of money. It is an integrated exercise with rebuilding the city. To answer an earlier question, they did it with a thing called the Verkehrsverbund, which is a partnership of providers, who are usually private sector, who agree to operate it as an integrated system. All you can say is it works; it is enormously impressive. If you look at the German productivity per head of major cities, it is streets above the equivalent figures relative to the national productivity of UK cities and, I must say, I associate the two. I can’t give you evidence to that effect but that is my opinion.

You had a second question, which I have now lost.

Professor John Tomaney: I think the first point to make is there is considerable variation in the structures of regional governments across Europe, so there isn’t a continental model as such that we can point to. In your Spanish case, the powers of the Spanish regions are very extensive and have grown quite markedly over a relatively short period of time of about 20 or 30 years. It is quite correct to say that the major Spanish cities and regions did develop economic development plans in association with the arrival of the high speed train network, but it’s also true to say that not all of them succeeded. A very good example-which Henry’s colleague, Andrés Rodriguez-Pose, has written about-is the case of Seville, in which a huge amount of investment went into very large-scale developments that were intended to derive benefits from the arrival of the high speed train, and that hasn’t been very successful.

There are other examples around Europe where you could point to greater success. A good example would be southern Sweden, particular Malmo, which is, by Swedish standards, a disadvantaged region but it is also another region that is connected directly to the Copenhagen region by the Oresund bridge. Slowly, the economic benefits of that are becoming apparent in Malmo and there is a slow integration of the labour markets between prosperous Copenhagen and less prosperous Malmo using this transport link. For instance, Copenhagen airport becomes the airport for Malmo and the connectivity of Malmo, in that sense, is improved. You can find evidence both ways in Europe. There isn’t a golden rule, I think, but in principle regional and local authorities have played a very key role in trying to develop structures that potentially extract the benefits of having these major infrastructures developed in their regions.

You could point to some of the French cities as well, like Lyon, which could make the case that it has benefited from this as well.

Q33 Chair: Professor Overman, do you want to add anything to those comments?

Professor Henry Overman: I’m always a sceptic on these things. I think part of the problem is that we look at these places; we see they’re high density, living in flats and using lots of public transport, and we’d like our cities to be like that, despite the fact that the vast majority of our population want exactly the opposite from those things. There is a sense in which we want a transport system that delivers what people want, consistent with the other objectives around global warming, around carbon, and so on. I do think there is a tendency to look at continental Europe, look at it all being high density and public transport, thinking, "This is a fantastically good thing" and then imagining, "If only we could be like this".

Chair: I think the issue behind this particular question is about economic development plans in the area concerned, so it is rather bigger than that.

Q34 Iain Stewart: A thought came to me. The discussion we have been having is primarily about the traditional modes of transport that, as a country, we want to make. Looking into the medium and long term, how is technology going to change that, with fast broadband and video conferencing and all the developments that are going to happen? Are we still going to need, as a population, to move vast sections of us from home to work between 7.00 am and 9.00 am and then back home in the late afternoon, early evening? Are we going to have a complete step change in how we think about our transport planning as a result of new technology?

Professor Henry Overman: For sure, we have a great track record of failing to predict the large shifts that are going to come, but I don’t have any claim to be about to improve that track record for you. The thing we have consistently seen is that these claims about the fact that we will have flexible working and people will commute from home, and so on, those claims so far have proved to be broadly unfounded and the demand for transport has increased over time.

The crucial thing it does highlight-which is something that I consistently push- is that, as much as possible, the sensible strategy is not to make the large, sunk, fixed cost things that Government do unless we absolutely have to. Something that we often see is this feeling that we have to make a decision one way or the other on these things. For example, this is why some people argue that designated bus routes may well be a better way of going, in a world of uncertainty, than fixed light rail. Those arguments are quite interesting. Of course, the problem is that they also highlight the car and personal forms of transport as being the ultimate in flexibility.

Q35 Chair: So are you saying you do not think that these technological changes are going to make a significant difference to transport needs?

Professor Henry Overman: I’m just saying I don’t know-

Chair: You don’t know?

Professor Henry Overman: No, I’m saying in a world where you don’t know-

Q36 Chair: Does anybody else have any view on that? You don’t have to say anything if you don’t want to on that. Is this going to make a major difference to transport needs?

Professor John Tomaney: I think these technologies contain the potential to transform the way we live and work but-as Henry says-the very least you could say is that progress, in the direction that you have just described, is very slow indeed, because there’s lots of path dependency and sunk costs involved in the way we live our lives. In particular, one of the most difficult things to do, of course, is to change people’s behaviours. Policy levers to do that are much more difficult to develop than the traditional kinds of policy levers, which involve providing infrastructure, and so on. It’s possible that these things will have the impacts you are suggesting but there was that famous front page of The Economist, from a few years ago, that stated that "Lunch still matters". There is this propulsion for people to continue to work in the ways that they always have done. To bank on the kinds of changes that you are talking about, I think would be a big risk. Nevertheless, it could be that changes do move in those directions.

Professor Alan Wenban-Smith: A lot of information is embodied in people and things and won’t go down wires. We do, at higher levels, need to make face-to-face contact with people; there seems to be something about the human condition involved there. I should say I think technology change may be forced because oil prices are going to go very much higher in the not too distant future, leaving aside any questions of carbon output and all of that kind of thing. I think we are going to have to find some other ways of dealing with things. One of the things that seems to have gone away, and maybe it will come back again, is smart roads, roads that are much more wired up to interact with the vehicles on them, for example.

Q37 Iain Stewart: I just want to come in, in terms of, particularly at the moment when we have significant pressure on public funds, to what extent should the Government choose-if there is a choice-between investing in increasing the transport capacity and perhaps investing in technology, rolling out superfast broadband, that might diminish the need to travel?

Professor John Tomaney: There may be economic advantages to superfast broadband but it’s not clear that, among them, is that it will diminish the propensity of people to travel. For instance, there is quite a large amount of fairly convincing academic evidence that information and communications technologies accelerate processes of agglomeration at a national scale. The technology is only as useful as the people who have the skills to use it and if those skills are concentrated in certain regions or cities, the introduction of these kinds of technologies can accelerate the growth of regional disparities. So there are lots of unintended consequences at work here that we need to very carefully consider.

Q38 Kelvin Hopkins : The focus of transport discussion in Britain is always, it seems to me, on passengers. If we are talking about economic development, freight is a major component, or should be, and yet rail freight, in particular, the volume of freight, the proportion of freight that goes by rail is pathetic in Britain, simply because the capacity is not there. The capacity is not just about track; it’s about gauge as well. We can’t get road trailers on trains and we can’t get full scale containers through many of our bridges and tunnels. I have a specific scheme I am involved with, but isn’t there a case for significant investment in dedicated rail freight that would take freight off the motorways, off the north-south tracks and link all the conurbations with the Channel Tunnel?

Professor John Tomaney: That sounds like a pet scheme.

Kelvin Hopkins : I have the details if you want.

Q39 Chair: Does anybody want to comment on rail freight?

Professor Alan Wenban-Smith: I think it is partly a question of the distances. We’re just a little twig of a rail network. In continental Europe, there’s much longer distances and rail haulage, the penalties of offloading and on loading at either end are much less severe, relative to the distances hauled. The real thing for rail freight would be to connect up our little twig better with the continental tree. Again, you’re right, you have the gauge issue.

Q40 Kelvin Hopkins : You have to have capacity to put trailers on trains and also put full size containers on trains.

Professor Alan Wenban-Smith: The gauge issue, that’s right. I agree.

Q41 Chair: Does anyone else want to comment on rail freight?

Professor Henry Overman: It is a good example of where I can refer you back to the very conversation we had at the beginning, which is that I would not want to say either way what I think, without looking at the specifics of the schemes and what the analysis says about the benefits of the cost ratio of it. The Northern Way, in its portfolio of projects that it has pushed on to its transport compact, does identify some expenditure targeted at freight that seems to deliver quite large benefit-cost ratios and we clearly should be doing those. Again, it is just so dangerous to go down this route of saying, "The issue is freight or the issue is high speed". I think there will be a number of freight investments that will be basically being supported, on the basis of being transformational, and very few of them will turn out to be so, whereas there will be some that look very good on the basis of reasonable projections about what we think would happen. I think we should be doing those.

Q42 Angela Smith: I am not interested in the transformational but I am interested in dealing with what Eddington described in 2006, which is an analysis that suggests that the rise in cost of congestion will cost the UK economy something in the region of £22 billion by 2025. Isn’t the overriding strategic objective, when it comes to transport, the need to ensure that we tackle that congestion effectively, that whatever we do is designed to make sure that we move goods and people as efficiently as possible to their markets? In order to do that, we have to sometimes understand that transport is not just reactive and based on users and cost ratios but also sometimes factors, such as the impact on congestion, and the impact on markets and labour and movement of goods-as Kelvin pointed out--is incredibly important.

Professor Alan Wenban-Smith: There is a basic problem here, which is that if you put in new investment, particularly in roads where there’s no price mechanism to counter that, it simply brings forth more demand, which may be producing perfectly worthwhile things but it is not a cure for congestion.

Q43 Angela Smith: I am not talking about just roads. I am talking about public transport primarily, to be honest.

Professor Alan Wenban-Smith: No indeed. It is a particular problem in roads because there isn’t a price mechanism for controlling demand.

Q44 Angela Smith: But I think Eddington was talking about dealing with road congestion and understanding that railways and bus networks have an important part to play in dealing with that congestion.

Q45 Professor Alan Wenban-Smith: The thing that always strikes me about rail congestion is that we carry round great chunks of fresh air called the first class section of trains. Half the train this morning was first class that had about three people in it. Why do we do that?

Professor Henry Overman: We do it because it allows the rail companies to make more money and reduces the public subsidy that we pay them, so let’s be a bit careful here. These pricing structures do play some role in ensuring that we extract money from the users.

Chair: We are looking at the importance of transport investment in the economy. Ms Smith has raised an issue. Does anyone want to answer that question?

Angela Smith: I am not talking about empty carriages. I am talking about the investment policy, the policy on the investment that we need to put in place, as UK plc, to ensure that goods and markets are as connected as possible, as efficiently as possible, and that labour is able to get to its place of work in order to improve productivity in the UK.

Chair: Could I ask each of you then for your final comments, in response to Ms Smith’s important question: what do you see as the key areas for transport investment to improve the economy, apart from looking strictly at cost-benefit analysis in the way that it has been put forward? Are there any specific things?

Professor John Tomaney: I think that the point that was raised by Mr Maynard, earlier on, about the way we think about the connections between transport infrastructure and economic development planning is critical. In the current environment of austerity there will be a real danger that we stop thinking about that connection, and that would be something that I would urge the Committee to consider.

Q46 Chair: Thank you. What is the most important thing to you, Professor?

Professor Alan Wenban-Smith: I would agree entirely with that comment, and my view of that would lead you to the proposition that increasing productivity in the big cities is a major concern for regional balance, as well as output; public transport that makes them work properly.

Professor Henry Overman: Reducing congestion. Eddington identified it: reducing congestion in urban areas. It’s absolutely clear that this is where the largest benefits are.

Chair: Thank you very much for coming and answering so many questions.

Examination of Witnesses

Witnesses: Professor Phil Goodwin, University of West of England, Mr Malcolm Griffiths, Bluespace Thinking, Mr Chris Riley, Consultant, gave evidence.

Q47 Chair: Good morning, gentlemen. Would you identify yourselves, please, for our records? Could I start at this end with Mr Riley?

Mr Riley: I’m Chris Riley. I was DFT’s chief economist until five years ago, since which I’ve been an economic consultant. I work part of my time on transport.

Professor Phil Goodwin: Phil Goodwin, currently at the University of West of England and formerly a member of SACTRA, the Standing Advisory Committee on Trunk Road Assessment, and head of the Transport Research Groups at Oxford University and University College, London.

Mr Griffiths: I’m Malcolm Griffiths. I have a small consultancy called Bluespace Thinking. I’m a civil engineer by background. I’ve had 30 years in the civil engineering and energy businesses, most of which was involved in the development of strategy and decision making. So my interest is in good decision making rather than transport specifically.

Q48 Chair: Thank you. Would you consider that Eddington’s recommendations are relevant today, with lower traffic growth and lower economic activity than predicted?

Professor Phil Goodwin: A large part of my evidence is about trying to push at the Eddington conclusions to see how vulnerable they are. My feeling would be that, like your previous witnesses, in terms of priorities there may be a lot more benefit to be gained from a focus on urban transport, especially city transport. That is in terms of the priorities among the three priority areas.

For policy, I think the Eddington conclusion-that, if the Department for Transport’s traffic forecasts are right and if there is no road pricing, there is no infrastructure capacity improvement which can actually make traffic conditions better-is a robust one. I think that is still valid, although I now take a different view than he did, and that the Department for Transport has done, about the possibilities of traffic growth being very much less than was assumed then.

On evidence, I think there is a vast range of evidence now, which Eddington was not able to take into account, about the benefits and costs of other policy options, including non-pricing methods of reducing car use, which shift the balance among the types of projects that you would want to support.

Q49 Chair: Does anybody else want to comment on that? Mr Riley.

Mr Riley: I think that Eddington’s main conclusions remain valid, although clearly the context is rather different from what he was assuming. I think his assessment of the key priority areas is still valid: urban congestion, inter-urban networks and international networks. His focus on the importance of value for money, in making decisions about transport spending, seems to me absolutely right and one which we should pay great attention to.

I think the third key conclusion of his, which is the importance of getting prices right, which underlay both the Eddington study and also the Stern report on climate change, seems to me absolutely crucial. I don’t think his other conclusions suffer if we don’t have road pricing, but clearly road pricing is an important element of his conclusions that still is very important. Lower economic growth will reduce the value for money from transport investment across the piece because it will mean less pressure on transport capacity, but the basic messages that he put forward-and I think the priorities that he put forward-seem to me to be the right ones.

Q50 Chair: Mr Griffiths?

Mr Griffiths: Yes, I agree. I think the trend of where he was going was correct. I think two things have changed though. One is that saturation per person, in travel terms, has now appeared; it is now there in the numbers. Whether that is due to technology, or other things, that is to be seen. It is certainly not just an economic effect. So that saturation has occurred.

The other thing is, if you look at the economic changes as to where the economic growth has come from and which sectors of society it has occurred to, the wealthy have got wealthier and the increase is in things like health, education, property, financial services. We’ve seen manufacturing and agriculture go down over the period. I think that impacts on where transportation should be focusing to help the economy going forward.

Q51 Kelvin Hopkins : Just to follow that point, the Government are talking about rebalancing the economy. You have mentioned manufacturing and I agree absolutely, but the big manufacturing sectors and the ones that need the development are further north, not in the south-east. The big conurbations are the midlands and the north, north-east and Scotland, but they don’t have an effective strategic freight network to serve them, and this is one of the points made in our papers here. So freight is constantly underplayed. People talk about marginal changes, little improvements here, little improvements there, but you probably heard my earlier questions about the need for dedicated freight corridors, particularly on rail, capable of taking the kind of volumes of freight we need to transport.

Mr Riley: The first observation I would make is that the freight intensity of the economy, as I understand it, is falling and I have no reason to think that, even with some rebalance in the economy, that trend will not continue. But I think, as previous witnesses have said, whether investment in rail freight is good value for money depends on the numbers and depends on whether that is better for the economy than ensuring there is sufficient capacity for other forms of freight. I think there is an open question about that.

Mr Griffiths: If you’re deciding where to put your business you need a good work force; you need an experienced workface; you need those people to be able to get to your business and you need to be able to send your product to market. Those are the three things in that decision. I think the question of freight is dependent on how we see the economy going because if we’re going to a services economy-be it financial services or information technology services-then there is not a lot of freight involved in that. It is much more the high-speed broadband and things.

My own view is that in part we have to reverse the decline in manufacturing. The imports that we are now getting in manufacturing are far exceeding our exports and they are the technology things: they are the computers, the TVs, everything that we have going forward. So I do think we need to reverse manufacturing.

Whether we need new freight infrastructure or not I don’t know. It is a case of looking at: where can we have the economic development; what are the products going to be; where are the markets; do they need rail freight or are there existing systems? I don’t know the answer to that.

Q52 Kelvin Hopkins : I am in contact with supermarkets over this. Supermarkets are keen to get more of their inter-urban traffic on to rail but the capacity isn’t there. I have meetings with them. If we could get just the supermarket traffic- that is going to continue, food and drink are going to continue-could we not investigate or at least think there is a realistic possibility that they might shift a substantial proportion of their road traffic on to rail if the capacity was there?

Mr Griffiths: I totally agree with that. I was talking to a gentleman yesterday about Rugeley. Rugeley is an area that is quite some way down, in terms of health and economic development. He explained to me that they have a new warehouse there that could give employment as a distribution centre, but they didn’t have transportation links to the warehouse. In that context, freight clearly has to be important.

Q53 Chair: Should there be more flexibility between capital and revenue expenditure?

Professor Phil Goodwin: I’d like to come in on that, but could I also comment on the freight thing, because I’d like to add another point there. It does seem to me that there is a very attractive idea of having a strategic rail freight network with a European dimension and with connectivity, that being the key. You have to have unbroken connectivity to make that work. But I think my view is a bigger contribution to freight efficiency than that-not instead but as well-would be gained from giving freight a higher priority in access to scarce road space than it currently has. One of the ways of doing that is encouraging a greater transfer of car use from the road network-where very often it’s not necessary-to rail and public transport, thereby giving more elbow room to have freight priority systems, especially on the roads to and from ports, that sort of area. So I do think there is an interaction between the freight side and the passenger side here.

On revenue and capital, I think we have a bit of a problem in that, although both manifestly are going to be subject to very tight constraints over the next few years, there is an implicit assumption that capital is good because it is investing for the future and revenue spending is bad because it is subsidies. I don’t think that is valid at all. What is getting the highest value for money, in transport congestion and economic terms at the moment, includes a lot of quite cheap revenue schemes. I think we have to find a way of raising their position in the moral high ground of what gives good value for money.

Mr Riley: I agree very much with the points that Phil has just made.

A point I would also make is that ideally capital spending, when it is worth while, should be financed largely by borrowing-debt-because the benefits accrue very largely to future transport users, future generations, and that is the way you should pay for them. Current spending should be financed out of current user charges and taxation. That is the way that ensures equity between the generations. That is a flexibility that is not always allowable within the way in which we control public expenditure, but ideally it should be. I can’t believe that very good capital projects, financed by additional borrowing, would suddenly cause a great loss of confidence in our fiscal policy. So that is the first point I would make.

Secondly, I think there is an issue about maintenance of existing assets. If we don’t maintain worthwhile transport assets in a reasonable state, we just simply store up the need for more capital spending in the future and that is an extremely short-sighted approach. Not only do we save some money if we don’t maintain our assets but the value of those assets goes down, so the public sector is not gaining anything by making this false economy.

The final point I would make is once again that the most important thing is that we use our existing assets, as Eddington said, as efficiently as possible, and that comes back once to getting the prices right.

Q54 Paul Maynard: We have had a lot of attention so far on the issue of appraisal, cost-benefit analyses, wider economic impacts. How can we improve the current assessment system to better reflect the need for economic growth when taking transport decisions? Do we need to re-design the cost-benefit analysis or do we need to put something in place that is parallel to it and, if so, what would that something be?

Professor Phil Goodwin: My feeling here is that it is a very tricky problem that may not be solved by successively more and more elaborate calculus methods of doing the sums. I live with these sums. That is part of my life. I am very well aware that they are imperfect. I think the key thing is about scrutiny and challenge, not about big consultancy studies to do the sums. That is why in relation, Mr Maynard, to your earlier points about transport policy statements and a new planning regime, it does seem to me there is an enormous danger in having abandoned the formal scrutiny and challenge that used to be carried out in the public inquiry set-up, the reason for that precisely being the points that you mention: this is all very complicated; it produces vast volumes of paper; claims are made that are extraordinarily difficult to substantiate-usually over optimistic-and the only way one is going to be able to get that is by having a level of technical scrutiny and debate and challenge, by people who disagree with each other. I am a great fan of the almost courtroom atmosphere in this, if you take my meaning.

Q55 Paul Maynard: What should "transformational" mean, in terms of economic growth? It is a word that is getting old. What should it mean?

Chair: "Transformational". What should it do in relation to economic activity? What should it mean and what has it meant in the past?

Mr Riley: I think one of the extraordinary things about British economic history is how little the underlying rate of economic growth has varied. We have had big cycles over many centuries but the underlying rate of growth has remained pretty close to 2%, or thereabouts, for hundreds of years. I think if transport-or indeed any other policy-were capable of adding a quarter of a percentage point to our underlying growth rate that would be regarded as a great success. One of the great problems of economic policy, for all Governments, has been Ministers deluding themselves that they have produced a sea change in our growth prospects and of course it all comes to a terrible halt, as we have seen in 2008.

Mr Griffiths: Thinking about "transformational" and thinking about "strategic", these things have to start with a hypothesis of something that can be done that will make things so much better for people. They don’t start with a whole bunch of detailed numbers in a computer. You first have to say, "I think doing this, that and the other will make a difference". My own particular view, in terms of the economy, is getting people in the lower 30% of households into work and having a better standard of living. I think health costs would reduce; I think welfare benefits would accrue. I think that is important. From a transportation point of view, I think it is getting individuals to work quickly and cheaply. It may lead to subsidy. It almost certainly leads to better bus services, to car sharing-dealing with the cultural difficulties of that-and some of the ICT-type benefits.

But it starts with a hypothesis and you can then say, "Yes that may work" and then you test it with the analysis. You see whether that really stacks up. To me that is transformational thinking, as opposed to this project or that project that is suddenly going to change things. It isn’t. It is going to be more difficult than that.

Q56 Kwasi Kwarteng: It was interesting; I’m not sure how much of the last panel you saw, in terms of the people and their contributions, but it seems to me that what you are suggesting is at subtle variance with what a gentleman in the last session was saying, when he said that he wanted to look at projects on an individual basis. I am caricaturing what he said because he did accept that there was scope for strategic decisions, but he was very focused on the project-by-project basis and you seem to be saying something quite different from that.

Mr Griffiths: I am saying that, at that higher level of strategy, do we focus on long distance travel; short distance travel; trains; buses? I think you have to have a transformational and strategic hypothesis, then you test it with the analysis and then you say, "These projects fit and these ones don’t". You do the analysis in tiers, as opposed to putting forward a pet project and trying to decide whether this is good or not.

Q57 Kwasi Kwarteng: Sure and, in terms of policy, which body or Minister or Department do you see driving that strategic vision?

Mr Griffiths: I think it is for central Government Departments to provide that sort of thinking but then for the localities to say, "It works for us" or "It doesn’t work for us", and make the decisions about it.

Q58 Chair: Do you think the encouragement to look at it in that way should come from the centre, although counties should be looking at what they require?

Mr Griffiths: I do. Bear in mind that my background is more business than politics, but I know that big multinational companies develop their strategy and their hypotheses centrally; they lay down systems that subsidiaries need to comply with; then they let the subsidiaries get on with running the business. But that strategic thinking only needs to be done once. It needs to be done with consultation and involving everyone but it only needs to be done once.

Q59 Chair: Perhaps you could link it with some of the points you made in your written evidence, where you were talking about smaller projects giving better value for money than larger ones, which is not the same thinking that DFT has. Perhaps you could link that?

Professor Phil Goodwin: Yes. I am wrestling with this word "transformational". I think I have come to the conclusion it is best to avoid it. The reason for avoiding it is because it almost inevitably leads you to make claims for individual schemes, which individual schemes are quite incapable of delivering and possibly even the transport sector, as a whole, is incapable of delivering. I do however use the word "strategic". I think that is a useful one and it seems to me there that "strategic" should not be a code word for big schemes. In order to justify huge schemes they call it "strategic".

Strategic is about he coherence and logical consistency among all the different elements of policies that are aimed not to undermine each other. It seems to me that an inescapable conclusion from localism is that there must be strategic divergence in the pathways adopted by different parts of the country, different cities and different regions. The result of that will be a greater evidence base on which ones work well and which ones work poorly. That will be a stronger long-term strategic position to be in, just as our experience in the UK is immensely strengthened by the fact that some other European countries have been doing something different and we can, therefore, look to evidence.

My own calculations for what they are worth suggest that, by quite a big margin, the best value for money at the moment is coming from things like smarter choices packages composed of workplace and school travel plans and individual travel marketing; behaviour change schemes that are astonishingly successful, in spite of the presumption that it is impossible to change human behaviour. It is not impossible at all. It is happening on a very, very big scale all the time.

Q60 Chair: Are they successful for economic activity, as distinct from successful for environmental purposes or relieving localised congestion, making people’s lives more pleasant? Are they successful in relation to the economy?

Professor Phil Goodwin: I take the view that there are two elements to that. The first is that contribution to narrower transport objectives-congestion, safety, efficient movement-is a necessary condition for there to be any wider macro-economic benefit. It is not a sufficient contribution but it is a necessary one. You are not going to get top-up effects on the economy if you do not have improvements in travel conditions to start with. Therefore, prima facie, there is at least a case to argue that the investments that are delivering the biggest narrow transport benefits may also be delivering the bigger potential for wider economic benefits as well.

The second element of that, which is indirect evidence but I think quite persuasive, is that at least some of the areas in which these policies are most successful are also those which the macro-economic analysis suggests have the greatest potential. For example, in very short distance movements in efficient inner and central city areas, the agglomeration argument is enormously helped by these sorts of small-scale policies, provided they are done, I should say, in quite a big way. The individual elements are small but the overall effort that you have to put in does add up.

Q61 Chair: Mr Griffiths, in your written evidence you say that current appraisal methods favour the larger major capital projects. How does that happen?

Mr Griffiths: It is quite specific and detailed but I think it has three stages. Firstly, historically there has been the view that travel correlates with GDP increase. That connection has disappeared, with the effect of saturation and what has happened over the last few years. If you look over the last six years of data from the Office of the Rail Regulator and the ONS, that correlation is not there. That correlation then goes into something that is called "elasticities" and they are much higher for longer distances. Again, that arrangement has disappeared and, in fact, there is a new revision of the appraisal guidance that hasn’t yet been put into place, but that will dramatically change that.

Now, because of those two changes, whenever you do a calculation, if it’s big and it’s going a long way, it will look much more beneficial than it will do when the appraisal method has caught up with what’s happened over the last 10 or 15 years.

Mr Riley: I have a comment on that. As I read the evidence and as Phil’s paper sets out, it is very often the smallest schemes that have the biggest rates of return using the appraisal methods we currently use. So I am not really quite sure I understand the proposition that the appraisal system benefits large schemes.

If I may just comment briefly on the general points that have been raised here; it is clear that the strategic analysis of big schemes will typically tend to be of a different form, using different models and different approaches, than the analysis of small schemes or individual schemes rather than strategies. The basic framework that the current appraisal system uses-I have to declare an interest, having been involved in developing it-is the overall effect on welfare including, the economic benefits, the social benefits and environmental benefits, and to try and make those as transparent as possible, which seems to me absolutely essential.

That is not to say that it’s not perfectly reasonable to focus on a particular component of it, which individual Ministers, or governments or lobbyists, will do at different times, focusing on the effects on economic growth or the effects on the environment, or whatever. That seems to be a perfectly reasonable adjunct to go alongside the existing appraisal methodology.

I think the third point I would stress-which Henry Overman made this morning-was that some of the wider benefits or impacts of big transport schemes, which might or might not be called "transformational", are very difficult to understand. To try and shoehorn them into a very tightly defined methodology, which we currently have, is not going to be the end of the story. It’s very important to bring to bear other kinds of evidence that can support the overall decision, whether it is strategic or local.

Q62 Paul Maynard: If it is very difficult to construct one single calculation that will turn out a number at the end, in order to rank 10 projects in order and go for the top three, when you have a defined pot of money-and a smaller pot at the moment, as we now have-what mechanisms should we be trying to use to decide between say a Mersey gateway and a northern hub, or a northern hub or the HS2? How do we prioritise? If I understood Professor Goodwin correctly, it has all become so complex and we are almost being reduced to going on a hunch, perhaps. That is perhaps a bit unfair.

Mr Riley: It’s always been the case that appraisal is just one input into decisions and that is absolutely right. The methodology we have is not sufficiently robust to be able to just simply take the top ones off the list. It’s a matter for politicians and local decision makers to make choices. The plea I would make is: it is important that they should be based, as far as possible, on evidence. What form that evidence takes may vary according to the type of scheme or strategy that is being considered. It doesn’t have to be all shoehorned into a model.

Q63 Kwasi Kwarteng: I think it is obvious to the general public that these decisions are political. No sophisticated model in the world is going to be able to decide between building a bridge across the Humber, or whatever it is, and something in Cornwall. That isn’t the function of these models to do that; I appreciate that.

What I was particularly interested in is this question of strategic direction. Ultimately, I accept these are political decisions but do you think there is a possibility for a framework beyond the cost-benefit analysis-this is going back to a question my colleague asked-where we can appraise these different things to make it slightly more objective? What I am saying is: obviously, ultimately, these are political decisions but is there any way we can try and create some sort of framework of looking at these?

Chair: Is there any way of trying to assess what we do or we don’t call transformational schemes, strategic schemes?

Professor Phil Goodwin: I think there is. I suppose there are two big errors that one might make with the structure of benefit cost analysis. One is to say, "It’s perfect" and the other is to say, "It’s rubbish" and both of them leave you helpless in the hands of manipulation. I do think that a framework along the lines of that which the Department for Transport has worked out over the years-sometimes it has three main priorities and sometimes it has five, and it always allows for the statement of both the economic calculations, and the policy, equity and social argument as well-is right, and to be required to do it formally and thoughtfully, and then be open to criticism and scrutiny helps.

What one wants to do is look at patterns and it does seem to me that there are very clear patterns now; the sorts of strategies that are coming out with good rates of return, do seem to be robust over many different situations and subject to all sorts of trying to test away at the assumptions. I think that is useful.

I was interested in the apparent conflict between Malcolm and Chris’s point: is the existing system biased or not, for or against big schemes? I think the resolution, why they are both right in a sense, is that if it is done properly, the present situation need not be biased, but it’s almost never done properly because there is so much vested interest-

Q64 Chair: Who decides what is proper?

Professor Phil Goodwin: I take your point, and that is why I am in favour of that: once the calculations have been done, they must be open to challenge and argument and then it is a political process.

Q65 Chair: Professor Goodwin, have you spoken to the DFT with your proposals for appraisals?

Professor Phil Goodwin: Yes, indeed.

Q66 Chair: What has its response been? Can you tell us?

Professor Phil Goodwin: If I can be a tiny bit heretical, the Department for Transport within it has about the same range of views about transport strategy as exists in the population, or indeed on this Committee, and quite right too. Therefore, it doesn’t surprise me at all to meet people who say, "Great, you’re doing a grand job. We can’t say it but you keep on saying it, it’s great," and others who are saying, "You must be out of your mind, this is not the way that we do our calculations at all" and maybe the conventional wisdom is somewhere in the middle. Maybe recently ex-Department for Transport officials are the people to ask about that.

Chair: When we read that response, we will have to consider what we think it means.

Q67 Kelvin Hopkins: I must say I have a very jaded view of Government decision making in Britain over a long period. We are very good at saying no to things. We are very good at underfunding things and we are very good at making wrong decisions. I hesitate to say this in front of Chris Riley, who was centrally involved during the exchange rate mechanism; for example, privatising the railways, the PPP scheme, and we could go on. Giving tax credits to the HMRC was complete nonsense, in my view.

Chair: Can we keep to transport, Mr Hopkins? I know it’s tempting.

Kelvin Hopkins: Malcolm Griffiths talked about the way companies operate and they decide very carefully their strategic way forward, to make sure they get the decision right presumably, and then allow work to be carried out at a lower level and different arms, and so on, but they make sure they get the decision right in the first place and then they support it. British Government and British politics, it seems to me are governed by prejudgments; people have ideals. I have been talking to a senior civil servant-more than one in fact-who says that, with all this talk of evidence-based policy, if politicians or senior officials don’t write the policy, they ignore the evidence. Is that not the case?

Mr Riley: I couldn’t possibly comment on that, but I think it does lead one to the view that the most important consideration in many ways is transparency, that the criteria on which decisions are made should be laid out as clearly as possible. I think that is one of the great merits of the present system we have, but it should go wider than that. If there are specific objectives or other criteria that are brought to bear within decisions, then there are perfectly good techniques available for displaying these. You can even analyse them, in a very technical way, using multi-criteria analysis if you wish, but the important thing is they should be set out clearly. So, where there is a political judgement or an arbitrary judgement of some other kind imposed on analysis, it should be absolutely clear and then that gives commentators the opportunity to criticise and to comment.

Q68 Chair: What is going to happen now with regional projects, if we have LEPs and no RDAs and no regional government officers? Does anybody have a view on how they would be taken forward?

Mr Riley: There is clearly a need for co-ordination of some kind between local authorities on decisions affecting their local areas. I think for national schemes, for inter-urban schemes, those have to be taken centrally, very largely, but for schemes that are primarily local in nature, and given that local authority boundaries are not big enough to encapsulate the whole area of a city region, let us say, there has to be co-ordination.

Local Enterprise Partnerships are evidently a way of trying to bring this about but, from what we have heard, they are not going to do that necessarily. We’ve heard this morning already that there are three in the Tyne and Wear area, so how are they going to be co-ordinated? The Government have a responsibility to facilitate the kind of co-ordination that is necessary to make sure that transport planning, how it links with housing and all the rest of it, at an appropriately defined regional level, does happen. Therefore, I think we have to wait and see how Local Enterprise Partnerships function.

Q69 Chair: So you think the Government will have to look at ways of doing this?

Mr Riley: There needs to be co-ordination, if this is going to be done efficiently, at a city regional level or at an economic regional level.

Q70 Chair: The issue here is for schemes that cross those boundaries and are not at levels.

Mr Riley: Yes; like travel to work areas, for example. The proof of the pudding will be in the eating but, at the end of the day, someone-and I guess it has to be central Government-needs to ensure that there is sufficient co-ordination across local authorities, or across Local Enterprise Partnerships, taking place.

Q71 Paul Maynard: Do you think that transport policy in the north of England is, or should be, any different from transport policy in the rest of the country?

Mr Griffiths: It goes back to the discussion we were having earlier, in terms of urban congestion and getting people to work and having transportation that fits with other policies in a particular area. If you look at London, London is almost the perfect example of where there is lots of transportation all coming in, and things are working, and you get something like Docklands that needs regenerating and the developers come in and the transport comes in. To my mind, there needs to be more of a focus on that, on the northern urban areas that need to be developed. That could well mean that more money goes into that than in other places.

We have talked about a framework. The high-level framework is about resource allocation, so whether it’s, "I’ll give this much money for long distance; this much money for urban congestion", whatever those big policy things are, that is the framework. Those are the political decisions supported by lots of evidence, "If you do this, this is what will come out". Having allocated the resources, then it is for the localities to get on and say, "Right, this project is better than that; that project is better than the other. Three of us need to get together to make something work across areas".

Q72 Julian Sturdy: Just following on from that point, outside of London, do you feel that part of the problem has been that local authorities have been making transport decisions on their individual area and not looking at the bigger picture? I think London is an exception to that and this especially relates to the north. The LEPs, if they’re done on a city region basis where they are based around the way people move to work and things like that-based on an economic sense-will help slightly to balance that out and move away from the more parochial thinking that transport has been done within local authorities over the past few years.

Professor Phil Goodwin: The problem is when the historically determined local authority boundaries don’t correspond anymore with the economic entity of the area. This happens quite often when two small towns, in effect, merge and become a single city but they still have two separate town councils. Having said that, I must say I don’t detect a lot of difference between the concerns, the range of alternatives for solving them, the sensitivities in discussions about transport strategy in the north or in the far west or in the south. There is a difference clearly between urban areas and rural areas, but I don’t think there are different criteria that are applying in the north discussion and the south discussion. Basically, it’s the same thing.

Mr Riley: I think there is a different dimension to this and that is the whole question of regional balance and regional equity. If one simply adopted the national principles of looking ideally for where the best value for money is and applied that across the country, you might well end up concentrating your investment in the most dynamic, fast-growing regions-like London and the south-east, for example-because rates of return, as measured, would be higher and that would arguably generate the best economic benefit for the country as a whole. However, there is another objective and that is about the balance between regions, the equity between regions, and the great unknowable about how much investment in transport in less well performing regions would help, which is debateable. I think that other dimension has to be factored in, as I think the Secretary of State did in the evidence he gave to you in July.

Q73 Chair: How important is it we invest in ports and airports in supporting economic activity, investment and tourism?

Q74 Professor Phil Goodwin: It is not clear to me that a port deserves an entirely different importance to any other area of important economic activity. I was a nonexecutive director of a major port for 15 years and I fought-as one would-for the priority of that port, but when it comes down to it, the transport issues that affected it were largely those about the delivery of customers, both freight and passengers, on a crowded road and rail system where this wasn’t about investment in the port at all. This was about investment in the connection between the port and the rest of the country. I think I took that to be Eddington’s focus. He was talking about access to ports, rather than the investment strategy of the port itself, which, life being what it is, is largely going to be taken on commercial grounds anyway.

Chair: Thank you very much for coming and for answering our questions.