Transport and the economy

Memorandum from The Chartered Institute of Logistics and Transport in the UK (TE 18)

Summary

· UK economic conditions have, of course materially changed since 2006. However, some travel patterns are set on a trend irrespective of GDP. Car trips and distance are decreasing while rail and some bus trips are growing independent of the economy. Other transport, in particular freight related and air travel, is more closely linked to the economy.

· Alternatives to travel will assist in growing GDP but will result in more travel later.

· Economic growth is therefore best supported by prioritising transport investments which are related to GDP. CILT(UK) continues to support the Eddington priorities: congested urban areas, inter urban corridors and gateways.

· CILT(UK) continues to support better pricing for all travel, providing direct signals on the value of each trip on which economic value and therefore priorities can be based.

· In a time of limited public sector finances, schemes which leverage private sector investment should be prioritised.

· The best schemes depend on the particular circumstances. Public transport, cycling, walking and low cost integration schemes can help in urban areas, but the movement of goods and services for the economy is vital. Rail schemes and the removal of road bottlenecks are appropriate to inter urban corridors. The provision of capacity at gateways is fundamental if they are not to inhibit the flow of people and goods.

· The balance between revenue and capital expenditure should not simply be altered because of financial limitations. Carefully targeted revenue expenditure may have a high long term economic benefit, just as much as capital investment.

· Current appraisal techniques are not adequate, but simpler appraisals are appropriate for initial sifting or for schemes with obvious benefits. Wider benefits should be studied but should not be used unless doubts about the value of benefits or the limitations of data are fully understood.

· Devolved administrations have considerable autonomy in transport decision making, but some nationally important schemes are being held up for local reasons. National policy should be afforded significant weight in planning decisions. Localism should not prevent nationally important infrastructure being provided.

The Chartered Institute of Logistics and Transport in the UK (CILT(UK))

1 The Institute of Transport was founded in 1919. The first President was Sir Eric Geddes, who was also the first Minister of Transport. One of the principal objectives of the Institute, then as now, was to promote the knowledge and study of the art and science of transport in all its branches, and to provide facilities for the exchange of information and ideas. As today’s CILT(UK), it has in excess of 18,000 members. This response was formulated by the Institute’s Public Policies Committee, which includes representatives from all parts of the transport profession and from all nations and regions.

Have the UK's economic conditions materially changed since the Eddington Transport Study and, if so, does this affect the relationship between transport spending and UK economic growth?

2 Clearly, the economy has been in recession since 2006 and, although it is now recovering, uncertainties over the pace of recovery and the Government’s programme to control public spending inevitably mean that the extent of the impact on transport expenditure is unclear although it is likely to be negative in most areas. The relationship between GDP and travel is complex, and we should be cautious about the use of transport statistics as some modal data is not compatible. Some elements are declining, notably travel by car – which has been falling for several years both in terms of number of trips and distance travelled. This has not just been because of the recession (although a reduction in commuting has contributed) but appears to be a change to the previous long lasting trend of almost continuous steady growth. On the other hand, many trips by public transport (bus in London and some regional areas and rail) and cycling have increased and continue to do so, albeit more slowly in some cases, despite the recession. Freight traffic has decreased after a period of strong growth on all modes, with heavy goods vehicles declining more than light vans. Air travel seems closely linked to the economy. Intermodal container traffic on rail has grown although other rail freight markets have declined, in particular coal traffic following changes in the energy market. In 2010, international freight transport, in shipping and aviation is recovering, but the picture is mixed for rail and on the roads.

3 Alternatives to travel, particularly for business purposes, may have had some effect on recent trends, and are a very important way of increasing business activity and therefore GDP. However, it is vital that travel is not inhibited by nationally imposed restrictions or excessive taxation, otherwise the benefits of improved business contacts will be lost. Goods can be ordered over the internet, but then need to be delivered. Jobs can be set up by electronic communications, but then people need to get to work. International business, especially in the BRIC and similar emerging economies, needs face-to-face contact. Cultural contact cannot be experienced remotely.

4 The short term trends since 2006 do not necessarily show a change in the relationship between travel and GDP as some are directly in proportion. However, the decline in car travel appears to be a change in the both trips and distance relative to GDP. As car trips are around two thirds of all travel, this is significant. Public transport and cycling are also showing growth relative to GDP which may be a shift in the relationship.

5 Most of what Eddington said still applies since the concepts were not based on any particular rate of growth in the economy. However there is a danger that transport spending will increasingly be devoted to propping up less profitable transport operations rather than investing in connections for the future e.g. increased subsidy for services where patronage declines, rather than investing in connectivity for city regions, reliable journey times on long distance routes to support regional development (including tourism), and investment to support local economies.

6 While the relationship between economic growth and travel is one of cause and effect (in that order), the relationship between economic growth and transport spending is usually the other way around (i.e. transport spending leads to economic growth). Work done in Greater Manchester shows that the connection of areas of unemployment with job opportunities is a vital function for transport investment. However, sometimes the investment fails to deliver the expected gains or even to have perverse results if not properly planned. There is a lead and lag time between spending which may be of the order of five years on average, and it is certainly not the case that spending five or more years ago has led to the current downturn. Indeed, spending five years ago, coupled with a downturn in travel demand, has led to a reduction in congestion on most modes which means that recovery is for the time being not held back. But it would be a very bad mistake to impose a blanket restriction on investment now, as demand will rise in the next five years and congestion will then limit growth.

What type of transport spending should be prioritised, in the context of an overall spending reduction, in order best to support regional and national economic growth?

7 The policies of the Coalition Government clearly suggest the public sector alone must not be expected to shoulder the burden of transport spending either in capital or revenue terms. Public spending should therefore work with and create incentives for private investment. Where public investment in transport does not attract significant other investment, by people, businesses and investors it should generally be seen as a lower transport priority.

8 Economic growth is best supported by ensuring that those elements of travel which are related to GDP do not suffer from congestion and delay. This means that the networks should be provided with sufficient capacity or else managed to attract the most valuable traffic and deter the less important. Eddington’s foci remain the most important: inter-urban corridors, key gateways and congested urban areas where they are impacting journeys to work. However, Eddington paid little attention to regional interests (except to the extent that inter-regional links leading to international gateways were clearly considered priorities). In the current economic circumstances the consequences, inter alia, of Government actions may well create circumstances in which regions with high proportions of public sector jobs and skilled workforces will become more attractive for inward investment which may be facilitated by judicious improvements both to inter and intra-regional transport networks. This can be measured by Gross Value Added from raising the number of job and training opportunities accessible to deprived areas, which schemes can be prioritised.

9 Eddington drew particular attention to the need for correct economic pricing on all modes. He pointed out that, in the absence of correct pricing, a higher level of investment was needed to reduce congestion and overcrowding; and that strategies involving road pricing gave much higher rates of return. At a time when public sector funding is scarce it will be particularly important to make the best use of existing infrastructure and to get the pricing right, whether to give good value for money on publicly funded projects or to make them attractive to funding by the private sector.

10 The solutions should, of course, depend on the circumstances. Congested urban areas can be relieved by a range of options including better public transport, cycling and walking, but the movement of service and light freight vehicles is vital. The urgency of road improvements may be greatest in our regional towns. Inter urban corridors and gateways may be assisted to a limited extent by rail, but really require the road network to provide sufficient capacity, in particular the removal of bottlenecks. Pricing on both road and rail should be designed to spread demand to make efficient use of the available capacity throughout the day. Increased access to rail freight is needed for raw materials and finished goods, both imports and exports, but in a way that allows payment for use, rather than for a particular frequency of capacity. There are also many low, or nil, cost interventions related to information and integration which are often implemented within major schemes but which can be independent if the major scheme does not go ahead.

How should the balance between revenue and capital expenditure be altered?

11 The long term aim should be to reduce the need for ongoing revenue support and where possible lock in sustainable economic and social business models for the delivery of transport. Working towards zero revenue funding could help the economy, for example by creating social markets for road maintenance and supported public transport. New transport markets are a potential growth area for the UK as large integrated transport companies will increasingly grow their markets overseas.

12 In the shorter term, if transport capacity remains the obstacle to economic growth (as it is in the case of inter-urban roads, rail and air transport and congested periods in urban areas) then capital expenditure to create new capacity should be considered and may take priority over revenue expenditure on subsidising travel. While revenue expenditure can be related to actual use (for maintenance or subsidy), properly targeted support can release productive capacity either more quickly or more efficiently. It is both more efficient and more effective to achieve mode shift by increasing the cost of the mode to be discouraged than to make the preferred mode cheaper. Studies have shown, for example, that cheaper bus fares attract additional passengers who did not previously travel at all, or made shorter journeys on foot and that a relatively small proportion of the increase comes from former car drivers and passengers. Conversely, when the congestion charge was introduced in central London, many of the people who stopped driving in by car switched to bus assisted by the increased levels of services introduced concurrently. It is instructive that transfer to already congested Underground and, to a lesser extent, suburban train services was proportionately rather less than expected.

13 Overall there is an opportunity, which sadly the urgency of Government inspired cuts may be ignoring, to reassess the conventional wisdom that capital investment is always to be preferred to revenue expenditure. Both will always be required – just as there comes a point where complete replacement of an asset is more efficient than further maintenance, so there are instances where revenue support to bolster services (for example in passenger rail routes parallel to major highways or in congested urban areas) may be more efficient than capital investment.

Are the current methods for assessing proposed transport schemes satisfactory?

14 The case for change in transport economic appraisal was made strongly by SACTRA in 1999 and again by Eddington in 2006. We responded to the NATA Refresh consultation but the current changes being proposed by DfT do not go far enough. Summating small time savings on the part of many individuals over a long period does not give a clear indication of a scheme's value to the economy in terms of usable benefit, or actually facilitating better connection of people to jobs. The dialogue about wider economic benefits (including tourism), agglomeration, and social and distributional impacts has become far too complex, partly due to lack of clarity and or consensus about how social and economic value is or should be incorporated in value of travel time. It is fair to say that virtually nobody is able to defend the current approach with all parties citing important changes as necessary.

15 To ensure a practical short term solution, one of our key responses to the DaSTS initiative was that some schemes are so obviously either good or bad that they do not need a high level of sophisticated calculation to measure them. If a proposal produces excellent financial returns on the investment, whether by private or public sector, and contributes to environmental and social benefits, then professional time should be spent on fund assembly and tackling barriers to delivery rather than the pseudo-science of economic appraisal. Appraisals should always note the limitations of the data, in particular whether it is available in comparable form between modes.

16 For more complex business cases the broad level sifting of investment opportunities will assist in prioritising appraisal resources at resolving the uncertainties being highlighted in the appraisal debate. In this debate, there is a need to a wider perspective to look at national benefits. For example, the wider use of smartcards will have benefits but this cannot be assessed by looking at the effects in one region alone. A back office serving a number of smartcard operations will be considerably more efficient than a number of smaller operations.

How will schemes be planned in the absence of regional bodies and following the revocation and abolition of regional spatial strategies?

17 The demise of regional spatial strategies, and with it regional transport strategies, creates a major gap in the development and delivery of non-local transport schemes and this needs to be filled. The alternative is that nothing will get done and economic, environmental and social conditions will get worse because travelling becomes more dispiriting.

18 It is important at a national level that Central Government should continue with the preparation of National Policy Statements as an overview and direction for the delivery of major transport infrastructure (airports, sea ports, national road and rail networks) so that infrastructure of national importance can be provided even in instances where the local communities find it difficult to accept.

19 A particular example of this is the need for a national policy statement on the provision for intermodal freight. There is a clear case for facilities that provide for better and more road/rail interchange points that would enable more long-haul freight to be handled by rail. There have been a number of recent planning applications that have been refused in the South East. Such developments, carefully located, would fit in with a national strategy that calls for better connectivity and this should be recognised through national guidance so that they could be given proper weighting in planning decisions.

20 The devolved administrations and London have considerable freedom to decide their transport priorities but they are dependent to a large extent on funding allocated by the UK Government. The relatively better performance on transport investment in each case is arguably because planning and transport investment decisions and the relationships between them are better understood by smaller administrations and executives responsible for their own regional issues and the correspondingly shorter decision chains. Examples of this in Scotland are the ability to undertake investments to re-open rail lines for passenger use.

21 In England, local government can decide their own priorities for local transport, be they those related to economic growth as identified by Eddington, or through other ways, such as rural transport for social progress. Local authorities, working through local economic partnerships, can collaborate in preparing sub-regional strategies, as is being proposed in a number of areas such as the West Midlands and the Yorkshire City Regions. These local economic partnerships are new and untested and particular local authorities may find it difficult to resolve conflicts between different parts of an area, especially where one has to accept a disadvantage for the benefit of the wider sub-region. The nature of these new partnerships geographically means that some transport issues which extend across administrative boundaries will remain unresolved. From a transport point of view the abolition of spatial strategies covering the whole of a travel-to-work area threatens to remove a way of solving transport problems through land use and transport planning policies operating together. This seems a retrograde step, economically, environmentally and socially. Similarly the abolition of the Government Offices for the English Regions threatens to delay decision making both through increasing the workload centrally and removing local professional knowledge and advice.

22 Localism is likely to be beneficial for local transport issues, but will cause delay, prevarication and sub optimal scheme design for nationally important transport infrastructure. Decisions on national transport infrastructure must remain with national authorities, with local inputs only where the balance of national benefits is outweighed.

September 2010