Transport and the economy

Memorandum from the West of England Authorities

West of England Context

1. The West of England authorities - Bath and North East Somerset, Bristol City, North Somerset and South Gloucestershire Councils - welcome the opportunity to make a submission to the Transport Committee inquiry into transport and the economy.

2. Since the 1990’s the Partnership area Gross Value Added (GVA) growth has outperformed that of the UK, and the Competitiveness Index 2010 places Bristol as the most competitive large English city outside of London. Much of this growth had to rely upon major transport infrastructure improvements made in the 1970’s and 80’s, for example the M5 motorway and the Avon Ring Road. The capacity of this ‘historic’ infrastructure has now been overtaken by the scale of growth in the area, and a response to the growing need for substantial further investment has suffered from the lengthy approval processes. Additional transport investment is a key lever to drive the continued economic success of the West of England, enabling it to play a leading role in the UK’s economic recovery and growth potential.

3. The key goal of the emerging West of England Joint Local Transport Plan (JLTP3) is sustained and high levels of economic growth. The authorities have worked closely with business representatives, alongside a wide range of other stakeholders, in the development of the Plan. In the last few months the Councils and the business community have submitted a proposal to Government to form a Local Enterprise Partnership (LEP).

4. The LEP aims to build upon the strong and successful public/private sector partnership already in place in the West of England, and will focus on creating the optimum conditions for economic growth. Through joint actions, the LEP will support the creation of substantial numbers of new private sector jobs. This will contribute to a strong globally competitive economy which will unlock over £1 billion of private sector investment over the next 5 years.

5. One of the key themes of the LEP is to secure the improvements in transport and other infrastructure required to support economic growth and competitiveness. The LEP will result in an even stronger alignment of spatial transport, infrastructure and economic planning.

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?

6. Economic conditions have seen a dramatic shift since the publication of the Eddington Transport Study. Between 2007 and 2008 the UK economy contracted by 0.1%, followed by a 4.9% fall during 2009 [1] . The West of England benefits from a competitive economy that has historically outperformed the UK in achieving growth [2] and that adjusts successfully to changing economic conditions. It is well placed to recover quickly from the economic downturn. Recent economic projections suggest that the West of England economy could grow by 3.4% per annum, compared to a UK average of 3.2% over the next 20 years [3] .

7. It is important that this growth is not constrained by poor transport infrastructure and services which adversely affect access to labour markets, hamper business productivity and create congestion. As Eddington points out ‘transport networks support the productivity and success of urban areas and their catchments by getting people to work, supporting deep and productive labour markets and allowing businesses within the area to reap the benefits of agglomeration’. The strong relationship between transport investment and economic growth holds good.

8. It is estimated that congestion will cost the West of England economy £600m per year by 2016 through delays to travellers. Although the recession has seen a reduction in traffic and congestion levels in the Area over the last 2 years, there is some evidence of a recent return to growth in traffic to some key centres. The recent reduced congestion levels must be viewed against the longer term trend of increasing traffic levels and longer journey times.

9. Good internal and external connectivity are key characteristics of a successful and competitive city region. Eddington emphasised the role of transport investment in sustaining the UK’s productivity and competitiveness against the challenges that lie ahead.

10. Studies in the West of England have shown that there are clear links between transport supply and economic outcomes. Statistically significant links have been found between connectivity (both to labour markets and to other businesses) and the pattern of employment found in different parts of the Partnership area. [4]

11. This illustrates that improving connectivity through new and improved transport infrastructure delivers employment growth and improved productivity. Cities are drivers of the economy, and it is in city regions such as the West of England that returns on transport investment are greatest.

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?

12. At a time when resources are scarce Eddington’s conclusion that Government should ‘prioritise action on those parts of the system where networks are critical in supporting economic growth’ appears particularly relevant. In this regard the statement in the Government’s Spending Review Framework (June 2010) that ‘the Government will…protect as far as possible the spending that generates high economic returns’ is welcome.

13. Investment in City regions such as the West of England will generate high returns and help the Area deliver the planned 95,000 new jobs over the period to 2030 [5] 5.

14. Whilst it is understandable that in times of reduced funding there is a move away from big infrastructure projects towards more modest low cost schemes, it is important to continue to progress a number of key projects which will help support economic recovery and future growth. The West of England have identified a priority programme of major schemes aimed primarily at delivering a 21st century public transport system for the area which have a strong value for money case. In addition there is a need for new road links, and junction improvements where the local and strategic network meet. These would unlock key employment sites such as the 575 hectares at Avonmouth/Severnside for which Accelerated Development Zone status has been proposed. The authorities remain committed to the delivery of these schemes, potentially over a longer period, and are exploring funding opportunities to supplement any grant provided by Government.

15. To better understand the links between transport infrastructure investment and economic growth, the West of England authorities commissioned KPMG4 to assess how a programme of major transport schemes proposed in the area would support employment growth and increase the area’s productivity.

16. These findings were used to forecast how changes in transport supply through new infrastructure provision (spanning bus-based Rapid Transit, rail, new transport links and area packages) could influence levels of employment. Changes in the productivity of jobs were calculated using the Department for Transport’s (DfT) wider impacts framework capturing agglomeration and business time savings.

17. Key outcomes of the study are that:

Ø The tested package of ten priority infrastructure schemes, at a cost of £361m, would deliver additional economic output of £637m per year within the Area. [6] 6

Ø This GVA impact is comparable to that of half of the construction industry in the Area, and represents an increase equivalent to 2% of West of England economic output.

Ø The schemes produce £1.8 of GVA for every £1 of transport capital investment illustrating the high impact that new infrastructure can deliver in the Area.

Ø The ten priority schemes would directly contribute 9,000 new jobs within the Area. This increase in jobs is equivalent to the number of people employed by the Port of Bristol and Bristol Airport combined.

Ø It is estimated that gains in national taxation arising from the schemes could support around 50% of the cost, effectively halving the overall call on the public purse.

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

18. It is clearly capital spending that is needed to deliver the infrastructure, not revenue spending. Councils would prefer that this was funded by capital grant rather than by rate support grant revenue funded through the issue of supported borrowing approvals. The grant route is simpler and more direct. The Revenue RSG route is opaque and indirect.

19. That being said, in the case of the West of England without access to significant new sources of revenue funding it will not be possible to take forward the Area’s ambitions for a fit for purpose public transport network that seeks to address current major deficiencies.

Are the current methods for assessing proposed transport schemes satisfactory?

20. The current major schemes approval process provides a logical sequence which seeks to ensure that schemes are delivered to time and budget. However, experience in the West of England indicates it takes 8 -10 years to take schemes from inception to completion. This is not acceptable. More authority and responsibility should be given to local promoters to develop and deliver well-specified schemes, working to a clear and pre-defined set of national criteria, operating within an agreed budget and with effective risk management provision.

21. Some improvement in existing national approval processes have been achieved through a West of England Multi-Area Agreement pilot. This developed a more collaborative approach with DfT (eg early engagement, agreement to calendar of key dates, shared position on technical requirements etc). Such improvements were successfully applied to the development of the North Fringe to Hengrove Package major transport scheme. This moved the scheme from inception to bid for Programme Entry in a year. If a national approval process were to be retained more can be achieved. It is worth remembering that delay adds to cost (through inflationary impacts, less efficient processes etc) and the swifter passage of schemes through the approval system would deliver local economic results earlier.

22. National appraisal processes have become increasingly focused on ever more technically complex transport modelling. This has added considerably to the cost of bringing forward major schemes in the early stages of development. It is questionable whether this increasing technical requirement (and accompanying demand for the collection of more transport data) has added value proportionate to its cost. Similarly any proposal to supplement or rewrite large parts of DfT guidance should greatly simplify processes and reduce costs based on devolving more responsibility to the local level.

23. There has been previous discussion about the development of a ‘lighter touch’ appraisal for lower cost schemes. If national appraisal is retained this approach should continue to be developed, as should other more innovative and scheme specific approaches. One example is decoupling where certain elements of a scheme are brought forward in advance those for which developer funding is awaited. This is being used to progress the Weston Package major scheme. In an environment where funding is constrained this approach needs to be extended to allow schemes such as transport packages to be delivered more flexibly (eg less complex elements implemented earlier) or over a longer timescale. Similarly given the preparatory cost of bringing schemes through the major schemes approvals process is typically £4-5m [7] 7, the previous major scheme limit of £5m is too low. As a minimum a different process should be established for schemes of up to £10m.

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

24. Traditionally the prioritisation of transport infrastructure in the UK has been heavily centralised. This city region collaborates and integrates spatial, economic, transport and infrastructure planning and is well able to assess options for investment, prioritise and specify schemes effectively. A more local approach would substantially reduce the cost and time in developing and realising major transport investment. Given the lead times for major infrastructure schemes, long term programming is crucial, even if in the current financial climate the availability of funds pushes the programme further forward.

25. One means of achieving this level of certainty would be by allocating capital funding to the LEP for the authorities to allocate in line with local priorities. This would complement the Government’s current policy of devolving decisions to a more local level, and would potentially accelerate delivery through improved promotion, planning and local engagement, and hence the scheme’s effectiveness and impact on economic prosperity.

26. The Regional Growth Fund provides a potential opportunity to align investment in transport infrastructure with other measures to support growth and enterprise, and for a flexible approach reflecting local context and need. However, the £1 billion allocation for 2011/12 – 12/13 appears to be well short of the sums likely to be required to support economic recovery and growth ambitions. The recently announced Local Sustainable Transport Fund may also provide opportunities.

27. Drawing on the West of England as an example suggests that the abolition of the Regional Spatial Strategy is unlikely to weaken the strategic case for transport infrastructure investment and the effectiveness of the investment made in the future. The Area’s major schemes continue to have strong links to growth in homes and jobs as proposed in emerging Core Strategies, are underpinned by a sound technical case through strategic and more focused transport studies, and are central to the emerging third Joint Local transport Plan.

September 2010