Transport and the economy

Memorandum from Halton Borough CouncilHalton Borough Council Halton Borough CouncilHalton Borough Council

Mersey Gateway TSC Transport and the Economy Submission

Mersey Gateway TSC Transport and the Economy Submission

Summary and Recommendations

S.1 This submission from Halton Borough Council puts forward views on the links between transport and the economy; assessment criteria and techniques for prioritising spending; and priorities for spending going forward in the context of forthcoming cut-backs. In this submission we make reference to the Mersey Gateway [Bridge] project, which relates to the construction of a new river crossing and associated regeneration proposals to illustrate our wider views and real experience in this area.

S.2 Mersey Gateway is an integrated transport project that will provide the vital infrastructure that is required to deliver sustainable economic growth in Halton and the north-west of England. It will relieve a source of serious congestion in the regional road network by providing a new, high-standard crossing of the river Mersey and by modifying the existing Silver Jubilee Bridge to deliver and facilitate local sustainable transport policy. The Project has been developed over many years and now forms an essential component of local and regional social and economic regeneration programmes

S.3 During the course of our work on Mersey Gateway we have prepared extensive and robust analysis of the economic impact of the project. The methodology applied is wholly consistent with current Department for Transport policy as determined in their Webtag guidance. Although the results have shown consistently over a number of years that the project would result in a high economic return we have been conscious throughout that the scope of the evaluation undertaken is relatively narrow.

S.4 The current specified methodology is largely a welfare-based approach, focused on road user cost and benefit. Although the results provide a reliable baseline forecast of economic value the evaluation is not centred on the real economic outcomes this type of scheme is designed to unlock. The prevailing agenda is now moving to assess the potential catalytic impact of transport schemes in driving and facilitating employment growth through improving the workings of the labour market, and in providing increased accessibility to jobs in areas of high worklessness, combined with driving desirable changes in land use and spatial planning. In addition to relieving congestion, large strategic transport improvements like Mersey Gateway are aimed at achieving particular outcomes in social and economic regeneration.

S.5 We would suggest that the following changes are made to assessment criteria and techniques in order to capture the full economic potential of improvements to transport infrastructure:

· A key criteria for assessing and prioritising schemes should include the estimated impact on the real economy, measured in terms of GDP (driven by employment and productivity growth);

· The ability of transport schemes to drive and facilitate desirable land use changes is properly recognised;

· Schemes that address accessibility issues within areas of high worklessness and deprivation should be given due weight and given priority over alternative strategies where investment is proposed in areas of higher productivity prompting concern over the sustainability of growth; and

· Consistency of approach across related sectors such as transport, regeneration and housing, such that schemes can be compared, planned together, and assessed properly when delivered in combination.

S.6 In terms of priorities for spend going forward, we argue that capital spend should be targeted at releasing bottlenecks where the potential benefits spread well beyond the immediate vicinity of the scheme itself. Such an approach is consistent with making best use of the current capacity of the transport system whilst recognising that pressure points need to be relieved to restore effective service and resilience network wide.

S.7 Transport projects which target specific economic objectives embracing interventions that encompass economic, housing and social regeneration programmes should be given priority over more isolated schemes where objectives are restricted to delivering improvements in welfare to existing transport users. A national ‘one-size-fits-all’ approach to project assessment is not consistent with this, as it means that spend does not match with local economic requirements and inevitably leads to productivity gaps within and between regions. It is recognised that extending and targeting appraisal in this way will require an assessment of the level of confidence in the delivery of wider economic benefits, particularly where the benefits claimed from transport investment also depend on the success of complementary regeneration interventions that may be outside the control of the promoting agent. It is likely that this uncertainty over deliverability has been a factor in the Department of Transport being sceptical over the delivery prospects for wider economic benefits. However, the fact that benefits across a wider scope of outcomes are intrinsically more uncertain should not lead to these critical outcomes being excluded from the appraisal.

S.8 Finally, projects that ultimately pay for themselves should be prioritised. However, it is more important than ever that a balance is struck between the affordability of projects and the economic objectives that underpin the project.

1. Introduction

1.1 In this submission we draw upon our work on the Mersey Gateway project to put forward generic views on how transport schemes can influence economic activity and how transport and other related spend should be prioritised based upon the real economic impact of such schemes.

1.2 Mersey Gateway is an integrated transport project that will provide the vital infrastructure that is required to deliver sustainable economic growth in Halton and the north-west of England. It will relieve a source of serious congestion in the regional road network by providing a new, high-standard crossing of the river Mersey and by modifying the existing Silver Jubilee Bridge to deliver and facilitate local sustainable transport policies.

1.3 The Project has been developed over many years and now forms an essential component of local and regional social and economic regeneration programmes. The Project is widely supported by businesses and public authorities across the region and is seen as a priority for investment.

1.4 Overall, the present value net economic impact of the Mersey Gateway on GDP is estimated to be £373 million in 2009 prices. To comply with the current appraisal policy the economic impact is largely based upon existing DfT transport appraisal guidance which is dominated by the welfare benefits to users of the scheme. To a great extent a qualitative assessment of the scheme’s incremental impact on actual economic growth is excluded from the formal benefit to cost relationship that is used by the Department for Transport as the indication of the scheme’s value for money. Although applying this partial assessment of economic value still places Mersey Gateway in the "High" category of economic return, used by the Department to rank projects, the benefits are understated and some other projects may be disadvantaged by restricting the analysis in such a manner. As part of the Borough Council's case in favour of the Mersey Gateway we also provided a wider economic assessment, which is broader in scope than the Webtag guidance.

2. 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?

2.1 It is clear that economic conditions have changed since the publication of the Eddington Transport Study, with the fundamental implication for shorter term public spending being a shift in agenda from ‘How do we spend the proceeds of growth to maximise welfare?’ to ‘How do we prioritise spending in a way that best supports economic growth?’.

2.2 However, we believe that the broad relationship between transport spending and UK economic growth that existed before the publication of the Eddington Transport Study still remains now. Indeed, Eddington formally identified that the transport spending can drive economic growth as well as deliver welfare, but his recommendations have yet to be fully embraced by authorised DfT methodology and enshrined in Webtag guidance. Current DfT appraisal methodology is still rooted in measuring welfare benefits to users with wider benefits being often seen as ‘below the line’ in any formal BCR agreement with the Department.

2.3 In this submission we conclude that the agenda has moved beyond Eddington’s yet to be implemented recommendations. The impact of schemes on productivity, growth and therefore real GDP has to be the way forward in prioritising not only transport schemes, but also schemes across related sectors such as regeneration and housing.

2.4 Mersey Gateway is a classic example of an economically-driven scheme, whose objectives directly target issues that currently limit the degree of economic growth in the area.

2.5 Halton and the wider area, in particular Merseyside, suffer from a number of significant socio-economic challenges. Between 1998 and 2008, the total number of jobs in Halton decreased by over 5% to around 52,000, whilst employment growth for the North West as a whole was almost 8% and nationally it was 10%. Halton and the wider area suffer from relatively high levels of deprivation and worklessness. In short, the area did not benefit from the period of sustained national economic growth from 1995-2007, and has suffered more than most since the start of the recession.

2.6 One of the key reasons for these long-standing issues is the relatively poor levels of accessibility within the area and between the area and the wider region and rest of the UK. The existing Silver Jubilee Bridge lacks the required capacity and reliability to cope with the levels of traffic wishing to cross the river at Runcorn and Widnes, which has major knock-on impacts on the surrounding road network, and which contributes to the lack of accessibility. All of which is holding back economic growth in the area. Over the relatively short term it is anticipated that the Silver Jubilee Bridge will require further interventions - and cost - to maintain even current service levels.

2.7 In welfare terms the new bridge would help to address all of these issues by relieving congestion and improving journey times across a wide geographic area. But we believe that the key benefit of this would be to enhance the productivity of the region and improve accessibility to jobs, thereby driving economic growth, resulting in improved prosperity and quality of life for individuals and families.

2.8 The existing DfT appraisal methodology captures a proportion of these benefits through time savings to business users – which feed straight through into productivity benefits for the economy, and through agglomeration benefits.

2.9 In the case of Mersey Gateway a very high proportion of user benefits are to business users, which is a consequence of tolling. However, for many schemes a high proportion of benefits are effectively welfare benefits to existing commuting and leisure users through journey time savings. The relative value of time across trip purpose and income groups determine the relative economic user benefit but is not clear to what extent such savings feed through to real economic activity, particularly where improvements result in induced demand impacting adversely on the journey times of all road users. The existing methodology effectively treats £1 of welfare benefit as being the same as £1 of real economic activity.

2.10 Overall, it is our view that existing DfT appraisal methodology is unduly conservative. It does not adequately capture the types of real economic benefits that this type of scheme is designed to unlock, and the largely welfare based approach to transport fails to address the current desire to prioritise projects that maximise economic return from constrained resources. Specifically, it does not recognise the potential impact of transport schemes in driving and facilitating employment growth through improving the working of the labour market, and in providing increased accessibility to jobs in areas of high worklessness.

3. How could assessment criteria be improved to better reflect the real economic benefits of such schemes?

3.1 In order to address the restrictions of existing transport appraisal criteria and techniques and make them more closely aligned with the prevailing political and economic agenda, we would suggest that the following substantive changes are made:

a. The key criteria for assessing and prioritising schemes is the estimated impact on the real economy, measured in terms of GDP (driven by employment and productivity growth);

b. The ability of transport schemes to drive and facilitate land use changes are properly recognised;

c. Schemes that address accessibility issues within areas of high worklessness and deprivation are given due weight; and

d. Consistency of approach across related sectors such as transport, regeneration and housing, such that schemes in these sectors can be prioritised against each other, planned together, and can be assessed as a full package when delivered in combination.

3.2 The approach we advocate is broadly in line with that set out in the recently published Network Rail paper "Prioritising investment to support our economy" [1] .

3.3 By focusing scheme assessment on the real economic impacts of schemes we would see a shift in emphasis towards schemes which benefit links between businesses, and which expand the available pool of labour for business across a wide range of areas including those that currently have poor accessibility to jobs and services, and away from schemes which only make marginal improvements to journeys between already well-connected places.

3.4 The idea that transport schemes and land use changes are somehow independent of each other is proven to be incorrect by countless practical examples. The relationship between the two needs to be formally recognised within scheme assessment. The case for investing in Mersey Gateway has addressed these wider issues but often the professional judgements are made on qualitative grounds in the absence of an authorised methodology to quantify the likely increase in project economic return. One of the best practical examples of understating the wider desirable impact of a transport improvement is perhaps the extent to which development on the Isle of Dogs has been facilitated and accelerated by the Jubilee Line Extension since 1999, and the real net UK economic benefits that this has delivered.

3.5 Mersey Gateway forms part of a Borough-wide investment programme leading to improved transport outputs and major regeneration through releasing land and improving accessibility/connectivity, yet current appraisal guidance only recognises the potential impact of land use changes on demand for schemes, and not the extent to which a new scheme can facilitate and drive land use changes leading to real net economic impacts.

4. What type of expenditure should we prioritise?

4.1 Despite the substantial impact of the current economic climate, the long term trend remains one of ever-increasing demand which places increasing strain on transport networks, with inevitable knock-on consequences for economic activity which relies upon an efficient, well-connected transport system.

4.2 It is our view that capital spend should be targeted at releasing bottlenecks which not only improve conditions for trips that use the new infrastructure, but which also relieve pressure on the surrounding network and which substantially improve network reliability and resilience.

4.3 Projects should receive priority where objectives support focused economic strategies which explicitly take into account appropriate local economic circumstances, addressing issues such as worklessness, poor business-to-business connectivity and poorly functioning labour markets. A national ‘one-size-fits-all’ approach to project assessment is not consistent with this, as it means that spend does not match with local economic requirements and inevitably leads to productivity gaps within and between regions widening, rather than narrowing, as local issues are not addressed.

4.4 Finally, projects that ultimately pay for themselves should be prioritised. In this context capital projects need to include whole life appraisal and demonstrate whole life funding to ensure that revenue consequences are addressed. However in today’s constrained circumstances it is more important than ever that a balance is struck between the affordability of projects and the economic objectives that underpin the project.

4.5 The Mersey Gateway project is an example of such a scheme where the objectives are explicitly aligned with local and regional issues, and where the balance between affordability and the economic objectives of the project have been explicitly dealt with in the development of the scheme. The objectives of the scheme address local economic issues such as relieving congestion on the existing Silver Jubilee Bridge, improving accessibility to jobs in areas of high worklessness, improving public transport links across the Mersey and improving network resilience throughout the area, and specifically on the strategic road network. These objectives are set against the need for the scheme to be affordable and to pay for itself so far as possible through the application of user tolls. Thus, where a higher toll may improve the affordability of the scheme the approach that the Borough Council has taken aims to avoid this being at the expense of delivering the local and regional economic objectives the scheme is designed to deliver. We have therefore explicitly set an objective of applying affordable toll charges to both the Mersey Gateway Project and the Silver Jubilee Bridge in order to meet affordability constraints whilst protecting the successful delivery of the project objectives.

5. Institutional implications

5.1 Institutional arrangements should reflect the objective of maximising the value of investment made and reducing delivery risk leading to the economic value at a local and regional level, as well as the net national level. This can only happen if governance is permissive of local strategies and assessment criteria are flexible enough to recognise differences in local, regional and national objectives.

5.2 Mersey Gateway demonstrates the value of collaboration across public and private interests at a regional level, which was achieved by establishing a promoting stakeholder group across public and private sector agents. Not only does this ensure that the scheme is shaped in a way which aligns with the economic interests of businesses, it also maximises the potential of leveraging funding from those that benefit, although in most cases the public sector will bear the majority of the risk.

5.3 If transport, regeneration and housing projects are going to be more closely compared, planned and prioritised, it would also make sense for the new Local Enterprise Partnerships

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to have a greater degree of flexibility in trading across such budgets to meet local economic requirements than is the case at present.

September 2010