Transport and the economy

Memorandum from the Association of Greater Manchester Authorities and Greater Manchester Intergrated Transport Authority

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?

The position of the UK economy has of course shifted significantly since the Eddington Study reported in 2006, through the recession of the latter years of the past decade and into the forthcoming period, which will be dominated by the national imperative to address the fiscal deficit. However, the core findings of Eddington - namely that effective connectivity is essential to driving long-term, sustainable economic growth whilst supporting environmental goals and, most critically, that investment must be prioritised to maximise this impact - remain more critical than ever.

In essence, Eddington posed the question: ‘How can our investments be targeted to support economic growth?’ He concluded that targeted transport investment holds the potential to increase business efficiency and underpin productive clusters (or "agglomerations") of economic activity by expanding labour market catchment areas, enlarging markets, and facilitating business-to-business interaction.

In doing so, he recommended that investment should be focussed on improving transport performance "in those places that are important for the UK’s economic success" and defined "three strategic economic priorities for transport policy":

· Congested and growing city catchments;

· Key interurban corridors; and

· Key international gateways.

Eddington also noted that transport is not the sole ingredient of economic growth: he identified skills and inward-investment incentives as examples of other key factors, and critically pointed to the need for effective alignment across all transport and non-transport activities to maximise their impact on national productivity.

It is important to note that Eddington is far from alone in having reached these conclusions, which have been reinforced and developed through a series of studies by a range of public sector and independent bodies in recent years. The relationship between transport and the economy identified by all of this work is now central to the economic debate that is framed by the 2010 Spending Review, which asks a primary question of all public sector spending activity: Does the activity provide substantial economic value? Alongside this, the Government has also been clear in its intention to drive low carbon economic growth.

It is, therefore, now more critical than ever for the findings of Eddington and others to be fully played through in appraisal and prioritisation processes to ensure that the substantial economic value sought by Government is achieved on a consistent basis.

Greater Manchester has built upon the work of Eddington and others in recent years to establish a clear system of prioritisation for transport investment, which fits very closely with national economic and environmental policy priorities by prioritising a package of investment that will maximise impact on productivity and reduced worklessness, whilst also ensuring net reductions in carbon impact.

The remainder of this response seeks to summarise the approaches being developed and implemented in Greater Manchester to inform the lines of enquiry put forward by the Committee.

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?

The type of transport spending that best supports economic growth will vary according to the varying economic circumstances across the UK. However, the work in Greater Manchester has shown that more critical is the need to clearly and consistently prioritise the nature of the economic returns that are being sought from spending programmes. We strongly suggest that the traditional welfare based approach to transport appraisal should be supported by a separate assessment of the impact on the "real economy" to determine major investment priorities, if economic returns are to be maximised. This is discussed further below in answer to the Committee’s line of inquiry that specifically relates to appraisal systems.

This would mirror the approach that was adopted by the Greater Manchester authorities in May 2009, when agreement was reached on a clearly prioritised £1.5 bn transport spending programme to be delivered through the Greater Manchester Transport Fund (GMTF). The GMTF programme reflects a local prioritisation exercise that focused principally on economic impacts, with a range of potential transport interventions having been modelled to understand their potential impact on output – measured in terms of Gross Value Added (GVA) – through changes in employment and productivity.

The programme was prioritised to maximise the medium term impact on the size of Greater Manchester’s GVA for the available funding. A prioritisation metric was established by comparing the GVA impact of each potential intervention to its net cost (with costs assessed on a whole life basis), resulting in a ‘scheme efficiency’ metric, expressed in terms of the GVA impact per pound deployed.

In addition, the investment programme was designed to to deliver a net reduction in total carbon emissions at the programme level, and to secure a better than average improvement in accessibility to employment to address persistent problems of worklessness in the most deprived 25% of wards.

The resulting ranked programme is multi-modal, including light rail, road, bus interventions, park and ride and a heavy rail stations programme, reflecting the need to avoid prescriptive solutions to different economic challenges and circumstances. The programme is also different to that which would have resulted from the traditional welfare based approach to appraisal that is used by DfT, which would have prioritised schemes with a significantly reduced overall economic impact.

Importantly, the evidence gathered was powerful enough to give the ten Greater Manchester authorities the confidence to allocate a very substantial element of local funding to the programme, which constitutes more than half of the whole life costs of the £1.5bn programme. Greater Manchester is now taking this methodology into other programmes as part of its LEP and Combined Authority. The aim is a level playing field approach to appraisal that will allow the relative impacts of closely related interventions such as regeneration and housing to be understood so that Greater Manchester is able to identify the combined spatial programmes that deliver the best possible impact overall.

Greater Manchester’s experience demonstrates the need for a revised approach to appraisal – as signalled by Eddington and many other in recent years – that more accurately reflects the real economic impact of investment, as this submission discusses further below.

In addition, the Greater Manchester focus on worklessness is critical not only to strengthen labour market productivity - a key ingredient of long term success - but also as a key part of a strong strategy for re-balancing fiscal spend, as t he more that we are able to get people into work , the more the nation saves. An integrated approach to spend and public service reform would enable such savings, made in other Government programmes, to be used to support investment in services such as transport .

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

Again, we would strongly suggest that the answer to this line of inquiry lies not in a prescriptive balance between revenue and capital expenditure. Rather, the most critical factor will be to establish systems of prioritisation that can most effectively address the twin objectives of net productivity and job creation, which will be essential in driving new levels of growth and assisting in addressing the fiscal deficit through enhanced returns to the Exchequer.

The Greater Manchester authorities are now seeking to build upon the GMTF prioritisation approach discussed above to review the optimum range of capital and revenue spending activities that will support increased GVA through the four-year period that will be shaped by the Spending Review (2011/2 to 2014/5). The process will determine the final spending priorities for the forthcoming third Greater Manchester Local Transport Plan.

Central to this approach is the need for greater flexibility and devolution across revenue and capital budgets to allow the maximum scope to direct resources to those activities that will have maximum impact on GVA.

In particular, we need to ensure that all subsidies that support bus provision in Greater Manchester are being used efficiently as possible. Recent work undertaken by GMPTE, developed through an analytical approach similar to that set out here, suggests that this is not the case at present. This work has identified significantly greater scope to utilise subsidies to better support bus network coverage and, potentially, pricing levels to lower the barriers to entry into the labour market that they currently pose in some of the most deprived areas of Greater Manchester.

This potential could be achieved by devolving decision-making on how all public subsidy (currently managed in part locally and in part nationally) – is brought together and clearly focussed on supporting wider local interventions aimed at reducing the costs of deprivation and increasing productivity through employment.

Are the current methods for assessing proposed transport schemes satisfactory?

As suggested above, the approach which values welfare benefits by summating individual travel time savings, on the basis that this is what people are prepared to pay for the scheme, does not capture the potential offered by schemes for increasing employment and productivity. As such, the current appraisal framework fails to represent the real economic outcomes of increased productivity, reduced benefit dependency and enhanced returns to the Exchequer that can be achieved through effectively aligned packages of investment.

It is not suggested that the GVA-added approach outlined should supplant the traditional NATA methods but that they should sit alongside a separate measure of economic benefit over and above that received by exiting users, and as a prioritisation tool, the value of which is heightened in the current fiscal context. An effective GVA-added approach, based on that adopted for GMTF, needs to capture how investments can change the size, location and type of economic activity. The approach also allows decision-makers to consider how an investment attracts unemployed people into the workforce.

From the business perspective, transport investment schemes can expand accessible labour markets and reach to other businesses, thereby growing markets and increasing efficiency. This can influence how businesses operate and where they locate, supporting clustering and specialisation of business activity and resulting in job creation and economic growth. Transport improvements can also reduce direct costs, for example from fuel and staff time, which lead to increased efficiency and economic output. Using information on where businesses choose to locate and the kind of business they do, the key relationships between transport changes and economic changes can be effectively modelled. This in turn, can be used to accurately project changes in the competitiveness of different areas and the business response to transport investment through relocation, growth and sectoral change.

Similarly, better access to job opportunities can improve individuals’ employment search prospects, help attract people into work and reduce unemployment. This both increases economic output and eases the long term welfare burden of worklessness – a critical challenge in delivering the Government’s objectives in major conurbations such as Greater Manchester. Evidence on the spatial relationship between unemployment and access to job opportunities can be used to capture the impacts of an investment on the pattern of worklessness.

As noted previously, this approach also offers the scope for a level playing field for closely related sectors, such as regeneration and housing in particular, which also work to more effectively align the demand and supply sides of employment markets to drive productivity and reduce unemployment. Ultimately, the approach also provides the opportunity to how all such investments affect the supply side of the economy and make the UK a more attractive location for business, thereby integrating systems of prioritisation both nationally and locally effectively towards shared growth objectives. This offers the scope for optimal resource deployment both within transport and beyond to maximise growth objectives.

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

The GMTF agreement provides a clear demonstration within Greater Manchester of the scope for effective planning at the sub-regional level. As discussed above, we would argue that this revised approach to prioritisation can and should be equally applied across all parallel areas of expenditure aimed at economic growth, so as to identify the optimal blend of expenditure across housing, regeneration, transport and other public sector areas to drive job creation and net productivity.

Moreover, there is clear evidence from work such as the ground-breaking Manchester Independent Economic Review (MIER) that the sub-regions like Greater Manchester act as a ‘functioning economic area’ in their own right. As such, they provide the optimum spatial scale within which to take effective decisions on trading-off across expenditure areas to maximise local and national economic outcomes.

The Greater Manchester authorities have established a clear platform to deliver a sub-regional model that will enable this. Following 20 years of voluntary co-operation through the Association of Greater Manchester Authorities (AGMA), the Greater Manchester authorities are now awaiting a Ministerial decision to establish the Greater Manchester Combined Authority, which will become the accountable focus across Greater Manchester for integrating economic development, regeneration, planning, housing and transport policies.

This governance system includes a new approach to the way in which transport systems are managed in Greater Manchester, based around a new "Transport for Greater Manchester" (TfGM) which will provide an enhanced focus on coordinating transport and economic regeneration objectives to effectively prioritise and deliver initiatives that best support economic objectives as determined by the approaches summarised in this paper.

Alongside this, the Government has been clear that the proposed Local Enterprise Partnerships (LEPs) will be a key vehicle for sub-regional economic planning, and this is consistent with our approach. The Greater Manchester authorities see a LEP as a natural addition to these governance arrangements to build on the unique public – private partnership that is already in place.

A Greater Manchester LEP will represent a further opportunity for Greater Manchester’s businesses, local authorities and our key partners to build upon 20 years of voluntary collaboration to achieve a step change in our ability to secure private sector led economic growth, whilst ensuring our residents are able to benefit from and actively contribute to this growth.

Together the Combined Authority and the LEP will enable the private sector to play an even more active leadership role in securing economic growth and allow for the effective alignment of decision making and delivery in key areas such as economic development, regeneration, planning, transport, housing, inward investment, business support, marketing and tourism, and employment and skills. Our proposals include the potential to pilot a ‘single pot’ of funding for economic development, transport and housing, around which decisions on prioritisation could be taken through the broad approach discussed in this paper.

This will also allow for innovative funding solutions, such as Greater Manchester’s recently agreed JESSICA-funded Evergreen funding initiative, which is designed to unlock partnership funding for economic growth initiatives in a manner, to be most effectively aligned with the Government’s proposals for Regional Growth funding and tax increment financing against future business rates.

The revised Greater Manchester governance arrangements are also well-placed to respond to the removal of regional strategies from the planning framework. In August 2009, the Greater Manchester authorities agreed a sub-regional economic strategy (the Greater Manchester Strategy). This is now being expressed in spatial terms through work that will culminate in a Greater Manchester Spatial Framework in early 2011, to be published alongside the forthcoming Greater Manchester Local Transport Plan. Collectively, this will provide an economic, spatial and infrastructure framework for future planning at the sub-regional level.

Finally, it should be noted that all local authorities in the North West of England have recognised the importance of retaining appropriate collaborative relationships for joint-working on those strategic matters that would not be fully addressed through any individual LEP. There are already strong working relationships in place between the Greater Manchester authorities and our neighbouring authorities both within the North West, as well as South and West Yorkshire.

In addition, we have a good track record of collaborative working on specific strategic projects. A good example here is the development of the case for the Northern Rail Hub, which offers real economic potential for a wide area and which has been promoted through the local authority-led North West Rail Campaign. Recent collaborative working between a number of major cities to promote the role of High Speed Rail in growing their productivity is a further strong example.

Examples such as this demonstrate that local authority bodies have the capability to work effectively to represent shared infrastructure priorities in the absence of formal regional bodies.

September 2010