Transport and the economy
Memorandum from the London Chamber of Commerce and Industry (LCCI)
The London Chamber of Commerce and Industry (LCCI) is the capital’s largest and most representative business organisation, comprising some 2,500 members. Our members range in size from multi-national companies to SMEs and sole traders, in a variety of sectors.
Without exception, our policies are always informed by the experiences of our member companies. It is only by putting London’s businesses first that the capital can maintain its outstanding record for creating well paid jobs, leading the world in service provision and being Europe’s favourite location for foreign direct investment.
Transport is a key aspect of the work of the LCCI, as it is essential for the continued success of London as a centre for business, offering accessibility to a skilled workforce from a wider area than otherwise would be possible and excellent connectivity to domestic and international markets.
We welcome this opportunity to respond to the Transport Select Committee’s call for evidence for its inquiry into transport and the economy as this is a vital issue to London’s business community.
Introduction
1.
The importance of transport to the economies of the UK and London cannot be overestimated. Many of the things that we take for granted today would most likely be impossible had it not been for innovations in transportation. There would not have been great infrastructure, industrialisation or mass production, if transportation was not available to facilitate it. Development would have been hampered and the country could not have kept up with competitive markets if there were not roads, railways, shipping or airways to carry goods and passengers to different places. In other words, the UK would not have experienced the economic prosperity and progress it has were it not for advancements in the transportation sector, and the access to local, national and international opportunities these have provided.
2.
The transport infrastructure available in London in particular, but the UK more generally consistently comes out very highly as a reason why business choose to locate here, in survey work conducted by the LCCI. Over 85 per cent of businesses rated this aspect of London’s offering either ‘very important’ or ‘somewhat important’ in one of our most recent polls on the subject.
3.
By the same token, businesses report it is a constant source of concern, particularly in London. Were the advantages that London enjoys through its transport offering to be lost through under-investment and neglect, firms would consider relocating their business to one of the capital’s global competitors. Obviously, this is something that cannot be allowed to happen, especially in light of the current government’s focus on economic recovery and encouraging entrepreneurship and private sector job growth.
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?
4.
The LCCI feels that the economic conditions of the UK have changed significantly in the four years since the publication of the Eddington Transport Study. In 2006 the UK was still enjoying the fruits of overwhelmingly benign global economic conditions. That year UK GDP grew by 2.7 per cent, while the LCCI’s own survey work registered an average positive balance of +20 points across all four quarters when directors were asked if they were confident in the outlook for London’s economy over the upcoming twelve months.
5.
Fast forward to 2010 and the figures tell a very different story. GDP is still down by around 4.5 per cent on its pre-recession levels, while unemployment has risen from around 5.5 per cent in 2006 to 7.8 per cent in 2010. Figures from the LCCI’s own quantitative data show a similar tendency with an average negative balance of -3.33 points when directors were asked the same questions as above.
6.
The country has also seen the size of the national debt, as well as the spending deficit rise since the Eddington Transport Study was published, with the former reaching £905.4bn or 68.1 per cent of GDP, while the latter currently stands at £155bn per annum.
7.
It is for these reasons that, upon its election in May 2010, the new government has embarked on a Comprehensive Spending Review, the aim of which is to restrict and reduce the sizes of the national deficit and debt. This will obviously necessitate efficiency measures and the cutting of a wide variety of departmental programmes, in order that Whitehall is able to meet the Treasury’s demands for savings of around 25 per cent, except in Health and International Development. This is the wholly different economic context in which this inquiry finds itself, from that which existed in 2006, when the Eddington Transport Study was first published.
8.
In the view of the LCCI however, these economic circumstances have not altered the key messages of the Eddington Transport Study around the importance of transport to the prosperity of the country. Spending on the infrastructure is still a vital component of economic growth.
9.
In fact, the LCCI would argue that there has never been a better time to invest in the transport network. The recent uncertain economic conditions have actually had a negative impact on the number of users travelling on our roads, using our trains and flying from our airports. This will only be a short respite, however, before numbers of users reach and then surpass the levels predicted before the recession. In fact the Association of Train Operating Companies already estimates the number of rail journeys taken has returned to pre-recession levels, while the next 20 years will see a doubling of demand for rail travel.
10.
This slowing of demand has created an opportunity to invest in the transport infrastructure of the country, while potentially reducing the disruption and impact to the public at a time when the number of journeys is not as high as it might have been.
11.
It is also equally vital that transport investment be maintained as it has been continually shown that improving links between the different areas of the country encourages growth and investment. This is in addition to the employment created by the project itself and its requirements.
12.
The LCCI and the whole business community in the capital understand that the government sees its first priority as being that of getting the deficit under control, and that this necessitates departmental spending cuts. However, we would caution against cutting spending on transport projects as they have been proven to facilitate economic development. Where cuts are unavoidable, we would instead encourage taking a different approach to the funding of these projects, maybe through private funding raised via a national infrastructure bank.
13.
There is, however, an important pre-condition to this and that is that assurances must be given that those projects for which the money is being raised via an infrastructure bank will go ahead. Otherwise, it will not be an attractive investment opportunity for businesses, pension funds or private investors. The LCCI would therefore suggest that an efficient approval process must be put in place for major projects which are privately funded, at least.
14.
This will also require the government to consistently take a longer term, strategic view than businesses have perhaps previously felt has been taken, as they did when considering building Crossrail, taking into account passenger estimates up to 2076! Despite this two-thirds of businesses still felt the government did not take a sufficiently long-term strategic view on major London infrastructure projects in recent survey work, and it was a central feature of the Eddington Transport Study.
What type of transport spending should be prioritised, in the context of an overall spending reduction, in order to best support regional and national economic growth?
15.
The LCCI is somewhat reluctant to ‘pick winners’ out of all the possible transport types and projects which are under consideration or proposed at this time. We feel it can be problematic to try and second guess what and where the future needs o economic growth will be.
16.
The LCCI does however, understand the need to prioritise, especially in these straightened times and so would suggest to the Transport Select Committee and encourage the government to focus on those projects that would provide the benefits of increasing capacity and connectivity the most. We believe these are the projects which will offer the best in terms of the returns on investment and social benefits, and ensure the economy is able to grow and sustain itself.
17.
From a London perspective, the LCCI feels that this means projects such as Crossrail and the upgrades to the London Underground network are vital. With the population of the capital set to rise by 1.3m by 2031 and with an additional 750,000 new jobs being created, the extra capacity provided by these two projects is crucial.
18.
In total, Crossrail and the tube upgrades will add an estimated £78bn to the GDP of the country, while the Treasury will see a tax boost of up to £17bn through the provision of Crossrail alone. Due to the innovative way Crossrail is being funded, through a special business levy, contributions and funding from Transport for London (which is due to be recouped from the fare box in any case), this is on an investment of one-third or £5bn towards the cost of the project.
19.
The capital’s boroughs will also benefits significantly, with Tower Hamlets (£51.8m), Newham (£99.8m) and Ealing (£56.9m) seeing some of the largest boosts to their economies.
20.
The LCCI also feels there is a strong case to be made for other transport projects which are more long-term in their provision. These projects include Crossrail 2 (the Hackney-Chelsea line), the building of a high speed rail line, beginning with a link between London, Birmingham, Manchester and Scotland and the provision of extra capacity at London’s airports.
21.
These projects will both supply more capacity on over-crowded routes and at airports but also increase the connectivity of London to other regions and internationally, especially if the future high speed network were to be linked up with the existing High Speed 1 line operating out of St Pancras.
22.
The LCCI also believes that in some cases it would be appropriate to adopt a phasing approach to the provision of certain transport projects. High Speed 2, for instance, could be built in a number of stages, with subsequent extensions to the line being paid for by revenue generated by those parts of the route already in service, thereby spreading the cost but still delivering on a vital infrastructure scheme.
23.
There are also other regional projects that the LCCI feels are important to safeguard the future of the UK economy, represent excellent value money and deserve to be prioritized. These includes the Birmingham motorway box, which offers hard shoulder running in the areas around the M5, M6, M40, M42 motorways, the Manchester Transport Hub and upgrades to the East Coast Mainline. In total, according the Department for Transport’s own figures these projects will see a £5.8bn return on £1.7bn invested.
How should the balance between revenue and capital expenditure be altered?
Are the current methods for assessing proposed transport schemes satisfactory?
24.
The LCCI does not wish to comment on these two issues.
How will schemes be planned in the absence of regional bodies and following the revocation and abolition of regional spatial strategies?
25.
The LCCI feels this is an issue of particular concern, despite the retention of the capital’s own spatial strategy by the Mayor of London.
26.
This stems from the idea that many projects, particularly those which are transport related, will cross local authority boundaries. As far as London is concerned, this can be seen in relation to Crossrail which will pass through Hillingdon, Ealing, Hammersmith and Fulham, Kensington and Chelsea, Westminster, the City, Tower Hamlets, Newham, Redbridge, Barking and Dagenham and Havering in the capital alone. Plans for a high speed rail line between London, Birmingham, Manchester and Scotland will encounter similar issues.
27.
Future projects therefore run the risk of being undermined should one local authority which will see part of the proposed transport project located within its boundaries choose to protest. This overall strategic oversight is one aspect of regional spatial strategies that, with their abolition, risks being lost.
28.
The LCCI understands the current government wishes to foster a more accountable and empowered civic society, where local communities’ needs and wishes are central to government thinking. However, we also feel this could act as a brake on progress and development, and the UK could lose out to its global economic competitors in the race to secure inward investment.
29.
We would therefore like to see nationally important transport projects, whether infrastructure or operational schemes, decided on the basis of the balance of benefits and impacts to the nation and not skewed by local, or even regional, issues. The LCCI believes this can best be handled by national government.
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