Lord Wolfson offered a prize worth £250,00 for the best proposal in response to the question: ‘How can we pay for better, safer, more reliable roads in a way that is fair to road users and good for the economy and the environment’.

The winner was Gergely Raccuja, a recent UCL graduate, now a transport planner with Amey Consulting. His proposal has the merit of simplicity: replace Fuel Duty and Vehicle Excise Duty, receipts from which are declining as vehicles become more fuel-efficient, with a per-mile charge that would depend on a vehicle’s weight (reflecting the damage caused to the road) and emissions (damage to the environment). The charge would be collected by the insurance companies, the new charge being in effect a supplement to the insurance premium.

The impact of congestion caused by a vehicle is captured in a crude way by a distance-related charge. However, the opportunity to relate the charge to the level of congestion was not taken because of the perception that it would be unpopular and hence prevent the new charging scheme being adopted.

Some of the other finalists for the prize proposed schemes involving charging that reflected in part the contribution of vehicle users to congestion, but these were not favoured by the judges.

Assessment

It is very welcome that a new entrant to the transport planning profession was the prize winner, with a relatively simple proposal. But is it likely to be taken up? My sense is that implementation would not be seen as worth the effort and upheaval. Perhaps the main advantage is that electric vehicles would contribute to the costs of the road system, but for that purpose the proposal might be applied to EVs only, leaving Fuel Duty in place for vehicles with internal combustion engines.

The main shortcoming of the prize-winning proposal is the failure to address the problem of road traffic congestion and how it might be mitigated by charging. Public perceptions are important, of course, but I found it odd that there is no mention of London congestion charging, which has proved quite acceptable.

Any change to how we pay for roads should take the opportunity to ameliorate road traffic congestion, which is the biggest problem of the transport system. Arguably, the question set for the prize was misconceived, with its opening emphasis on ‘How can we pay for….’. It might have been better to ask ‘How can we achieve better, safer, more reliable roads….’

 

My new book, Travel Fast or Smart?, is one in a series of short books on policy and economics topics described as ‘essays on big ideas by leading writers’. My contribution is a critique of the inconsistencies of transport policy in recent decades, which I attribute to the shortcomings of conventional transport economic appraisal in identifying the benefits that arise from investment.  This book is available both in print and as an ebook from Amazon Books


Transport for London (TfL) has published an illuminating report on the topic of Land Value Capture (LVC) – the way in which transport investments could be funded from a share of the increased value of land and property that follows when access is improved as a result of the investment. This study was carried out in response to a request from the Government for detailed proposals.

The range of possible approaches to LVC is wide, and overseas experience is relevant. A conclusion is that of past projects, the Jubilee Line Extension to Docklands resulted in land value uplifts of 52% relative to controls, and the Docklands Light Railway extension to Woolwich, 23%. For eight prospective TfL projects costing around £36bn, land value uplifts could be £87bn. So plenty of value that could help fund these new investments.

The Annexes to the main report are interesting, particularly Annex 7, the literature review of the theory and practice of the relationship between transport and land value, a relationship which does not form part of the orthodox approach to cost:benefit analysis of transport investment. The orthodox approach is concerned with benefits to users, particularly time saved through faster travel. The orthodox view is that to include the uplift of the value of land made more accessible by the investment would double count benefits that accrue to users. However, the user benefits are notional, based on the outputs of transport models, whereas the land value uplifts are real and observable.

Assessment

The TfL report is important, both to identify possible ways of using LVC to fund new projects, and also to assert the relevance of land value uplift as a measure of the economic impact of transport investments. Chris Grayling, Secretary of State for Transport, in a speech on 6 December 2016, recognised the case for LVC:

I want to look at innovative ways of funding infrastructure development. Often the opening of a new road or a new railway line or station can transform the value of development land. It is right and proper that the government gets back some of the value it has created to invest in infrastructure. We have seen this happen for Crossrail through the mayoral community infrastructure levy.

My new book published on 1 September is one in a series of short books on policy and economics topics described as ‘essays on big ideas by leading writers’. My contribution is a critique of the inconsistencies of transport policy in recent decades, which I attribute to the shortcomings of conventional transport economic appraisal in identifying the benefits that arise from investment. A column in The Spectator magazine of 26 September described my book as ‘excellent throughout’. My book, Travel Fast or Smart?, is available both in print and as an ebook from Amazon Books.


Yesterday the Government endorsed the proposal to build a third runway at Heathrow, as recommended by the Airports Commission in its final report of July 2015.

There has been much agonising, mainly on account of the environmental impact – noise and local air pollution – of adding capacity to an already large airport within the bounds of London. MPs representing affected constituencies are generally opposed, with Conservatives reportedly to be given some licence to speak their minds. The Mayor of London, Sadiq Khan, is also opposed, preferring expansion at Gatwick, well away from his domain.

But yesterday’s decision is less the beginning of the end, more the end of the beginning. The process for delivering planning consent for airport expansion will include an ‘Airports National Policy Statement’ (NPS), following which the scheme promoter would need to apply for a development consent order. Such National Policy Statements for infrastructure developments are a statutory requirement, involving a process of public consultation of a draft document and parliamentary scrutiny, before being finalised. They provide the framework within which Planning Inspectors make their recommendations on specific planning applications, and are intended to prevent national issues being reopened at planning inquiries.

Consultation on the Airports NPS would probably take around a year, given the range and contention of the issues involved, and would allow all parties to have their say. Concerns about local air pollution will be prominent. Unpublished (and disputed) research at Cambridge University is reported as arguing that the marginal increase in NO2 associated with airport expansion would be against the background of reduced NO2 from other traffic, because of Euro 6 engines and electrification of the traffic fleet.

There are also questions about the affordability of a third runway at Heathrow. Willie Walsh, chief executive of British Airways, has questioned the costs of expansion and the impact on landing charges: “I honestly can’t see how you can spend that much money on an airport and not discourage people from flying there.

Gatwick Airport has been arguing vigorously that it should be allowed to add another runway, which would be built faster, be less costly and have less environmental impact than Heathrow. An issue for the Airports NPS is whether Gatwick should have the option of expanding, as well as Heathrow, to achieve more competition. However, the owners of Stansted say they would launch a legal challenge were both Gatwick and Heathrow to be given the go-ahead, on the grounds that they had not been given the opportunity to present their own case for expansion.

When the draft NPS comes to be scrutinised in Parliament, there will be probing questions, not least from the All Party Parliamentary Group on Heathrow, which has identified sixteen serious risks that could stop or delay expansion. There is bound to be a vote to ratify the NPS, which likely to be a free vote to allow dissenting Conservative MPs to register the unhappiness of their constituents – so no assured outcome.

Evidently, there is a long way to go before construction could start at Heathrow. The timeline includes publication of the draft Airports NPS, public consultation, the Government’s response, parliamentary scrutiny and endorsement (all of which could take a year), a public examination by a Planning Inspector of the detailed plans (which could take another year), the Inspectors report, and the Secretary of State’s decision. In the meantime the finances would need to be agreed, including the necessary increase in airport landing charges to recover the costs, and the financing of surface transport provision.

It is worth recalling that planning consent for the Hinkley C nuclear power station was originally given in 1990, following a year-long public inquiry, but agreement to begin construction was reached only in September 2016. The delay was mainly due to difficulties about financing a plant that generates high cost electricity – a salutary warning of the length of time it can take for large contentious infrastructure proposals even to get to the point of starting construction.

A version of this article was published in The Conversation

 

 

 

 

‘Transport modelling – fact, forecast or fiction?’ was the topic of a well-attended meeting of the Transport Planning Society at which I was a panelist. I argued that there was occurring quite a lot of change in travel behaviour as we moved into the twenty-first century – not least the Peak Car phenomenon – which made the task of the modeller more difficult. Modelling of any kind assumes continuity between past and future, that past relationships (estimated as elasticities) will apply in the future, subject to changes in parameters exogenous to the model, such as growth in GDP, population and oil prices. If behaviour is changing, the best approach is to widen the range of forecasts by adopting scenarios which allow the model to explore the impact of a wider range of travel behaviour. An example is the generation by Department for Transport modellers of road traffic forecasts based on five scenarios applied to the National Transport Model.

I also drew attention to the experience of the Actuarial profession, which after the failure of a life assurance company had prompted a government inquiry,  had put in place formal standards for actuarial analysis and a means for professional oversight of compliance. One standard deals with modelling, the language of which is quite general and would be relevant to other kinds of modelling, including transport modelling. So the actuaries’ arrangements show that it would be possible to put in place formal standards for transport modelling. However, for this to happen, there would probably need to be some kind of scandal, as happened to the actuaries.

One kind of scandal involving transport modelling has occurred in Australia, where a number of privately-funded toll roads have experienced usage far below the forecasts made when investors were approached to finance construction. This has resulted in litigation that in at least one case resulted in the transport consultant responsible for traffic forecasts paying out $200m. Were something similar to happen in Britain, I would expect a call to put in place standards for transport modelling.

My fellow panelists had their own concerns and solutions to achieve better transport modelling. My feeling from the meeting as a whole is that there is a needed to  review systematically the current state of the art and to identify ways to improve. I hope the Transport Planning Society might act as a thought-leader, given the centrality of modelling to planning.

The Government is struggling to reach a view on the recommendation of the Airports Commission that another runway be built at Heathrow. Both the main political parties are divided on this issue. Local MPs are generally against, as are the candidates in the 2016 election for Mayor, on account of environmental impacts.

The Airports Commission forecasts a doubling of passenger numbers by 2050, hence the need for new runway capacity. I have argued previously that there is much more downside uncertainty in this forecast than the Commission believes, in part because the market for air travel may be more mature than generally supposed.

Quite apart from forecasting questions, there are reasons to suppose that we could cope quite well without a further runway in the southeast England, whether at Heathrow or elsewhere. To start with an argument by analogy.

Road capacity constraint

In the 1970s London decided not to enlarge the road network to accommodate growing car ownership. The retained historic street pattern has constrained car use such that car traffic has not increased over the past 20 years, a period of population and income growth. So the share of journeys by car has fallen, while investment in public transport, rail in particular, has met the mobility needs of inhabitants and visitors. London has thrived economically, culturally and socially despite a major transport capacity constraint – the road system. We have worked around this by investment in rail that provides speedier and more reliable travel than the car on congested urban roads.

Airport capacity constraint

If we did not construct another runway, how would we cope? What would be the workaround? For air travel this lies within the system. Three–quarters of passengers are on leisure trips. Even at Heathrow, 70% of passengers are tourists or visiting family and friends. Yet the arguments for more runway capacity are very largely about the need to allow for the growth of business travel – to help British businesses develop new markets and to foster inward investment into the UK.

The case for more airport capacity to support tourism is weak. While London’s hospitality, entertainment and retail sectors would welcome more inbound visitors, Britain has a negative balance of trade in tourism, the British abroad spending a lot more each year than overseas visitors to the UK. Moreover, London, the inevitable destination of first time visitors, is essentially a working city where excessive numbers of tourists arguably detract from the quality of life. Promotion of inbound tourism might better focus on places outside the capital, accessible from regional airports.

Market response

If we decided not to construct a further runway at Heathrow, the market would respond to this capacity constraint. Business travellers would command priority since they would be willing to pay for the convenience, connections and direct flights at Heathrow. Growth of business travel would displace leisure travel, both within aircraft on existing routes and between routes, where there are trade-offs of time against money. For instance, if I need to travel to India on a business trip for which others are paying, then if possible I would fly direct from Heathrow. But if I am on a holiday visit, paying out of my own pocket, than I may choose the cheaper alternative via a Middle East hub, the inconvenience of the change of aircraft being acceptable for the more attractive price.

At present, both routes to India start from Heathrow. If business travel grew, the airlines would serve the routes with larger aircraft. If demand grew yet further, then alternative departure points for leisure travellers would be offered, such as Stansted, which has plenty of spare capacity.

Growth of business travel in conditions of capacity constraint would be profitable for both the airlines and Heathrow airport. If profits were judged excessive, there are regulatory interventions that could be considered to prevent users from being exploited.

Assessment

There is a case for an additional runway in southeast England, as argued by the Airports Commission. But if it proves too difficult to agree where to build it (and how to finance it, given the uncertainty of forecast usage), then we could manage without. The market would give priority to business travellers. Leisure travellers are more flexible and would take advantage of alternative routes that the airlines would offer.

A version of this article appeared in The Conversation on 11 December 2005

 

 

 

 

The Financial Times reports that Crossrail, the new east-west underground rail line currently being constructed in London, is sparking office development near stations on the route, with expectations of rents rising 10% over the next decade above the baseline projection. While a business levy is contributing to the construction cost, this captures only a fraction of the rise in values from Crossrail. This office construction is part of a trend for companies to move back into central London, reversing a 20-year exodus aimed at cutting costs. Businesses find that they can’t attract quality staff outside the capital.

The general point is that new transport infrastructure, well located, enhances access and prompts the construction of commercial and residential property, the source of employment and homes. This is how the benefits of transport investment materialise. Property owners who benefit from enhanced values should be expected to contribute to the cost of construction.

One of my interests is how the financial services sector works. This originates in a six-year term as a member of the Financial Services Consumer Panel which advises the UK Financial Services Authority. My perception is that innovation in financial services has benefited the innovators much more than their clients. This has happened as a result of the complexity of new products, which the providers understand much more than the customers, and which as a result profit the former to the detriment of the latter. The resulting profits are the source of the excessive remuneration achieved in financial services, which in turn has led to the increasing inequality seem in society at large.

I have an article on this theme just published in Juncture, the online journal of the Institute for Public Policy Research