I contributed to a recent meeting of the Transport Statistics Users Group to discuss Investment Appraisal.  My presentation: Metz TSUG 13-7-16    The main points I made are set out below.

The Department for Transport (DfT) recently commissioned new research to establish monetary values for the saving of travel time. This has served to highlight the problems of using Stated Preference experiments to estimated values of time saved by asking respondents hypothetical questions about the trade-off of time and money costs. Quite a lot of variation in the value of time is found, according to the experimental set up, depending on what other factors are invoked, for instance journey time variability, road congestion or rail crowding; and also whether, for work trips, the perspective is that of the employer or employee. Moreover, an attempt to establish Revealed Preference values, by ascertaining behaviour for rail trips where there was choice of alternative routes, did not succeed for technical reasons. The upshot was new values for time savings that differed substantially from previously established values using the same approach, for reasons that are not clear.

Altogether, the SP approach seems decidedly problematic in establishing sound values for travel time savings. But there is a bigger problem, in that the National Travel Survey shows that average travel time has hardly changed over the past 40 years that this has been measured, despite huge investment in infrastructure justified by supposed time savings benefits. The explanation for this apparent paradox is that the SP experiments use short term trade-offs whereas the NTS recognises the long term outcomes, whereby people take the benefit of investment by travelling further at higher speeds to gain additional access.

Land use change

This additional distance travelled gives rise to changes in land use, as for instance in London’s Docklands, which have been made accessible by public investment in the rail system, permitting private investment in high value accommodation. The economic case for Crossrail, due to open in 2018, was based largely on time savings (user benefits), divided three ways between business, commuting and leisure travellers. To this was added the economic benefits attributed to ‘wider impacts’ (mainly agglomeration effects) not included in the user benefits. What was not included, however, was the increased real estate values since this would be double counting user benefits. So real observable increases in land and property values are disregarded in the standard approach to appraisal, which prefers notional time savings and notional ‘wider impacts’.

Another rail investment appraisal is that for HS2, which is also  based mainly on user benefits. The problem in this case is the lack of any indication as to where, regionally, the benefits arise, a serious deficiency given that the intention of the new rail route is to boost the economies of the cities of the Midlands and the North.

Who benefits?

For road investment, the problem with the standard approach based on time savings is the failure to consider distribution of benefits across classes of road users. Congestion arises on the Strategic Road Network in or adjacent to populated parts of the country, where it is used by local users, particularly for commuting, as well as by long distance users. My own analysis suggests that it is local users who get the bulk of the benefit from investment to increase the capacity of the SRN, faster travel permitting more choice of jobs and homes, the extra traffic returning congestion to what it was, with long distance users no better off. If this is right, there is a question of the value of national investment in the SRN that fosters local car-based commuting. The failure to distinguish how the benefits of investment affect different classes of road user means that this question is not addressed. (In contrast, the distribution of benefits to different classes of rail users is possible, because we have data from ticket sales that allow this classes to be distinguished.)

In summary, the travel time savings methodology is problematic because:

  • SP values of time are sensitive to context.
  • There is only a very tenuous connection between short run SP values and the value of long run real estate development.
  • There is no indication of how benefits of investment are distributed regionally (for long distance rail) or by classes of users (for roads).
  • Observable changes in land and property values are disregarded, which means there is a disconnect between the economic case for an investment and the business case.

Reliability

A further benefit of transport investment can be improved reliability – improved traffic flow on roads, reduced lateness on public transport. The SP research investigated this and concluded that the ‘Reliability Ratio’ should be reduced from 0.8 to 0.4. (The RR is the value of travel time variability (SD) divided by the value of travel time savings: it enables changes in variability of journey time to be expressed in monetary terms.) This downgrading of the importance of reliability seems at odds with a previous study by DfT that surveyed road users about their preferences. One question asked about priorities if additional money were available: improving traffic flow ranked well above reducing journey times. While not a formal SP investigation, the survey findings suggest that reliability should be the main economic benefit from a user perspective, rather than time savings, which is the reverse of the WebTAG treatment.

Having appropriate monetary values for reliability is important for appraising investments focused on this aspect, for instance variable speed controls for managed motorways and predictive journey time information that mitigates the main detriment of traffic congestion. Such digital technologies are likely to be far more cost-effective that civil engineering technologies in improving the user experience.

WebTAG deficiencies

The DfT’s approach to transport investment appraisal, known as WebTAG (web-based transport analysis guidance):

  • Under-estimates benefits of urban rail investments, because the enhancement of real estate values is disregarded.
  • Over-estimates benefits of inter-urban road investments, which foster local car commuting.
  • Under-estimates benefits of digital technologies.

The Treasury provides central guidance on analytical methods used across government departments. The original Green Book advises on investment appraisal, where the WebTAG approach to cost-benefit analysis is seen as an example of good practice. It is, however, an outlier in the amount of detailed analysis required to be compliant, and hence in the effort required. Other departments are less demanding. For instance, there have been major programmes of school and hospital building in recent years, but there is no theory of how replacing an obsolescent building improves educational or health outcomes, which limits analysis to considerations of cost-effectiveness.

The most recent Treasury guidance is the Aqua Book, which deals with quality assurance in analytical models, and was prompted by DfT’s analytical shortcoming in connection with retendering the West Coast Main Line rail franchise in 2012. One requirement is that analysis should be ‘grounded’ in reality: connections must be made between the analysis and its real consequences. The WebTAG approach fails this test, for the reasons outlined above.

I am not alone in my criticism of the established approach to transport appraisal. The Transport Planning Society conducts an annual survey of its members: ‘Most TPS members consistently say that appraisal methods should be reformed. In the most recent survey, only 3.5% considered current methods did not need reform, with 60% having major issues with them. The top reason for this by some way was the need to appraise changes in land values, land-use or travel behaviour.’

Space not time

Recalling first principles:

  • Transport moves people and good through space (not time).
  • Investment that increases speed or capacity leads to more movement through space (not time).
  • We therefore need an economic framework that recognises spatial characteristics – Spatial Economics.

Spatial economics is a long-established sub-discipline of economics, going back almost two centuries to the seminal work of von Thunen who related the value of agricultural land, as measured by the rents that farmers could afford to pay to landowners, to the nature of the produce grown and the costs of transporting it to the market in the nearest city. This approach was subsequently extended to cities (urban economics) where the cost of housing falls as the costs of travel to employment in the city centre increase. The Spatial Economics Research Centre at the LSE is one source of expertise, although it appears not to have engaged in consideration of the kind of spatial economic analysis that would assist transport investment appraisal by mitigating the deficiences of the time savings approach.

 

 

 

 

 

I was invited recently to speak at a research conference of investment analysts and asset managers concerned with the automotive industry. My presentation summarised my thoughts about the future of the car:

Car use in big cities will decline, as a share of all travel, as exemplified by London. Successful cities attract those wishing to share that success – businesses, people to work, study and live. Population grows, population density increases, which generates economic gains known as agglomeration benefits, with analogous cultural and social benefits. The city authorities recognise that the road system cannot cope with potential demand for car travel and so invest in public transport, particularly rail which provides speedy and reliable travel compared with the car on congested roads.

Beyond city centres, the car will remain popular where there is road space to move and to park. But per capita car use is unlikely to grow in the developed economies.

Income growth no longer drives the growth of average distance travelled. The main determinant of the growth of travel demand is population growth. Corresponding growth of car ownership and use will depend in where the additional inhabitants are housed: more car ownership for greenfield sites, less for urban locations.

The car has developed incrementally since the original mass-market Model T Ford that hit the road a century ago. Despite enormous improvement and refinement, we still employ nineteen-century-originated mechanical engineering in modern cars. Electric vehicles use twentieth-century-originated electric propulsion and storage, which is being improved and refined to increase market penetration. Only with driverless vehicles do we get to a twenty-first century technology.

Digital technologies are being adopted incrementally by the motor manufacturers to ease the task of driving – the advanced driver assistance systems. Ultimately, these could permit full hands-off mode. But the manufacturers who market cars based on performance would promote driverless travel only when driving was tedious, as on long motorway trips or in congested urban traffic. In contrast to these evolutionary developments, we have Google’s revolutionary attempt to take a giant leap forward to a car lacking controls for a human driver. This is essentially a taxi with a robot driver. Taxis are useful: we would make more use of them if they were cheaper, as they might be if robots replaced human drivers. But they would not constitute a fundamentally new form of road transport.

More generally, application of the fast developing, disruptive digital technologies to road travel is constrained by the slow-to-evolve nature of the mechanical engineering technologies that still define the car. Nevertheless, there are possibilities for disruptive innovations that would affect car ownership and use:

Mobility-as-a-Services (MaaS) is a concept that would allow us seamless travel via the most appropriate mode, all arranged via a smartphone app (not dissimilar in concept to the traditional travel agent’s offering for long-haul trips). Feasibility of MaaS depends on being able to integrate the availability of the most appropriate mode – whether taxi, train, tram, bike – under different ownerships, with paperless ticketing, including at times of peak demand. This could be challenging, but if successful, would lessen the attractions of the personal car.

While role-out of simple driverless taxis would not be a fundamental innovation for road transport, the addition of shared occupancy to share ownership (‘shared-squared driverless’) would permit the more efficient use of road space. UberPOOL already offers shared trips at lower cost to those heading in the same direction at the same time. Two additional measures would further increase the efficiency of the urban road network: demand managemen that would give priority to shared occupancy vehicles, following the precedents of the High Occupancy Vehicle lanes on US commuter routes and zero charge for taxis in London’s congestion charging zone. Plus an urban road analogue of air traffic control that serves to avoid conflicts between aircraft and smooth flows, which would become possible as vehicle-vehicle and vehicle-infrastructure communications are developed. A shared-squared-driverless scenario with minimal congestion could offer door-to-door travel at time of choice with speeds comparable to urban rail, again lessening the attractions of personal car ownership.

The present state of battery technology constrains electric car sales, hence much effort is being expended to develop better batteries. Batteries based on the current Li-ion electrochemistry are being refined to improve performance, reduce costs and increase market penetration of electric vehicles. But it is possible that a new electrochemistry will be developed with superior performance – energy density, rate of charging, lifetime and cost. Much then depends on who owns this new battery: if a single battery manufacturer wishing to maximise sales, then all auto manufacturers could take advantage; but if an auto manufacturer had teamed with the battery manufacturer in developing the innovative product, that team could have a disruptive advantage.

Assessment

There are an increasing number of uncertainties that will affect the long-term development of the auto industry: changes in travel behaviour, attitudes to driving and personal car ownership, demographic developments, new technologies and new business models. It’s hard to take a view about investment outcomes. Given the greater risks involved in investing, larger returns will be sought. But then the question is what will motorists be willing to pay for driver assistance technologies that add significantly to the cost of cars, particular mass market models. The answer remains to be seen as these technologies percolate down the model price range.

 

 

 

The Government Office for Science initiated a Foresight project on Future of Cities, which has now concluded after three years of effort. The exercise was relevant to the plans of the Government for devolving powers to city-regions.

Some three dozen reports and essays were commissioned from experts (including my contribution on Peak Car), and a number of workshop meetings held. Some of the authors have contributed to an issue of Prospect magazine.

There are four reports as final outputs of the project. These are high level summaries, of substantial and varied inputs, which are neither concise nor cogent. The problem is the complexity of cities and the difficulty this creates for thinking about their future.

Forecasting and Complexity

The real world is complex, which makes it hard to understand, and which in turn means that forecasting is problematic. Models of particular regions or sectors assume continuity between past and future, relying on historic relationships as a guide to the future, subject to assumed changes in exogenous variables such as GDP and population growth, oil prices, and technological developments. But if the future is different from the past then historic relationships may no longer apply and forecasts cannot be relied upon.

One approach to dealing with such uncertainty is by means of scenarios that allow for new possibilities. While these may help to indicate the range of possible outcomes, they tend to be somewhat arbitrary and so are rarely persuasive.

Another approach is two-pronged, addressing contrasting developments. We attempt to identify: (a) factors which show long-term stability; and (b) points of transition between one set of relationships and a successor set. For travel, a long term constant is average travel time, of about an hour a day. And a point of transition is the end of the twentieth century when the Peak Car phenomenon signalled a change in behaviour, travel demand no longer being driven mainly by growth of incomes but now by population growth.

Assessment

The Future of Cities project has generated much interesting evidence from experts but has been disappointing in that it has not yielded illuminating conclusions. Naturally, at the beginning of such a project, the outcome is uncertain even if hopes are high. In the event, the conclusions are worthy, but bland.

 

 

 

 

 

‘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.

I visited Bournemouth to participate in a day-long seminar on transport arranged by the Council for councillors and officials. My fellow speakers were my UCL colleague, Peter Jones, and Phil Jones, a consultant transport planner. My presentation Metz Bournemouth 14-4-16

We  see that big cities such as London attract people to work, study and live, which results in higher population density and prompts investment in rail-based public transport since growth of mobility  cannot be met by more cars on the road network. But for smaller cities and larger towns like Bournemouth, the route to more sustainable transport is less clear. Cars are popular and responsible for 67% of commuting trips in Bournemouth, substantially higher than the 44% for Brighton, another prosperous south coast resort, perhaps reflecting thre latter’s more youthful demographic profile and better co-operation between the local authority and the bus operators. There may be lessons to be learned from Brighton’s experience.

More generally, my sense is that smaller cities and larger towns need to decide what kind of a place they want to be, and then work towards that aim incrementally, using stick and carrots.  A traditional aim has been to accommodate the car with plenty of cheap parking, thus attracting the trade of visitors. But then the volume of urban traffic lessens the sense of place and attractiveness of the destination. Pushing back the cars, for instance through higher parking charges, may be unpopular in the short term, but may generate a source of revenue that would allow attractive improvements to be made to the urban realm. Fostering bus services and cycling by means of appropriate infrastructure investment is the carrot to balance the stick of parking constraints.

Breaking down the customary distinction between carriageway for vehicles and footway for pedestrians can be helpful in reducing conflicts and accommodating both, as the example of Poynton, Cheshire demonstrates.

In my presentation, I drew attention to evidence that travel in the twenty-first century is turning out to be different from travel in the twentieth, in particular that growing prosperity is no longer necessarily associated with increasing car use. This creates opportunities for policy initiatives in towns like Bournemouth that go with the grain of more sustainable trends.

The Government recently established a National Infrastructure Commission, an independent body whose purpose is to identify the UK’s strategic infrastructure needs over the next 10 to 30 years and propose solutions to the most pressing infrastructure issues. The Commission’s initial remit from the Government includes transport investment both in the North of England and in London. The Chair is Andrew Adonis and one Commission member is Lord Heseltine, the former deputy prime minister who has long championed the regeneration of Britain’s inner cities through infrastructure investment. Another Commission member is Demis Hassabis, artificial intelligence researcher and head of DeepMind Technologies, a company acquired by Google for a reported £400m. He may be an advocate for twenty-first century digital infrastructure, rather than yet more twentieth-century concrete and tarmac.

The National Infrastructure Commission has the potential to improve decision making by ensuring that sound analysis takes place in advance of decisions. The interesting question is how the Commission will function. Will it be a cheer-leader for those keen to build big civil engineering stuff with other people’s money? Or will it be a critical friend to government departments needing to get best value from constrained budgets?

There are two useful models for how independent bodies can advice government. The Office for Budget Responsibility was created to provide independent and authoritative analysis of the UK’s public finances. The Committee on Climate Change has the task to advise the Government on emissions targets and report to Parliament on progress made in reducing greenhouse gas emissions and preparing for climate change. Both the bodies are seen to be independent and their advice carries weight on that account.

It will be important for the National Infrastructure Commission to look critically at the analytical methodologies current employed by government departments, to ensure these are fit for purpose. This was one aspect of the paper that I recently submitted in response to a call for evidence (Metz NIC sub 4-1-16 pdf). I contrasted the position in London, where a dynamic economy requires continuing transport investment to keep up with economic and population growth, with the North of England, where it is hoped that such investment will stimulate growth, a far from certain outcome.

Transport technologies are remarkably slow to change. The first modern mass-produced motorcar took to the road in 1913 – the Model T Ford. In its fundamentals, it was little different from current models: internal combustion engine, gearbox, pneumatic tyres, amateur driver at the steering wheel. Contemporary cars are of course vastly improved in all respects, as are modern trains compared with the locomotives of a century ago, although the steel-wheel-on-steel-rail technology persists.

Speed limits

One consequence of this technological conservatism is that we have run out of the means to travel faster at acceptable cost and impact. Whilst high performance cars are built for enthusiasts, there is no general scope for faster travel on public roads, safely and with tolerable carbon emissions. On the railways, high speed rail routes are planned, but rail is responsible for a minority of all travel and high speed rail would be a minority of a minority, so its impact will be modest. There are more adventurous technologies such as Maglev and Hyperloop, but these seem expensive and inflexible, and therefore likely to be confined to specialist applications if deployed at all.

Why this reluctance to change? Why is nineteenth century technology still found under the bonnet of our cars – pistons, cylinders and crankshafts? Part of the reason is the interconnectedness and mutual dependence of the technologies – mechanical and electrical engineering, fuel supply, road infrastructure, and related safety regulation and road use legislation. The applications of all these technologies are path-dependent, in that we are not free to start again with some theoretically better approach on account of the huge investments that have been made. One particular constraint is the high energy density of oil fuels, which has made the modern car possible and still competes strongly with alternative energy sources. A switch to electric powertrains is going to be expensive, even if the problems of battery technology are solved.

Open and closed

For surface transport, the fundamental distinction is between roads that are open to all and so prone to congestion at times of peak use, and the railway – a closed system that can offer speedy and reliable travel. The nineteenth century was the great age of rail, offering station-to-station travel according to the timetable. In the twentieth century, the motorcar became predominant, providing door-to-door travel at the time of choice. But the very popularity of the car has limited its attractiveness in urban areas where population density is high, so that rail has experienced a revival.

Digital technologies

But while transport technologies evolve slowly and incrementally, the digital technologies and the applications that depend on them leap ahead. How might this change the pattern of transport? There are four broad areas of application of digital technologies to transport:

  • improve and enhance the operation of vehicles, including the possibility of driverless cars;
  • improve and enhance the operation of public transport, including convenient payment, apps for real time information and online advance booking;
  • facilitate travel on the road network, including satnav routing, advance journey time information, and urban traffic management;
  • facilitate seamless journeys across the modes.

Vastly increased computing capacity and data collection have led to big advances in digital applications. The mobile internet allows the reporting of system performance to be crowd-sourced from smart phones, as well as the sharing of vehicles.

The speed and ubiquity of digital technologies also allows travel to be avoided where business can be done through internet telephony and videoconferencing. On the other hand, the ease of establishing digital communication allows more extensive networks of friends and colleagues, with whom face-to-face contact is sought to reaffirm relationships. So the net effect of digital technologies on travel behaviour remains unclear.

Data sources

A recent review commissioned by the Transport Systems Catapult made a valiant effort to get to grips with the rapidly growing range of transport data sources. I liked the idea of ‘digital exhaust’, the data generated through the operations of transport companies and customer interactions, used to understand better individual and aggregated travel intention

One route to exploiting these burgeoning data streams is by private sector companies either selling services of value to consumers, or providing such services free of charge, cross-subsidised, in line with a high ‘expectation of free’ – although this works against smaller providers. The other route is provision by public bodies, of which Transport for London (TfL) is an outstanding example.

Assessment

In contrast to TfL, Highways England (successor to the former Highways Agency) is lagging in the provision of convenient information to users of the strategic road network. The Department for Transport’s Road Investment Strategy, which commits £15bn over five years, earmarked only £150m to an Innovation Fund for future technologies, the vast bulk of expenditure being devoted to civil engineering work. This Strategy may have been appropriate to the twentieth century, but not to the digital twenty-first.

The Rees Jeffries Road Fund, a charity, is supporting a study, Major Roads for the Future, led by David Quarmby. A Discussion Note on Technology outlines future possibilities and raises worthwhile questions. The challenge is to map the way forward in the face of considerable uncertainty.

 

 

 

 

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

 

 

 

 

High Speed 2 (HS2), the planned new rail route from London to the cities of the Midlands and the North, is a controversial project, about which I have been rather agnostic. What are the pros and cons?

Demand for rail travel has been growing rapidly, with passenger numbers doubling over the past 20 years since the industry was privatised. Has this growth arisen because of or despite privatisation? Probably both: the train operating companies have invested in new rolling stock, which attracts customers; but growth has also been the result of road congestion, digital technologies allowing productive work on rail journeys, the shift of the economy from manufacturing to business services located in city centres, and more people living in cities without a car.

We can expect demand for rail travel in Britain to continue to grow, driven both by population increase and by the attractions of an improving network that offers fast and reliable travel. Hence the need to invest in track, stations, signalling and rolling stock. Additional capacity on existing routes is publicly acceptable despite weekend interruptions to services, and can be cost-effective if spare capacity exists, although the decade-long modernisation of the West Coast Main Line in recent years was problematic, involving delays and cost over-runs. Longer trains and longer platforms, with a smaller proportion of first class seats, is one approach. Most rail investment involves improving existing routes, or occasionally reviving disused track, for mixed passenger and freight use. The main exception is HS2, a new build high speed route for fast passenger trains only.

The development of HS2 is being carried forward by a Government-owned company. A Bill is currently being considered in Parliament to secure powers to construct and maintain the first phase, London to Birmingham. The strategic case for HS2, published in 2013, argues that this offers a step change in north-south connectivity, at a cost for a high speed line of 9% more than a conventional railway. Travel time from London to Birmingham, for example, would be reduced from 1hr 21min to 49min. Long distance trips transferred to the new line will free up capacity on existing services for additional commuter services.

Economic case

An important part of the case for HS2 is the economic case. On the standard approach to transport cost-benefit analysis, where the main economic benefit is time saving through faster travel (valued because this permits more productive work or desired leisure), the benefit:cost ratio for the first phase is estimated to be 1.7 and for the whole route 2.3. These values take some account of a debate about the value of time savings when one can work on the train.

The Economic Affairs Committee of the House of Lords has issued an illuminating report critical of the case for HS2, making the following key points:
• Business travellers, who derive 70% of the transport benefits, should pay higher fares than for standard rail journeys.
• Long term growth of demand for rail travel is unclear; overcrowding arises from commuters, not long distance users who would most benefit from high speeds.
• The economic impact is unclear; the economic case based on the value of time saving is unconvincing; and London may be the biggest beneficiary.
• There are better ways of spending £50bn, the cost of constructing HS2, track and trains.

The Government responded to the House of Lords report, rebutting the criticisms without shedding further light on the economic case.

Assessment

The economic case for HS2 relies largely on estimates of the benefits to business travellers from speedier journeys, for instance saving half an hour between London and Birmingham. The value of this benefit depends on the future number of travellers and on estimates of the value of time savings – both subject to considerable uncertainty. The Department for Transport has recently published research findings that would increase the value of time savings from long distance rail travel.

What the conventional economic case does not illuminate are the benefits to the cities of the Midlands and the North of the new rail route arising from new urban developments. To include the enhanced value of land and property that would arise from improved access and connectivity would be double counting the time savings benefits, according to the orthodox view. This view has nothing to say about distribution of benefits other than to different classes of travellers (business, commuters, leisure) – nothing about spatial distribution as between cities and regions, nor about benefits to existing land and property owners.

An approach to economic analysis of transport investments that was based on spatial economics would allow changes in land use and enhancement of land and property values to be taken into account as reflections of the economic benefits of improved access. This is what happens, in effect, when a particular transport investment is promoted as part of a more general development – an example is the planned extension of the Northern Line tube in London to allow the development of the Nine Elms riverside site.

Appraising the development potential in the cities to the north of London that would result from HS2 is difficult, given the many uncertainties. Much depends on the efforts made by the city authorities to take advantage of the new rail route, efforts that are seemingly being undertaken with some enthusiasm, as well as on the commercial judgement of the developers. But it is clear that the range of uncertainty associated with such a large, single, hopefully transformational investment is substantial. So unless the benefit-to-cost ratio is large (unlikely for HS2 however valued), the political judgement to proceed could not be based on a clear economic case.

We cannot be sure that the main beneficiaries of HS2 will not be businesses based in London. The challenge for the cities to the north is to prevent this outcome.

I gave a talk on this topic at a recent meeting of the Transport Economists Group, one theme of which was the subject of the previous article. My overall conclusions are set out below.

A number of new trends emerged in the 1990s, or in some cases are still emerging:

  • There has been no growth in average distance travelled in Britain for more than 20 years, whether by all surface modes or by car alone. Available data suggests that this holds for the developed economies generally. This contrasts with the previous century and more during which average distance travelled increased steadily.
  • One reason for this cessation of growth of distance travelled lies in technological constraints on faster travel. We cannot drive faster on the roads, safely and with acceptable emissions. We have high speed rail to come, but rail is responsible for a minority of trips, and high speed rail for a minority of a minority. These technological constraints mark the end of an era that began in 1830 with the first passenger railway, which harnessed the energy of fossil fuel to permit travel at faster than walking pace.
  • Car-based mobility or access to good public transport allow high levels of choice of many regularly used types of destination, thus lessening the need to travel further.
  • Travel demand per capita has ceased to be driven by growing incomes. Total travel demand is now determined largely by population growth. However, the pattern of such demand will depend on where the additional inhabitants are housed – if on greenfield sites, more car use; if within existing urban areas at higher density, then more public transport.
  • Car use in big cities has passed its peak, in term of mode share, and is now declining. Successful cities attract people to work, study and live, so population density increases. The city authorities recognise that the road network cannot be enlarged to accommodate increasing car use, so investment in urban rail is needed to meet the mobility needs of the population.

So travel in the twenty-first century will be different from travel in the twentieth century, quite apart from the impact of technological developments such as driverless cars.

In contrast to these new trends, one unchanging feature is average travel time of about an hour a day, found for all settled human populations. This constitutes a sound basis for forecasts or scenarios of future travel. Travel/transport models should be constrained to hold average travel time constant in the long run. They also need to recognise the new trends outlined above as regards both model structure and calibration. Most existing models are obsolete.