The Prime Minister has announced the Government’s decision to go ahead with High Speed 2 (HS2), the new rail route from London to the cities of the Midlands and the North, despite the dramatic escalation in construction costs, from £37.5bn in 2011, to £50bn in 2013, to £65bn in 2015, to excess of £100m in 2019 and probably in eventual outturn.

The value for money (VfM) of the investment has been computed according to the Department for Transport’s (DfT) standard approach to appraisal of proposed investments. This compares benefits with costs according to long-established principles of cost-benefit analysis as applied to public sector investments. The main benefit to users of a faster rail route is assumed to be journey time savings, which are supposed to allow us more productive work or enjoyable leisure. To these time savings are added lesser contributions from improved reliability and reduced overcrowding, as well as some wider economic impacts such as productivity gains and environmental impacts.

It was noteworthy that the initial increases in the cost of HS2 did not change the supposed economic benefit, as measured by the benefit-to-cost ration (BCR), which held steady at close to 2.0, or £2 of benefit for every £1 of cost. Substantial additional benefits were recognised by the promoters, even though nothing fundamental had changed in the business case. However, the independent review by Douglas Oakervee, commissioned by the Government and just published, puts the BCR at 1.1 to 1.5, reflecting the increase in costs. The National Audit Office’s recent report on HS2 estimated a BCR of 1.4.

The DfT is yet to issue a revised Business Case for HS2 that takes account of the latest plans and possible cost savings. When it does, I expect to see the usual tweaking and massaging of assumptions about an uncertain future state of the world that can be defended as a legitimate exercise of professional judgement by transport economists who wish to please their clients, in this case Ministers who have decided to press ahead. The objective will be to achieve a BCR of 2, which is the threshold for the DfT’s High Value for Money (VFM) category.

Apart from such malleability in analysis, there are two big problems with the standard approach to the economic appraisal of proposed transport investments. First, the time saving benefits arise from trips between cities and say nothing about economic development within cities. The strategic case for HS2 is to boost the economies of the cities of the Midlands and the North by improving their connectivity to London and the South East. But the impact on cities, as seen in the form of property development and increased real estate values from productivity enhancement and employment creation, does not enter into the cost-benefit calculus, which is silent on the geographical distribution of benefits. The Oakervee review concluded that the economic case does not currently fully align with the strategic case because economic rebalancing, one of the primary drivers in the strategic case for HS2, is not currently reflected in the economic case.

The second problem is that average travel time, as measured in the National Travel Survey, has hardly changed over the past 45 years, despite many £billions of public investments in the transport system justified by the value of journey time savings. What actually happens is that investments that result in increased speed of travel allows us to travel further, to gain access to more distant destinations, opportunities and choices, which are the real benefits experienced by users, not the hypothetical time savings assumed by the economists. Such transport investments lead to changes in land use as people and businesses take advantage of the improved access to land and property capable of better use.

The standard approach to economic appraisal of transport investments is quite narrowly focused and disregards the value implied by changed land use and the geographical distribution of economic activity. The DfT has not required or supported modelling of the land use impacts of transport investment, which has contributed to the failure to value the real benefits of HS2. These might turn out to be quite substantial if the linked cities can take advantage of the modern high-speed connection to London to boost their economies by local investment in property development near to new stations and in urban rail to enlarge the benefits to surrounding districts.

The purpose of HS2, as with any new railway, is to move more people through space, so spatial impacts are what are of interest. The focus of the transport economics profession on time savings has been quite misconceived.

This blog was also published in Transport Times on 13 February 2020

 

 

 

The Office of Rail and Road (ORR) is responsible for overseeing the performance of Highways England (HE), a publicly owned company responsible for England’s strategic road network. ORR is consulting on how it should perform its role. I have responded as below:

HE is responsible for a substantial programme of investment in new and improved road infrastructure, each element of which is supported by cost-benefit analysis consistent with the Department for Transport’s Transport Analysis Guidance. The main economic benefit is assumed to be the value of the time saved as a result of investments which increase capacity and are intended to reduce road traffic congestion.

However, there are questions about the estimation of prospective travel time savings derived from the standard models used for traffic forecasts. For example, monitoring of the outcome of widening of the M25 between junctions 23 and 27 concluded that ‘increases in capacity have been achieved, moving more goods, people and services, while maintaining journey times at pre-scheme levels and slightly improving reliability.’[1] No travel time savings were observed beyond the first year after opening, in part at least due to increased traffic, notably an increase of 23% at weekends. These outturns were inconsistent with the forecasts of traffic volumes that were significantly less than observed, and with speeds that were projected to be higher with the road widening than without.[2] The higher speeds were the basis for estimates of travel time savings, leading to the DfT’s estimate of the Benefit-to-Cost ratio of 2.3, which justified the investment.

This example shows that there may be a substantial discrepancy between forecast and outturn traffic flows and speeds. That this is a general problem is indicated by the observed invariance of average travel time over the past 45 years, as found in the National Travel Survey.[3] This implies that the benefits of road investment have been taken, not as time savings, but as increased access to desired destinations, which results in more traffic. This additional traffic is known as ‘induced traffic’, the consequence of increasing capacity, which results in increased externalities related to vehicle-miles travelled, including congestion, carbon emissions, air pollutants, and death and injuries. While HE routinely monitors outcomes of schemes 5 years after opening, this may not be sufficiently long to observe the full extent of induced traffic.[4]

There is therefore reason to suppose that in general the outcome of road investment as experienced by users does not correspond to the rationale for the investment, which is principally to increase welfare and economic growth by reducing congestion and improving connectivity. This discrepancy should be of concern to the ORR.

[1] Smart Motorway All Lane Running M25 J23-27 Monitoring Third Year Report. Highways England. 2108.

[2] https://www.gov.uk/government/publications/vdm-used-to-estimate-traffic-volumes-and-travel-time-saved

[3] Table nts-0101-2018

[4] Sloman L, Hopkinson L and Taylor I (2017) The Impact of Road Projects in England, Report for Campaign to Protect Rural England

 

 

Transport for London has recently published its latest report on Travel in London. At 279 pages, this latest in an annual series is almost certainly the most detailed account of travel behaviour in any city in the world. All credit to TfL.

Table 2.3 shows trip-based mode share. Private transport (very largely car) was responsible for 48% of trips in 2000, declining to 37% in 2015, but thereafter stabilising. Public transport has been stable at 35-36% of trips since 2012, and walking at 24-25% since 2000. Cycling grew from 1.2% in 2000 to reach 2.5% 2018. So the declining trend of car use has ceased in recent years, but it may resume as new rail capacity is opened, particularly Crossrail (the Elizabeth Line). Nevertheless, the target reduction of private transport to 20% by 2041, a feature of the Mayor’s Transport Strategy, looks difficult to achieve.

Section 9.7 discusses the role of licenced taxis and private hire vehicles (PHVs), a topic of much current interest. Taxis (black cabs) have been in slight decline while PHVs have grown substantially in recent years, largely reflecting the entry of Uber into the market. A survey of PHV users in London found that the two main trip purposes were for a night out and to/from airports, but only 28% of PHV trips were for both outward and return legs. App-based PHV users were attracted by specific features: estimate of fare, time for driver to arrive, knowing details of car booked, and estimate of journey time. 30% of PHV users said they had not needed to buy, replace or own a car, which facilitates a shift from individual car ownership.

Assessment

While a long-term target for reduction in car use has merit in that it shapes shorter term decisions, no Mayor is likely to hold office for anything like the time to reach the 2041 target date. A shorter-term target would allow performance to be held to account. And while the recent experience of London is that a steady reduction in the share of trips by car is compatible with the economic, cultural and social success of the city, sustaining this in the longer term would depend on substantial investment in the rail system that provides a fast and reliable alternative to buses, cars and taxis on congested roads. The biggest challenge for TfL and the Mayor is to find means of financing this investment.

BMW and Daimler recently announced that they were withdrawing their joint car-sharing service from the North America and the UK, although it will continue in some European cities. This business, known as ShareNow, which was the successor to BMW’s DriveNow and Daimler’s Car2Go brands, offered app-based short term car rentals, with pick-up and return anywhere withing large urban areas. The reasons given for withdrawal were rising costs and insufficient customer interest. The rationale for entering this shared use market was in case this were to develop into a significant alternative to the private ownership and fleet markets.

The implication of the BMW/Daimler decisions is that shared use seems less promising than many had supposed, not least CoMoUK, the association for the promotion of shared vehicle use in Britain. They see car sharing as a way of providing socially inclusive, low emission mobility which helps break dependency on private car ownership. Pay-as-you-go cars offer affordable, occasional access to cars to benefit individuals. At the same time, they help policy makers meet targets for emissions reduction, improvements to air quality and encouraging use of sustainable modes. However, CoMoUK’s concept of car sharing does not extend to the chauffeur-driven version, Uber and similar, the existence of which is likely to be a reason for the lack of commercial success of ShareNow.

Many observers believe that shared vehicle use is the solution to traffic congestion: if  occupancy could be increased, fewer vehicles would be needed. However, in urban areas there is substantial suppressed demand for car travel, the consequence of the deterrent effect of prospective delays due to congestion. Measures to reduce congestion initially reduce delays, which make car trips more attractive to those previously deterred, generating more traffic. So the limited levels of vehicle sharing that seem likely are probably not going to make much difference to road traffic congestion.

On 25 November, Transport for London (TfL) announced that it would not grant Uber a new private hire operator’s licence on account of a number of failures, including a change to Uber’s systems that allowed unauthorised drivers to upload their photos to other Uber driver accounts. This allowed them to pick up passengers as though they were the booked driver, which occurred in at least 14,000 trips – putting passenger safety and security at risk.

TfL commissioned an independent assessment of Uber’s ability to prevent incidents of this nature happening again, which led TfL to conclude that it currently does not have confidence that Uber has a robust system for protecting passenger safety, while managing changes to its app.

Uber is appealing to the Court against TfL’s decision, during which time is continues to operate. In effect, the Magistrate will adjudicate.

While the shortcomings of Uber’s system need to be rectified, what is unclear is the magnitude of the detriment to users and how this compares with other taxi businesses. Uber claims that more than 3.5m Londoners regularly use its service, so the proportion of trips with unauthorised drivers may be very small, raising a question as to whether TfL’s refusal of a licence to operate is a proportionate response. Arguably, this is an example of the ‘nanny state’ attempting to protect users from a low probability risk – the alternative being to publicise the infringement and allow users to make up their own minds about the acceptability of the risk that may arise. It would be interesting to know whether use of Uber dipped following the announcement of the driver identity failures.

A recent research study of Uber in London interviewed a range of people involved in ‘ridesourcing’ (i.e. prearranged and on-demand transportation services for compensation in which drivers and passengers connect via digital applications, also known as ‘ridehailing’). Stakeholders generally were unsure about how to deal with ridesourcing services and had no immediate plans for managing such services. There have been no new regulations or guidelines developed for ridesourcing in London, and these services currently operate under the private hire vehicle licensing system which was developed in the 1990s. These regulations are deemed generally to be outdated for ridesourcing, because the way services such as Uber operate is technically not a typical black taxi service – which can be hailed or stopped on the street without prior booking – or a traditional minicab, which requires a pre-booking.

The study quotes ‘a key policymaker in London’: “There are no regulatory changes planned, at the moment…….There comes a time where there is a whole proliferation of services which are completely unmanaged, unregulated, we then have to start thinking what powers we need to actually deal with this. You got to have some control. They are carrying passengers, offering transport for hire, people are paying fares, so it (kind of) fits into that whole public transport network and we really need to have management of that”.

Another London policymaker is quoted: “this is covered within the mayor’s draft transport strategy; however, it doesn’t sort of set clear plan for that specific element. Generally, shared occupancy is a good thing, albeit, it’s still by road transport, and the main thrust of the mayor’s transport strategy is to achieve that 80% sustainable mode share target, which is enormously demanding so everything has to be seen in that context”.

The researchers’ conclusion was that there are no mechanisms currently in place to monitor or assess the impacts of ridesourcing services in London, which results in a genuine lack of knowledge among policymakers and transport authorities on how they approach these services, in terms of regulations, operational guidelines, integration with other modes and future transport systems.

A House of Commons briefing paper published in November 2018 (CBP 2005) summarised the position as regards taxi and private hire vehicle licencing in England. Licencing of London’s black cabs is based on a Statutory Instrument enacted in 1934, and involves TfL setting fares, which may ensure income for taxi drivers, albeit limiting competitiveness with other providers. The government has considered aspects of taxi regulation but does not intend to bring forward substantive proposals for reform.

Assessment

The current regime for taxi regulation was devised before the advent of app-based services and is therefore no longer fit for purpose. It may inhibit some kinds of innovation, for instance fare flexibility for black cabs to better match supply with demand, while other innovations are not adequately catered for, as seen in the all-or-nothing refusal of Uber’s operating licence for what are arguably small and remediable infringements of a very popular service. Not only is the regulatory regime inadequate; there appears to be a lack of policy thinking in London that would inform regulatory practice.

A review of the regulation of taxi services in the light of current and expected technological innovations would be timely. Aspects that would need to be addressed include the possibility of control of numbers of cabs (not at present the case in London), whether regulation should cover terms of employment of drivers, the relationship to other modes of travel, competition for kerb space for loading and unloading, and the potential conflict of interest for TfL in its roles as both taxi regulator and public transport provider.

 

 

The National Infrastructure Commission has published an interesting discussion paper on capturing the value of urban transport investments. The starting point is the recognition that average travel time changes little, which means that travel time savings do not provide a reliable basis for valuing new investment. The Commission proposes an approach that focuses on valuing agglomeration benefits plus consumer benefits as these increase with increasing population density. Agglomeration benefits have for some time been recognised as appropriate for inclusion in cost-benefit analysis, but a direct estimation of density-dependent consumer benefits is novel.

The NIC paper is welcome fresh thinking, although not without raising issues for consideration. A supporting study commissioned from consultants SDG estimates that the utilisation of available theoretical transport capacity to access city centres ranges from 20% (small cities) to approaching 70% in the 0800-0900 peak hour. There is therefore considerable capacity underutilisation in all cities studied. However, London was not considered. It is possible that capacity utilisation in London is substantially higher, reflecting the pressures of population and economic growth. If so, this would suggest that adding to transport capacity in other cities would not be crucial to stimulate economic growth in the near term. It may not be valid to assume that enough latent demand exists that any additional capacity added will be used.

More generally, while transport capacity can act as a constraint on economic growth, justifying investment in expanding cities, other kinds of investment may be more cost-effective in stimulating lagging cities. This might be investment in broadband, for instance, or in improvements other than infrastructure that falls within the NIC’s remit.

The SDG approach focuses on capacity to access city centres and disregards the potential of faster and reliable travel, as offered by light rail or BRT, that would increase the size of travel to work areas. A study of travel in Birmingham, which has only a single light rail line, prompts the hypothesis that by relying on buses that get caught in congestion at peak times for public transport, Birmingham sacrifices significant size and thus agglomeration benefits, compared with cities of a similar size in France which rely on trams and metros.

Nature of benefits

Estimations of agglomeration and amenity/consumer benefits are based on elasticities derived from econometric studies of correlations between inputs and outputs, controlling for confounding variables. Such benefits are not observed directly and this respect they resemble travel time savings, which are based on the output of models, but not observed in practice. Moreover, the confounding variables are not insignificant, given the typical scatter of data points in plots to quantify agglomeration effects, which suggests that there may be many other possible interventions that might be made, other than those focused on travel.

What is observed as the result of transport investment are changes in land use and market value, the subject of a study for the NIC by the Institute for Fiscal Studies. Increases in real estate values reflect increases in agglomeration and amenity. Arguably, such increases in value would be the basis for a more grounded approach to appraising urban transport investment, more aligned to real world investment decisions.

Although the NIC discussion paper is concerned with urban investments, the approach is applicable to transport investments generally.

 

 

 

 

 

 

Last month, James Dyson announced the abandonment of his electric car project, worth £2bn of planned investment involving 500 staff. One factor in this commercial decision was the difficulty of developing a solid state lithium ion battery, seen as the next step in the evolution of lithium ion batteries. Getting the battery technology right is crucial for achieving commercial advantage in the electric vehicle market. A new entrant needs to offer a significant improvement in performance if it to grow market share, exemplified by Tesla.

Another likely factor prompting the Dyson decision, though not mentioned in press coverage, is the expectation that the car of the future will have autonomous driving options as well as electric propulsion. Autonomy involves either prolonged costly development or buying in someone else’s technology – both involving considerable risk.

As I have argued previously, the benefits to users of the new auto technologies will be incremental, not transformative. Yet the new technologies will be transformative for the manufacturing industry. There is a risk that returns from incremental improvement in performance will be insufficient to reward the large investment in technology development. Dyson may have made a shrewd judgement in cancelling his EV project.

The Greater Cambridge Partnership (GCP) arranged a Citizens’ Assembly, comprising some 60 representative members of the community, that met over two weekends to consider transport options that would reduce congestion, improve air quality and provide better public transport. The Assembly heard evidence on these issues from experts, both independent and staff of the GCP. I was present throughout as an expert advisor.  There was extensive discussion by small groups at tables, effectively facilitated by staff of Involve, a charity established to promote public participation in decisions. The GCP was at pains to avoid steering Assembly members to a preferred conclusion, which was achieved, in my judgement.

The context is that the GCP agreed a City Deal with the Coalition Government worth £500m over 15 years, aimed at tackling the transport requirements of a growing city. Cambridge has an historic city centre that constraints both property development and transport provision, so that new businesses, many spun out of university research, are located around the periphery. Travel across the city between homes and employment is impeded by the narrow street network. Cambridge has an effective dedicated north-south busway along a previous rail route, and further such routes are planned. But the problem of the congested centre remains.

The second weekend of the Assembly focused on practical measures, leading to voting on preferred options, the results of which have been published. There was strong support for closing roads to cars, to allow faster and more reliable buses and to encourage walking and cycling, as well as to reduce air pollution. There was also good support for road user charging, to raise funds to invest in public transport and active travel. There was less support for measures to limit or charge for parking, and relatively little preference for no interventions.

The Assembly also voted on a wide range of supporting measures. The most popular was to put in place a franchised bus service under the Mayor, like that operated in London, in place of the present privately operated buses.

Assessment

The conclusions of the Assembly were a sensible response to the travel problems experienced in Cambridge and the surrounding area – a policy package comprising revenue generated from motorists to support investment in public transport and active travel, plus more road space for these purposes. The GCP is likley to find it difficult to reject this outcome, not least because the funding from the Government comes in tranches that have to be justified by showing progress towards tackling the problems for which the funding was promised.

More generally, this experience indicates that a Citizens’ Assembly may be a more effective means of carrying forward policy in problematic areas, particularly where conventional consultation exercises are likely to stimulate more negative responses from those who believe they would be adversely affected while those who may benefit tend to stay silent.

Breaks in trend

The title of my new book, ‘Driving Change: Travel in the Twenty-First Century’, reflects both the observation that there have been important changes in travel behaviour as we moved from the last century to the present, as well as the possibility that new transport technologies will make a difference to how we travel.

We have nearly half a century of time series data from the National Travel Survey that shows little change in both average travel time (close to an hour a day) and trip rate (about 1000 a year). In contrast, the average distance travelled displays two distinct phases: growth from 4500 miles per person per year in the early 1970s to about 7000 miles by 2000, after which growth ceased. Most travel is by car, so, as expected, car use per capita ceased to grow at the turn of the century, which is also the case for other developed countries. Such cessation of growth of car use has previously been called ‘peak car’, but a better term would be ‘plateau car’ since there is little evidence of a decline in per capita distance travelled.

Growth in average distance travelled was a consequence of higher speeds made possible by the growth of car ownership, supported by road construction. The proximate cause of cessation of growth in car use was the cessation of growth of household car ownership, which increased from 14% in 1951 to 75% by 2000, after which growth ended. A number of factors contributed to the break in the growth trend of car ownership. Population growth in cities, where alternatives to the car are viable, reflected both a shift in the economy from manufacturing to services that tend to be located in city centres, as well as the attractions of city living for young adults, whether studying or in employment.

In successful cities, exemplified by London, car use has been constrained by the capacity of the road network while the travel needs of a growing population have been accommodated by investment in rail. Increasing population density shrinks catchment areas for retail businesses and public services, so making active travel and public transport acceptable alternatives to the car. Car use in London peaked at around 1990 when 50% of all trips were by car, subsequently falling to 36% at present, with the Mayor’s ambition to reduce to 20% by 2041. Increasing population density gives rise to agglomeration benefits – economic, cultural and social – such that declining car use is associated with increasing prosperity. Other cities have a choice: whether to accommodate the car on account of its attractions as a means of mobility; or whether to push back the car to encourage interactions between people.

While car use per capita ceased to grow at the turn of the century, rail passenger numbers went in the opposite direction, doubling over a 20 year period, a consequence of the growth of employment in business services in city centres, congestion on the roads, and investment in the railway by both the private sector train operators and the public sector Network Rail.

The breaks in trend in both road and rail use pose problems for modellers and forecasters. Such breaks reflect changes in travel behaviour, hence historic relationships (elasticities) cannot be assumed to apply. Moreover, the invariance in average travel time observed in the National Travel Survey findings indicates that the benefits of transport investments are not time savings as conventionally assumed. Rather, people take advantage of higher speeds to travel further, to have more choice of destinations, services and opportunities. In short, the benefits of investment are improved access, which is generally subject to diminishing returns. So the conventional four-stage transport model that generates time savings as the output in ‘do something’ cases does not validly represent the changes in travel behaviour that result from an investment.

A feature of travel in the twenty-first century is the impact of new technologies. What impact may we expect on travel by old-established modes of the rapidly developing, often disruptive, digital technologies? Four new technologies are available, or becoming so. Electric propulsion eliminates tailpipe emissions, good for urban air quality and mitigating climate change. Digital navigation can improve the efficiency of our travel and reduce uncertainty and anxiety. Digital platforms allow more efficient matching of supply and demand, exemplifies by ride-hailing taxis such as Uber. And autonomous vehicles may reduce costs for conveyances that otherwise would have a human at the wheel, but may add to congestion as unoccupied private cars make their way to where they are next needed.

The past transport innovations – railway in the nineteenth century, motorcar in the twentieth, modern bicycle in its heyday, motorised two-wheelers in low income countries today – all these allowed a step change in speed and hence in access. In contrast, the new technologies seem unlikely to permit faster travel. Accordingly, they will not be transformational for users, but rather offer incremental improvements to the quality of journeys.

We are therefore in a period of relative stability in respect of per capita travel, which innovative technologies seem unlikely to disturb.

This blog also appeared on the PTRC website.

 

The Financial Times’ Alphaville blog has noted that Uber London Ltd’s accounts filed at Companies House refer to discussions with HM Revenue and Customs about a potential liability for VAT at 20% on either gross bookings or the service fee that Uber charges drivers. This liability may depend on the outcome of a case that Uber is appealing to the Supreme Court to determine whether drivers are self-employed or are ‘workers’ with employment rights. The threshold for VAT liability is £81k a year, so individual drivers are unlikely to be liable. But if Uber is deemed to be an employer, the company would be liable, with potential backdating.

The VAT threshold means that there is not a level playing field for taxi type services. Self-employed drivers, such as the owner-driver of a London black cab, would be at an advantage over a ride-haling company that employed many drivers.