Economics

Economics

The Prime Minister’s recent announcement that the HS2 rail line will not now continue from Birmingham to Manchester and beyond raises issues both immediate and long term. Immediately, there is the question of how that money saved is to be reallocated. In the longer term, the question is whether we have an analytical framework that is both sufficiently complete and robust to be relevant to major projects whose gestation and implementation may span decades.

The Prime Minister’s principal stated reasons for scraping the lines beyond Birmingham were cost escalation, delays to construction, and the impact of Covid on travel behaviour. The money saved would be devoted to improved transport schemes outside London, mainly in the Midlands and the North of England, he argued. He also pointed to the huge chunk of the national transport investment budget taken up by HS2, for which Rishi Sunak implied was a relatively narrow user base and geography.

Certainly, the cost estimates of HS2 have grown substantially since the scheme was first announced in 2010. The initial cost of the full Y network, comprising both the first section to Birmingham and legs to Manchester and to Leeds, was put at £37 billion (2009 prices), but by the time of publication of the Full Business Case in 2020, this had risen to £109 billion (2015 prices), with further cost escalation in prospect due to inflation and real cost increases as earlier optimism bias is exposed.

The economic benefits projected in the Full Business Case were largely to rail users, predominantly £39 billion (present value, 2015 prices) as a result of reduction of train journey times. There were also significant benefits from reduction in crowding on the conventional network, as well as reduction in waiting and greater reliability as the network was enlarged by adding the new line, which, together with some smaller benefits, yielded net transport user benefits of £74 billion. To this was added benefits from agglomeration and other wider impacts to reach £94 billion net benefits. Taking into account revenues from fares resulted in a benefit-cost ratio (BCR) declared in 2020 to be 1.5, categorised as low-to-medium value for money.

Clearly, any further cost escalation since 2020 was potentially likely to tip the BCR into low value territory, a most unwelcome position for the largest single UK transport infrastructure project ever. But do the estimates of benefits reflect the reality? We need to go back to the core proposition, endorsed by the main political parties.

The stated intention of HS2 was to reshape the national economy by joining up the North, Midlands and London, effectively halving the journey times between the centres of the UK’s largest cities. This, it was contended, would allow businesses to invest beyond London whilst still retaining ready access to it. It was argued that the scheme would contribute towards sustainable growth in towns, cities and regions across the country, spreading prosperity and opportunity more evenly, acting as a catalyst for job creation, the development of new homes and ultimately, the regeneration of major cities and towns along the route.

This thinking was more heroic than business-like. The assumption of conventional economic investment appraisal is that the transport user benefits provide a good estimate of the ultimate benefits that arise as perfect markets redistribute benefits amongst the various beneficiaries, including land and property owners who gain from the improved access, the businesses that occupy the new premises, and people who occupy new homes. This itself is an unrealistic assumption in general. Moreover, in the case of HS2, for which the distribution of benefits between London and the cities of the Midlands and the North is crucial, estimation of spatial distribution was not attempted in the economic appraisal of the investment – and indeed is a difficult matter to predict.

Consider, for instance, a business with headquarters in London and a branch office in Birmingham. It might take advantage of the faster rail connection offered by HS2 to close the branch office, serving clients in Birmingham from London; or it might expand the Birmingham branch where office rents and housing costs are lower, on the basis that staff could get up to the head office speedily as necessary; or arrangements may be left unchanged, staff benefiting from the faster business travel spending more time in the office; and, of course, the increase in working from home as a result of the pandemic must influence all the possible business decisions. What might emerge could be an instance of what is known as the Two-way Road Effect, whereby improved accessibility between two regions may benefit prosperous areas rather than the poor areas targeted by the scheme, sucking activity away rather than bringing it in.

Given that the intention of HS2 has been to boost the economies of cities and region to the north of London, uncertainty about distribution of economic benefits means that the value of the investment was always hard to judge. Much would depend on the ability of the connected cities to take advantage of the new rail route to put in place city-centre development around new stations plus local transport infrastructure to speed travellers to and from their final destinations beyond the rail terminal. These longer origin to destination considerations can change to value of the high speed rail journey itself. The HS2 Full Business Case included an annex outlining hoped for developments around the new Curzon Street station in Birmingham, which illustrated the economic possibilities. But these did not constitute part of the economic case for the investment, to avoid double counting travel time benefits. This illustrates how notional time savings are tenaciously preferred to estimates of real-world benefits when applying the orthodox methodology to the appraisal of transport investments.

The inadequacy of the economic analysis, likely involving underestimation of the benefits from development, may well have contributed to the truncation of the HS2 project, given the latest BCR estimate of 0.8-1.2 quoted by the DfT.

A comparison with Crossrail

Another major rail investment that ran over time and budget was London’s Crossrail, renamed the Elizabeth Line on opening. Fortunately, those responsible kept their nerve. The project was not skimped or cancelled and has proved to be a great success, an example of a modern metro whose performance and popularity has surpassed expectations. The case for investment was based on the value of travel time savings to users (business, commuting and leisure) plus a number of wider economic impacts (mainly agglomeration benefits). The value of time saving benefits was put at some £12 billion, while the wider impacts provided an additional £7 billion in 2005. Subsequently, further analysis in 2018 increased the wider benefits to £10-£15 billion.

As with HS2, there was no explicit reference in the appraisal to the impact of the new rail route on real estate values or on the economic value of the businesses to be accommodated in new developments along the route. The assumption was that the boost to development and employment was accounted for by the value of travel time savings plus the wider impacts, an assumption that is implausible to non-economists. The economic analysis of the investment case failed to consider the spatial distribution of benefits, although by the very nature of the project, these would be largely within London. Nevertheless, the benefits to businesses were recognised by a funding agreement between the Mayor/TfL and the Government, which identified contributions of £300m from ‘developer contributions’ and a further £300m from a ‘London Planning Charge’ (subsequently to become the Mayor’s Community Infrastructure Levy or MCIL), a useful but not decisive contribution.

Transport for London has developed a framework to evaluate the benefits of the Crossrail investment. It is envisaged that a study to be published two years after opening will address the transport effects of the new railway, including: mode shift from cars to public transport, relief of congestion on public transport and roads, and the implications for air pollution and carbon emissions. A subsequent study is planned to consider the broader social and economic effects, including the effect of improved connectivity on new homes and jobs, changing patterns of employment and land use, and residential and commercial property prices. A report has already been published on the pre-opening impacts of Crossrail on property prices, arising from the announcement of the project; this found fairly small positive increases to both house prices and office rents.

TfL’s approach to evaluation is admirably ambitious, yet there is obvious inconsistency with the original investment case based on the value of estimated travel time savings and of wider impacts inferred from econometric analysis. It seems unlikely that it will possible to compare forecast and outturn by deducing time savings and agglomeration benefits from the evaluation findings. This prompts the question of whether, with hindsight, the investment appraisal could have been based on projections of the actual benefits that are expected to be achieved. Certainly, inconsistency of economic analysis as between appraisal and evaluation does not make much sense, not least because ex ante travel time savings and wider impacts are, by their nature, notional not observable.

A comparison with the Northern Line Extension

The possibility of forecasting the actual expected benefits of investment is illustrated by another London rail investment, the Northern Line Extension to a large brownfield site comprising the derelict Battersea Power Station and adjacent erstwhile low value commercial buildings and opportunity sites. The developers took the view that the optimal commercial gain would result from access to new properties on the site by means of an extension to the Underground, rather than by enhanced surface modes. The Battersea developers were therefore willing to contribute a quarter of the construction cost in cash. The Treasury agreed that additional taxes paid by businesses locating to the area would contribute the remainder of the financing of the rail link. On that basis, TfL could agree to proceed with construction, a rare instance of the capture of increased land value arising from new transport infrastructure to finance that infrastructure. Views may differ about the quality and coherence of the subsequent development, yet a significant area of central London has been transformed from low value to high value property, including a new building for the US Embassy.

It is relevant that there had earlier been a standard economic appraisal of transport user benefits for a range of alternative property and transport investments on this site, where the predominant benefits were travel time savings. It was found that extension of the Underground would have a less favourable benefit-cost ratio than other transport alternatives on account of the higher capital cost. Nevertheless, the decision was made to extend the Tube, the increase in real estate value being the deciding factor. Thus, much as with earlier development of the Underground, for instance the pre-war extension of the Metropolitan line, the decision was taken essentially on a commercial basis, with the estimated increase in real estate value forming an integral element of the investment decision. This exemplifies the scope for a transport authority working with a developer to take into account the value of real estate improvement for mutual benefit to take into account the increase in real estate values. In this case, of an underground electric railway, detrimental externalities were not important beyond the construction phase.

Conclusions

The main message from these reflections is that there are fundamental shortcomings to orthodox transport investment appraisal, as set down in the Department for Transport’s Transport Analysis Guidance (TAG). These arise principally from a requirement to requirement to estimate economic benefits based predominantly on time savings and other user benefits that are notional, not real and observable; the disregard of changes in land use and value that results from the improved access made possible by transport investment; and the lack of any mechanism to recognise the spatial and demographic distribution of benefits, a crucial concern in the context of regional disparities and avowed intentions to level up society. As exemplified by the cases discussed above, the orthodox approach is not fit for purpose and is becoming irrelevant for decisions making. This leaves political and commercial actors to call the shots.

These shortcomings are all the worse, given that there has been emphasis in the last two years, both in the Treasury’s Green Book and in TAG, on articulating the strategic case for a transport investment. The requirement is to set out a robust case for change that demonstrates how a proposal has a strong strategic fit to the organisation’s priorities and government ambitions. There were successive attempts to do this for HS2, clearly none wholly convincing, leaving observers with a feeling that the goal posts were being continuously moved. And now, consequent to cancellation, there is little sense of any strategic thinking, informed by cogent economic analysis, in the mishmash of investments and interventions announced by the Prime Minister, seemingly to avoid being accused of truncating HS2 merely to save money, and perhaps to find a more politically acceptable set of beneficiaries in the short term.

It is time for the DfT economists to desist from engaging in the incremental development of their thousand pages of TAG. Rather, they need to stand back and ask what purpose is being served by this, when decision makers evidently have quite unrelated preoccupations. The necessary shift in mindset is to recognise that the role of transport investment in generating economically transformational change depends on interlinked decisions by local political leaders, planners, developers and transport authorities, as illustrated by the Northern Line Extension. Appraisal needs to take a holistic view of economic benefits, including from development. The current methodological practice of focusing on transport user benefits in the absence of such linked decision-making means that the uncertainties about ultimate economic benefits are either too great to allow funds to be committed in the first place, or risk having the plug pulled after construction has started if costs increase, as illustrated by HS2.

The above blog was the basis for an article in Local Transport Today of 17 October 2023.

EconomicsTransport

The Prime Minister, in his speech to the Conservative Party Conference on 4 October, announced the truncation of the iconic HS2 rail route, originally promoted as a means of levelling up the regions beyond London by halving journey time between city centres. The intention is now for high speed trains to run only between Euston and Birmingham, reverting to lower speeds on existing track to further destinations.

The economic case for HS2 was always problematic. It got worse as costs rose. The initial cost of the full Y network, comprising both the legs to Manchester and to Leeds, was put at £37 billion (2009 prices), but by the time of publication of the Full Business Case in 2020, this had risen to £109 billion (2015 prices), with further cost escalation in prospect due to inflation and real cost increases as earlier optimism bias became exposed. In July 2023 the Infrastructure and Projects Authority gave the project a red rating, meaning that successful delivery appears to be unachievable without rescoping.

So, it is not wholly surprising that Rishi Sunak pulled the plug. Yet London’s Crossrail scheme, renamed the Elizabeth Line on opening, also overran substantially both time and budget. But once opened, the design has been widely admired and performance has surpassed expectations. So, did the Prime Minister lack the courage to adhere to the strapline on his lectern when making his announcement: ‘Long term decisions for a brighter future’?

To avoid the charge of chopping HS2 to save money, the PM announced a whole raft of alternative transport projects, ranging from a metro for Leeds to more funds to fill potholes, most of which were already planned. However, a major rail investment has been replaced in part by a miscellany of road schemes, unhelpful for achieving Net Zero but consistent with the Government’s recent downplaying of urgency of this objective. And if the expenditure profile of the aggregate of these alternatives matches that of the abandoned section of HS2, then it would be many years before their benefits are realised.

The Government established the National Infrastructure Commission in 2015 to advise it on the UK’s main infrastructure needs. The Commission is shortly to publish its second National Infrastructure Assessment outlining a strategic vision over the next thirty years. The Commission has been unsighted by the HS2 announcement, which its Chair stated to be ‘deeply disappointing’.

The truncation of the largest single transport investment, planned over many years, will not reflect favourably on the UK’s ability to execute large infrastructure schemes on which a dynamic economy depends. Nor will an announcement at a party conference of a huge switch of resources from a major strategic investment to a diversity of lesser schemes seemingly designed to spread benefits thinly where these may have greatest political advantage.

There has long been an argument that better regional rail links for cities in the Midlands and the North would be offer greater economic benefits that North-South links. But any major shift of resources deserves more extensive consideration by those affected than has occurred in the present case, where the Prime Minister has wanted to make a break with his Conservative predecessors who had endorsed HS2.

Economics

The economic benefits of agglomeration – learning, sharing and matching – have long been recognised as driving the growth of cities. In conventional transport economic analysis such benefits comprise the main part of the ‘wider impacts’, over and above transport user benefits. This process of concentration of economic activity in city centres has been in part a consequence of the shift of economic activity from manufacturing to business services, and has taken place despite the development of information and telecommunication technologies in recent decades that has allowed remote working. The inference has been that the positive benefits of agglomeration have outweighed the negative aspects such as higher rents and commuting costs.

The coronavirus put this inference to the test. Many employees who did not need to deal with clients face to face successfully worked from home and have proved reluctant to return full time to the workplace, not least because the successful development of broadband and Zoom, Teams etc for remote meetings. This is leading to changes in the demand for city centre office space, for instance at Canary Wharf in London’s Docklands.

We have seen a previous technological development that shifted the balance between the centripetal and centrifugal forces underlying observed agglomeration clusters. Fleet Street was once the physical location of the national newspapers in central London, with printing presses in the basements, print workers on floors above and editorial staff on the upper floors. This was a classic cluster, with benefits from shared facilities and staff, allowing news to travel faster and gossip to flourish. But there were offsetting disbenefits: newsprint had to be brought into central London, from which newspapers were distributed across the country overnight, and there were restrictive labour practices reflecting trade union power when the product had to be made anew each day. However, the advent of digital typesetting allowed newspapers to be printed at remote printworks with better access to transport networks, so that the editorial offices could be disbursed to scattered locations around London. Nowadays, ‘Fleet Steet’ is a metaphor for the newspaper industry, no longer to the actual location. With hindsight, the agglomeration benefits and disbenefits were more finely balanced than had been supposed, so that new technology could tilt the balance in favour of dispersion of the cluster.

A question is whether advances in technology and the experience of the pandemic have led to a tipping point in what had seemed to be a continuing process of city centre concentration, so that a more dispersed pattern of economic activity will develop. It will take time to see what use is made of the space freed up by major businesses leaving Canary Wharf and downsizing office accommodation. Possibly lower rents may attract other businesses that previously could not afford central locations. Repurposing is also possible to create residential accommodation, hotels, laboratory space and the like. The implications for travel demand and supply take time to become clear. It is paradoxical that firms are leaving Canary Wharf just when the opening of the Elizabeth Line has improved its connectivity to central London and to Heathrow.

Car useEconomics

I previously mentioned my analysis of the widening of the M1 motorway between junctions 10 and 13. My paper has now been published in a peer-reviewed journal: Transportation Research Part A, 174, 103749. The abstract is below. Access to the article may be available free of charge for a limited period here

Abstract

Cost-benefit analysis of road investments involves models that generate travel time savings as the main economic benefit. Evaluation five years after opening of a scheme to widen a section of England’s M1 motorway between junctions 10 and 13 found that the traffic moved more slowly than before the scheme opened. Comparison was made with forecast flows generated by SATURN variable demand modelling and an associated economic model. Substantial net benefits to business users were forecast, whereas for non-business users time saving benefits were more than offset by increased vehicle operation costs, consistent with diversion of local trips to take advantage of the increase in capacity. There is reason to suppose that such diversion is facilitated by the wide adoption of Digital Navigation (known generally as satnav), which makes evident the fastest route choices, even at the expense of increased fuel costs. Diversion of local trips to utilise new strategic road capacity seems likely to be a general phenomenon, which detracts from the economic case for road investment. There is therefore a good case to treat the strategic road network as mature, focussing on improving operational efficiency and exploiting vehicle-to-infrastructure connectivity in the form of Digital Navigation.

EconomicsTransport

The Department for Transport has issued a draft National Networks National Policy Statement (NNNPS) for consultation . It covers major investments on the road and rail networks in England. The draft is intended to replace the version issued in 2015, before the government’s commitment to Net Zero and publication of the Transport Decarbonisation Plan. The House of Commons Transport Committee has announced an inquiry into this draft.

The DfT states that the 2015 NNNPS shall apply to projects already selected for public examination, so the new NNNPS will apply only to applications accepted after it is implemented, following the consultation. It therefore looks as though the Lower Thames Crossing tunnel, which has been accepted by the Planning Inspectorate for consideration, will be subject to the old guidance, despite construction being deferred by two years as announced in the recent Budget, which seems odd.

The purpose of such National Policy Statements is to provide guidance for decision-makers on the application of government policy when determining development consent for major infrastructure. The intention is to remove the need for consideration of fundamental national policy questions at planning inquiries. Those subject to this guidance are the scheme promoters (National Highways for most road proposals), planning inspectors, and the Secretary of State when granting Development Consent Orders.

The important question is how investment in new road capacity could be reconciled with the government’s legal commitments to achieve Net Zero greenhouse gas emissions by 2050, meeting the requirements of both the Climate Change Committee’s Sixth Carbon Budget that has been agreed by the government and the intentions of the DfT’s Transport Decarbonisation Plan. (Rail, already substantially electrified, is less of a problem.)

The draft opens by rolling the pitch, stating that the government sees a compelling need for the development of national networks (para 3.22), such that there is a presumption in favour of granting Development Consent Orders (para 4.2), while at the same time recognising the need to move away from ‘predict and provide’ (para 3.44). This is very different from the new approach of the Welsh government, which does not see a compelling need to develop its national road network.

Scheme proposals are to be supported by assessments of whole life carbon emissions, to ensure minimisation as far as possible (para 5.29). The draft states that, in reaching a decision, the ‘Secretary of State should be content that the applicant has taken all reasonable steps to reduce the total greenhouse gas emissions from a whole life carbon perspective. However, given the important role national network infrastructure plays in supporting the process of economy wide decarbonisation, the Secretary of State accepts that there are likely to be some residual emissions from construction of national network infrastructure’ (para 5.36). Moreover, a net increase in operational greenhouse gas emissions [from more traffic] is not, of itself, reason to prohibit the consenting of national network projects or to impose more restrictions on them in the planning policy framework (para 5.37). So in policy terms, additional road capacity is more important than decarbonisation.

Importantly, the application for development consent orders applies to individual schemes. There appears to be no requirement to estimate the impact on carbon emissions from an investment programme, such as the planned five-year Road Investment Strategy 3 (RIS3) due to start in 2026. Accountability scheme by scheme is not so very different from the present practice whereby National Highways argues that each individual scheme makes only a de minimus contribution to national carbon emissions, which can therefore be disregarded.

The DfT’s Transport Decarbonisation Plan made broad-brush estimates of carbon reduction from policies and programmes, for instance 1-6 MtCO2e from increased active travel over the period 2020 to 2050, and 620-850 MtCO2e for electrification of cars and vans over the same period. It is inconsistent not to recognise offsetting carbon increases from investment in new road capacity, likely to fall somewhere between the above ranges, and certainly not de minimis for the programme as a whole.

There is also a problem of modelling future carbon emissions arising from road investment. Transport models are complex and opaque, with many parameters, the value of which requires expert judgement. In consequence, the are two types of protagonist: experts who have a good working understanding of transport models because they earn their living from building and running such models; and non-experts, who are interested in the output of models but are not able to understand the assumptions, simplifications and judgements that the experts must make. Non-experts include decision makers in national and local government who have prior expectations of the economic value of particular road schemes, and whose test of a good model is that it delivers outputs, comparing with- and without-investment cases, consistent with these expectations. Other non-experts are those opposing road schemes at public inquiries, who are faced with modelled outputs as part of the promoter’s proposal that are not open to detailed scrutiny. Inspectors at planning inquiries are also non-expert in this sense.

The NNNPS requires projects to be supported by a local transport model, but planning inspectors and the Secretary of State do not need to be concerned with the national methodology and national assumptions around the key drivers of transport demand (para 4.7). In practice, most schemes on the Strategic Road Network employ local versions of a set generic traffic and economic models, typically SATURN for network traffic modelling, the outputs of which are inputs to the TUBA economic model. So, as it appears, consideration of the predictive validity of these models for projecting carbon emissions need not be considered either at a public inquiry or by the Secretary of State. One can understand why a planning inspector should not be burdened with a task for which they are not professionally trained. Nevertheless, the question is where in the decision-making process the validity of the supporting modelling might be assessed.

The need to assess the predictive validity of transport models is pointed up by the failure of standard models to project fairly short-run traffic flows in two cases of motorway widening, on the M25 and the M1, as I have recorded previously. This does not increase confidence in the ability of such models to project economic benefits and carbon emissions out to sixty years.

One particular problem of transport models is that they are largely used to justify new investment, in which context the saving of travel time is supposed to be the main economic benefit. Yet average travel time, as estimated by the National Travel Survey, has changed very little over fifty years, excepting the period of the coronavirus pandemic. The implication is that people take the benefit of faster travel as enhanced access to desired destinations, people, places, activities and services, for the opportunities and choices on offer. Travelling further, rather than using travel time savings for more productive work or agreeable leisure, means more externalities related to vehicle-miles travelled, carbon emissions in particular.

Modellers who aimed to model such access benefits, and the resulting changes in land use and value, would not be appreciated by the economists who are wedded to travel time saving as the main economic benefit of investment, nor by decision-makers who are well used to conventional economic investment appraisal. So modellers must fix their assumptions, simplifications and parameters to get outcomes that satisfy a ‘realism test’ of prior expectations, subject to conformity with unspecified standards of professional respectability.

The upshot is that the modelling of the impact of new road investments will systematically underestimate carbon emissions from the additional (induced) traffic. This makes it easier to appear to comply with the pathway to Net Zero, but means that the outcome is likely to fall short of that pathway.

Some further light is shed on this matter by the cost-benefit analysis the DfT has published in support of options to implement the Zero Emissions Vehicle Mandate, the legislative framework to fulfil the government’s objective to phase out the sale of internal combustion engine cars and vans by 2030. The need for this cost-benefit analysis is not stated, since the timing of the phase out is largely for negotiation between the government and the motor manufacturers. Perhaps the Treasury wish to be assured that this route to decarbonisation represents good value compared with other possible decarbonisation measures. Or perhaps the DfT economists wish to parade their competences after cost-benefit analysis failed to be supportive of a number of major rail and road investments.

The modelling assumes that that the switch to ZEVs could result in increased mileage per ZEV driver because electricity as fuel is cheaper than petrol or diesel (which begs the question of whether some new charge for EVs might be introduced, as I have suggested). This extra driving, a ‘rebound effect’, is supposed to lead to more congestion delays, with a very substantial cost impact: for a central sensitivity case of the preferred policy option, the abatement cost of the ZEV Mandate for cars and vans estimated as £12/tCO2e excluding the rebound effect, and £100/tCO2e including it (Tables 61 and 62).

So, the DfT thinks it would be much more costly to reduce CO2 emissions by means of the Mandate if the lower operating cost of EVs led to greater distances travelled. However, in my view, rebound of the magnitude modelled is unlikely, quite apart from the possibility of a road user charge for EVs. The per capita distance travelled by car depends on three main factors: speed of travel, time available for travel, and household car ownership. None of these are affected by the switch to electric propulsion. Vehicle operating costs have a second order impact at best, witness the growth of SUV ownership despite higher fuel use.

Paradoxically, the DfT modellers postulate additional traffic from reduced vehicle operating costs arising from electrification (mistakenly, in my view), while being in denial about the additional traffic arising from road users taking the benefit of investment in increased capacity as enhanced access involving more travel (again mistakenly).

The ZEV Mandate cost-benefit analysis states that the preferred policy option is expected to achieve emission savings of 415 MtCO2e in the period 2020-2050 (Table 29). This is substantially less than the savings from switch to electric propulsion of car and vans of 620-850 MtCO2e projected in the Transport Decarbonisation Plan, mentioned above. No clear explanation for this discrepancy is given; it may be because the present Mandate is for the period to 2030, with a further Mandate promised for 2031-35; or it may reflect the sensitivity of model outputs to input assumptions.

More generally, modelling for the ZEV Mandate exemplifies how modelling outputs can be very sensitive to input assumptions that are made in the absence of firm evidence of future travel behaviour. This is a caution that applies to most transport modelling, not least to the projections of transport sector carbon emissions to support decisions necessary to achieve reductions required by the legislative framework to achieve Net Zero.

We have been before in a situation in which there have been doubts about approaches to transport economic analysis endorsed by the DfT. Good work was done by SACTRA – the Standing Advisory Committee on Trunk Road Assessment – an independent body created by the DfT, that issued two influential reports in the 1990s. One confirmed the importance of induced traffic arising from new road construction, a view that had been resisted by the DfT since such traffic added to congested and reduced travel time savings. The other report recognised the wider economic impacts of investment, beyond the conventional time saving, vehicles operating costs and those externalities to which monetary values could be attached; estimation of such wider impacts, such as agglomeration effects, now forms part of the standard approach to investment appraisal.

Although SACTRA, by its very name, was intended to remain in existence, at least until formally stood down, it seems to have fallen into that state by not receiving new commissions. There is a need, in my view, to reconstitute it, or some similar body of independent experts, to look at the suitability of the current body of official guidance on transport economic analysis and modelling in an era when decarbonisation is a national policy priority. As it is, however, the people in DfT and their consultants, who naturally wish to please their clients, are talking to each other in an echo chamber, from which interested outsiders are excluded.

Other departments do better. The Treasury’s model of the UK economy has long been available to independent forecasters. The Energy Department collaborates with academic energy modellers and makes available the online Mackay Carbon Calculator that allows users to explore the options for reducing carbon emissions. Modelling of the coronavirus pandemic was largely carried out collaboratively by academic groups whose models and outputs were public for all to debate. And the modelling of climate change is carried out openly, collaboratively and internationally as input to the reports of the Intergovernmental Panel on Climate Change.

Th DfT instigated a move to update the National Transport Model to generate a new version, NTMV5, intended to be open to other users, but this seems not to have worked out in that the National Road Traffic Projections 2022 employed the previous version (as I have noted). The DfT should explain what went wrong, and should engage openly with those beyond the Department and its immediate advisers on how best to model the decarbonisation of the transport sector.

This blog post is the basis for an article in Local Transport Today 23 May 2023.

My written evidence to the House of Commons Transport Committee inquiry into the National Networks National Policy Statement is based on this blog.

Car useEconomics

The National Infrastructure Commission has published an Advice Note, directed to the government, on roads policy, to help inform plans for the Third Road Investment Strategy (a five year investment programme for strategic interurban roads). I found this rather disappointing in its analysis of the problem.

The need to decarbonise road transport is obligatory, yet investment in new road capacity is counterproductive, whatever is achievable through the switch to electric propulsion. The Department for Transport’s draft National Networks National Policy Statement, recently issued, persists in addressing carbon emissions at scheme level, where they can continue to be treated as de minimis. There should be a requirement to estimate carbon emissions for the whole future programme (RIS3), when announced.

Given the conflict between road building and achieving decarbonisation, a critical look is needed at the econometric analysis of the relationship between interurban road investment and GDP growth, which is less than convincing. Likewise, scepticism is justified as regards projections of the growth of future traffic growth based on demographic and economic factors; per capita car use did not increase for twenty years prior to the pandemic. The main factors determining car use per capita are speed of travel, time available for travel and household car ownership, none of which seem likely to increase in the future.

The benefits of road construction are subject to diminishing returns. Arguably, the UK has a largely mature road network. For instance, cities such as Stoke-on-Trent and Wakefield, which would see themselves as lagging economically, are well located in relation to the Strategic Road Network. For devolved regional governments able to decide priorities for infrastructure investment, new road capacity may not be high, except where it is required to permit major site-specific development.

The Advice Note argues that effective prioritisation of road projects requires a focus on the links that will be most significant for trade between major regional cities. However, interurban roads are used by commuters travelling into cities. It is a common situation for traffic on interurban routes in or near populated areas to show pronounced morning and evening peaks, the consequence of commuting. If capacity is increased to alleviate congestion at these times, this will attract commuters from local roads on account of the faster travel made possible – one type of induced traffic, and one reason why we cannot build our way out of congestion. This diversion of commuters on to new major road capacity is facilitated by the wide use of Digital Navigation (generally known as satnav), which makes fastest options clear. The increased local commuting pre-empts the additional capacity intended for longer distance business users.

The proposal for a systematic analysis of the road network to see which routes are slow or unreliable is reminiscent of the approach of US highway engineers to categorising levels of service as the basis for proposals to increase capacity, thus justifying multilane freeways that attract more traffic. Yet there is a conflict between accepting the need for further road construction and demand management measures to reduce carbon emissions from the sector.

We no longer add to urban road capacity to accommodate growth of demand for road traffic; indeed, the trend is to subtract carriageway available for general traffic in favour of more space for buses, cyclists and pedestrians, plus investment in urban rail, traffic management and demand management measures. Yet the focus of interurban roads policy continues to be on investment in new capacity (although the Welsh Government has taken a different view). Given the demands of decarbonisation, a reconsideration of this traditional focus is desirable.

The prospects for autonomous vehicles as a source of economic benefit are unclear. Yet Digital Navigation is widely use and is changing travel behaviour. Road freight operators take advantage of similar digital technologies to manage their fleets effectively. There are opportunities to exploit digital technologies to improve the operational efficiency of the mature road network, which would be far more cost effective than civil engineering technologies employed to increase capacity.

Car useEconomics

Road pricing has been a perennial issue for transport policy, seen by transport economists as a rational means for allocating scarce road capacity when congestion is prevalent. The loss of revenue from road fuel duty as we switch to electric propulsion is a further reason to introduce road pricing, as the House of Commons Transport Committee argued in a report published in February 2022. The Government’s belated response, in the form of a letter from the Chancellor of the Exchequer sent in January 2023, stated that the government does not currently have plans to consider road pricing. The Transport Committee chair was not satisfied with this brush-off and has invited the Treasury to respond in greater detail to the Committee’s conclusions and recommendations.

The recent webinar, in which I participated, on the role of road pricing in achieving Net Zero, organised by Landor in partnership with SYSTRA, was therefore very timely. (View here https://www.youtube.com/watch?v=keDmdMMvPO0 )

Road pricing (or road user charging) has been in use for centuries in the form of toll roads, the money levied used to reimburse the cost of construction. Road pricing (or congestion charging) has been adopted in London, Stockholm and Singapore as a demand management measure. A more recent aim has been to reduce air pollution in urban areas by imposing a charge on the more polluting vehicles if they enter a Clean Air Zone (CAZ). And the need to decarbonise the transport system now prompts the question of whether and how road pricing might help achieve this objective.

Webinar contributor, David Connolly, SYSTRA, argued that to achieve a Net Zero trajectory for transport, there would need to be a significant reduction in car use. To attain this, the cost of car use would have to rise significantly, to increase the relative attractiveness of all of the alternative modes, (including car-sharing) and encourage shorter &/or less-frequent car trips. Increased costs of car ownership, of fuel and of parking were possibilities, but distance-based road pricing would have a direct impact on car use and could plug the revenue gap created by the loss of road fuel duty.

Trevor Ellis, an expert in the technology of road pricing schemes, outlined how these have been applied throughout the world. GPS-based tolling has already been adopted by a number of European counties for trucks, while many US states are trialling or operating per mile fee programmes. In Asia, Singapore and Indonesia are to implement national all-vehicle distance-based schemes soon. Trevor concluded that distance-based charging by GPS gives the flexibility to vary the charge by time and place, as well as by distance and emissions, but the biggest challenges are likely to be gaining political and public acceptance.

Silviya Barrett, of the Campaign for Better Transport, reported the outcome of a survey of public attitudes to road pricing, finding substantial agreement that the present system of vehicle taxation is in need of reform as we switch to electric vehicles (EVs), with almost half respondents supporting pay-as-you-drive as they reached the end of the survey. There would be more support if public transport were cheaper with improved connectivity.

My own view is that it would be difficult politically to use road pricing to increase the costs of motoring or of road freight, as a means to reduce vehicle usage. Our society is too dependent on road transport, so that not many politicians would be brave enough to attempt to reduce carbon emissions by a direct hike of road fuel duty or imposing an additional charge for road use. The situation of low-income motorists needing their cars for travelling to work would be a point of particular sensitivity.

However, EVs do not pay fuel duty, so there is a case that they should pay a charge for use of the roads, both to contribute to the costs of operation and maintenance of the network, and to make a contribution to the Exchequer, as do internal combustion engine (ICE) vehicles. Yet this could not be implemented immediately since the lower operating costs of EVs are important to compensate for the present higher capital costs. Nevertheless, it is expected that capital costs will decline as battery technology advances and that equivalence in capital costs of EVs and ICEs will be reached prior to the 2030 date for completion of the phasing out of sales of new ICE cars and vans.

The phasing out by 2030 is a policy that commands wide support across the political spectrum, as well as from the car manufacturers and the public, who are purchasing EVs in impressive numbers. It would be desirable to link the introduction of a road user charge for EVs to this policy approach, on the grounds of fairness as between the two kinds of vehicle in respect the operating costs incurred. This would allow time to develop a suitable road pricing system for EVs. I suggest that the existing fuel duty should remain in place for ICEs, which would avoid the anxiety that would be created, particularly amongst low-income motorists, by a major change in the charging regime. EV owners are generally better off, given the newness of the technology and the very limited second-hand market, and would be more able to cope with the cost increase.

There are variety of technologies that might be used to implement road user charging, some of which are in use other countries. Yet rather than introduce an unfamiliar technology, there would be much to be said for building on London’s experience, as the basis for a national system.

The London congestion charge has been in operation for twenty years. It has been technically successful, publicly acceptable, with no concerns about privacy despite camera surveillance for enforcement purposes, and it generates useful net revenues that support public transport provision. London has employed the same enforcement and charging system to implement the ULEZ (its version of a CAZ), initially within the central congestion charging zone, expanded last year to encompass the area within the North and South Circular Roads with fairly minimal public opposition, and intended to cover all London boroughs later this year (albeit with some local political resistance emerging in the outer boroughs). This exemplifies the scope for incremental roll-out of an established technology.

London’s daily congestion charge is based on the presence of the vehicle within the charging zone, for however long. For London’s technology to the basis for a national road user charging scheme for EVs, it would be necessary to migrate the charging arrangements to a smartphone app, since a smartphone knows where it is in time and space, so knows if it is in a charging zone at a time when the charge is levied. Smartphones are generally linked to  payment mechanisms. They would also need to be linked to the vehicle, since it is the presence of the vehicle that is chargeable, not the phone, but this should be feasible.

Adoption of the smartphone as the mechanism for payment could be incentivised by capping the daily payment at no more than the standard daily charge as paid via the existing online payment mechanism, at present £15. Once there was sufficient uptake of the app, there would be opportunity to vary the charges according to such factors as duration in the charging zone, time of day, level of congestion, location or distance within the zone. This should be publicly acceptable with the daily charge cap in place, analogous to the capping of fares on London’s buses and trains when contactless payments are made. The standard daily charge payable online would remain for those not wishing to use the app, as would the existing camera-based enforcement system.

With the app payment mechanism tested and accepted, it would be possible to extend it beyond the existing congestion charging zone. In the past, there had been a western extension of the London scheme, introduced by Ken Livingstone when he was mayor, but revoked by Boris Johnson. It would also be possible for other cities to adopt the technology, whether before or after national adoption for EVs. In the past both Manchester and Edinburgh developed plans to implement congestion charging, which, however, were rejected in referenda. Cambridge is considering a similar initiative. Adoption by a single city may seem a major step by the voters, whereas taking advantage of a national charging system in prospect may lessen their reluctance.

A national scheme of charging for road use by EVs could be introduced incrementally, whether by road type (such as motorways) or region, and by starting the charge at a low level, increasing over time as the arrangements bed down.

While a national scheme for EV road user charging might employ a separate payment app from that used in London or other cities, it would make more sense to use a single payment mechanism, apportioning the revenues between the Exchequer and the highway authorities, allowing the latter scope to vary their component of the charge to meet local needs. Over time, this could reduce the need for local authorities to bid competitively to central government pots of money for funding local transport initiatives, consistent with a general policy trend to increasing devolution of responsibilities from national to local government.

One particular possibility for the exercise of local decisions on the local component of the road user charge would be to fund improvements to public transport by increasing the charge, subject to the willingness of the electorate. More and better bus and rail services would be important in providing an alternative to car use, so facilitating decarbonisation. However, fare box revenues are insufficient to support good services, both frequency and geographical spread, so external funding is required. Yet subsidy from government, whether national or local, will always be in short supply. So revenues from road user charging seem the most likely source of further support to improve local bus and rail services.

The phasing out of sales of new ICEs by 2030 is generally agreed to be about as rapid as is feasible, but faster decarbonisation thereafter could employ the revenues from EV road user charging to fund a scrappage scheme for ICEs. This would need to be targeted at the most carbon emitting vehicles, a function of engine size and distance travelled. Age would also be important since the amount payable per vehicle would become more attractive as vehicles became older and less valuable. However, such a scrappage scheme could not usefully be implemented until there were good numbers of EVs available in the used car market.

Overall, my view is that road user charging seems unlikely to be acceptable as a means to increase the costs of road vehicle use generally in order to reduce distance travelled and carbon emissions. But there is a case for charging EVs once capital costs reduce, on grounds of fairness between vehicle with different types of propulsion. The good experience of the London congestion charge offers an incremental route to nation application, the key step being migration to a smartphone app, a familiar payment mechanism. Revenues could be apportioned between central and local government consistent with further devolution, and employed to facilitate transport decarbonisation by supporting improved public transport and funding a scrappage scheme for internal combustion engine vehicles.

So no big-bang implementation of road charging technology, rather an incremental approach that aims to carry the public along, step by step.

This blog post was the basis for an article in Local Transport Today of 20 March 2003.

Car useEconomics

The House of Commons Transport Committee is holding a timely inquiry into investment in strategic roads, following a critical report from the National Audit Office about progress with the £27 billion Road Investment Strategy 2 (RIS2) programme, now at midpoint. I submitted evidence as follows.

Summary

This submission is concerned with whether the Government’s road investment programme is meeting the needs of users, whether the programme aligns with other policies, and the relevance of technological developments. These are matters in which I have taken an interest for many years, starting when I was Chief Scientist at the Department for Transport.

Here I argue that:

  • the economic benefits of road investment have been overstated;
  • there is conflict with other Government policies, particularly Net Zero;
  • technological opportunities to improve the operational efficiency of the road network are neglected.

Economic benefits of road investment

The main economic benefit of investment in new road capacity is supposed to be the saving of travel time. The benefit-cost ratio of a proposed scheme, a measure of value for money, largely depends on the estimated value of time savings to business users and others, in relation to the cost of construction. However, there are now available evaluations of outcomes of smart motorway schemes 3-5 years after opening that find no time savings, in part on account of traffic volumes greater than forecast.

I have compared the traffic and economic forecasts with the outturns for the two smart motorway schemes for which data is available: M25 Junctions 23-27 and M1 Junctions 10-13.[i] A salient feature of the forecasts is that the value of time savings to non-business users (commuters and others) is almost entirely offset by increased vehicle operating costs. This is the result of local users diverting to the new motorway capacity to save a few minutes travel time, for instance from home to work, not fully recognising the additional fuel costs arising from the longer trip. Such diversion is facilitated by the widespread use of Digital Navigation (generally known as satnav), which makes clear the fastest routes.[ii]  Increased use by local users pre-empts capacity for longer distance business users, for whom the additional capacity was intended, and based on which the economic case for investment depends.

It is likely that these examples are representative of the general situation in that the Strategic Road Network comes under greatest stress in or near areas of population density where local and long-distance traffic compete for carriageway. Remote from such locations, for most of the time traffic generally flows freely. Investment in additional capacity that is prompted by peak hour congestion serves to accommodate more local users, who have the flexibility to choose from a number of routes.

There is a maxim that we cannot build our way out of congestion, which we know from experience to be generally true, and to which the wide use of Digital Navigation contributes. It is common for the public justification of investment in new strategic road capacity to claim the relief of congestion and boosting the economy through improved connectivity. Yet such effects are very short term, negated by the local traffic induced by the new construction that restores congestion to what it had been. Accordingly, we have been deluding ourselves about the economic benefits of road investment.

Lack of alignment with other policies

The Department for Transport recently published new National Road Traffic Projections that include a Core Scenario plus seven variant scenarios. Traffic is projected to grow in all scenarios, by between 8% and 54% by 2060, which contrasts with the widely held view that car use needs to be reduced to meet the Government’s commitment to Net Zero by 2050. Projections of traffic growth would support a future road investment programme, yet would conflict with decarbonisation policies.

The Core Scenario, based on ‘existing firm and funded policies only’, projects 22% increase in traffic to 2060 and 42% decrease in carbon emissions. Yet Net Zero by 2050 is surely a firm government commitment. The Department for Transport published its Transport Decarbonisation Plan in 2021 which claimed that this commitment could be achieved, implying that future funding and policy development would need to constrain carbon emissions from road traffic to zero by 2050. So there is an apparent inconsistency between the 2022 National Road Traffic Projections and the 2021 Transport Decarbonisation Plan.

We are at present midway through the second five-year road investment programme, known as RIS2, worth £27bn over the period 2020-2025 when announced. RIS3 is now being planned. Yet there are headwinds:

  • The potential economic benefits are likely to be overstated, as discussed above.
  • Any increase in road capacity is counterproductive for the Net Zero climate change objective since both tailpipe and embedded carbon would be increased.
  • There are public anxieties about the safety of Smart Motorways in the absence of the hard shoulder, reflected in a critical report from the House of Commons Transport Committee, to which the Government responded by halting new schemes until five years of safety data is available.
  • The Government’s Levelling Up White Paper, published in early 2022, identified a dozen ‘missions’ across departments. The single mission for the Department for Transport is aimed at improving public transport in regional cities towards that achieved in London, a sensible political and social objective. There was no reference to road investment, which is appropriate, given that congestion delays on the Strategic Road Network are less in the Midlands and North than in the South East.
  • Current pressures on public expenditure.

Given these impediments, there is a good case for treating the Strategic Road Network as mature, with the future focus on improving operational efficiency. This is the situation for urban roads, which in the past were enlarged to accommodate more traffic, but nowadays the policy direction is to reduce capacity allocated to general traffic, to encourage active travel and facilitate public transport. Similarly, the aviation sector focuses on operational efficiency – airlines maximising flying time of aircraft, use of allocated routes and passenger load factors; airports (struggling recently) optimising throughput of passengers and baggage; and air traffic management making best use of crowded airspace. The underlying discipline is operations research, not civil engineering, together with modelling and economic analysis of operations, rather than of long-lived investment.

Technological developments

A focus on operational efficiency of the Strategic Road Network would naturally prompt consideration of how best to take advantage of the huge investment in Digital Navigation that has been made, both by providers of the service and by road users. Here a very odd phenomenon is the apparent disregard of Digital Navigation by road authorities, at least as judged by their publications – no reference to satnav in those of National Highways, the Department for Transport, or local authorities (with one exception known to me, Transport for London’s collaboration with Waze). Possible explanations include: preoccupation of highways engineers with civil engineering works; the need to spend the large budget allocated to road investment; the lack of staff with professional background to cope with digital technologies; and road authorities being monopolies, so not subject to competitive pressures to maximise efficiency.

The one constituent of road users that is highly competitive is road freight, particularly that forming part of integrated logistics businesses, which makes extensive use of digital technologies to manage HGV fleets on major roads and delivery vehicles on local roads. We are conscious of this when we order goods online, with a specified delivery date and often a time slot, the ability to track packages, delivery confirmed on the doorstep, and our feedback sought on the experience – all done by algorithm. This kind of operational efficiency needs to be brought to bear on the totality of traffic on the road network.

Road network operators with such experience would naturally want to take advantage of Digital Navigation, one aim being to better cope at times of stress – major incidents, bad weather, peak holiday flows. A second aim would be to optimise use of the network in normal times, including avoiding routing traffic through unsuitable minor roads.

When road users are asked why congestion is a problem, their main concern is the uncertainty of journey time. Digital Navigation provides estimates of journey time in advance, so those who need to be at their destination at a particular time can decide when best to set out; those who are more flexible can avoid the worst of congestion; and all can choose the fastest route. Digital Navigation is vastly more cost-effective as a means to mitigate the impact of road traffic congestion than costly and ineffective civil engineering investment.

While the Department for Transport and National Highways disregard the impact of Digital Navigation on traffic flows, they do pay attention to the possible impact of autonomous vehicles. The National Road Traffic Projections includes a Technology Scenario that envisages autonomous vehicles entering the market in the 2020s and making up 50% of it by 2047. And the government intends to introduce comprehensive legislation governing driverless vehicles when parliamentary time allows.

However, any significant impact of driverless vehicles on use of the road network seems a long way off at best. Eventual benefits would be experienced by vehicle occupants whose time might be available for non-driving tasks, with little scope to increase the operational efficiency of the network. The preoccupation with this future digital technology seems perverse when an existing digital technology, Digital Navigation, is widely used and is capable of changing travel behaviour in ways that are far more cost-effective than civil engineering.

[i] Metz, D. Economic benefits of road widening: Discrepancy between outturn and forecast. Transportation Research Part A, 147, 312-319, 2021.

[ii] Metz D. The impact of digital navigation on travel behaviour. UCL Open: Environment. 2022;(4):05. https://doi.org/10.14324/111.444/ucloe.000034

Car useEconomicsTravel

I made a presentation to the Highways UK Conference held at Birmingham 2-3 November 2022. These are the main points.

The widespread use of Digital Navigation (DN) (generally known as satnav) is changing travel behaviour (see my recent paper). One impact is to divert local users to major roads to take advantage of increased capacity. I have analysed two Smart Motorway investments in detail: M25 Junctions 23-27 and M1 Junctions 10-13. The Smart Motorway concept involves converting the hard shoulder to a running lane, originally during the periods of morning and evening peak demand, or, as has been recent practice, throughout the day. The advantage is that capacity can be increased without the cost of additional land take or rebuilding bridges.

Monitoring the traffic flows and speeds 3-5 years after opening of the two schemes showed that the forecast increases in speed had not occurred, and hence the economic benefits, which largely depend on the value of time savings, were not obtained. Something had gone badly wrong with the traffic modelling that informed the investment decisions. Accordingly, I sought and obtained copies of the relevant reports.

The traffic modelling in both cases employed regional variable demand models that utilised the long established SATURN software. Traffic flows and speeds for the with- and without-investment cases were compared, and the outputs fed into the economic model, the Department for Transport’s TUBA model, which forecasts the economic benefits. In both cases, substantial travel time saving benefits were projected for business users, offset by a small increase in vehicle operating costs (VOC). There were also substantial time savings for non-business users (commuters and others) but these were very largely or entirely offset by increased VOC. Hence there was no net economic benefit to non-business users. It seems likely that increased number such users, above that forecast, pre-empted the increased capacity intended for longer-distance business users.

Examination of the routing information offered by Google Maps, for a journey between two locations in the neighbourhood of a Smart Motorway scheme, shows that diversion to the motorway can save time, but at the cost of increased distance and hence fuel cost (see screenshot at top). This is consistent with the modelling, on the basis that road users are likely to take the faster route and be less concerned about VOC.

Those making local trips have a variety of options, using the motorway as well as local roads, while long-distance users are likely to stay on the motorway. In the past, local users would have made routing decisions based on recent experience of congestion and  broadcast traffic information. But with the widespread use of DN, the choice of the fastest route is clear. The impact of DN is to increase local use of motorway capacity, to the disadvantage of longer-distance users. This seems likely to be an important contributory factor to the failure of the M25 and M1 Smart Motorway investments to deliver the expected travel time savings.

Although detailed information is available only for two Smart Motorway schemes thus far, it is likely that these may not be unrepresentative. The Strategic Road Network (SRN) is under greatest stress in or near areas of population density, where local users and longer-distance users compete for road space. Remote from such areas, the traffic generally flows fairly freely. So opportunities for investment appear to be where local users are best placed to take advantage of new capacity.

If the motorway system operated as a toll road, as in France or Italy, tolls would deter use by locals. The one example in the UK is the M6 Toll road in the West Midlands, built and operated with private finance, where daily traffic is half that on the adjacent M6 proper, doubtless due in part to the toll that local users do not choose to pay. But this is the exception that proves the rule: which is that attempts to alleviate congestion by increasing the capacity of major roads experiencing marked peaks of traffic at commuting times, as with Smart Motorways, must be expected to result in increased use for local trips, to the disadvantage of longer-distance users.

To better appreciate the benefits of road investment, it would be important to understand the impact of DN on road user behaviour, so that this can be incorporated into the traffic modelling that informs investment decisions. It would also be important to get a more granular evaluation of outcomes of investment. Traffic and economic modelling of prospective investments distinguishes between business and non-business users, the former split between cars, light goods and heavy goods vehicles, and the latter between commuter and other journey purposes. In contrast, monitoring of outcomes only tracks total traffic, volume and speed. However, it is now possible to employ DN to distinguish between local and longest-distance traffic, as exemplified by the TomTom Origin/Destination analytical service. Making such a distinction is important for evaluating the economic benefits of investment since the total volume of traffic might be close to that forecast, but if the share of local users is greater than forecast, the economic benefit will be less than expected.

We are at present midway through the second five-year road investment programme, known as RIS2, worth £27bn over the period 2020-2025. RIS3 is now being planned. But there are headwinds:

  • The potential economic benefits are likely to be overstated, as discussed above.
  • Any increase in road capacity is inconsistent with the Net Zero climate change objective since both tailpipe and embedded carbon would be increased.
  • There are public anxieties about the safety of Smart Motorways in the absence of the hard shoulder, reflected in a critical report from the House of Commons Transport Committee, to which the government responded by halting new schemes until five years of safety data is available.
  • The government’s Levelling Up White Paper, published in early 2022, identified a dozen ‘missions’ across departments. The single mission for the Department for Transport is aimed at improving public transport in regional cities towards that achieved in London, a sensible political and social objective. There was no reference to road investment, which is sensible given that congestion delays on the SRN are less in the Midlands and North than in the South East.
  • Current pressures on medium term public expenditure.

Given these impediments, there is a good case for treating the SRN as a mature network, with a focus on operational efficiency. This is the case for urban roads, which in the past were enlarged to accommodate more traffic, but nowadays the trend is to reduce capacity allocated to general traffic, to encourage active travel and facilitate public transport. Similarly, the aviation sector focuses on operational efficiency – airlines maximising use of aircraft, allocated routes and passenger load factors; airports (struggling recently) optimising throughput of passengers and baggage; and air traffic managment making best use of crowded airspace. The underlying discipline is operations research, not civil engineering, plus the modelling and economic analysis of operations, not long-lived investment.

A focus on operational efficiency of the SRN would naturally prompt consideration of how best to take advantage of the huge investment in DN that has been made, both by providers of the service and by road users. Here a very odd phenomenon is the apparent disregard of DN by road authorities, at least a judged by their publications – no reference to satnav in those of National highways, the Department for Transport, or local authorities (with the one exception known to me, Transport for London’s collaboration with Waze). Why is this? Possibly because of the preoccupation of highways engineers with civil engineering works, the need to spend the large budget allocated to the SRN, the lack of professional background to cope with digital technologies, and that fact that road authorities are monopolies, so not subject to competitive pressures?

The one constituent of road users that is highly competitive is road freight, particularly that forming part of integrated logistics businesses, which makes extensive use of digital technologies to manage fleets on the SRN and delivery vehicles on local roads. We are well aware of this when we order goods online, with a specified delivery date and often a time slot, the ability to track packages, delivery confirmed on the doorstep, and our feedback sought on the experience – all done by algorithm. This kind of operational efficiency needs to be brought to bear on the totality of traffic on the road network.

Experienced network operators would naturally want to take advantage of DN, which is vehicle-to-infrastructure connectivity that is changing travel behaviour on a massive scale. One aim would be better to cope at times of stress – major incidents, bad weather, peak holiday flows. A second would be to optimise use of the network in normal times, including avoiding routing traffic through unsuitable minor roads.

There is a maxim that you can’t build your way out of congestion, which we know from experience to be generally true. The Smart Motorway case studies exemplify this truth and provide an explanation: increased capacity is taken up by local users, pre-empting capacity intended for longer-distance business users, with no overall economic benefit, and restoring congestion to what it had been before. However, when road users are asked why congestion is a problem, their main concern is the uncertainty of journey time. Digital Navigation provides estimates of journey time in advance, so those who need to be at their destination at a particular time can decide when best to set out; those who are more flexible can avoid the worst of congestion; and all can choose the fastest route.

Digital Navigation is vastly more cost-effective as a means to mitigate the impact of road traffic congestion than costly civil engineering investment.

Car useEconomicsTransport

The Department for Transport (DfT) has started planning its third Road Investment Strategy (RIS3), a five-year investment programme for the Strategic Road Network (SRN) for the period 2025-2030. The approach is conventional – a programme of projects, with little overview of how societal objectives will be advanced by the likely substantial expenditure. Yet there are five major issues that need to be addressed for the programme as a whole.

First, there is a need to reconcile the government’s Net Zero objective with the carbon emissions from both the tailpipes of the additional traffic arising from increased road capacity and the embedded carbon in the cement, steel and asphalt used in construction. Recent presentations by the DfT’s Transport Appraisal and Strategic Modelling (TASM) division indicated an intention to tackle this issue at scheme level, but this is misconceived. What matters is the overall contribution of RIS3 to carbon emissions and how this is to be offset or otherwise justified.

Second is the question of how RIS3 advances the government’s Levelling Up agenda, where the recent, well-received White Paper identified twelve medium-term ‘missions’ to be pursued across all departments. The one specific to transport states: ‘By 2030, local public transport connectivity across the country will be significantly closer to the standards of London, with improved services, simpler fares and integrated ticketing.’ Although the rate of progress implicit in ‘significantly closer’ is vague, the direction of travel is clear and the objective is not in dispute.

There is no mention of investment in the SRN in the Levelling Up White Paper. This is appropriate since there is, if anything, an inverse relation between the performance of the road network and economic prosperity across the nation, given that delays on the SRN due to congestion are greater in London and the South East than in other regions of England.

The implication of the White Paper approach is that there should be a substantial switch of DfT funds from road investment to improve public transport beyond London, if the Department is to play a full role in supporting the government’s the Levelling Up agenda. Yet the Department’s recently issued Levelling Up Toolkit is essentially a pro forma for a box-ticking exercise aimed at justifying investments already forming part of agreed expenditure programmes. There is palpable inconsistency here.

Third, we have the problem of the safety of smart motorways. These require conversion of the hard shoulder to a running lane as an economical means of increasing capacity without the expense of rebuilding bridges. Generally, new roads are safer than older roads, which meant that adding road capacity yields a modest safety benefit. But this is not obviously the case for smart motorways, and there has been considerable pushback from the public and the House of Commons Transport Committee. As a result, the DfT has paused the roll out of new smart motorways until five years of safety data is available for schemes introduced before 2020. A decision on the generic safety of smart motorways will be an important factor in developing RIS3.

Fourth, and less recognised, there is a question about the economic benefits from additional road capacity. There are two published evaluations of smart motorway schemes where the traffic flows after opening were very different from those that had been forecast. For the M25 Junctions 23-27 scheme, the traffic flowed faster one year after opening but subsequently delays reverted to what they had been before opening on account of greater traffic volumes than forecast. For the M1 J10-13 scheme, traffic speeds five years after opening were lower than before opening. Since the main economic benefit of road widening is the saving of travel time, both schemes had negative benefit-cost ratios (BCR) at outturn.

Examination of the reports of the traffic and economic modelling of these two schemes showed substantial time-saving benefits expected for business users, offset by a small amount of increased vehicle operating costs (VOC) arising from additional traffic volumes. There were also time savings to non-business users (for commuting and other local travel) but these were entirely offset by increased VOC – because these were local trips that rerouted to the motorway to save a few minutes of time, at the expense of additional fuel costs.

The scope for rerouting local trips to take advantage of increased motorway capacity is likely to be underestimated in modelling. Local users have the flexibility to vary routes whereas long distance business users will stay on the motorway unless there is a major holdup. Moreover, the general use of digital navigation in the form of Google Maps and similar offerings makes choice of minimum time options commonplace.

Even when the outturn total traffic flows are a reasonable match to those forecast, the scheme economics could be much worse than predicted if there is more local traffic, and hence less long distance business traffic, than projected. Traffic and economic modelling involve recognition of different classes of road user with different values of travel time: cars, LGVs, HGVs, business, local commuters, and other local users. However, the monitoring of outturn traffic flows does not distinguish between these classes of users. GPS tracking make such distinctions possible.

The DfT has emphasised the importance of evaluation of outturns of investments. Yet the failure to appreciate the need to break total traffic flows down into the segments that had been modelled reflects a serious professional shortcoming. As a result, we cannot be at all confident that investments to increase SRN capacity do more than facilitate rerouting of short trips by local users, of nil economic value. Likewise, we do not have the kind of detailed evaluation data that would allow traffic models to be better calibrated for future use.

The fifth issue for RIS3 is that the widespread use of digital navigation by drivers prompts questions about the continued focus of DfT and National Highways on major civil engineering expenditure. Contrast the aviation sector, where new runways or terminals are occasional efforts, not regular business. The main focus of airlines and air traffic control is to improve operational efficiency, to sweat the assets employing the techniques of operational research. We have a mature road network in Britain. It’s time to focus on operational efficiency. Yet it seems not to occur the National Highways that working with Google Maps, TomTom and other providers of digital navigation services would be a cost-effective means of improving the performance of the network.

More generally, the DfT is trapped in its box labelled Transport Analysis Guidance (TAG), a thousand pages of prescription to which more text is added when some new issue or policy arises, such as Net Zero, Levelling Up, inequalities or gender. The task for those promoting a scheme is to tick all the boxes and flex the modelling to generate BCRs that represent good value for money. Evaluation of outturns is inadequate to distinguish between success and failure.

Although the DfT pays lip service to the need to think at the strategic level, the TAG framework does not facilitate this in that the detailed analysis is at project level. Other interested parties do not challenge the Department’s approach. The consultants and local authorities do not bite the hand that feeds them. The professional societies, institutions and think-tanks do not engage. The National Audit Office carries out good analysis of road investments on occasion, but not systematically. The Office for Rail and Road scrutinises the management of the SRN, including how well new investments are delivered, but does not see its role as enquiring into how investments benefit road users. This is quite unlike the regulators of other infrastructure industries – electricity, gas, water, telecoms – that are focused on how consumers benefit from investment.

The DfT is stuck in its box and seems unlikely to break out. The best bet for a strategic view of RIS3 may come from the National Infrastructure Commission, which has begun the development of its second National Infrastructure Assessment. The Commission’s advice was the basis of the government’s £96 billion rail investment programme for the North and the Midlands. This required fresh thinking about the benefits of transport investment at the level of the whole programme, an approach clearly needed for RIS3.

This blog post formed the basis of an article in Local Transport Today of 25 March 2022.