Economics

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.

Car useEconomics

I have previously discussed the widening of the M25 motorway between Junctions 23 and 27, where the economic benefits forecast did not materialise. Another example has now arisen.

Conversion of the hard shoulder of the J10-13 section of the M1 motorway to dynamic running was intended to reduce congestion by allowing the hard shoulder to be used as an additional running lane during busy periods. The scheme, one of the earlier ‘smart motorways’, opened in 2012 and a report of its first five years of operation, up to 2017, was published in 2021. The cost was £489m for 15 miles of widened motorway, adjacent to Luton, to the north of London.

Electronic signs tell drivers when it is safe to use the hard shoulder as a running lane, but then speeds are limited by the level of congestion, with a maximum of 60mph. This, together with some traffic growth on the route, meant that journey times were in fact longer than before the road was converted.

The main economic benefit of road investments is taken to be travel time savings. In the present case, the forecast had been for an average travel time savings of 1.5 min per vehicle in the opening year, increasing to 2.25 min by 2028. But time savings were not observed. The forecast benefit-cost ratio (BCR) had been 1.4, whereas the estimate based on the five-year outturn was negative, -0.8.

The stated conclusion, five years after opening, was: ‘In this case, the monetisation of journey time benefit is not a good measure of value for money and the qualitative evidence presented in the evaluation is considered a more robust measure.’ The failure of forecasting was attributed to limited prior experience of such smart motorway conversions.

In view of this marked discrepancy between forecast and outturn, I made a Freedom-of-Information request to see the detailed reports of the traffic modelling and economic analysis of the proposed investment. The original modelling had been for a widening from three to four standard lanes in each direction. The model was adapted for the use of the hard shoulder for the extra lane. The model drew upon the East of England Regional Model, a variable demand model, for data to input to a local traffic model for the section of the M1 involved. As elsewhere, the traffic modelling employed the established SATURN package.

The traffic modelling projected increased traffic volumes, comparing the investment case with the ‘do minimum’ case without the investment, as well as journey time reductions in the range 4-15% for the opening year, depending on section of the road and time of day. The economic appraisal used the output of the traffic model as input to the standard TUBA economic model to project the economic benefits. The main benefits were time savings to business users of £456m pv, offset by increased vehicle operating costs (VOC) of £61m. There were time savings to consumers of £170m, more than offset by increased VOC of £197m. This suggests that the increased road capacity is attracting local users, such as commuters, who save a few minutes of their journey by rerouting to the motorway, at the cost of more fuel use for a longer trip, as illustrated in the screenshot from Google Maps above. A similar situation arose in the M25 case.

The forecast BCR from the TUBA model was 3.5, which is different from the forecast of 1.4 provided in the year five report (above), apparently on account of a change in how increases in revenue from fuel taxation are required to be treated, whether as offsetting the scheme costs or as an element of the benefits from the investment.

Conclusion

Transport models are complex and opaque. Generally, little effort is made to valid forecast against outturn. The present M1 case demonstrates a marked failure of a model to forecast the observed traffic flows and speeds five years after opening.

More generally, monitoring traffic flows and speeds provides only limited information about the validity of a model that projects economic benefits for different classes of road user. The outturn of a widening scheme that matched projected flows might arise if all the increase in traffic volumes arose from more local users taking advantage of the increased capacity to save time on local trips, thereby pre-empting benefits to long distance business users. Effective monitoring needs to track the travel behaviour of different classes of road users.

It seems likely that there is often a bias in traffic modelling of road investments to underestimate the growth of local traffic and hence to overstate the economic benefits to business users.

Economics

In my previous blog I outlined the economic thinking behind the Government’s Integrated Rail Plan for the North and Midlands. This was based on an approach developed by the National Infrastructure Commission (NIC) that put values on the benefits to both businesses and consumers of improving transport to achieve higher density city centres. For businesses, what are known as agglomeration benefits arise from improved opportunities to share facilities and suppliers, better matching between employers and employees, and more learning that fosters innovation. For consumers, there are analogous benefits from improved opportunities for consumption of material goods and cultural services, as well as for social interactions.

Economic appraisal of transport infrastructure investment based on these real-world observable benefits is more relevant to decision makers than is orthodox analysis based on theoretical ‘generalised costs’, which lumps together time costs and money costs and then disregards the awkward finding that average travel time has not changed for at least half a century. Importantly, the NIC approach addresses the benefits from programmes of investment, not of individual schemes, which is also more useful to decision makers responsible for major capital expenditure programmes.

The question is whether the NIC approach might usefully be applied to road investment. After all, the strategic purposes of road and rail investment are not fundamentally different, although there are differences in application. Crucially, rail investment can move more people into city centres where road capacity cannot be increased, and indeed is commonly being decreased to create more space for buses, active travel and pedestrians.

Investment in new road capacity is therefore generally beyond cities, intended to reduce road traffic congestion and to foster connectivity between cities for mutual economic benefit. However, induced traffic arising from new capacity tends to restore congestion to what it had been, reducing predicted economic benefits. Besides, the standard approach to economic appraisal addresses the benefits of individual schemes, not the benefits from a programme of improvements as a whole. The National Audit Office reported in 2019 on the DfT’s plan to construct a tunnel adjacent to Stonehenge, drawing attention to the lack of a plan for the A303 corridor as a whole. This includes 35 miles of single carriageway, with eight improvements intended, seven of which, considered individually, have low or poor benefit-cost ratios. The question is whether investment in the whole corridor is greater than the sum of the parts. To answer this, appraisal at strategic level is needed.

The DfT’s road investment strategy is now being developed for a third five-year programme, to follow the current £27 billion 2020-2025 RIS2 programme. This requires a view of the economic benefits of the programme as a whole, as happened for the Integrated Rail Plan. We need to address the real observable economic benefits of road investment, particularly important given that new road capacity leads to more traffic and so more carbon emissions, at a time when we are committed a rapid reduction on transport’s contribution to climate change.

The NIC has started work on its second National Infrastructure Assessment. For this purpose, it is developing a high-level approach for future investment, including a framework for decision making and prioritisation for interurban transport improvements across the modes.

Another strategic multi-modal transport investment programme whose economic case needs to be considered arises from the Union Connectivity Review, chaired by Sir Peter Hendy, published in November, and intended to improve connectivity between the nations of the United Kingdom. This concluded that while devolution has been good for development of transport within regions, cross-border schemes have tended to be of lower priority. The Review made a number of specific recommendations, including investing in the West Coast Mainline north of Crewe to achieve better interconnectivity between England and Scotland by means of HS2, and endorsing the Welsh Government’s multi-modal approach to dealing with congestion on the M4. However, the economic content of the Review was minimal.

The Union Connectivity Review recognised that domestic aviation is important for Northern Ireland and the more northern regions of Scotland. Some services receive subsidy from government through ‘public service obligation’ arrangements. Contrarywise, fares have been higher because Air Passenger Duty has been imposed on both the outbound and inward legs of domestic flights. However, the government has announced that the duty will be halved for domestic flights from 2023.

Air travel is of concern on account of its contribution to global warming. Journeys between London and Glasgow by plane produce more than five times more greenhouse gas emissions per passenger than the equivalent journey by rail. However, much effort in underway to develop sustainable aviation fuels for existing aircraft and electric propulsion for new models. If these developments succeed, domestic air travel may become economically attractive, with its limited requirement for airport and air traffic control infrastructure, in contrast to road and rail travel with carriageway and track requiring maintenance over the whole route.

Besides Union Connectivity, we are expecting the government to articulate its approach to ‘levelling up’, which will doubtless make reference to transport investment. Given the range of developments of transport infrastructure that are being contemplated, fresh thinking is needed to identify and value the benefits in ways that facilitate good decisions. The DfT’s Transport Analysis Guidance is no longer fit for purpose.

This blog was the basis for an article that appeared in Local Transport Today of 28 January 2022.

EconomicsTransport

The Government published its Integrated Rail Plan for the North and Midlands (IRP) in November. Despite headline investment worth £96bn, public reception was mostly unfavourable. Expectations had been excessively raised. Cities that failed to gain hoped for improved services and new stations spoke up more loudly than the winners of this apparent lottery. Huw Merriman MP, chair of the Commons Transport Committee, put well ‘the danger in selling perpetual sunlight and then leaving it for others to explain the arrival of moonlight.’

What has not previously been remarked is the absence of any supporting economic analysis to justify the investment choices of the IRP. This is in marked contrast to the succession of documents justifying HS2, with benefit-cost ratios that declined over time as the capital costs steadily rose. One problem with applying the DfT’s standard approach to economic appraisal, for which the main benefit is travel time saving, is that it is silent on the distribution of economic benefits, a serious disadvantage for a project whose strategic purpose is to boost the economies of the cities of the North and Midlands.

The DfT has at long last recognised the problematic nature of theoretical time savings. The IRP states: ‘Over the last 50 years the time people spend travelling has remained relatively constant, though distances travelled have increased…. Overall, people have taken the benefits of better transport links as the ability to access a wider range of jobs, business and leisure opportunities, rather than to reduce total time spent travelling.’ (para 2.8)  

It is gratifying to find the DfT seemingly accepting an understanding of this reality, to which I have been drawing attention for many years. Nevetheless, there is a footnote appended that suggests the Department doesn’t yet quite get it: ‘Noting that the use of estimated time savings as the basis for quantifying economic impact remains robust.’

If time savings are a ‘robust’ measure of economic impact, why was the standard cost-benefit approach to investment appraisal not employed? The answer, as the IRP recognises, is that ‘rail schemes in the North are at increased risk of being considered poor value for money when applying conventional cost-benefit analysis. This is driven in part by smaller city populations in the North, different travel patterns, as well as the general high cost of building rail infrastructure.’ (para 3.59). So conventional cost-benefit analysis, as prescribed in the thousand-pages of the DfT’s Transport Analysis Guidance (TAG), is not fit for the purpose of appraising rail investments. The main problems are the absence of observed time savings in the long run, silence on the spatial distribution of benefits and on the value of consequential property development and economic regeneration.

In developing the IRP, the Government has been guided by the analysis of rail investment options carried out by the National Infrastructure Commission (NIC), which concluded that prioritising regional links appears to have the highest potential economic benefits overall for cities in the Midlands and the North and would improve many of the currently poorest services. Improving East-West links are higher priority than North-South routes. The Government agrees with the NIC’s analysis that there are opportunities to better serve existing city centres and wider city regions for greater economic benefit, and better integration with existing transport networks. Given constraints on public expenditure, the eastern leg of HS2 between the East Midlands and Leeds will not now go ahead.

To reach its conclusions, the NIC developed a novel multi-criteria analytical approach that attributed monetary values to improvements in productivity in city centres, benefits from connecting people to city centres, and environmental impacts. In addition, estimates were made of improvements to connectivity from faster journeys and of the benefits from unlocking investment in land around stations. In essence, this approach replaces traditional transport user benefits, which mainly take the form of a reduction in time costs, with estimates of the benefits of increased productivity and consumer amenity arising from higher city densities made possible by urban transport investment.

The NIC analytical approach was developed for consideration of a portfolio of rail investments. This is very welcome since there is an undoubted need to move beyond appraisal of individual schemes to view the benefits of whole programmes of infrastructure investments. In a subsequent blog, I will consider the applicability of this approach to road investments.

This blog was the basis for an article in Local Transport Today of 14 January 2022.

Car useEconomicsTravel

Induced traffic is the additional traffic that arises from investment to increase road capacity. The usual reason to increase capacity is to relieve congestion. The intended outcome is that journeys are faster and easier. Yet this can lead to more frequent or longer car trips, changes to route or destination, or mode switching from public transport. All these changes lead to more traffic on the network.

The problem with induced traffic is that the more of it there is, the less the savings in travel time, which are treated as the main economic benefit of investment. So, the magnitude of induced traffic is of interest, prompting the Department of Transport to commission a study by consultants WSP and RAND Europe of options to improve its measurement. Two broad approaches were identified: econometric analysis that quantifies the relation between road capacity changes and observed traffic levels over time; and Before and After (B&A) studies that compare traffic before and after particular interventions.

The disadvantage of the econometric approach is that it generates an aggregate measure that does not indicate the components of induced traffic. B&A studies are more illuminating and could be improved by use of mobile phone network data (MND) to quantify changes to travel behaviour. MND allows an understanding of origins and destinations of trips, before and after an intervention. Large samples of road users are available, which would enable distinction to be made between the various kinds of change in travel behaviour. Transport for London has developed a multi-modal strategic transport model that estimates demand from MND.

One possibility not considered in the WSP/RAND study would be to carry out a sample survey of users of the road network, before and after an intervention, identifying changes in travel behaviour over time. This could employ seven-day travel diaries as for the National Travel Survey, or GPS to track travel patterns via a smartphone app. Studies of this kind, known as longitudinal studies, are well established in medicine and the social sciences. Much current research into the impact of Covid-19 is longitudinal, for instance following the immune response to vaccination over time. However, longitudinal studies of travel behaviour are rare, although they have the potential to understand the impact of investments in far more illuminating detail than is possible with conventional before and after traffic counts. 

The WSP/RAND study concludes that all components of induced travel can be represented in the standard four-stage transport model, except that arising from changes to land use, which may have a substantial impact. However, the study did not consider the implications of induced traffic for the economic analysis of road investments, which routinely employs the output of a traffic model (including induced traffic effects) as input to an economic model. This is usually the DfT’s TUBA model, which generates monetary values of the time savings and other benefits/disbenefits. The net present value of the benefits is then compared with the investment costs to yield a benefit-cost ratio, important for investment decisions.

The phenomenon of induced traffic was recognised in a landmark 1994 report by the Standing Advisory Committee on Trunk Road Assessment (SACTRA). It is remarkable how little progress has been made in understanding its origins and incorporating this into modelling and economic appraisal. A cynic might say that this is because induced traffic undercuts the economic case for a road investment where the main benefit is supposed to be travel time savings, and so is yet a further headwind for the DfT’s £27 billion road investment programme. My own analysis of the widening of the M25 J23-27 showed that induced traffic, largely arising from rerouted local trips, was substantially greater than forecast and wiped out the economic benefits expected to accrue to longer distance business users. This is likely to be typical of investment to add capacity near densely populated urban areas where local commuters and others compete for road space with long distance business users. Standard traffic models are biased against fully recognising induced traffic.

The concept of induced traffic as an aggregate measure is now obsolete. Instead, we need to focus on how travel behaviour actually changes as the result of an intervention, and then work out how to value those behaviour changes. If an investment allows travel time to be saved, then monetary value can be ascribed according to established methods. However, we lack methodology for valuing longer trips to more distant destinations, motivated by the greater value of access to goods or services. Increased access is the real benefit of transport investment.

The above blog post was the basis for an article in Local Transport Today 836, 16 December 2021.

Car useEconomics

I have an article published in Highways Magazine, the text of which is below.

Recent advances in a number of digital technologies in combination are having a significant impact on travel behaviour on the road network by providing route guidance that takes account of traffic conditions. What may be termed ‘digital navigation’ involves the use of satellite navigation (satnav) to provide spatial positioning to high precision; digital mapping; the ability to detect vehicle speeds and hence the location of traffic congestion; and routing algorithms to optimise journeys. The combination of satnav location and digital mapping provides a navigation service that offers turn-by-turn route guidance.

While digital navigation is in widespread use by road users, remarkably little information is publicly available about performance, in particular how routes are optimised, the suitability of recommended routes, the accuracy of estimated journey times, and the impact on the functioning of the road network as a whole. Nevertheless, there is evidence to indicate an impact on the use of minor roads, of major roads, and on traffic congestion and the optimisation of the road network.

Recent revisions to British road traffic statistics appear to show that there has been a substantial growth of motor vehicle traffic on minor roads in recent years, an increase of 26% between 2010 and 2019, while traffic on major roads increased by only 12%.  One factor contributing to this growth is the increase in van traffic, including that arising from the growth of online shopping with home deliveries. However, in 2019 van traffic amounted to 15% of traffic on urban minor roads, and 19% on rural minor roads, cars being responsible for 82% and 78% of traffic respectively. So, the growth of van traffic on minor roads has been responsible for only part of the overall traffic growth on these roads.

The most likely main contribution to the large growth of traffic on minor roads is the widespread use of digital navigation, which makes possible the general use of minor roads that previously were largely confined to those road users with local knowledge, as well as extending such local knowledge. Diversion to minor roads is likely to occur when major roads are congested and represents an effective increase in the capacity of the road network, so generating additional traffic.

As well as encouraging use of minor roads, digital navigation may divert traffic from local roads to roads intended for longer distance traffic. One case that I have analysed where such diversion may have occurred is the widening of the M25, the London orbital motorway, between junctions 23 and 27 to the north of the city. There was substantial growth in traffic above the level that had been forecast, much of which arose from diversion of local trips, such as home to work, to take advantage of faster travel on the motorway, despite the greater distance and higher fuel costs incurred. The contribution of digital navigation in facilitating such diversion cannot be inferred from available data, but it is plausible. Regular users of digital navigation would have up-to-date information for each journey, while irregular or non-users would likely be aware that diversion to the motorway would offer the fastest journey.

The M25 case study suggests that local traffic may be expected to take advantage of the capacity increase of major routes in the vicinity of urban areas that generate much traffic, which are the locations where the Strategic Road Network is under greatest stress and where investments to increase capacity are thought to be most needed. However, this local traffic negates the benefits expected for long distance road users and so undermines the economic case for the investment. The growing use of digital navigation would tend to contribute further to weakening the case for such investment.

While the M25 case study is an illustration of the maxim that we can’t build our way out of road traffic congestion, nevertheless the development of digital navigation offers probably the best means available to mitigate the impact of congestion. Congestion arises in or near areas of high population density and high car ownership, where the capacity of the road network is insufficient to cope with all the trips that might be made. Drivers are deterred by the prospect of time delays and so make other decisions – to travel at a different time, by a different route, by a different mode, to a different destination (where there are options, as for shopping), or not to travel at all (by shopping online, for instance). Congestion is therefore substantially self-regulating, in that if traffic increases, delays worsen and more potential users are deterred on account of the time constraint.

Digital navigation that takes account of congestion in real time can offer less congested routes, so making better use of the existing road network and reducing road users’ exposure to congestion. One problem that may arise is that traffic may be diverted on to unsuitable roads, where local environments and neighbourhoods may be adversely affected, or even where large vehicles can become obstructed. Diversion onto unsuitable routes is a problem that could be mitigated through collaboration between digital navigation providers and road authorities.

Beyond the rerouting of traffic to less congested roads, there is a feature of digital navigation that mitigates the unwelcome experience of traffic congestion – the prediction of journey time, or estimated time of arrival (ETA). When road users are asked about their experience of congestion, both in surveys and in discussion, the evidence from their responses indicates that the uncertainty of journey time is a more important adverse consequence than lower speed. Accordingly, an important benefit of digital navigation is the forecast of ETA in the light of prevailing traffic conditions on the selected route, in this way substantially reducing journey time uncertainty.

While diversion onto less congested routes may be helpful for users of digital navigation, there is a question as to whether this is optimal for users of the road network as a whole. Digital navigation employs proprietary algorithms whose performance is difficult to assess externally. An algorithm might response to build up of congestion by diverting all traffic to a single alternative route until that became congested, repeating the process to spread traffic across available routes until congestion abated. Or the algorithm might spread traffic across all available routes at the outset. And the algorithm might anticipate the build-up of congestion based on historic experience. But in any event, the routing algorithm used by one provider would not take account of the activities of another provider. The providers of digital navigation services are very secretive and there is almost no published information on their design and performance.

The road system is generally well regulated to achieve safety and efficiency. Given the potential scale of impact of digital navigation devices on network operations, arguably a licensing regime would be appropriate for providers. This might require information to be exchanged with road authorities, guidance to be accepted to avoid adverse environmental and social impacts, and mutual collaboration to optimise the operational efficiency of the network as a whole, while at the same time optimising the experience of individual road users.

Car useEconomicsTransport

Below are the main points and implications of my analysis of the outcome of widening of the M25 motorway between Junctions 23 and 27, published as ‘Economic benefits of road widening’, Transportation Research Part A, 147, 312-319, 2021. Abstract available at https://www.sciencedirect.com/science/article/abs/pii/S0965856421000872 Manuscript available from david.metz@ucl.ac.uk

  • The M25 motorway was widened between Junctions 23 and 27 as part of the Smart Motorway investment programme implemented by Highways England. Detailed traffic monitoring reports were published before the scheme was opened and for three years afterwards.
  • There was some increase in traffic speeds at Year One after opening, compared with Before opening, but this gain was lost subsequently account of increased volumes of traffic. At Year Three, average daily traffic was up by 16% compared with Before, and up 23% at weekends. This contrasts with an increase of 7% for regional motorway traffic growth.  
  • The conclusion of the Year Three monitoring report states: ‘These results show 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.’ However, this could not have been the basis of the investment case, which in general suppose that travel time savings are the main benefit of transport infrastructure investment. Accordingly, reports of the traffic and economic modelling were obtained; these utilised the long-established SATURN and TUBA models.
  • The traffic model projected increased traffic volumes and speeds for the scheme opening year, comparing the ‘do something’ investment case with the ‘do minimum’ case without the investment. However, the increase in traffic volume was less than the observed outturn and the increase in speed forecast failed to materialise beyond the first year after opening.
  • The modelled economic benefits derived very largely from time savings for business users. There were also time savings for local users, commuters and others, but these were almost entirely offset by increased vehicle operating costs. This was the consequence of local users rerouting trips between unchanged origins and destinations to take advantage of short journey times made possible by diverting to the motorway, travelling somewhat greater distances.
  • The benefits forecast for business users were the main input to the economic appraisal that generated a benefit-cost ratio of 2.9, which was the basis for the investment decision. However, the time savings benefits did not materialise beyond the first year after opening, on account of the additional traffic above forecast.
  • The nature of this additional traffic cannot be deduced from the traffic monitoring. It is likely that much, possibly most, comprises local trips rerouting, of no net economic benefit; indeed, these trips would be of negative benefit on account of the additional externalities (carbon etc) arising from the increased distance travelled. The outturn BCR must be much less than the forecast 2.9, possibly even negative.
  • This M25 case is likely to be typical in that the Strategic Road Network comes under greatest stress in or near major urban centres where local traffic competes for carriageway with long distance users. Highways England has 10 smart motorway schemes in its current investment programme, with an average BCR estimated as 2.4. This likely reflects considerable optimism bias in the modelling.
  • The modelling to support decision making distinguishes between different classes of road user, yet the traffic monitoring does not allow such a distinction. The monitoring is therefore of limited use in refining the models and countering optimism bias. What is needed is monitoring of representative samples of road users over time to see how their travel behaviour changes as the result of the road investment. Such longitudinal studies, as they are known, are common in the areas of health and social sciences, but almost unknown for travel and transport.

EconomicsTransport

The House of Commons Transport Committee is holding an inquiry into major transport infrastructure projects. Written evidence has been published. My evidence is set out below.

This submission is concerned with the effectiveness of the Government’s decision-making and appraisal processes for transport infrastructure projects, a subject on which I have researched and published in peer-reviewed journals.

Main points

  • The standard approach to the economic appraisal of transport investments, based largely on the value of time savings, does not reflect reality. An independent review of the methodology would be desirable. 
  • The value of transport investment lies in better access to people and places, making possible more opportunities and choices. Improved access changes the built environment, the consequences of which can be valued.
  • Digital navigation (satnav) is affecting traffic flows, and thus the outcomes of road investment, in ways that are little understood. A study is needed.

Time is not saved

The Department for Transport (DfT) has a well-developed methodology for the appraisal of transport infrastructure investments, set out in considerable detail in its Transport Analysis Guidance (TAG, formerly WebTAG, reflecting the pioneering effort to make the material available via the internet). The Guidance is consistent with the Treasury’s Green Book, and indeed appears to be regarded as an exemplar of good practice in economic appraisal in the public sector. However, the Green Book does not deal with the specifics of transport investment, so that the recent changes to it, while welcome, do not bear on what follows.

The main economic benefit supposed to arise from investment in transport infrastructure is the saving of travel time. Accordingly, the DfT has commissioned considerable analysis designed to attribute values of time to different classes of user of the transport system, according to mode and purpose of travel. Travel time savings typically amount to 80% of overall economic benefits that are set against capital and other costs in the cost-benefit analysis employed to help reach investment decisions.

Average travel time has been measured regularly in the National Travel Survey (NTS) and has barely changed over almost fifty years, at close to an hour a day for travel by all modes except international aviation. So, there is a paradox in that huge past investments in transport infrastructure have been justified by the expected value of travel time saved, which yet is not apparent in any change in travel time averaged across the population.

The explanation is that travel time savings are quite short run. In the long run, people take the benefit of faster travel to travel further, to gain access to more people and places, to have more opportunities and choices. Thus, while average travel time remained constant, the average distance travelled increased from 4500 miles a year in the early 1970s to around 7000 miles in the late 1990s. The economic benefits to users of transport infrastructure investment therefore are not time saved for more work or leisure, but rather relate to enhanced access to, and choice of, jobs, homes, schools, shops and other services.[1]

Such access is subject to diminishing returns. For instance, 80% of urban residents in Britain have access to three or more large supermarkets within 15 min drive, and 60% have access to four or more, a level of choice likely for most to remove the need to travel further for yet more choice[2]. On the other hand, access increases with the square of the speed of travel, since what is accessible is defined by the area of a circle whose radius is proportional to the speed of travel. The combination of access increasing with the square of travel speed yet subject to diminishing returns means that travel demand to achieve access saturates, that is, it ceases to grow.

Such demand saturation, also known as market maturity, is of course a standard feature of consumer markets generally and it is to be expected for daily travel. The finding of the NTS that the average distance travelled has not increased over the past twenty years is consistent with this expectation. So rather than planning for ever more transport infrastructure investment based on time savings, we should limit investment to meeting specific access deficiencies in what is generally a mature transport system. This points, for instance, towards investment in urban rail that can increase economic density and hence agglomeration benefits, as the National Infrastructure Commission has argued[3], rather than on inter-urban roads where the benefits are overstated, as the following case study illustrates.

In 2015 the London orbital M25 was widened from three to four lanes in each direction between junctions 23 and 27, part of the so-called ‘Smart Motorway’ programme of Highways England, with detailed monitoring of traffic volumes and speeds before and for the first three years after opening. The growth of traffic was substantially greater than on major roads in the region and greater than forecast in the transport modelling used to justify the investment. The model predicted a significant increase in traffic speed, which generated travel time savings contributing to a benefit-cost ratio (BCR) of 2.9, which represented high value for money. However, beyond the first year, no increase in traffic speed was seen on account of the additional traffic. The evidence suggests that this is due mainly to local users rerouting between unchanged origins and destinations to take advantage of shorter journey times via the motorway, while incurring greater fuel costs. The outturn BCR must be quite small.[4]

This M25 case is likely to be representative of much planned investment in new capacity on the Strategic Road Network, which comes under greatest stress in or near urban centres where local traffic competes for carriageway with the long-distance users for whose benefit the investment is primarily intended. Rerouting to take advantage of new capacity is facilitated by the widespread use digital navigation (satnav) devices that offer routes with the shortest time.

At present, optimism bias in modelling means that traffic growth is underestimated and time savings overestimated. Monitoring of traffic flows before and after opening is too crude a measure to understand the consequences of the investment for the different classes of road user. Accordingly, we need to monitor the changes in travel behaviour of a representative sample of users, employing the travel diary technique as used for the National Travel Survey. This would allow transport models to be better calibrated, such that changes in access could be identified and valued, and externalities (carbon emissions, pollutants etc) that are related to vehicle-miles travelled better estimated. In particular modelling needs to take account of the impact of digital navigation on traffic on the road network.

Built environment is changed

The focus on travel time savings in the standard approach to appraisal means that the impact of transport investment on the built environment is not properly taken into account. Consider a proposal to construct a bypass around a village, motived by concerns about the local environmental impact of traffic. The economic case would be based largely on the value of travel time savings from a faster route. However, a bypass may make land more accessible for development, for instance for housing, subject to decisions of the planners and the prospective return to developers. A bypass scheme with housing is clearly different from one without, as regards both traffic and economic benefit. The standard approach to appraisal disregards the benefit of new housing when estimating the BCR on the grounds that this would double count the user benefits, which might be shifted to others such as land owners but which would not change in overall magnitude. In reality, the impact of the scheme with housing is very different from that without and they need to be appraised separately.

More generally, the real-world outcomes of transport investments depend on decisions by planners and developer. It has been attractive for the DfT to operate in a silo, disregarding changes in land use, initially on grounds of simplicity that were perhaps justified in the heyday of motorway construction. But now that we have a mature network of transport infrastructure in place, with only fairly marginal increases feasible on account of the high cost of civil engineering work, we need to focus on the benefits of new schemes beyond the traditional user benefits. Decision-making needs to be tripartite, involving planners, developers and transport authorities.

The broad objectives of investment in transport infrastructure are threefold: to stimulate economic growth; accommodate population growth; and mitigate environmental harm. Accordingly, we need an approach to appraisal that helps reach investment decisions relevant to these objectives, or whatever more specific versions may be decided by those holding devolved budgets. Changes to the built environment need to be recognised explicitly since they are important to achieving objectives, whether to make sites accessible for new housing or for business expansion. Moreover, changes to the built environment are spatially located, whereas time savings are not, yet location of benefits is very relevant to investment decisions. For instance, the economic case for HS2 was based largely on benefits to users of the new route and was silent on spatial distribution, whereas the strategic objectives were concerned to rebalance the economy in favour of regions beyond London[5].

An innovative approach to decision-making has been developed by the National Infrastructure Commission for its recent assessment of rail needs for the Midlands and the North[6]. This focuses on the way in which improved rail services can increase the effective density of city centres, which has long been recognised as boosting the productivity of businesses from agglomeration benefits through more efficient labour markets, better supply chains and enhanced knowledge sharing. The Commission has extended this analysis to capture the consumption impacts of agglomeration through access to increased amenities, which replaces conventional time saving benefits. Separately, the Commission has developed a property value uplift tool that allows the estimation of the impact of transport investment on property prices[7].

Digital technologies

The widespread use of digital navigation was mentioned above. The other important new technology is the digital platform, used by ride-hailing businesses to match demand to supply, as exemplified by Uber. Much is known about the impact of ride-hailing on traffic in US cities because the authorities are able to require provision of data as a condition of the companies’ operating licence. This has prompted the companies to volunteer data provision to help cities address urban transportation needs.

In contrast to ride-hailing, the providers of digital navigation are secretive. Little is known about the algorithms that calculate routes in the light of prevailing congestion, and how the guidance to users affects traffic flows generally. It is noteworthy that the DfT has recently revised its road traffic statistics to generate an increase of 26% of motor vehicle traffic on minor roads over the past ten years[8]. It is likely that this has been due in large part to use of digital navigation that makes minor roads usable to those without local knowledge.

The lack of appreciation of the impact of digital navigation is remarkable, given its likely influence on the functioning of the road network. The DfT’s Road Investment Strategy 2: 2020-2025 makes no mention of the use of satnav (although there is an illustration of a device on p38). Highways England created a ‘high-tech corridor’ on the A2/M2 in Kent to trial digital communications between roadside infrastructure and vehicles, to improve journey time reliability, yet this appears to pay no regard to the general use of digital navigation. The prospects for investment in such a publicly funded guidance system look poor, given the benefits provided without charge by the private sector providers of digital navigation.

A better approach to taking advantage of digital navigation to improve the operation of the road network would be through regulation. There is in fact legislation in place, but never used, to licence providers of dynamic route guidance. Licence conditions could include the provision of traffic information to road authorities and the avoidance of use of unsuitable roads.[9] Guidance to users is provided without direct charge, hence accommodating such licence conditions should not affect the business models of the providers, which depend either on selling direction-finding to retailers’ websites or mapping services to vehicle manufacturers.

Conclusion

The standard DfT approach to appraisal is no longer suited to decisions on investments in a mature transport system. The standard methodology has become vastly elaborate and misses the point that the benefit of investment is better access, which is seen as changes to the built environment. Decision-making needs to involve planners and developers as well as transport authorities. The National Infrastructure Commission has developed alternative approaches that better reflect the reality. An independent review of appraisal methodology would now be desirable.

Digital navigation seems to be having a significant impact on traffic flows. While the consequences are as yet little understood, it appears likely that the modelled benefits of road investment would be overstated if local traffic rerouting is disregarded. It would be desirable for the DfT to commission a study of the impact of digital navigation on the road network.

January 2021

[1] Metz, D. (2021) Time constraints and travel behaviour. Transportation Planning and Technology,44 (published online).

[2] Competition Commission, The supply of groceries in the UK market investigation, 2008. Fig 3.9

[3] National Infrastructure Commission, National Infrastructure Assessment, 2018.

[4] Metz, D. (2021) Economic benefits of road widening: discrepancy between outturn and forecast. Transportation Research Part A, (forthcoming).

[5] Department for Transport. Full Business Case: High Speed 2 Phase One. 2020.

[6] National Infrastructure Commission. Rail Needs Assessment for the Midlands and the North: Final Report. 2020.

[7] https://nic.org.uk/studies-reports/national-infrastructure-assessment/uplift-tool/

[8] Department for Transport. Benchmarking Minor Road Traffic Flows for Great Britain, 2018 and 2019: Methodology Report. 2020.

[9] Road Traffic (Driver Licensing and Information Systems) Act 1989.

EconomicsFinance

The Treasury is consulting on ‘VAT and the Sharing Economy’. This is prompted by concerns for a level playing field between traditional businesses and newer models made possible by the internet, and also about loss of tax revenue.

The innovative approach of Uber, and to a lesser extent other providers using digital platforms, has made a significant improvement to the quality of transport services. The market for taxis is competitive, involving black cabs driven by owner-drivers as well as ‘minicabs’ whose owner-drivers taking bookings via a local agent. There is no evidence of tendency to monopoly by the dominant digital platform. In general, no taxis charge VAT so that providers of taxi services via digital platforms have no competitive advantage.

Accordingly, charging VAT on taxi fares collected via a digital platform would distort competition, at least while the VAT threshold applies to owner-drivers. There may be a case for abolishing the threshold for all taxi services to achieve a level playing field, although this would be onerous for those drivers who work part time to supplement earnings from their main employment.

If the VAT threshold were retained for owner-drivers other than those operating through digital platforms, the platforms might seek to preserve their competitive position by absorbing the tax through taking more commission from the drivers, although that would be limited by the need to pay enough to recruit drivers. In this situation, drivers offering taxi services via digital platforms would be disadvantaged. Alternatively, were VAT not to be absorbed by the platforms, fares would be higher to the detriment of consumers, leading to the platforms likely exiting the market, again to the detriment of consumers.

More generally, public transport fares are zero rated for VAT, so levying VAT on taxis would distort the market for non-private travel.

In short, were VAT to be levied only on fares charged by taxi services provided via digital platforms, the existence of the VAT threshold would distort competition, to the detriment of consumers.

There are suggestions, unconfirmed, that HMRC has already raised a £1.5 billion VAT assessment on Uber.

Note added 22 February 2021: The recent judgement of the Supreme Court that Uber drivers must be treated as workers, not as self-employed, may increase the likelihood that Uber would be obliged to charge VAT on fares.

Car useEconomicsPublished papersTravel

I have a new paper on how time constraints affect our travel behaviour. The link to the journal is here. Some copies are free to download here. The manuscript is here. The abstract is below.

Considerable observational evidence indicates that travel time, averaged across a population, is stable at about an hour a day. This implies both an upper and a lower bound to time that can be expended on travel. The upper bound explains the self-limiting nature of road traffic congestion, as well as the difficulty experienced in attempting mitigation: the prospect of delays deters some road users, who are attracted back following interventions aimed at relieving congestion. The lower bound implies that time savings cannot be the main economic benefit of transport investment, which means that conventional transport economic appraisal is misleading. In reality, the main benefit for users is increased access to desired destinations, made possible by faster travel, which is the origin of induced traffic. Access is subject to saturation, consistent with evidence of travel demand saturation. However, access is difficult to monetise for inclusion in cost-benefit analysis. Consequential uplift in real estate values may be a more practical way of estimating access benefits, which is relevant to the possibility of capturing part of such uplift to help fund transport investment that enhances such access.