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.