The Eddington Transport Study

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The Eddington Transport Study The case for action: Sir Rod Eddington’s advice to Government £13.50 December 2006 © Crown copyright 2006 Published with the permission of HM Treasury on behalf of the Controller of Her Majesty’s Stationery Office. The text in this document (excluding the Royal Coat of Arms and departmental logos) may be reproduced free of charge in any format or medium providing that it is reproduced accurately and not used in a misleading context. The material must be acknowledged as Crown copyright and the title of the document specified. 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PU138 Department for Transport contacts This document can be found on the DfT website at: www.dft.gov.uk For general enquiries about DfT and its work, contact: Correspondence and Enquiry Unit Department for Transport Great Minster House 76 Marsham Street London SW1P 4DR Tel: 020 7944 8300 Fax: 020 7944 9643 FO R E W O R D TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N Dear Chancellor and Secretary of State, I was asked to advise the Government on the long-term links between transport and the UK’s economic productivity, growth and stability, within the context of the Government’s commitment to sustainable development. I am pleased to present to you my report – Transport’s role in sustaining the UK’s productivity and competitiveness. The UK transport system supports a staggering 61 billion journeys a year. In broad terms it provides the right connections, in the right places, to support the journeys that matter to economic performance. The UK has a greater proportion of its population connected to the strategic road and rail networks than its European competitors, and provides the connections between cities to facilitate return business trips in a day. Tellingly, investors rate London as the most attractive city to do business in Europe and view the quality of its international connections, and its domestic networks, as a key element of its advantage. This Study demonstrates that the performance of the UK’s transport networks will be a crucial enabler of sustained productivity and competitiveness: a 5 per cent reduction in travel time for all business travel on the roads could generate around £2.5 billion of cost savings – some 0.2 per cent of GDP. Good transport systems support the productivity of urban areas, supporting deep and productive labour markets, and allowing businesses to reap the benefits of agglomeration. Transport corridors are the arteries of domestic and international trade, boosting the competitiveness of the UK economy. Correspondingly, transport policies offer some remarkable economic returns with many schemes offering benefits several times their costs, even once environmental costs have been factored in. To sustain future productivity, transport policy must reflect the economic and structural changes that are shaping the UK’s transport needs. The significance of cities and large urban areas, as highly productive centres of the service-based economy, is growing: 55 per cent of commuter journeys are to large urban areas and 89 per cent of delay caused by congestion is in urban areas. The growth in international trade makes a very significant contribution to the UK’s economy: 28 per cent of the UK’s national income is traded. Over the last 40 years falling international transport costs have boosted trade, increasing the UK’s economy by over 2.5 per cent. Whilst much of the system works well, it is already clear that some parts of the system are under severe strain, and looking ahead, significant transport challenges are looming. Continued economic success is forecast to lead to rising demands – if left unchecked 13 per cent of traffic will be subject to stop-start travel conditions by 2025. The CBI identifies transport as one of the three future competitiveness issues for the UK. Given their significance to the economy, and the fact that most transport challenges are – or will be – concentrated in these areas, my Study shows that the strategic economic priorities for long term transport policy should be growing and congested urban areas and their catchments; the key inter-urban corridors; and the key international gateways. Addressing the challenges in these areas requires a sophisticated approach. There is a major prize from getting the prices right across all modes – this makes strong economic as well as environmental sense. 1 FO R E W O R D At the same time, Government should continue to deliver sustained investment, targeted in those places. There is plenty to be done and concerted action to avert future transport problems is now needed. To ensure this investment is successful, the delivery chain for transport needs to adapt to changing demands: there are challenges for national and sub-national governance, and for the operation of the planning system for major projects. The transport sector also needs to play its role in economy-wide reductions in greenhouse gas emissions. To meet that challenge, I have long argued that the transport sector, including aviation, should meet its full environmental costs. Indeed, my report and my recommendations extend that principle and arguing that, for economic reasons as well as social or environmental, all transport users should meet all their external economic, social or environmental costs: hence my strong backing for congestion-targeted road pricing. As the Stern Review made clear, pro-environment is also pro-growth, and I am grateful to Sir Nicholas for chairing the input of academics to this Study. I set out my arguments, and the evidence supporting them, in my main report. The four volumes run to over 350 pages. I am also publishing online, ten very detailed supporting documents and a full set of stakeholder submissions. However, I have also written a much shorter, summary report, setting out my key conclusions and key recommendations: I suggest that readers should start there. I hope you will find the report both interesting and compelling, and a sound contribution to future transport policy in the UK. Sir Rod Eddington 2 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N FO R E W O R D Acknowledgements In conducting this study I have benefited enormously from the help and assistance of many people. I would like, first, to thank the small team who supported me: Catherine Adams, James Brown, Michael Clark, Eric Crane, Kat Deyes, Gavin Gaunt, Ruth Harper, Oliver Jones, Rita Patel, Lara Rose, Tracey Waltho and Caroline Wood. Whilst it is impossible to name them all, I would particularly like to thank a number of important groups: all the stakeholders who provided input and evidence to the study; the many people, organisations and businesses who gave their time to debate the issues with me as I went around the country; Sir Nick Stern, who chaired the Academic Friends and has been a trusted adviser; the Academic Friends – Paul Cheshire, Robert Cochrane, Nick Crafts, Stephen Glaister, Dieter Helm, Steve Machin, Peter Mackie, Henry Overman and Tony Venables – all of whom provided great insight, rigour and challenge to assist me in reaching my conclusions; and the many people within government, and particularly within the Department for Transport, who have contributed evidence to the study. Whilst these contributions were fundamental to my thinking, I would stress that the conclusions and recommendations are my own. 3 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N 1 4 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N KE Y F I N D I N G S A N D RE C O M M E N DAT I O N S TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N 1 There is clear evidence that a comprehensive and high-performing transport system is an important enabler of sustained economic prosperity: a 5 per cent reduction in travel time for all business and freight travel on the roads could generate around £2.5 billion of cost savings – some 0.2 per cent of GDP. 2 Historically, new connections have played a pivotal role in periods of rapid economic growth in many economies, but in mature economies with well-developed transport networks it is transport constraints that are most likely to impact upon a nation’s productivity and competitiveness. For example, Ireland’s recent growth was achieved predominantly on the back of an attractive investment environment and investment in skills. 3 Transport networks support the productivity and success of urban areas and their catchments, by getting people to work, supporting deep and productive labour markets and allowing businesses within the area to reap the benefits of agglomeration. 55 per cent of commuter journeys are to large urban areas. 69 per cent of business trips are less than 15 miles in length. 89 per cent of the delay caused by congestion is in urban areas, and agglomeration effects add up to 50 per cent to the benefits of some transport schemes in London. 4 Transport corridors are the arteries of domestic and international trade, boosting the competitiveness of imports and exports. 28 per cent of the UK’s national income is traded and, over the last 40 years, falling international transport costs have boosted trade, increasing the UK’s economy by over 2.5 per cent. 5 However, emissions from the transport sector are a significant and growing contributor (around a quarter in 2004) to the UK’s overall greenhouse gas emissions, although the growth in emissions is forecast to plateau in 2010. Those emissions impact on long-term economic growth by contributing to global climate change – a point reinforced by the recent Stern Review of the economics of climate change. Transport will therefore need to play an important role in an economy-wide response to that challenge. To do so, it is essential, both from an economic and environmental perspective, that the environmental impacts of transport are fully reflected in decision making. The transport sector, including aviation, should meet its full environmental costs. The conclusions in this Study therefore, are based on analysis which reflects environmental costs and benefits. 6 Delays and unreliability on the network have direct costs to people and businesses, increasing business costs and affecting productivity and innovation. Eliminating existing congestion on the road network would be worth some £7-8 billion of GDP per annum. It would never be economically rational to eliminate this completely but it does illustrate that the sums involved are far from trivial. 7 The UK transport system supports a staggering 61 billion journeys a year. In broad terms, it provides the right connections in the right places to support the journeys that matter to economic performance. The UK has a greater proportion of its population connected to the strategic road and rail networks than its European competitors and provides the connections between cities to facilitate return business trips in a day. Logistics companies can deliver to over 75 per cent of the UK population from their West Midlands warehouse hubs in a half-day truck drive. Tellingly, investors rate London as the most attractive city in which to do business in Europe, and view the quality of its international connections and its domestic networks as a key element of its locational advantage. 5 KE Y F I N D I N G S A N D RE C O M M E N DAT I O N S 8 However, travel demand is growing rapidly due to continued economic success and is densely concentrated on certain parts of the networks at certain times of day. As a result, parts of the system are under serious strain. If left unchecked, the rising cost of congestion will waste an extra £22 billion worth of time in England alone by 2025. By then 13 per cent of traffic will be subject to stop-start travel conditions. Commuter rail lines are forecast to see further increases in overcrowding, and intercity rail services will see many trains at or beyond seating capacity on the approaches to cities. 9 Because the UK is already well connected, the key economic challenge is therefore to improve the performance of the existing network. But there is little strategic case for action in all places. To meet its economic goals for transport, Government should prioritise action on those parts of the system where networks are critical in supporting economic growth, and there are clear signals that these networks are not performing. 10 On this basis, the strategic economic priorities for long-term transport policy should be growing and congested urban areas and their catchments; and the key inter-urban corridors and the key international gateways that are showing signs of increasing congestion and unreliability. Government should focus on these areas because they are heavily used, of growing economic importance, and showing signs of congestion and unreliability – and these problems are set to get significantly worse. They are the places where transport constraints have significant potential to hold back economic growth. 11 There should be a sophisticated policy mix in response to these challenges: transport projects in these places offer remarkably high returns, with benefits four times in excess of costs on many schemes, even once environmental costs have been factored into the assessment. There are very high returns from making best use of existing networks. Getting the prices right across all modes offers a very real prize: pricing on the roads offers potential benefits of up to £28 billion each year in 2025 (around £15 billion of which are direct GDP benefits); and getting the environmental prices right across all modes makes strong economic as well as environmental sense. Better use measures, such as traffic flow management, can offer returns as high as £5 for every pound spent, and mixed mode at Heathrow would offer lifetime benefits of £1.7 billion. 12 The economic case for targeted new infrastructure is strong and offers very high returns – the best schemes offer returns in the region of £5-10 for each pound invested. Government should therefore continue to deliver, together with the private sector, sustained transport investment. There are good returns across the priority areas, but smaller projects which unblock pinch-points, variable infrastructure schemes to support public transport in urban areas and international gateway surface access projects are likely to offer the very highest returns, sometimes higher than £10 for every pound spent. However, large projects with speculative benefits and relying on untested technology, are unlikely to generate attractive returns. 13 Getting the prices right means making a comprehensive assessment of the full range of economic, environmental and social impacts of transport policies, including climate change. Not only does this ensure that full account is taken of environmental and social impacts but as these impacts have economic consequences, it also ensures that the economic assessment is sound. As expected, the evidence suggests that, on average, the inclusion of such effects reduces the returns from transport. For road schemes, the benefits are on average reduced by around £1 for each pound invested, although there is significant variation: the effect is smaller for many schemes but some see significant reductions (up to £3-4 per pound spent). Public transport schemes in urban areas can have environmental and social benefits. 6 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N KE Y F I N D I N G S A N D RE C O M M E N DAT I O N S 14 The delivery chain for transport needs to adapt to changing demands: national government should take a rigorous and systematic approach to policymaking, by focusing on objectives and delivering high return schemes, rather than modes or technologies; sub- national governance structures need the right responsibilities and scope to support the evolving patterns of local and regional journeys – in one area alone up to ten metropolitan authorities and the Passenger Transport Authority are required to cooperate to deliver the city’s bus priority measures; and the delay and uncertainty of the planning system for major transport projects – the Thameslink 2000 scheme required over 30 consents under four different Acts and took over eight years – should be substantially reduced. 15 In the face of these challenges, government will therefore need to show considerable foresight to deliver a transport system capable of supporting the continued success of the UK economy in the global market place, whilst ensuring that transport plays its role in meeting environmental challenges. In order to do so, I recommend that: 1. To meet the changing needs of the UK economy, Government should focus policy and sustained investment on improving the performance of existing transport networks, in those places that are important for the UK’s economic success; 2. Over the next 20 years, the three strategic economic priorities for transport policy should be: congested and growing city catchments; and the key inter- urban corridors and the key international gateways that are showing signs of increasing congestion and unreliability. These are the most heavily used and economically significant parts of the network; 3. Government should adopt a sophisticated policy mix to meet both economic and environmental goals. Policy should get the prices right (especially congestion pricing on the roads and environmental pricing across all modes) and make best use of existing networks. Reflecting the high returns available from some transport investment, based on full appraisal of environmental and social costs and benefits, the Government, together with the private sector should deliver sustained and targeted infrastructure investment, in those schemes which demonstrate high returns, including smaller schemes tackling pinch points; 4. The policy process needs to be rigorous and systematic: start with the three strategic economic priorities, define the problems, consider the full range of modal options using appraisal techniques that include full environmental and social costs and benefits, and ensure that spending is focused on the best policies; and 5. Government needs to ensure the delivery system is ready to meet future challenges, including through reform of sub-national governance arrangements and reforming the planning process for major transport projects by introducing a new Independent Planning Commission to take decisions on projects of strategic importance. 7 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N KE Y F I N D I N G S A N D RE C O M M E N DAT I O N S 8 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N 16 I believe that, if Government implements these recommendations, the UK will create and maintain a modern, responsive and efficient transport system. Such a system is needed to improve the experience of all who use the UK’s transport networks and to support the UK’s competitiveness, boost the productivity of the economy, help UK businesses to compete on the global stage, whilst enabling government to meet its challenging environmental goals and improving the quality of life for all who live in this country. 17 It should be noted that in Scotland and Wales (and Northern Ireland when devolution is restored) it is for the devolved administrations to decide policies in devolved areas. Therefore the recommendations in this report do not apply to devolved areas of responsibility. TH E CA S E F O R AC T I O N : S I R RO D ED D I N GT O N ’ S A DV I C E T O G OV E R N M E N T TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N INTRODUCTORY REMARKS From the invent ion o f the wheel . . . 1.1 There is a wonderful story to be told about the role of transport in human history. Road networks underpinned the Roman Empire; ocean vessels gave different civilisations the means to exchange goods and learning across the world; and international travel has transformed our horizons and brought communities closer together. 1.2 From the invention of the wheel onwards, transport has been fundamental to economic progress and has led to huge improvements in our quality of life: rail, shipping, road and air transport revolutions drove industrialisation; created the world���s great cities; gave birth to international trade and globalisation; and gave individuals unprecedented freedom to travel around their own countries and the world. In the UK, the advent of the railways gave many Britons their first taste of a day at the seaside – and even led to the creation of the first national football league. Today, rail networks facilitate the success of the biggest cities by providing large workforces to dense and hugely productive economic agglomerations; air transport and advancements in shipping are contributing to a new phase of globalisation and world growth; and transport services of every type allow people to move in search of better jobs and a better life. 1.3 But these advances come with a cost: transport can affect the landscape, noise and pollution can damage human health and the environment, and the fuels that power current transport technologies are significant contributors to emissions of greenhouse gases. Sir Nicholas Stern’s1 report on the economics of climate change has provided compelling new evidence that these problems impact significantly on the environment, and on economic growth. 1.4 Whilst these insights are powerful, translating them into policy action requires a more sophisticated, evidence-based approach. Vested interests make claims about new technologies and new ideas, for instance arguing that transport projects will transform regional economic performance without addressing other underlying causes of underperformance. Studies make blunt comparisons between the infrastructure in nations with different histories, different geographies and different economic needs; overplaying the importance of transport investment, or denigrating the role transport has played in creating the quality of life we enjoy today. 1.5 In order that we can all understand these complexities of transport’s relationship with growth more clearly, I was asked by the Chancellor and the Secretary of State for Transport to provide advice on the long-term impact of transport decisions on the UK’s productivity, stability and growth within the context of the Government’s commitment to sustainable development. I want to tell a balanced and thoroughly evidence-based story about the relationship between transport systems and economic success, in the particular context of the United Kingdom. I seek to assess the benefits that improvements to the UK’s transport system can bring to the economy and to our daily lives. I warn of the economic consequences of allowing a decline in the UK’s system – whilst guarding against the costs of excessive provision, highlighting the consequences of meeting unconstrained demand (not least on the environment), and warning of the cost of poor investment decisions. 9 1 Stern Review on the economics of climate change, HM Treasury and Cabinet Office, 2006. See: www.sternreview.org.uk TH E CA S E F O R AC T I O N : S I R RO D ED D I N GT O N ’ S A DV I C E T O G OV E R N M E N T 1.6 In this summary I highlight the main messages that emerge from my work, following the structure of my main report. The Study looks first, in Volume 1, at the latest international evidence describing transport’s link with economic growth and productivity. It applies this understanding to the UK context, in Volume 2, in order to draw conclusions about where transport may hold back the future success of the UK economy. In Volume 3 the study then draws on a wide-ranging database of transport policies and projects in order to make recommendations about the broad types of policy measures that are likely to deliver the biggest overall benefits taking account of the full financial and environmental costs. Finally, in Volume 4, the Study considers the various barriers that may hinder the successful delivery of these policies at a national, regional and local level. 10 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N Volume 1 Understanding the relationship: how transport can contribute to economic success Does transport matter for the performance of the economy? How does transport contribute to the performance of the economy? Lessons for future transport strategy How we travel: the pressures on the UK transport network Overview of key policy messages Engaging with the private sector Annex: Planning proposals Reducing the complexity and uncertainty of the planning system Opening up the full range of policy options Making better use of current networks Enhancing current networks Evidence and methodology Future scenarios The economic priorities for future transport strategy The connectivity and performance of the UK’s transport network Volume 2 Defining the challenge: identifying strategic economic priorities for the UK transport system Volume 3 Meeting the challenge: prioritising the most effective policies Volume 4 Taking action: enabling the system to deliver National decision making Using buses in urban areas Sub-national decision making TH E CA S E F O R AC T I O N : S I R RO D ED D I N GT O N ’ S A DV I C E T O G OV E R N M E N T VOLUME 1 : UNDERSTANDING THE REL ATIONSHIP – HOW TRANSPORT CAN CONTRIBUTE TO ECONOMIC SUCCESS 1.7 Transport can play an important role in the success of modern economies. The evidence drawn together in Volume 1 suggests that: • History has shown a compelling link between the transport system and economic prosperity, with new transport connections enabling new economic relationships to be forged. • In mature economies such as the UK, with established transport networks, the benefits from improved transport are likely to be greatest when focusing on congestion and bottlenecks. Though at a global level, increasing international connectivity may yet have an ongoing role in enabling new trading relationships that could unlock significant growth benefits. • Transport cannot of itself create growth: it is an enabler that can improve productivity when other conditions are right. Economic growth itself causes rising transport demands which, if left unchecked, can put the transport network under strain, damaging productivity and competitiveness. • How infrastructure is used can be as important as the overall level of investment. • Looking forward, transport’s key economic role is likely to be in supporting the success of the UK’s highly productive urban areas in the global market place, and enabling efficient freight distribution. 1.8 Transport will also need to play its role in an economy-wide response to the global challenge of climate change. Sir Nicholas Stern has powerfully demonstrated that acting now and acting intelligently is the pro-environment, pro-growth strategy; and that this should be achieved through pricing environmental costs, promotion of low carbon technologies, and measures to encourage behavioural change. The Stern Review argued that in moving to a low-carbon economy the transport sector could be among the last sectors to experience absolute levels of emissions cuts because it would be more efficient to focus first on those sectors which can abate most cheaply.2 Significant emissions reductions will, however, need to be made in all sectors. The need for transport in a success fu l modern economy 1.9 A good transport network is important in sustaining economic success in modern economies: the transport system links people to jobs; delivers products to markets; underpins supply chains and logistics networks; and is the lifeblood of domestic and international trade. Policymakers have long recognised that transport plays an important role in the economy, and modern economies spend substantial sums on investing, maintaining and managing their transport networks. 11 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N 2 Stern Review on the economics of climate change, HM Treasury and Cabinet Office, 2006. TH E CA S E F O R AC T I O N : S I R RO D ED D I N GT O N ’ S A DV I C E T O G OV E R N M E N T 1.10 As incomes rise, so people and businesses want to use transport more: the relationship between transport demand and GDP (Gross Domestic Product) growth in the UK in the post-war years, shown in Figure 1, illustrates clearly the very close relationship between transport and growth.3 Born of this economic success, congestion and reliability problems arise when demand starts to outstrip available capacity. Unless policy responds, these transport impacts will impose increasing costs on business and damage the UK’s quality of life. But to understand this relationship better, I turned first to lessons from history. There has been a compel l ing l ink between the transport system and economic prosper i ty throughout h istory 1.11 History is full of examples of how transport networks have played a critical role in driving phases of particularly rapid economic growth. Step changes in connectivity, often associated with new transport (and more recently communications) technologies, have often been of particular significance. This is an association explored in detail by a paper produced for this study, authored by Professor Nicholas Crafts and Dr. Tim Leunig.4 1.12 The evidence shows that some of the most significant step changes in connectivity have included: the impact of canals upon the location of domestic production; the effect of international shipping routes in opening up early phases of world trade; the role of mass transit railways in the creation of cities throughout the world; and the impact of the completion of motorways and inter-state highway networks in the United States on productivity growth. Such inter-urban and international connections have permitted radical 12 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N 3 See Volume 1 of the main report for a longer discussion of the relationship between transport and economic success, and for a discussion of the evidence unperpinning these conclusions. 4 The Historical Significance of Transport for Economic Growth and Productivity, Crafts and Leunig, 2005, published alongside this study. Source: DfT. Figure 1: Growth in traffic, passenger kilometres, freight tonne kilometres and GDP, Great Britain, 1980-2005 80 100 120 140 160 180 200 20 05 20 04 20 03 20 02 20 01 20 00 19 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 91 19 90 19 89 19 88 19 87 19 86 19 85 19 84 19 83 19 82 19 81 19 80 In de x: 19 80 = 10 0 Total vehicle kilometres Total passenger kilometres GDP Goods moved – all freight (billion tonne kilometres) TH E CA S E F O R AC T I O N : S I R RO D ED D I N GT O N ’ S A DV I C E T O G OV E R N M E N T new production processes and allowed regions and countries to start trading in order to reap the benefits of increasing specialisation in the production of goods and services. The evidence is clear that in the context of a developing economy, establishing basic connectivity is a very significant contributor to rapid economic growth. 1.13 In countries with well-established transport networks, where connectivity between economic centres already exits, there is considerably less scope for transport improvements to deliver the periods of rapid growth seen historically. Instead the debate for such countries, including the UK, should be focused on the capacity and performance of existing domestic links, and the addition of new links to support the growth and performance of the labour market in growing and congested urban areas. Increasingly, studies are suggesting that the efficiency with which existing transport networks are used is at least as important as the underlying level of investment. 1.14 So it can no longer be expected that the impacts of domestic transport improvements will be transformational in economies such as the UK. Instead, such improvements can have important impacts by releasing constraints on the economy. Since most developed economies have well-established infrastructure networks, the relationship between transport and economic prosperity is likely, therefore, to be a more incremental one. But, as the evidence of this study goes on to show in Volume 3, it is a relationship which is still of considerable economic significance. 1.15 Having considered domestic connectivity, it is also important to consider the rapid expansion of international passenger and freight connectivity in the light of historical experience. The most recent phase of globalisation appears to be driven by a rapid expansion in global connectivity, provided both by new communications technologies, and falling international transport costs. Could this current transformation in international connectivity represent another step change that will drive significant growth in the global economy? It is perhaps too early to judge and I do not claim to have a definitive answer to this question. I have not scored any such transformational benefits when estimating the potential of aviation and shipping to contribute to future economic success. Nonetheless, policy makers must be alive to the role that international connectivity can play in supporting global economic growth. Understanding how transport supports the economy 1.16 Transport has played a critical role in economic development but the historical and macro-economic evidence can only take us so far. To focus transport policy on where it will make a real difference it is crucial to understand: what users value from the transport system; the mechanisms by which transport impacts on the economy; where transport may be the answer to economic challenges; and what the future implications are for the UK given its role in the world economy. 1.17 Good measurement of transport’s effects on the economy is of fundamental importance, and UK experts are at the forefront of this agenda. I am extremely grateful to the members of the small group of expert academics and government officials who advised my team and me on these matters. This study has sought to build on their expertise, and that of many others in the field. 1.18 The different mechanisms that underpin the relationship between transport and growth have been discussed at length in many previous studies5 and are the subject of a great 13 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N 5 These are detailed more fully in Volume 1 of the main report. TH E CA S E F O R AC T I O N : S I R RO D ED D I N GT O N ’ S A DV I C E T O G OV E R N M E N T deal of academic research. This study has sought to develop an understanding of those mechanisms which impact on GDP, in a way that can explicitly guide policy development and option generation to focus on the characteristics of the transport system that matter most to productivity and competitiveness. 1.19 The evidence is very clear that users want several things from the transport system, placing different weights on their relative importance. The key characteristics which are valued are: journey time, journey time reliability, cost, network coverage, comfort, safety and security. 1.20 When users experience an improvement or worsening of these characteristics, they feed through to impact on the economy through a variety of mechanisms – increasing business efficiency, investment and innovation, improving the functioning of agglomerations and labour markets, increasing competition, increasing trade and attracting globally mobile resources. These drivers are summarised in Figure 2 and detailed in Volume 1.2. 1.21 It is also clear that some of these microeconomic drivers are becoming more significant: notably the importance of reliability grows with wide-spread adoption of just-in- time management techniques; the importance of urban areas as centres of highly-productive service industry growth means an increasing role for transport in supporting agglomeration economies; and transport’s role in facilitating trade and attracting and retaining globally mobile resources becomes ever-more important in a globalising world. 1.22 In addition to these GDP impacts transport affects the population’s quality of life – which economists sometimes call ‘welfare’ – through its impact on the environment, by reducing commuting times, and by allowing people to make good use of leisure opportunities and participate in social activities that are fundamental to the fabric of their daily lives. 1.23 Detailed assessment of the impact of transport projects forms the bedrock of project appraisal, covering economic, environmental and social impacts. A significant proportion of the economic benefits (from freight and business time savings) are already well captured. However, current methodologies do not reflect other potentially significant impacts on the economy. Assessments of overall benefits on a project-by-project basis could increase by up to 50 per cent in some cases, if new evidence concerning the importance of reliability and agglomerations were to be included in the appraisal of transport schemes. 1.24 The incorporation of these ‘missing’ effects is particularly likely to impact on interventions in highly agglomerated major cities. Furthermore, important international effects, namely transport’s role in boosting trade and globally-mobile activity are strategically significant, but as yet unmeasured even with significant recent advances in appraisal techniques. 1.25 In addition, current methodologies do not fully encompass the environmental impacts of projects. Until recently, carbon impacts were dealt with qualitatively, whereas recent developments permit an estimate of the price for the social cost of carbon emissions. My report recommends that transport strategy and appraisal should continue to develop as our understanding evolves, and in particular that the full range of effects described above should be incorporated into appraisal as a matter of urgency. 14 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N TH E CA S E F O R AC T I O N : S I R RO D ED D I N GT O N ’ S A DV I C E T O G OV E R N M E N T 15 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N Figure 2: How transport impacts on the economy – the seven micro driver mechanisms: • Increasing business efficiency, through time savings and improved reliability for business travellers, freight and logistics operations. A 5 per cent reduction in travel time for all business travel on the road network in Great Britain could generate around £2.5 billion of cost savings: 0.2 per cent of GDP. • Increasing business investment and innovation by supporting economies of scale or new ways of working. The 2001 change in regulations that permitted 44 tonne trucks is estimated to have saved 134m truck km, £160 million of operating and fuel costs, and 135,700 tonnes of carbon dioxide. • Supporting clusters and agglomerations of economic activity. Transport improvements can expand labour market catchments, improve job matching, and facilitate business to business interactions. Transport’s contribution to such effects is most significant within large, high-productivity urban areas of the UK. London is the most significant example, adding 30 per cent to the time saving benefits of some transport schemes. Such productivity effects extend across commuter catchment areas, dropping away after forty minutes of travel time. • Improving the efficient functioning of labour markets, increasing labour market flexibility and the accessibility of jobs. Transport can facilitate geographic and employment mobility in response to shifting economic activity e.g. in response to the forces of globalisation, new technological opportunities, and rising part-time and female participation in the labour market. Nationally, transport improvements are unlikely to have a large effect on the employment rate, though may do so in some local circumstances. • Increasing competition by opening up access to new markets. Transport improvements can allow businesses to trade over a wider area, increasing competitive pressure and providing consumers with more choice. The UK is already well connected, so significant competition impacts are most likely to be felt from the integration of markets globally. • Increasing domestic and international trade by reducing the costs of trading. Since 1960, falling transport costs have boosted the international trade of goods by 10-17.5 per cent, raising UK GDP by an estimated 2.5-4.4 per cent. Domestic trade links are particularly important to the economic success of some urban areas e.g. the relationship between the financial services sectors in Leeds and London. • Attracting globally mobile activity to the UK by providing an attractive business environment and good quality of life. Such effects are of increasing importance but extremely difficult to quantify. However, the strategic focus of transport policy can be guided by the survey evidence which suggests that both domestic and international transport links can be important to attracting, retaining and expanding such activity, and that there is much commonality between the transport requirements of domestic and global firms. See Volume 1 for more details on the sources of these estimates. TH E CA S E F O R AC T I O N : S I R RO D ED D I N GT O N ’ S A DV I C E T O G OV E R N M E N T Look for c lear s ignals be fore tak ing act ion 1.26 My reading of the evidence suggests that transport improvements aimed at tackling problems and shortages are most likely to offer real benefits: this is not about picking winners, but is about sustaining success. 1.27 As economic growth leads to increasing demand, an economy can ultimately become the victim of its own success because as congestion rises, so it starts to dampen growth. This is the most direct way in which transport will impact on growth in a developed economy, and such congestion effects can be particularly damaging in agglomerations or where they impact on the costs of doing trade, be that within the UK or beyond. In most cases, the best signals to identify where transport is acting to hold back growth will be the presence of clear signs of economic success (economic growth and very high wages and land prices), and that transport demand is starting to outstrip supply (signs of congestion and unreliability). 1.28 In areas without such clear signs, it is unlikely that transport is holding back productivity and growth. Without signs of congestion and high prices, any transport investment is likely to be high-risk in terms of delivering productivity and competitiveness benefits. The economic fortunes of areas which already have sufficient transport capacity to meet demand will not depend in any great part on transport improvements: such economies can continue to succeed without significant increases in transport provision. Even in less vibrant areas transport improvements will not turn around a local economy when adequate transport provision already exists. Instead, other policy measures will be important. 1.29 However, there are some potential opportunities, where economic theory suggests that investment could release latent economic potential despite the absence of congestion signals: • if transport improvements enable an urban area to grow the size of its labour market significantly, this may lead to agglomeration benefits; or • if new connections open up access to genuinely new markets, this will deliver trade benefits, particularly when providing new global connectivity; or • if transport improvements contribute to the global attractiveness of the UK as a place to live, work and invest. 1.30 Projects aimed at achieving such goals should be approached with a high degree of caution. There is no substitute for careful cost-benefit analysis based on robust economic evidence and there are many examples around the world of projects founded on speculative demand forecasts, which did not deliver their purported economic benefits. Further research would be needed to understand the potential scale of these latent demands and the benefits may well be speculative. There is certainly enough for government to be getting on with in the meantime, to tackle the more certain looming challenges of congestion and overcrowding, where intervention offers far more certain economic benefits. Prioritisation of transport spending must mean focusing on those schemes where the economic benefits are more certain. 1.31 Nonetheless, I would urge the research community to fill these important gaps, particularly in light of the changing nature of the UK economy. 16 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N TH E CA S E F O R AC T I O N : S I R RO D ED D I N GT O N ’ S A DV I C E T O G OV E R N M E N T In formed choices : the r ight pol ic ies in the r ight p laces wi l l contr ibute to product iv i ty and compet i t iveness 1.32 Whilst there are circumstances where transport is very important in enabling economic growth, there are a number of reasons why it is wrong to think that transport is the key ingredient in all circumstances: • there are times and places where countries have grown rapidly without significant transport improvements. For instance, Ireland’s recent growth was achieved predominantly on the back of an attractive investment environment and investment in labour force skills. Only now, as greatly increased demand has started to outstrip supply, has transport become a factor in limiting that growth; • not all transport projects will deliver growth benefits. In particular, where adequate transport infrastructure is already in place, additional investment is unlikely to deliver further economic benefits; • “build it and they will come” is a dangerous approach to transport projects which attempt to regenerate areas and regions. Often the result is a two-way process in which local businesses actually lose out, as more productive and competitive firms from other regions can access the area and compete for previously protected markets. Only in some circumstances will transport have a role to play in regenerating an economy. In many potential regeneration cases there will not be signs (e.g. congestion) that inadequate transport capacity is constraining the growth potential of a particular area. It may well be other structural problems, such as skills shortages. For example, areas of London which benefit from very good transport connectivity, can also show very high signs of deprivation. Transport can only support growth if other vital conditions are right, and sometimes policies such as skills or fiscal incentives may be more appropriate in driving economic performance; and • where the environmental impact of transport growth is not factored into decision-making, the positive impact of a transport project is likely to be overstated, since the negative long-term impact of transport emissions is not balanced against the short-term benefits. Correspondingly, the social benefits provided by transport, should also be factored into decision-making. 1.33 This important truth – that there are both good and bad transport policies and investments – suggests that being as smart as possible about investment and pricing decisions could yield considerable benefits for the UK economy. Such an approach needs to be alive to future economic and social dynamics and how they may impact on the country’s changing transport needs. 17 TH E ED D I N GT O N TR A N S P O RT ST U DY: TH E C A S E F O R AC T I O N TH E CA S E F O R AC T I O N : S I R RO D ED D I N GT O N ’ S A DV I C E T O G OV E R N M E N T A changing economy wi l l mean changing demands on the transport system 1.34 The UK economy is changing rapidly and is likely to continue to do so in the face of the dynamics of the world economy. Over recent decades the UK economy has increasingly specialised in services and high-value manufacturing (such as precision instruments and pharmaceuticals), reflecting the UK’s considerable comparative advantage in the ‘knowledge- economy’. Looking forward, globalisation will continue to alter the structure of the UK economy and as the economy changes so will the demands on the transport system: aspects that were important ten years ago may be all but obsolete in ten years’ time. 1.35 Urban agglomerations are becoming significant growth centres.6 Large urban areas are increasingly central to the productivity of the services economy, through deep, flexible labour markets that permit considerable specialisation and flexibility. Such urban areas are likely to demonstrate the characteristics that would be expected of rapid economic growth: high levels of congestion; high wages; and high land prices. 1.36 It seems clear that these large urban areas will be the drivers of UK growth over the next few decades. In turn, it is clear that their respective transport netw

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