Transport and the economy - Transport Committee Contents


Examination of Witnesses (Questions 430-460)

Q430 <Chair: Welcome to the Committee. Could you identify yourselves with your name and the organisation you are representing for our records? Professor Glaister: My name is Stephen Glaister. I am Professor Emeritus in Transport and Infrastructure at Imperial College London and Director of the RAC Foundation, which is an independent endowed charitable trust. Les Warneford: I am Les Warneford. I am the Managing Director of Stagecoach UK Bus Division. George Batten: I am George Batten, Wiltshire Council. I am President of the Association of Directors of Environment, Economy, Planning and Transport—ADEPT.

Q431 <Chair: Mr Batten, what is the top priority for local highways and transport authorities? George Batten: At the moment, it is maintaining the transport assets that we have. That's not just a road maintenance and potholes issue. Local authorities increasingly have very sophisticated electronic equipment and so on, urban traffic control systems and all these sorts of things. Maintaining the transport assets that we have, in the current downturn, would be our key priority.

Q432 <Chair: Mr Glaister, what is the top priority for you? Professor Glaister: The top priority for me is stepping back and forming a coherent view about what the problem we are trying to solve is and then assessing the proposals that are on the table against those objectives.

Q433 <Chair: So there is no one thing that, at the moment, you would identify as being a top priority? Professor Glaister: I think it's premature to do that. Until you have done the exercise of saying, "What is the problem you are trying to solve?", in the new world, as it were, with the economic situation and our understanding of economic growth and population movements to come, until you have done that, you don't know what are the right particular solutions.

Q434 <Chair: Mr Warneford, what's the top priority for the bus industry at the moment? Les Warneford: In the current short term, to protect revenue expenditure which has been cut and to stop cuts in services, fare increases and job losses.

Q435 <Chair: What is the impact of the comprehensive spending review on transport in the areas of which you have particular knowledge? Professor Glaister: All of us in the transport business welcomed the Government's achievement in protecting capital in transport. That was something many of us were looking for. There is a wide measure of agreement that, not only in transport investment in infrastructure is an important part of the future and that we do need to provide for growth in the economy and infrastructure is an important part of that. The Government were fair to claim that capital spending was not entirely but largely protected. Looking below that, it was not quite so clear that there had been a success in that there is a very marked pattern in the spending review within transport that railways have done very well. I have set out in a supplementary memorandum the figures but they are on the public record; there is a 20% increase in capital spending in railways. Highways and local public transport have probably done extremely badly. Highways Agency capital budgets are to be cut by over 40% in real terms over the four years. Local authority roads have been severely cut, local authority and Highways Agency maintenance will be severely cut, and others will speak about what is happening to local bus services. It's a success in the round but within that it is actually quite a marked difference between railways and other forms of transport. That, I think, needs to be justified, as I was saying earlier, against what the Government is trying to achieve.

Q436 <Chair: Mr Batten, do you agree with that analysis? George Batten: Yes. Coming back to my original point that maintaining the transport assets is important to us, at the moment, local authorities will be experiencing a 28% cut in their revenue budgets, a large proportion of which will feed through to cuts at local transport level. Those decisions will be made by individual councils. There will be an 11% cut in the capital programmes, much of which will feed its way through to reductions in planned structural maintenance of our highway assets. The biggest casualty probably at a local authority level will be a combination of cuts around public transport, bus services, particularly rural bus services, where a combination of the revenue cuts, the adjustments to the bus operators' grant and the rolling-up of the rural bus subsidy into un-ring-fenced grants will mean probably a very significant impact on rural bus services in the future.

Q437 <Chair: Mr Warneford, in your written evidence you seem to play down the significance of cuts in subsidies for buses. Have I misread that evidence? Les Warneford: I hope we didn't play it down. We didn't want to be pleading a special case when everybody was more or less in the same boat. But, having said that, perhaps we should have played it up rather more having seen that we have suffered rather badly. Remember, our evidence was before the review. We weren't in the game of special treatment.

Q438 <Chair: That explains it then. I was just a little mystified by some of the statements. Now we are speaking post-review. What you would like to say on the record then about the impact of the cuts? Les Warneford: Post-review for the local bus industry, from next April there will be a very significant cut in the payment we receive for carrying concession passengers. The Department for Transport's consultation document suggests that that will be in the order of £100 million a year in England. We, in the industry, think it may be as much as double that. The formula that they have produced to justify the alleged rational cut is extremely complicated and I can't actually work out what my income will be next April at the moment—and I'm not stupid. On top of that, from April 2012, we have a cut of 20% in the bus service operators' grant, which I think again is something in the order, for the whole industry, of about £80 million a year. So it is pretty significant both next April and the April following—two bites of the cherry.

Q439 <Chair: Professor Glaister, the Chartered Institute of Logistics and Transportation say that car use is declining. Does that suggest that there is a weaker case for investment on roads than there has been? Professor Glaister: The history of traffic over the decades, which is set out in our initial submission to you, is that total traffic has grown in a quite remarkable way since the 1950s, I would suggest, more or less a straight line, with deviations from a straight line depending on the current economic circumstances. You can see in the history that in the early 1970s it went below the line, in the late 1980s it went above the line and so forth. Recently, it is true that car traffic has flattened off and perhaps slightly reduced, but that has been more than compensated by the growth in vans and commercial traffic. Total traffic has been growing quite strongly until the last two or three years. In the last two or three years total traffic has indeed fallen a bit. It's what you would expect to happen in view of the history and the fact we have quite a severe economic recession. There is a very strong direct relationship between transport movement of all kinds and the level of economic activity. What that says to me is that you must expect that, when the economy recovers, the demand for the road network will recover as well. There may be a slightly different mix. In other words, we may have more commercial traffic and a bit less private traffic than we are expecting because of the phenomena I mentioned, but, basically, unless somebody has a theory as to why something fundamentally has changed, when the economy recovers, the demand on the road network will return to its growth. That is the official expectation. If you look at the official traffic forecasts it says that. They take into account the additional factor that in many parts of the country the population is expected to go up by 20% over the next couple of decades. It's people living longer and it's an inward migration from other parts of the nation. Nobody is addressing what's going to be the consequence of a growing population putting demands on the road and rail network, hospitals and schools and the rest of it, because that will increase congestion on the networks. So I believe the case for investment in all transport infrastructure remains very strong if we expect the economy to recover.

Q440 <Chair: Is the current appraisal method correct in assessing which transport scheme should go ahead and what the benefits of different proposals are? Professor Glaister, what is your view? Professor Glaister: The word "correct" is not one I would use; that's not the game we are in. We are in the game of trying to form the best professional view we can of the forecasts of things like population and location of industry and the demands that will make on the infrastructure over a period of 50 or 60 years. It is difficult, but you do your best. You relate the estimates you have to the evidence available on willingness to pay for the benefits of relieving congestion on the different modes, on roads and railways. You try and estimate the performance of the different networks in relieving congestion and you then do your best to calculate the benefits in terms of time saved and accidents saved on the different modes of particular proposals. Whether they are correct or not is not quite the right question, if I may say so. It is whether you have done your best, made your best estimate and whether that information then is useful and used. My opinion is that Eddington went through all of this and came to the view that it is useful but it is not entirely used.

Q441 <Chair: Is enough attention given to the impact of transport on the economy when appraisals are made? Professor Glaister: The basic philosophy of the appraisal method is to try to estimate how much time would be saved at different kinds of time, by proposal, over the years; to ascribe a value to that time in terms of working time, commuting time and leisure time; and the value of the accidents saved in the same way. That is carefully constructed but limited. Everybody recognises there are other things you might want to include and, indeed, we do include the environmental effects and the carbon effects as best we can. There are other things, like the broader economy, inward investment, and competitiveness. The issue is whether the traditional techniques do or do not reflect that adequately. We know that there are some things on which we could do better: things like reliability of the system, which we are not very good at estimating but we are doing work on that; things that are called the wider economic benefits, agglomeration benefits, where there has been recent work by colleagues at Imperial College and other places to try and pin down whether there are additional effects that have not in the past been included to do with making the economy closer together and improving access. That subject is improving. We are making progress and we are revising the techniques to reflect that. I wouldn't claim everything is included; the subject improves as we go along. But at the same time I would claim that what is done is useful.

Q442 <Chair: Are there any other views on current appraisal approaches and, in particular, the relevance to economic benefit of transport schemes? George Batten: Yes. This reinforces Stephen's point that the wider economic benefits aren't properly taken into account in the current appraisal, but I think that is recognised and work is ongoing and the Department for Transport are looking to refresh the current appraisal model. But also, at the end of the day, these are political decisions. It is a tool, isn't it? The testing of any project, having been through an appraisal process, through public inquiry and so on, is a very valuable mechanism also to tease out those wider benefits or disbenefits of a particular project. Then, ultimately, it is a political decision to proceed—a local political decision or a national political decision.

Q443 <Chair: Mr Warneford, do you want to comment on this? Les Warneford: I will offer a comment. I am not an economist. On cost benefit appraisal first, I think the question you originally asked was, "Is it correct?" My understanding is that it's best seen as a means of ranking schemes in order of preference rather than being mathematically precise. We funded an independent appraisal of the cost benefit appraisal system through some of our colleagues outside the industry. They raised two particular points that are relevant to our business—local bus services—that bus passengers' time is valued at less than car drivers' time, although I fail to see why it should be. The other aspect that was raised was that Stephen Glaister said it brought in the environmental equation. I don't think it really does bring in the current concern about the growth in carbon.

Q444 <Mr Leech: In terms of economic benefit, has the Government made the right decision to prioritise investment in rail rather than in buses or roads? Professor Glaister: To answer that question you would need to ask the Government what their estimates of the economic benefits of railways versus roads are.

Q445 <Chair: What is your view? Professor Glaister: I am not up to date because I don't have the kind of up­to­date information that the current Government would have had when they were doing the spending review. What I do know is what's on the public record. The high speed rail proposal from London to Birmingham had a benefit in relation to cost of 2.4 to 1 if you do not include the wider economic benefits as estimated then, or 2.7 to 1, I believe, if you do include them. That is the publicly available figure for high speed rail from London to Birmingham. There are also on the public record a very large number of road schemes where we have benefit cost ratios. If you care to go to our website, there is a paper by John Dodgson which simply documents what the Government has said. There is a very, very long list of road schemes where benefits in relation to costs are well over 5 to 1. The Secretary of State, when he announced the spending review, announced 14 major road schemes and said, in terms, that the benefits of those particular schemes estimated by the Government were 6 to 1 on average and some of them were over 10 to 1 on average. I repeat, I am not up to date, but, taking those numbers at face value, you have to wonder why the Government is not investing on many road schemes where the rates of return are really quite high, not investing in public transport schemes where the rates of return are probably quite high but I don't know the detail, but meanwhile spending £750 million preparing for high speed rail over the next four years and £12 billion in time on that particular scheme, when the benefits are estimated to be very much lower. That's a political decision but it doesn't match the Government's own estimate of the economic benefits.

Q446 <Mr Leech: Mr Warneford, you carry more passengers than local trains services. Should the bus industry have got more money? Les Warneford: We don't go asking for more money. We would quite like to have kept what we have got and kept the services running but, unfortunately, it's not to be. Should we have more money? You would have to decide what public benefit you would get from more public expenditure. I don't think I'm the person—

Q447 <Chair: As a bus operator, do you think there is a public benefit in more public funding being made available for bus services? Les Warneford: The money that is available now produces a huge public benefit. For example, the bus service operators' grant, which is effectively a rebate of some part of the fuel duty, very simply keeps fares down. The Government acknowledges that and, yet, it's going to be reduced and fares will go up. That means less people will travel, more will be inclined to go by car, and some will not be able to afford to travel.

Q448 <Mr Leech: But in terms of economic benefit of investment in public transport do you believe that there would have been more economic benefit to invest in bus services rather than rail services? Les Warneford: I will say it again: I don't think, in these economic circumstances, I should be asking for more money from the public purse.

Q449 <Chair: You seem very coy this morning, Mr Warneford, I must say. Les Warneford: I am not at all coy. We are not an industry—

Q450 <Chair: Mr Batten, what is your view from the local authority's side? George Batten: To make significant reductions in the amount of money available to maintain the current transport is the wrong decision, if that decision has been made to fund large expensive projects at the expense of maintaining the transport infrastructure that we have. It does seem sort of mad to be worrying about shaving a minute or two off a journey time with a major project whilst we can lose minutes and minutes of journey time with unplanned, unco-ordinated ad hoc repairs and failures to our local transport network. In terms of whether they have got the right priorities, certainly I think Stephen has touched upon the rates of returns of schemes. Certainly small scale local schemes can produce staggering returns: 15 to 1 ratio of cost to benefits and so on. Small scale interventions which benefit the bus services benefit 93% of the travelling public who travel on things other than rail. There should have been greater emphasis on small scale investment rather than large scale and there should have been greater emphasis on maintaining the transport assets that we have. We know that with every pound spent on maintenance more jobs are created in the economy than every pound spent on new construction. It does seem that the warning of Eddington about large projects hasn't perhaps been heeded in the comprehensive spending review.

Q451 <Steve Baker: Professor Glaister, if I have understood correctly, you have argued that long­term correctness is very difficult in transport forecasting. If I have understood, you have said that that is less important than short­term utility. Is that the right understanding and, if so, what disadvantages might such an approach have? Professor Glaister: No, I don't think that is the correct interpretation of what I was trying to say. Like other bits of public service such as health and education, we have a mixture of short­term things to spend money on and very, very long­term things to spend money on. It's a fundamental problem. It is nobody's fault; it's just a problem. There is highways maintenance filling the potholes, which is a big issue for a lot of the general public and local authorities, which is obviously a fairly short­term thing. There is investing in massive road schemes and massive rail schemes where the horizon has to be 60 years because it takes 10 years to build the thing and plan it—probably more, 15 years—and then it starts delivering. So you can't get away from that very long­term need to think about what the world might look like in 20, 30, 40 years. It is no different, I guess, from investing in aircraft which last for those kinds of periods. Lots of infrastructure industries struggle with this. What I am trying to say is that it's a mistake to only concentrate on the immediate present because you forget about the really important long­term consequences for the nation. Good government must be about looking long term as well as short term and vice versa. You can't just throw all your money into something which is enormously long term and won't produce any return at all for 20 or 30 years and ignore what is happening on a day­to­day basis outside people's houses. That is why, if I may say, the formal appraisal methods struggle so hard to deal with what we call discounting--how you trade future costs and benefits against present costs and benefits--because you cannot avoid that choice; you have to face up to it, as in nuclear power and many other things. It is difficult but you have to do your best to try and get it right.

Q452 <Steve Baker: It seems to me that the possibility of entrepreneurial error in these investments is very high, given everything you have said. This is a bit of a leading question, but who should bear that entrepreneurial error? Should it be private investors or should it be the taxpayer? Professor Glaister: I heard the end of your previous session where the National Infrastructure Plan was mentioned, a publication by Infrastructure UK and the Treasury. I regard that as an extremely important development relevant to your question because what that is trying to do—and I very much welcome it—is to step back and say, "In respect of all our infrastructure—power, water, telecoms, road and rail—what are the long-term liabilities that we have? How much infrastructure have we got? What condition is it in? How much are we going to need to spend to put it in reasonable condition? How much are we going to have to spend to meet the growing demands in the future?" That is, as it were, a Janet and John audit of the situation we are in. The next question is, "How is it going to be paid for?" That question has to be addressed. Fundamentally—and I agree with them—I think they say it is either the taxpayer or it is the user. There is nowhere else it is going to come from at the end of the day. If it is the taxpayer, then that's fine but we all know the difficulties. If it is going to be the user, then I think that it's a perfectly sensible thing to say: the user should pay for what they get at the end of the day. But then how is that going to be provided--by the state or by the private sector? In other words, in answer to your question, who is going to bear the risks? The risks are enormous. Arguably, as one of your previous witnesses said, the risks are of a nature where you cannot expect the private sector to bear all of those costs because if you do they just won't supply what you need. The issue for Government is where does the Government need to step in to mitigate the risks, to spread the risks, to pool the risks, in a sensible way to allow the private sector to do what you want it to do to deliver all of this infrastructure? That is the issue this infrastructure plan is trying to address and, in my view, very sensibly. What it says is that the position in the other utilities of a regulated asset base with an independent regular to adjudicate on what is reasonable is a good place to start, and I agree. But there are things which Government is going to have to worry about in the regulatory regime to make sure that the risks about climate change and interdependency of different utilities are dealt with in a sensible way. I would put roads in that same box because roads are kept quite separate. There is no regulated asset base; there is no regulator. They are left on their own to be planned in a completely separate system by central Government. Railways are in the box, roads are outside the box, and I think that's a big issue.

Q453 <Julie Hilling: I wanted to come back to the bus issue and that sort of integration. We waste a huge amount of money with people sitting in traffic jams. How can we then ease some of that? Some of that is about road network but some of it is about bus. We have been given information that the effect of the cuts will be very limited in terms of cuts in service, but you don't seem to be saying that. I am interested to know what your feeling is in terms of what reduction in service and increase in fares there will be. London is wonderful, it is all integrated, but you go out of London and it is much harder and much more expensive, etcetera.

Chair:> Mr Batten, do you have any comment on that? George Batten: I think the belief, certainly in the Department for Transport, is that the cut in bus service operators' grant isn't going to have a huge impact on fares: a couple of per cent, I think, has been mentioned. Underlying that, though, is the belief that it may not have a huge impact on fares but there will be significant service withdrawals and reductions as a result of the cumulative effect of that and other cuts in public transport support, particularly from local authorities.

Q454 <Julie Hilling: Do you have an idea of the percentage of those? George Batten: It would not surprise me at all if in a year's time up to 50% of rural bus networks no longer exist.

Q455 <Chair: Mr Warneford, do you want to add anything there? Les Warneford: Yes, there were a lot of questions in that. First, you touched on this issue of London, which always comes up. London has a wonderful system and, if the rest of the country had the same spend per head of population as London has, we would all have a wonderful system. But that's not the case. Transport for London buses take the bulk of the public transport subsidy for the bus industry—something like 60% of it—and your metropolitan areas do rather badly out of it. I've lost track of the other questions.

Q456 <Chair: Given the system we've got, what is the likely impact on fares and effects on services as well? Les Warneford: First, you need to accept that the impacts of the spending review are compounded on top of the effects of recession. We are still in recession. For about five years our company had some very modest passenger growth year on year, but in the last two years we haven't. So that has been a problem in itself. We also have some other external factors. There are extremely volatile fuel prices and, whilst we have hedging in place, my fuel bill will go up quite dramatically next year. Add to that the cut in concessionary reimbursement next year, whatever level that might be, and cutting BSOG the year after, I think the compound effect of those things, outwith the effects of normal price inflation, could be up to maybe a 5% fare increase and a 5% service cut, but with a big proviso: that service cut will not be spread uniformly. Those services that carry very high proportions of the elderly and disabled will become unprofitable and be reduced or cut. There are already many, many services at different times of the day which are only marginal. The Monday evening service will probably go. It will be patchy. The main daytime frequent services maybe will be okay; they'll just make a bit less than they did before. But those things that are on the margin, and particularly the rural stuff, are very vulnerable. Professor Glaister: It may be helpful to clarify that in the bus industry there are essentially two sectors. There is the commercial sector and there is the tendered sector. Both have difficulties but for different reasons. The commercial sector, as Mr Warneford mentioned, has rising costs, reducing fuel duty rebate and so forth. But the tendered sector is where local authorities put out to tender unremunerative services, which are the classic deep rural, night services, that kind of thing. I suspect—I don't know if colleagues will agree—that the financial pressure on local authorities will make it much harder than it was to keep those tendered services going. I suspect they will be hurt quite badly by this. The public transport industry does take a lot of public money and there is nothing wrong with that. It is assessed on the same basis as roads and railways in the official methods. You can look on the public record and see that quite a lot of bus services do show a reasonably good rate of return for public money, compared with some road schemes and, indeed, some rail schemes. It's not a completely blank sheet of paper. We do know that bus subsidy put in the right places produces good benefits for that public money.

Q457 <Paul Maynard: I have a question to Mr Warneford. I realise that you are unwilling to compare yourself too closely to other modes of transport. If we could look at your specific business, obviously BSOG is being reduced by 20% for your bus services. In terms of the coach services that Stagecoach provides, you are having an abolition of BSOG and the loss of the 50% concessionary fares. In terms of those two types of service, which of those reductions will have the greatest impact on those particular services in terms of economic disbenefits?

Chair:> Mr Warneford, can you give us an assessment? Les Warneford: Our coach services fall into two categories. Some are eligible for BSOG and concession fares support because, although they are run with coaches and express services, they are still stopping services. They carry local passengers. Those will be affected in just the same way as our normal local bus services. The only main two services we operate which are outwith the traditional local bus market is our Megabus national express coach service and our Oxford to London service. We get no support whatsoever on the Megabus service so it won't have any effect whatsoever, although I believe it does affect the National Express service. I can't tell you what that effect might be, but they do have quite an amount of concessionary fare support. Our Oxford to London express coach service does benefit from what is called CSOG—coach service operators' grant—and some concessionary revenue support. But it will not materially affect the service. We shall just have to adjust our pricing to cope with it. George Batten: From a local authority perspective, there are two kinds of bus services we procure. One is the school bus service and the other is publicly supporting the bus services that otherwise wouldn't be there from a commercial operator. The balance between the two has got terribly out of kilter in recent years. The school bus service typically for an upper tier authority might cost £10 million or £12 million a year procuring buses to get children back and forth to school. Whilst you try and integrate as much as you can school bus services with public bus services, it is extraordinarily difficult to have a complete overlap. That means that, as cuts come in local government expenditure, the school bus service has to be protected. The cuts are compounded then in terms of the money that's available to support the non­commercial bus services, which is why I leap to the conclusion that there are going to be significant reductions in public bus services. The irony is that you may be able to wave your concessionary fare card but you may not have a bus to ride on with it. Perhaps the Committee might wish to look at the relevance of the 1948 Education Act and the requirement that it still provides for local authorities to provide buses in its future work.

Chair:> We will be looking more closely at buses quite soon.

Q458 <Julian Sturdy: To follow on from that question to Mr Batten, you have touched on it already but you talked at the beginning about the removal of the ring fencing on local authorities' transport budget. You said you believed that would have more impact on the local bus services—the rural bus services—which are usually the subsidised services because they don't have the passenger demand to warrant a commercial service. Do you not feel that local authorities, within the new system, will be able to prioritise where they feel they want to spend their transport money? Some local authorities might say, "We want to protect our rural bus services", and they will prioritise that, rather than deciding that cycleways or something like that might actually fall by the wayside rather than the rural bus services. It will be ultimately down to them. George Batten: It's "Be careful what you ask for", isn't it, in local government? We have asked for flexibility and we have asked for relaxation of the rules, and we've now got it, but that puts the monkey on the local authority's back. The problem here is that, typically, revenue expenditure is the sort of money we are talking about—supporting bus services. Revenue expenditure to a local authority is going to be cut in the order of 28%. Within that, you then protect education. You then have to deal with a growing elderly population in adult social care. Therefore the bit that you can get down to playing with in the local authority might be about a quarter of its revenue budget. That gets you down into the transport field. You then have to protect your education school transport commitment. So the bit that's left for you to play with is very small and will come under extraordinary pressure. I think you are right: the local authority does have the option to protect its services but, in reality, given the other pressures on a local authority, I don't think that is what will happen.

Q459 <Julian Sturdy: Following on from that, in your role what sort of feedback are you getting from local authorities? Do you know where their position might lie on prioritising rural bus services compared to new cycleways or crossings and things like that? George Batten: Generally speaking, local authorities will prioritise maintaining what they currently have, which then will rattle back, I am afraid, to a hard choice and it will be the bus services that will bear the brunt. A straw poll around my colleagues in local authorities would suggest that it's not outrageous to suggest that up to 50% of rural bus services could be the casualty of all this.

Q460 <Iain Stewart: To follow on from that, we have talked primarily about existing bus services, but I would like to ask a question on additional services in areas of the country where you have significant housing development and population growth. One initiative the Government has introduced is the new homes bonus, which will provide for six years a matched council tax revenue which can be, as I understand, for both revenue and capital spending. Do you think that will be helpful in providing public transport links to new housing areas and, in particular, buses?

George Batten: Increasingly, in recent years, local authorities have been getting commuted payment sums and so on from developers to support revenue services into the future in the hope, I suppose, that after a few years of public subsidy these services will become self­sustaining as developer contributions dry up. It's an area that local authorities have been active in and there is no doubt that, if we are going to deliver what we want, we have to be much smarter at tapping up the new sources of money of which the new homes bonus will be one. So I think, yes, given that the rates of return on small scale projects at a local authority level will be the main beneficiaries, and public transport will take a fair share of that.

Chair:> Thank you very much for coming and answering so many questions.




 
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