UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 776-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

TRANSPORT Committee

REGIONAL BREAKDOWN OF TRANSPORT SPENDING

MONDAY 26 NOVEMBER 2012

JONATHAN BRAY, ED COX and HENRY OVERMAN

Evidence heard in Public Questions 1 - 68

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Oral Evidence

Taken before the Transport Committee

on Monday 26 November 2012

Members present:

Mrs Louise Ellman (Chair)

Jim Dobbin

Julie Hilling

Kwasi Kwarteng

Mr John Leech

Karen Lumley

Karl McCartney

Iain Stewart

Graham Stringer

________________

Examination of Witnesses

Witnesses: Jonathan Bray, Support Unit Director, pteg, Ed Cox, Director, IPPR North, and Henry Overman, Professor of Economic Geography, London School of Economics, gave evidence.

Q1Chair: Good afternoon, and welcome to the Transport Select Committee. Could we have your names and organisations, please, for our records?

Ed Cox: My name is Ed Cox; I am director of the Institute for Public Policy Research North.

Professor Overman: I am Henry Overman from the London School of Economics.

Jonathan Bray: I am Jonathan Bray, director of the Passenger Transport Executive Group support unit.

Q2Chair: Could you tell us what the main disparities are on the regional breakdown of transport expenditure in England?

Ed Cox: The analysis that IPPR North has undertaken has been around the national infrastructure plan that was produced this time last year with the autumn statement. We considered future rather than historical spending, but I would be happy to talk about historical spending at some point as well. To focus on future spending, from our analysis of planned spending set out in the regional tables produced by Treasury, it appears that London and the south-east will receive 84% of future transport infrastructure spending, which includes public spending, compared with 6% in the north of England. If you break them down into per capita figures, they translate to £2,731 per person in London and the south-east, in contrast to £134 per person in the north-west, £201 in Yorkshire and Humber, and just £5 per head in the north-east. We consider that there is a huge disparity in planned infrastructure spending going forward set out in the national infrastructure plan. I know that there are questions about those figures and I will happily go into them if you want me to, but, on the face of it, a huge disparity exists.

Q3Chair: Would you characterise that as London, or London and the south-east, versus the north, or London versus the rest of the country?

Ed Cox: It is broadly London versus the rest of the country, though in the case of the north-east in particular it is getting a particularly bad deal in relation to planned spending.

Q4Chair: Is there an urban/rural dimension to it, or is it London and other regions?

Ed Cox: One of the weaknesses in the statistics is that they don’t look at urban versus rural; they look primarily at regional breakdowns. Therefore, it is difficult to say whether or not there is a difference between rural and urban.

Q5Chair: Mr Bray, pteg has produced its own information, hasn’t it? Do you broadly agree with what is being said?

Jonathan Bray: We used the Treasury’s public expenditure analysis figures, which provide a pretty comprehensive overview of the total spend by national Government, public corporations and local government. That shows that over a period of time there is a big gap between spending in London and the regions. The current figure for spend per head in London is £644 and in the west midlands and north of England it is £243.

These figures give one dimension on the spending issues. There are other dimensions, too. We have done another report called "Transport Number Crunch", which we have done consistently since the last CSR and have provided to the Committee. That shows what has happened on spending across the piece. It shows that the biggest loser from the reductions in spending that have taken place on transport is local transport outside London. The biggest winner is national rail. Quite surprisingly, spending on national rail has increased in recent years. Roads took a big hit; they have gone up a bit. London didn’t do too badly because its reductions in spend were back-loaded, so they come at the end of the spending period. The cuts to transport spending in England outside London’s local transport came at the start of the period, so, overall, local transport spend outside London has been the biggest loser.

Q6Chair: Do you see the differences in spending on local transport as the main areas of disparities? Is it a local transport issue?

Jonathan Bray: We see it on rail as well. If you look at the breakdown on national rail spend, the majority goes to the south-east. If we look at CP5, the next spending period for Network Rail, 55% is going to London and the south-east, 31% to intercity and 14% on regional rail, which is actually a slight improvement for regional rail on what it was getting in the previous spending period. So it is not just local transport; it is national rail as well, but the main division, if we are looking at local transport spend, is between London and all the other regions.

Q7Chair: So, again, it is not north-south; it is London and the rest.

Jonathan Bray: Whenever we have put out these figures we have always stressed that London needs and deserves a better transport system, and London has done a good job of making a case. You can see the results not just from the statistics but by looking out of the window and seeing what has been spent on the underground, London overground, the bus network and oyster card. It is a fantastic achievement. We are saying that it is time that the next tier of major cities began to see something similar in terms of the surge of spend we have seen, if we are to have a more balanced economy than the one we have at the moment.

Q8Chair: Professor Overman, you don’t agree with these points of view, do you, or have I misinterpreted what you have said before? Could you tell us how you see these points?

Professor Overman: It is not that I don’t agree, but, if you take the figures for expenditure per resident, there is uncertainty around them in picking the numbers that make the disparities look largest. If you took other ways of summarising the balance of expenditure, you would come up with numbers that looked less extreme. If you took subsidies per head, fares paid and share of fare revenue, all of these things would look much less extreme than the regional expenditure figures. Deep down, I am not too worried about exactly how the numbers break down. I would rather understand whether or not we are spending the money in the way we would like to achieve the objectives that we have for the transport system. I would not disagree with the characterisation that, on the headline figures presented here, London gets a disproportionate amount of expenditure per resident, but it is a way of presenting the evidence that makes the disparities look more extreme than if you took other measures.

Q9Chair: So you are not disagreeing with these figures; you are just looking at it in a different way.

Professor Overman: There is uncertainty around the precise numbers, but I don’t think anyone is massively disputing that London and possibly parts of the south-east receive slightly more expenditure per resident. As to whether the figures are as extreme as Ed has said, the Secretary of State for Transport would probably present them as less extreme. I am just making the simple point that they are picking the way of looking at these disparities that makes them look as large as possible. If you did it on other dimensions, they would look smaller.

Q10Chair: Other dimensions such as what?

Professor Overman: Such as the total subsidy that goes into the transport system. If you break it down by region, it would look less pronounced than the raw figures. If you take revenues and where they come in and balance them against expenditures, you will find that far more comes in in London than anywhere else. There are different ways to summarise what is going on in terms of the balance of expenditure and revenues.

Q11Chair: Your point is about revenue allocation.

Professor Overman: If you take expenditure per resident, you are choosing a statistic that will make the disparities look largest; if you take other things, like expenditure or subsidy per user, the disparities would look considerably smaller. That is the simple point.

Q12Graham Stringer: You said you were more interested in the objectives of the transport system than a different analysis of regional expenditure. Can you tell us what you think the objectives should be?

Professor Overman: I am not sure it is for me to tell you what I think the objectives should be.

Q13Graham Stringer: You said that was more important than the analysis, and that is why I am asking you.

Professor Overman: Generally speaking, Government should set the objectives. I am a bit wary of expressing personal opinions about what I think the objectives of transport expenditure should be. What I think should happen is that Government should decide what their objectives are for the transport system and then people like myself are happy to try to figure out how you meet those objectives, but I am very uncomfortable saying what my personal objectives are for the transport system.

Q14Graham Stringer: In terms of the basis of the Government’s methodology, one of the reasons that capital expenditure is directed more to the south-east is that the Government take overcrowding as one of their major criteria. Do you think that that leads to money following more and more into the same places, so that you get a better transport system, more economic development and more people using the transport system and you don’t balance things up? Do you think overcrowding is a sensible criterion to use?

Professor Overman: It is one of a number of criteria that it is fairly sensible to use. Congestion is colossally expensive to individuals and firms-however you want to cut it down-and having that as one of the criteria that we use when we think about funding decisions is a pretty sensible thing to have. In some ways you are asking a slightly different question, which is: if we just stopped spending money in London and the south-east, would this somehow achieve a rebalancing of the economy? This seems to be the story that we are having here.

Q15Chair: I don’t think anyone is suggesting that this afternoon. We are just trying to work out what is happening.

Professor Overman: Let me try to clarify that. One of the objectives against which we should make decisions on transport expenditure is how much it relieves congestion-the time saving that fits into the traditional cost-benefit analysis. There is then a set of questions about the wider impact of the decisions that result. The question came in two parts: first, whether I thought it was sensible; and, secondly, whether I think that constantly pouring more money into London that allowed more people to move into London was a sensible strategy. Did I misunderstand that?

Q16Graham Stringer: What I was trying to say-maybe I didn’t say it clearly enough-was that using congestion overcrowding as a criterion means that you allocate a lot of capital expenditure to the south-east, and because you also increase economic activity you end up chasing your tail and get more congestion. Would it not be a more sensible approach, not to stop investing in London and the south-east, but to invest some of that money in other major conurbations so that you released capacity and reduced the pressure of overcrowding by balancing up economic activity within the country? That is essentially the question I am asking.

Professor Overman: It depends on how much you think the current levels of transport infrastructure in areas outside London are a major barrier to development in those areas. If we take a fixed transport budget, you are suggesting that we spend less of it in London dealing with congestion and more of it somewhere else in the hope that that will attract economic activity out there. My personal feeling is that the evidence this would lead to a huge increase in activity outside London and the south-east is limited, because I am not sure that transport is the major barrier to growth in the areas outside London and the south-east.

Q17Graham Stringer: Does anybody else want to comment on that?

Ed Cox: Specifically on that point, the OECD is producing a report this week that sets out the key drivers of economic growth in what it calls intermediate regions. It has done a three-year study of 26 different cases where it has tried to compare different drivers of growth against one another. Henry is correct on this point that number one is skills. You have to get your skills system correct in order to drive economic growth. The second is transport infrastructure. That is why we believe that a disproportionate amount of transport infrastructure in northern cities and the north of England generally would be a key driver for economic growth there. as Mr Stringer has said, at the moment there is a preoccupation in the way in which the Department for Transport and Treasury focus on congestion and overcrowding. Therefore, the principal mechanism by which we appraise transport projects is that rather than economic growth. If I were to be putting forward what I thought the key objectives around transport investment needed to be, they would go beyond getting dense populations from A to B; they would be much more about how to generate wider economic growth. For me, with shrinking budgets for transport spending, we need to be increasingly focused on what it is we are trying to achieve through transport investment, and I would say economic growth needs to be number one.

Jonathan Bray: I agree with Ed Cox and disagree with Henry Overman. There is evidence to show that the quality of the rail network for local commuters is acting as a constraint on the growth of places like Manchester and Leeds. We have had research from KPMG that suggests overcrowding is holding back as many as 20,000 jobs in Leeds and Manchester. We also know that the target of Core Cities is to get 1 million extra jobs in those core cities and surrounding city regions. That is looking at rail demand of 70% ahead of what we have already got. We already have some of the most overcrowded trains in the country going into our major centres. A focus on investment in the local commuter rail network would be a very good use of public money, particularly when we have some of the worst, oldest and most overcrowded trains in the country.

Ed Cox: The OECD itself has produced a report that suggests there are 40% fewer commuter journeys between Leeds and Manchester than you would expect between two similar-sized cities elsewhere in the OECD. For me, that is compelling evidence that we need improved transport infrastructure to drive the connectivity between Manchester and Leeds.

Chair: Do you want to say something on this point, Mr Kwarteng?

Q18Kwasi Kwarteng: It is on this very point, which I think is very important. I have been on this Committee for two and a half years now. If I had had a pound for every single one of the number of witnesses who have come before the Committee and asked or pleaded for more money and more investment, I would be a very rich man today. Clearly we are in budgetary difficulties at the moment. Specifically what level of investment do you want to see in terms of pounds, shillings and pence? At what level do you think we should be investing in the networks that you have suggested would alleviate the congestion you have described and enhance and deliver the growth that you want to see?

Chair: Mr Cox, do you have a figure in mind?

Ed Cox: I don’t have a specific figure because I would say that we don’t need to spend any more money. The point of the Committee’s hearing this afternoon is the balance of funding and the way we spread it. Our argument is very clear. We are spending too much on transport infrastructure in London and the south-east, which, as the OECD report will show when it is published this week, doesn’t generate the productivity gains often claimed for it, let alone deal with the congestion, whereas if we rebalance the way in which we spend we would see economic growth, which will then tackle some of the issues around fares. It is quite right to criticise and say that a disproportionate subsidy is going to the north of England. That is because at the moment the cap and collar system prevents rail companies from investing more in transport infrastructure. That in itself is a downward spiral. If we can get the investment into northern transport infrastructure so that will grow the economy, we will generate-

Q19Kwasi Kwarteng: You have given a very general answer. In the spirit of my first question, I am going to ask a second question of you. How much of a rebalance do you want to see? Is it a question of taking 10% of the London budget and reallocating it to regional budgets, and which regions? Just give the Committee, if you will, an example or indication of the amounts you want to see redistributed.

Ed Cox: Similarly to Henry, we have to be clear what it is that we are trying to achieve with transport investment. I am happy to acknowledge that London and the south-east may need a disproportionate amount of investment, but in terms of rebalancing I would like to see 30%, 40% or 50% of transport infrastructure spending going outside London. There is an "emperor’s new clothes" moment about this. In terms of future planned spending, we are talking of a disparity between 84% on the one hand and 6% on the other. Even a 10% rebalancing would make a massive difference.

Q20Chair: Mr Bray, did you want to comment on this?

Jonathan Bray: We don’t have a master plan where we have totted up the cost of every transport scheme right across the north and midlands-

Q21Kwasi Kwarteng: Nor the money.

Jonathan Bray: There is a case for having a bigger spend overall on infrastructure. We are not the only people who have made that case; the CBI has made it and, to some extent, the Government have said that. They have said that spending on transport is an important thing to do to drive growth during this period. There are also ways of generating more income for transport that could be spent in the regions. London has fares revenue from tubes and buses; in our areas that goes straight into the private companies and we don’t see it. We have the Greater Manchester transport fund of £1.2 billion, which pools funding across districts, and there is borrowing against that funding. There are ways of getting more for less, but there is a case for a bigger pot. I wouldn’t come here and say we want this amount off London; I don’t think that is the way to do it. It is more about what is needed in the regions.

Q22Kwasi Kwarteng: Let me just draw this distinction. Whereas you are not necessarily arguing for a bigger pot-you are talking about the distribution-you are suggesting that we should increase the size of the pot from what it is now.

Jonathan Bray: Yes, and there should be a recognition that spending on transport in large urban areas is one of the best forms of value for money you can get for transport spending. That doesn’t just mean London; it also means Manchester, Birmingham, Leeds and Newcastle, if we want an economy that is not just firing on one cylinder, which is London.

Q23Chair: Mr Bray, would you include Liverpool in that list?

Jonathan Bray: I would indeed, and Sheffield.

Ed Cox: Yes.

Professor Overman: Yes.

Kwasi Kwarteng: The more the merrier.

Q24Graham Stringer: The point Professor Overman seems to be making is that there is not a lot of evidence that investing in transport infrastructure in our regional centres would necessarily lead to economic growth. Mr Bray, what is the international evidence on this?

Jonathan Bray: The last big piece of work was the Hinton report, which was conducted for the Treasury in the last Government. It is probably the most exhaustive bit of academic research we have had on transport and the economy for quite some time. It identified that spending on transport in congested areas like big cities was very good value for money in transport spend, as were links between the cities. The evidence out there suggests that putting funding into big urban areas is one of the best things you can do.

Q25Graham Stringer: For instance, do we know how much per head of population Munich, Turin or Milan would spend on transport compared with Leeds, Manchester or Liverpool?

Jonathan Bray: The last figures we had on that are rather out of date. I can supply them to the Committee. I think it was done by CEFA under the last Government. So we have some figures but they are a bit out of date. That showed that our cities were down the league table on the basis of European comparators. If we are looking at the kind of investment we need to see in our cities, we need investment in mass transit networks, like trams, tram-trains or guided buses. Manchester is an example of some of the better news we have had in recent years. We also need in our cities oyster or smart card ticketing that London has. We need to see more investment in the header rail networks, particularly commuter rail networks, and, finally, the bus networks where in London we have seen a big success story. The last figures on bus passengers came out the other week. We are looking at an increase of about 2.5% in passengers in London and a decrease of 2.5% in the metropolitan areas in one year. That is not good news, but that is a pattern we have seen over many years. We need to turn our bus networks from a story of decline into one of growth.

Q26Mr Leech: My question is to do with economic growth being a driver for transport spending. Mr Cox, if we assume that we ought to put transport money towards economic growth, is there not a danger that some areas would still miss out, so areas where transport spending would increase economic growth significantly might then just win out over areas where we may see some economic growth but not to the same extent?

Ed Cox: There is a risk of that, and it depends upon the way in which we choose to rebalance. To link together the two last questions, one of the crucial differences is that in cities like Munich, Paris, Bordeaux and Lille, if you go overseas, they have a much greater decentralisation of decision making. It isn’t just the money that flows more locally; it is the decision making around how to spend that money across different modes. My sense is that, if we are to rebalance funding, we also need to decentralise decision making. Transport for London is a fantastic example of greater decentralised decision making and a much better transport offer. Merseyrail is another one. That is the way in which, by taking decisions at a much more local level, you are able to ensure that the offer to more marginal peripheral areas, which I am assuming you are talking about, is included within transport planning.

Q27Mr Leech: But to how local a level? For instance, if we were devolving decision making on transport spending to the regions and did it in the north-west, I suspect Manchester and Liverpool would do pretty well out of it, but places like Cumbria would lose out. You would probably get more economic bang for your buck in Manchester and Liverpool than you would in Cumbria.

Ed Cox: Exactly how you go about doing it-what powers and funding are handed down-is a relatively technical topic. I know that Jonathan and pteg have done work on precisely what needs to be localised. Greater Manchester has come up with a different appraisal process from that used nationally in order to account for wider regeneration and economic benefits. In the early stages of using this different appraisal methodology, it finds that much wider areas are benefiting from transport investment than would be the case if you used just the national appraisal process. By localising decision making and devolving powers-Jonathan might want to say exactly which powers and funds-there is a much greater chance of benefiting more peripheral areas.

Q28Chair: So you are talking about different appraisal systems.

Ed Cox: Exactly.

Q29Chair: Professor Overman, do you want to make any comment on appraisal systems?

Professor Overman: I usually try to avoid it.

Chair: Okay; I won’t press the point.

Professor Overman: It brings together a range of the comments that have been made. Perhaps I wasn’t clear earlier. In my answer to the question about how we should decide on expenditure and whether we want to move money from the south to the north, I didn’t mean to give the impression that there were no projects in the north that would come out quite well on the appraisal measures we have. In fact it is nice to hear Ed quoting my own work showing that the Manchester-Leeds project would deliver benefits. In some ways, it is more that we should take those appraisals reasonably seriously. We have a set of objectives. Let’s sit down and think about how we are going to meet them. The appraisal system and other pieces of information are one input into that decision-making process. That will lead to a set of allocations across regions. That is why I said that in some ways I am perfectly comfortable with whatever that looks like, provided we have a decent appraisal process for coming up with projects.

There are flaws in the current way of appraising stuff. It is incorrect to suggest that the appraisal stuff always disproportionately benefits London and the south-east, for example. So, yes, we get a plus for the fact that congestion is worse here, but we get a minus for the fact that land costs much more. When we are thinking about the costs of a project we have to go out and purchase the land to do it, and all of these things come in on the other side. The appraisal system could be better. We can take into account some of these wider economic benefits and so on, but I am not sure these would radically change the pattern of spend we have got. The more fundamental question, given our objectives and the amount of spend we are willing to make, is whether we are doing the right things.

To finish on Ed’s example, I do think the Manchester-Leeds project would be far better than high speed. I suggested there was a whole bunch of projects we could have that were far better than High Speed 2 on the basis of appraisal and we should allocate more of those and we should be doing those, including the Manchester-Leeds project. There are issues with the appraisal system, but rejecting it and saying that it is totally flawed is far from fair.

Q30Iain Stewart: I have three questions on IPPR’s figures. The first one is just a point of clarification. Are the projects you have assessed ones that can be wholly identified in one region, or do you take into account projects like electrification of the Great Western line, which will cover more than one region?

Ed Cox: The very simple answer to that question is that we have used exactly the figures provided by the Treasury in the regional tables associated with the national infrastructure plan. If it was the Treasury’s decision to include them within that table, then, yes, we included them; if the Treasury chose not to include it in the regional tables, then, no, we didn’t. I know this has caused Treasury some concern subsequently, because perhaps it rather regrets its choice of which projects go in the regional tables and which ones don’t. As a consequence, the previous Minister decided to come up with some new figures to make sure that certain schemes were out and certain schemes were in. Even if you assessed the amended figures put forward, the fact remains that for future planned spending London and the south-east will receive 77% and the north of England just 8%. There are arguments about what schemes should be in and what schemes should be out, but to some extent that is missing the bigger point about the huge disparity in planned spending.

Q31Iain Stewart: I want to judge how you have accounted for projects that might be primarily in one region but have a substantial benefit to others. The example I give is one in my own area: the east-west rail link, which will link Milton Keynes to Oxford and Aylesbury. 98% of the capital spend for that is within the south-east, yet that link is a critical part of the new electric spine. It will provide an electrified freight route to Yorkshire and the north-west. Are those benefits for the north of England captured in your analysis?

Ed Cox: My answer is the same. We didn’t try to determine where the regional benefits did or did not lie; we simply used the figures.

Q32Iain Stewart: But do you know about that specific link, for example?

Ed Cox: I accept the critique of the Treasury’s figures, which is that of course there are transport user benefits accruing to people who live outside the region. I would still make a strong case that the way in which the Government have treated our analysis of the figures completely overstates the amount of additional benefit that accrues to people who live outside the region in which the scheme is being invested in. Take the north-east, where you are talking about planned spending of £5 per person according to the Treasury’s tables. Even if there was some disparity or additional gains for people living outside London and the south-east, you would never expect that that benefit would bring them up to anything like £2,731 per person.

Q33Iain Stewart: I am not suggesting that it will. I am trying to get to what is an accurate position of the spending. Economic benefits can accrue even if you do not spend the money physically in that area. I am not clear whether or not we take your table-I accept that is on the basis of Treasury figures-as an accurate guide to what is going on.

Ed Cox: The crucial and fundamental point here is that, if the Treasury doesn’t know where the benefits are going to accrue, then who does? It is completely astonishing that we have detailed methodology within the public expenditure stats-PESA-that does account for these regional differences for past spending, but we are unable to say where the benefits will accrue in future spending. Indeed, it would appear that the Treasury and the Department for Transport are not even attempting to address precisely the point you are looking at. I would argue that is an absolutely critical issue. We need to get hold of the national infrastructure plan and look at these projects to be able to determine far more effectively the benefits that will accrue to different regions. It is just not good enough to say that it might possibly benefit these people in this area, even though the investment is going into another area. We need to be sure about that because that is billions of pounds of public spending going forward. It is just not good enough that we can do it for historical projects but we are not prepared to try to do it for future ones.

Q34Chair: Does any other witness want to comment on where the benefit goes rather than where money is spent?

Jonathan Bray: We used the PESA figures. That is the Treasury’s decision inherent in the figures as to where it has allocated the benefit, so you would have to ask them.

Q35Iain Stewart: I apologise if my final question sounds a slightly technical one. Do you know whether the figures for the projects in each region have been weighted in any way, given that the cost of acquiring land and using labour in London and the south-east will be more expensive than in other parts of the country, or are they just the raw spend figures?

Ed Cox: Once again, your questions really need to go to the Treasury and Department for Transport officials so that they can explain precisely the way in which they are set out in the national infrastructure plan.

Q36Jim Dobbin: I am totally bamboozled. If the figures of 84% and 6% are accurate-there is an argument to say that they are not accurate or they are foggy figures-then they are shocking, if that’s the case, and it mirrors the level of poverty between north and south, quite honestly. Is there no way that we can have a better formula for allocating funding for transport than the present system?

Ed Cox: This is precisely our case; it is exactly what we believe should be the case.

Q37Chair: What would you like to see, Mr Cox? How should it be done?

Ed Cox: First and foremost, I would like to see a very clear set of objectives as to what we want to spend transport infrastructure funding on and why. This is absolutely Henry’s point. This is not just about getting people from A to B. If it is not just about getting people from A to B, we need to be clear about what those wider economic objectives are. There are a couple of factors that are absolutely crucial here. The first is that we need to ensure that the way we spend transport funding is against a clear spatial vision and understanding of where it is and how it is we want to develop our national economy. If you look at any other advanced economy, they have very clear spatial plans about which cities need to develop in which ways and why and where the connections need to go. We just don’t have that kind of planning in this country. We work on the lazy assumption that, if we invest in London and the south-east, that brings the biggest short-term productivity gains and somehow that will trickle down to the rest of the country. We really need a very clear strategy about why we are investing in transport in different places and how that will develop our economy and produce jobs and growth.

Q38Jim Dobbin: Are you saying that need should be part of that equation?

Ed Cox: Sorry?

Jim Dobbin: Are you saying that need should be part of that formula or thinking?

Ed Cox: I don’t think I would necessarily call it "need"; I would look at potential and where the greatest economic potential lies, but here we are talking about long-term potential. The big difference between the way we plan for economic development in this country compared with our northern European neighbours is that we have very short-term horizons as to where benefit will come from. We need a much longer-term horizon and we should invest in that spatial vision.

Q39Chair: When you say "potential", does that include economic potential?

Ed Cox: Absolutely; it is fundamentally economic potential.

Q40Chair: You are talking about economic potential in the different regions and the contribution that transport might make to that. Is that the way you are looking at it?

Ed Cox: Absolutely; correct.

Jonathan Bray: To go back to an earlier point that Ed made, one of the big factors in the level of transport spend is about the devolution of decision making over transport. If we go back to the funding gap figures in London, the gap between London spend and the regions started when the London Mayor came in. In 2001, London was getting £233 per head, and the west midlands and the north were getting £150 per head. Five years after the Mayor came in, London was up to £631 per head and the regions were up to £250 per head. Once that gap opened up, it has stayed since. The key is the fact that we devolve more decision making down to London. Something similar happened in Scotland after the Scottish Parliament was created. There was a five-year period when funding for transport in Scotland more than doubled. You can also see it on a smaller scale with things like Merseyrail Electrics. When responsibility for that was devolved, that network went from one of the poorest-performing and least popular networks to one much nearer the top of the table of customer satisfaction and performance. This is an important point to make, which in some way rises above the whole danger of this thing slipping into a north-south debate.

Q41Jim Dobbin: If that is the argument, then Salford and Liverpool, both of which have elected mayors now, are in for a huge rise in their expenditure, aren’t they?

Jonathan Bray: I hesitate to say this to Greater Manchester MPs, but we have seen a combined authority in Greater Manchester and also the Greater Manchester funds, which is a step forward. Clearly it doesn’t solve all the issues we have. As to the formula, a point was made earlier about how the funding is distributed. We have seen moves that shift funding away from cities and towards more rural areas. You can see that in the pattern of CLG reductions in the funding of local government. Ultimately, that is transport revenue spending, so the cuts have been more severe in metropolitan districts. We saw it in the regional growth fund, which put 40% of that funding into London and the south-east because of the way the formula was constructed. When we are distributing national funding, we need to look at a formula that reflects the economic potential and capacity that can be released by transport investment. You certainly get that in cities in terms of building on the growth you have already seen in core cities, but you also have large pools of labour with poor transport links to those jobs. It is in those areas where transport can make a catalytic change and release economic capacity. A formula that reflects that would be helpful in making sure we get the best bang for the buck in national transport spend.

Professor Overman: Let me give an alternative interpretation of what happened with London’s expenditure. It is quite possible that before the Mayor we had been horrifically under-investing in transport infrastructure in London, as was fairly apparent from the appalling congestion figures for London and the south-east, and when the Mayor came in he may well have become an effective lobbyist to get transport expenditure back up towards the level that might have been justified by the amount of congestion, growth and expansion that we were seeing in London and the south-east.

You can easily spin that round the other way. I don’t know whether I share Mr Dobbin’s absolute horror that a region that may not be expanding like London and the south-east needs much less transport infrastructure investment, which is what this pipeline figure is picking up. I don’t find it so surprising. It doesn’t totally surprise me that, in an area whose population is not growing anywhere near as fast as London and the south-east and is not building lots of new housing at the moment, the flow of investment we are making to that place is markedly different from what it is in the area of the country that is expanding in terms of population, housing and economic growth.

What we do know about the north-east, for example, is that the amount of infrastructure per head in terms of the stock of stuff is enough that they can make their journeys without them being congested and in rather a quick and easy manner compared with London and the south-east. If we were trying to have a transport system that allowed people to make the journeys they wanted to make, we might sit in London and the south-east and say, "My goodness, it takes me an hour to go five miles, but outside London and the south-east getting around with the transport that we have in place is far easier."

Q42Chair: Could it also be the case that, if we were looking at economic potential and areas that perhaps were overheated and areas where there was economic inactivity, one of the things that could be done-not the only thing-would be to invest in transport infrastructure?

Professor Overman: I am sympathetic to the argument that in areas in the north that are congested, like Manchester-I should put my cards on the table here and say that I advise the Manchester Local Economic Partnership, so I should be a bit careful-putting in additional infrastructure expenditure that eases congestion may help with some of the barriers to growth in those areas, but I just don’t want us to take that argument too far. History, I’m afraid, is littered with examples of transformative infrastructure expenditure that is going to turn round our peripheral regions and does nothing of the kind, precisely because it is not the major constraint across all these areas that it might be. In Manchester and Leeds there are projects that would look pretty good in terms of removing bottlenecks to growth, but, outside those more prosperous areas where congestion is high, I struggle to think of things that would make a massive difference relative to other issues for those areas.

Q43Julie Hilling: If we are talking of infrastructure needs in terms of congestion only, should we not also be talking about ease of travelling? It is not just about whether the train or bus is half-full, but is there is a train and is there a bus? Where does that fit into these arguments?

Ed Cox: In certain circumstances there are social reasons for providing transport infrastructure. I am largely with Henry on the idea that, broadly speaking, they should be there to promote economic growth, but sometimes you get a combination of both social and economic reasons. If you look at the wider economic benefit and the social benefits of transport investment, sometimes you can make a case.

One very obvious one is the trans-Pennine electrification that currently runs to York. To extend it to Middlesbrough, Scarborough and Hull at the moment could make a significant difference, but why is it not being extended? The simple reason is that nobody has got round to doing the appraisal that needs to be done that would demonstrate its potential impact. This is where there is a kind of myopia about the way in which most of our transport appraisal decisions are taken from London. If we were to decentralise and devolve some of that to something like a "transport for the north", we would be able to find the time and capacity to do the appraisal on that route and make the kind of judgments that Henry suggested we need to make.

Q44Julie Hilling: Can I ask about the bang for the buck that Mr Leech was talking about? How big a barrier is the current situation where it is about return on investment? For London, return on investment is seen to be much larger than it would be around maybe Newcastle or Bolton. How big a problem is that in terms of the current situation?

Ed Cox: Personally, it is very difficult to understand precisely the way in which the appraisal methodology is working. There are 24 different sets of guidance that have to be considered in relation to any particular investment. It seems to me that, ultimately, there is a qualitative judgment. Even though you get monetised values for all these different processes, ultimately, it is a qualitative judgment as to whether or not investment goes in. To that extent it comes down to people’s sense of whether it will be a good bang for the buck, and very often that is down to personal knowledge and understanding of different transport schemes. Unfortunately, that always sways things in favour of the places Ministers know best.

Q45Julie Hilling: It has been said that the fact there was a Mayor of London meant the money followed because it was about that leadership. Mr Cox, you have talked about a northern group or something that is bidding in for that, but can you be more specific about what we need? Clearly, across the north as well, that is our fight for Greater Manchester and Bolton, and other people will be fighting for other areas. What more do we need? You said there had been no appraisal of electrification further afield.

Ed Cox: We put out a report earlier this year that set out five priorities for northern transport spending. Again, we were very strategic in the way in which we did that, because, just as the Mayor of London is very clear about his priorities, on behalf of a variety of bodies in the north of England we tried to coalesce a series of priorities and proposals. If you want, I can go through what the five are.

Northern Hub was the first, and that was immediately successful through the CP5 process. We suggested a little link between Birmingham HS2 and the Midland Main Line that would bring the benefits of HS2 investment much more quickly than waiting for the Y shape to be built. We suggested trans-Pennine electrification being extended to Middlesbrough, Scarborough and Hull. Rolling stock is another massive issue. Again, it is always linked to fares, but it seems to me that is a negative spiral. If you constantly say you can’t have new rolling stock until you reduce the amount of subsidy, it is a downward spiral; you are not going to be able to put up fares and improve revenues until you improve the rolling stock. The stats are that 87% of rolling stock on the Northern Rail franchise is from the 1980s or before, compared with 64% on Southern Railway, which has been produced since 2000. There are some real disparities.

Our last priority was about capacity upgrades in Leeds, Manchester, Sheffield and Liverpool stations. A fact rarely recounted when we look at transport issues is that the growth of regional rail passenger traffic has been massive, and yet these franchises were let on a zero growth basis. As a consequence, there is no incentive for rail transport operating companies to invest more in rolling stock and so on.

Jonathan Bray: To pick up the point about the social case-it overlaps the economic case-and talk about buses, they are the main form of public transport outside London. We have talked a lot about rail, which is important, but for most people it is the bus. A lot of peripheral council estates are entirely dependent on the bus. You can have problems with people being economically inactive because a lot of the new forms of employment are also in peripheral locations, say, around airports or out-of-town distribution places, so they can’t access it. At the same time, we are seeing big cuts in bus services. The latest bus stats show that supported bus services outside London were cut by 10% in one year alone, whereas in London we are now seeing the new Routemaster buses rolling out. They are lovely, beautiful things. I am not sure about the cost-benefit analysis on those, but the capital cost is £180 million and the cost for conductors per year is £40 million. You almost have something that is nice to have in London versus something that is not really adequate outside London.

To go back to Henry’s point, at one extreme you are trying to level all spending so that Newcastle gets exactly the same as London versus the of out-of-sync situation at the moment, where I suggest spending in London is getting in some "nice to have"s and we are not up to "adequate" on key forms of transport provision in the rest of the country.

Q46Karen Lumley: To go back to spending by the regions, I am quite confused about how you allocate major projects to certain regions. For example, could you explain to me how HS2 would be allocated to each region?

Ed Cox: Again, it is not me but the Treasury that is doing the allocating. HS2 would not come into the regional figures that have been described; it is considered separate from that as a national project, so it is not part of it.

Q47Karen Lumley: If there was a big motorway project, how would that be allocated?

Ed Cox: Again, it depends on the motorway project, but, broadly speaking, if it travels across a number of regions, it would be considered a project of national benefit; it would not be included in this.

Q48Karen Lumley: It would not be included at all.

Ed Cox: No, but it depends on exactly which projects you are looking at. My challenge back to Treasury is for them to be clear particularly about forward spending. They can do it for past spending, but for some reason they seem unable to say exactly where that regional benefit will lie for forward spending.

Q49Chair: Would it be possible to have a regional benefit with a scheme of that nature?

Ed Cox: All of these appraisal methods have their limitations and flaws, but the point I want to make as clearly as I can this afternoon is that we seem to be quite able to do it for historical spending but very reluctant to do it for future spending. My simple question to Treasury and the Department for Transport is: why is it so difficult for us to come up with a very clear strategy as to what we want to spend transport money on, and then a set of appraisal criteria that can clearly demonstrate the regional benefit of those different decisions? I believe we have a highly convoluted system because there are some clear vested interests in the process.

Q50Graham Stringer: I agree with you that there are vested interests at play here. If you take out those vested interests, how good are we at predicting what the economic capture will be? When you go back to the original cost-benefit analysis on schemes, how good have they been when you get the transport scheme implemented?

Professor Overman: We don’t know because the DFT doesn’t do it-

Graham Stringer: Well, we do know.

Professor Overman: -except for High Speed 1, where we have some fairly good transport benefits.

Q51Chair: But, otherwise, you are saying it just doesn’t do it.

Professor Overman: Generally speaking, DFT has always done appraisal but until very recently it didn’t really do much evaluation. It did appraisal before and evaluation afterwards. It now has POPE. I think it now at least looks at how many people are using the thing relative to what it said, but in terms of the economic benefits none of that is evaluated after the projects are in place.

Q52Graham Stringer: The reason I ask the question is the Knock question. Nobody in their right mind would have invested in Knock airport, but it has had a significant economic benefit. You are saying there needs to be a very firm appraisal, which is fine. You can have selfconsistent systems, but do they equate to what happens in the real world afterwards, Professor Overman?

Professor Overman: There is a lot of uncertainty when you do major transport infrastructure investments. Some major transport infrastructure investments have clearly been transformative; it is just that many that have claimed they would be transformative have not been.

Q53Graham Stringer: You have said that before. Can you give us some examples?

Professor Overman: Of things that have not been.

Graham Stringer: Yes-rubbish schemes.

Professor Overman: The Humber bridge.

Q54Chair: Is there anything more recent?

Professor Overman: High Speed 1’s impact on Ashford. You are putting me on the spot here, but it had all these services that were stopping in Ashford and it was going to transform Ashford; it would become the new hub. Now the new hub is going to be the one outside Stratford. Ebbsfleet is the next one we are going to transform as a result of this with high-speed lines. We have changed it from Ashford to Ebbsfleet. Major transformative infrastructure expenditures don’t come along all that often, but the Humber bridge is a pretty good example of one that would turn round Hull’s fortunes completely.

Q55Graham Stringer: The only assessment on the Humber bridge was about winning a by-election, wasn’t it? There was not really a cost-benefit analysis outside that.

Professor Overman: You are asking me to speculate on things I am not comfortable with.

Ed Cox: To make a slightly wider point, we are in danger of doing what in transport circles we do very often, which is not to see transport as connected to a range of other factors that will drive economic growth. It may well be that a particular transport investment doesn’t transform a place, but it may not be because of the transport investment; it may be the other things going on around it. This is the point I have mentioned a number of times already. There is a need for a clear vision about what the economic purpose is of a place and how transport infrastructure fits with that economic purpose. That is where we miss a trick if you compare us with Germany.

If you look at some of the investment made in Leipzig, again like Knock airport, perhaps-I don’t know that example-people would say there is no real cost-benefit that will stack up for putting an airport in Leipzig, but because it was combined with a number of other things, like a devolved skills strategy to build up particular skills in the area and the attraction of DHL to put a big centre nearby, it enabled that airport infrastructure to move forward because of the wider spatial vision in that region. It is crucial that, first, we have an economic growth strategy for this country, which we don’t have, and, secondly, that it has a spatial dimension to it so that over a long period of time our transport investments are aligned with other things that we are doing like skills, as Henry suggests, and we can move our economy forward. But it is a matter of pulling those things together rather than seeing transport appraisal in its very narrow bracket, as we currently do.

Q56Graham Stringer: I would just go back to the point of why all this investment is being agreed for London. When the Mayor came in 1999, I think, in essence the Thameslink and Crossrail PPPs were all ready to sign up, weren’t they? Isn’t it a bit unfair to say that the Mayor comes in and you get billions and billions of investment in London? Those decisions were already on the stocks, weren’t they? I am in favour of decentralisation; I just think you can overegg that particular pudding, and the real impact of the Mayor on transport in the first eight years was bringing in the congestion charge, which brought in extra money to invest in buses. The rest was already going to happen. Isn’t that a fair assessment?

Chair: Does anyone have a view on the Mayor of London?

Jonathan Bray: I think that is an extension of the point you were making as well. You could say that at some stage there had to be a massive spend on the underground and a total overhaul, but the original name of Thameslink was Thameslink 2000. It slipped and slipped, and once there was a Mayor in there things did happen that might have slipped again. You can push the argument too far the other way. London is also not the only example of spending going up following devolution. Scotland is another example, and there are other rail examples I have given as well. It is a fairly consistent pattern.

Professor Overman: I am in favour of decentralisation, but here is the example I gave when I was asked what I thought about city deals and whether this would turn round our declining places. The last time I checked Detroit had a strong mayor. Decentralisation on these decisions is a good thing because it will lead to better decision making around local priorities, but, as to whether it will solve the question we are grappling with today, at some point we still have to decide what funds we allocate to these decentralised bodies to make decisions. In the current funding system in this country mostly central grant will be allocated down to these things. I am all in favour of decentralisation because it allows for decisions better to reflect local transport needs, but I am with you that the impact this will have on turning round growth, leading to decisions being much better or addressing any of this imbalance, is terribly overegged.

Q57Chair: But it could still be that, even at a time of scarcity, a devolved body or one focused on transport is in a better position to pursue whatever funds are available than an area that does not have any such organisation.

Jonathan Bray: That is the point we were making. We weren’t saying that having a mayor will transform the economy of every place that has one. We have said that, where you get more devolution of powers, you get more focus on transport and usually more spending.

Ed Cox: The risk in what you are saying is the Heseltine argument about economic growth, which is that it should all be competitive. There are some dangers with that competitive approach, particularly when you break down things into 39 local enterprise partnership areas. This is why I am saying we need a national strategic vision of how we see economic growth emerging. It is not a Stalinist plan or about picking winners; it is a clear sense, as they have in many other northern European countries, about what parts of the country will fulfil what economic functions for the country and then investing in that. This is not about mayors competing with one another to hack off bits of transport funding for themselves.

Q58Chair: Are you saying that a competitive system could widen disparities?

Ed Cox: I am relatively easy as to whether or not it was the Mayor who achieved all of this for London, but there is a danger, if I can put it that way, that, if we get people to compete for a single pot, as Heseltine would, or compete for transport funding, those with the loudest voices will win out. I don’t think that is necessarily going to be helpful in achieving overall national prosperity, which surely must be our aim.

Q59Chair: Having these disparities, however you look at them, is not a new situation, is it? It is not something that has just happened.

Ed Cox: No, but they have got significantly worse quite recently in relation to transport.

Q60Chair: Mr Cox, your study last year was criticised by Ministers, who said you had omitted some major schemes and had not distinguished between public and private spending. Did you accept those criticisms?

Ed Cox: We accept that the information that has been provided by Treasury in the national infrastructure plan is flawed. We don’t accept that our analysis is incorrect. We believe that, using the statistics that Treasury has provided, it is right to say that £2,731 per person is being spent on transport infrastructure by the public purse in London compared with £5 in the north-east. We accept the Treasury’s figures are flawed but not that our analysis is flawed.

Q61Chair: Are you going to make an analysis of the future autumn statement?

Ed Cox: We will be delighted to see whether the figures are changing and moving in the right direction. I very much expect they will be, because the Transport Secretary is now incredibly aware of the risks of producing tables that don’t properly reflect the way transport spending is being allocated. We are going to see lots and lots of projects, where the majority of the benefit accrues to people living in London and the south-east, which are considered to be of national significance and then are not put in the regional tables.

Q62Chair: Will you be analysing the statement and making that point, if you think that is the case?

Ed Cox: We will do that. The dangers are around doing it by population and per capita. I totally accept that is where the weakness is in this kind of analysis, but, even if you were to use another measure-Henry suggested a number of different ones-for example, productivity, that is a fantastic measure because it shows where growth is coming from and so on. If we look at per £1,000 GVA generated by an area and used productivity rather than per capita as your reason for investing, even then you find that London is getting £81 per £1,000 compared with 50p in the north-east, £8 in the north-west or £12 in Yorkshire and Humber. Even if you use productivity, which we all want to see from an economist’s point of view, you still see massive disparities between areas.

Q63Iain Stewart: Forgive me but I have to come back to this point. I accept that the Treasury’s figures do not give the whole picture on transport spending in the regions, but, on that basis, I don’t think we can argue with any certainty what the true picture is and that there is a great disparity. There may well be, but until we know the detail of the effect on the regions of big national projects like high-speed rail, new motorways, electrification of the Great Western line-umpteen projects-and the effect that regional-specific projects like east-west rail have on the rest of the country, this is an esoteric argument. I would argue that we should get that detail.

Ed Cox: Exactly what kind of Government do we have that does not know what the regions-

Q64Iain Stewart: All Governments. We have never done a proper territorial analysis of spending.

Ed Cox: But what kind of Government do we have that cannot tell us where billions of pounds-

Iain Stewart: The same as the last Government and the one before that and the one before that.

Q65Chair: This is not a new situation, is it?

Ed Cox: I am not saying it is a new situation, but over successive Governments how can it be that we are in a situation where we can say what the historical regional distribution of the funding and the benefit of it has been, but we are unable to say it for the planned spending that we have got? I think there is a big flaw in our system.

Q66Iain Stewart: Forgive me but you are now extrapolating. The basis of your evidence has been that the north is disadvantaged and therefore we have got to do all these different things. That might well be the answer, but my contention is that this is a premature argument. Until we know what the true situation is, we can’t have this proper debate.

Ed Cox: I am saying that, if we get too entangled in that debate, we miss the wood for the trees. It is £2,731 versus £5 per person.

Q67Iain Stewart: That is the point; we do not know if those are the actual figures.

Ed Cox: Let’s say they are 75% wrong. You still would not bridge that gap particularly.

Professor Overman: Given the way Ed portrayed it just now, it is very dangerous to do comparisons on the flow of infrastructure investment. This is the comparison that Ed must just have done to suggest that in the north they can produce £1,000 worth of value for every 12p of infrastructure they have. Is that the point?

Ed Cox: No; that is not what I am saying.

Professor Overman: So what did you say?

Chair: Can you keep comments through the Chair, please?

Professor Overman: We can’t take the flows of infrastructure investment we are making on an annual basis and talk about how productive the stock of capital is in different parts of the country. We would need some understanding of what the stock is. It would be like a firm trying to figure out what its return on capital was by looking at investment figures this year rather than all the capital it had at its disposal at any point in time. It comes down to the fact that, looking just at the flows, it would be nice to get a better figure for what those investments looked like, but simply going from what we are spending today on transport infrastructure on a rolling annual basis and trying to do this type of calculation is terribly misleading. Transport doesn’t just disappear tomorrow. It is the stock over time that we really care about. Figures showing the north producing massive amounts per pound of infrastructure investment will always be slightly misleading, because you really want to know how much stock they have got. Many declining areas or areas that have seen their population grow more slowly tend to have large amounts of capital stock per person, precisely because population growth tends to dilute the amount of capital stock there is, rather like housing in the south-east is much more expensive than housing in the north. That is something you get by looking at the stock of housing in the south and north, not the flow of housing in the south and north on the annual build figures.

Q68Chair: Is there a disparity in investment in different modes of transport in different parts of the country, say, in rail rather than road? Does any of that account for these differences?

Jonathan Bray: We haven’t done an analysis at that level of detail, but the focus of rail investment has been very much on the south-east rather than the city regions or intercity in recent years, and will continue to be so.

Chair: Thank you very much. I think this debate will continue.

Prepared 4th December 2012