Transport and the Economy

David Mowat Excerpts

Tuesday 28th February 2012 Commons Chamber

[David Mowat (Warrington South) (Con)]

The hon. Lady raises an important point about the discrepancy in the level of spend in London and the south-east, which occurred under the previous Government, as the Select Committee report made clear, and is apparently continuing under this Government, as the IPPR figures that she cited made clear. Did she and her Committee consider why the methodology by which transportation schemes are assessed continues to drive an answer that skews the cash so much towards one small part of our country?

[Mrs Ellman]

I thank the hon. Gentleman for his comments. The imbalance to which he refers dates back many years and decades, spanning many Governments. The Committee did examine the issue and has stated, in recognition of it, that congestion should not be the only factor taken into account when deciding where investment should be made. The importance of economic development and the potential of transport investment in relation to that should be recognised too. The Committee made a specific recommendation on this in its most recent report, stating that the Department should publish an annual analysis of its “regional spend” and publish information about the “regional impact” of its announcements.

More clarity is required on the information published generally by the Department about its spending decisions. When the Department’s budget was cut after the 2010 election, details of which specific items of expenditure were reduced were not published until a parliamentary question was tabled requesting that information. The Transport Committee also discovered that the Department had underspent on its 2010-11 budget to the tune of £1 billion and had returned £500 million to the Treasury. The underspend was far greater than the budget cut made during the year and it was larger than the cuts to bus subsidies, which have caused so many difficulties to bus users across the country. Funding made available for transport should be used for transport and should not be returned to the Treasury. I hope that we will all be able to have more confidence in the Department’s budgeting in the future.

Most rail projects are agreed as part of a five-yearly control period process. We are currently waiting for the Government to set out schemes they would like Network Rail to take forward during the 2014 to 2019 period, and to identify the funds that will be available. This approach has helped to protect rail from indiscriminate budget cuts at the time of the spending review. The Chancellor’s autumn statement included support for some rail schemes, such as the new Oxford to Bedford line. The Committee has asked the Minister to make it clear whether those schemes are additional to the projects that will be announced as part of the normal funding process or are simply being brought forward for slightly earlier implementation. There is a need for much more clarity when announcements are made on whether the schemes are genuinely additional to those that have already been agreed or whether they are agreed schemes being brought forward at an earlier date.

The National Audit Office has recently suggested that the Government should have a mechanism to reopen control period settlements in order to have more flexibility to make cuts, if necessary. I oppose that suggestion. The arrangements for rail have helped to provide a relatively transparent and stable way of investing, which is necessarily medium and long-term, but would be undermined if the Department could reopen earlier settlements.

The recent strategic review of the Highways Authority has recommended that a similar five-yearly funding settlement for road projects should be introduced, and it has been suggested that that could lead to a more efficient procurement and supply chain, delivering significant savings. That is an interesting suggestion that I am sure my Committee will want to examine in due course.

Government expenditure is essential to political decisions, particularly during a time of austerity. The Transport Committee will continue to focus on financial issues and has specific plans to examine the cost of the railway when the Government’s response to the McNulty report is finally published. I look forward to hearing hon. Members’ views today and urge the Minister to support our key recommendations.

--- Later in debate ---

[Stephen Hammond]

Indeed, but the previous solution was a template solution, a one-size-fits-all solution, a “this is the way we must do it” solution, which did not necessarily reflect the economic realities. As the hon. Member for Penistone and Stocksbridge (Angela Smith) pointed out, in the north of England it was not one regional development agency, but a collaboration of three. As I observed earlier, in certain parts of the country structures well below the regional level developed and delivered more efficient transport solutions.

I hope that in reading the report the Minister will not be deflected from the idea that solutions of differing sizes will fit different parts of the country, and that LEPs have been in place for a relatively short time. Just as regional development agencies were able to collaborate and co-operate, there is little doubt that LEPs will be able to do the same. It is also true that in certain parts of the country integrated transport authorities and passenger transport authorities will provide the lead in regional structures. The clear message must be that there are differing appropriate sizes and structures.

[David Mowat]

I agree that the jury is out on LEPs and that the RDAs were not a panacea in this area, but the real point is that neither the RDAs nor the LEPs can compete with the velocity of spending which is so skewed away from the regions and towards London and the south-east. For example, when the Chancellor announces £30 billion of spend, of which 80% was in London, that dwarfs the amount available to the RDAs or the LEPs. The real issue is how we fix that problem, rather than tinkering with the LEPs, which I hope, as I am sure does my hon. Friend, will work in time.

[Stephen Hammond]

I certainly agree with the latter point. It is beyond the scope of my comments this afternoon to go into the differing amounts of regional money. I accept that there clearly is some imbalance in subsidy between varying regions of the country. It is important to analyse what that can deliver and its efficacy. It is interesting to speculate what Crossrail might bring to London in future, as opposed to what the northern hub might bring to the north. I suspect that the benefits of the northern hub might be greater than those of Crossrail. We will wait and see. I am sure the Minister and the DFT will continue to reflect on that.

As a practitioner of the dark art of economics, I know that different economists will always have differing views on everything. Reading the report, I was struck by the comments of the former chief economist at the DFT. Although those may have been made only in response to the question that he was asked, it seemed to me to miss out quite a lot when he said that if one looks at the history of the British economy, it is clear

“how little the underlying rate of economic growth has varied.”

He went on to add that transport had done very little to affect the overall growth rate of the British economy. That seemed to miss out the fact that we have had wildly varying periods across history.

The witness's analysis went back almost 200 years. Over that time, we have had wildly differing levels of infrastructure investment, and there have been periods when the growth rate of the UK economy has been well in excess of the 2% that he mentioned. His analysis also failed to consider the impact of under-investment, which is a well known phenomenon, how that would have dragged down the underlying potential growth rate of the economy even in a period when investment had resumed, and the potential growth rate had there been consistent investment. Although the analysis that Mr Riley presented to the Committee may or may not be valid, it seems to me that it falls foul of the law of averages. I think that the analysis should look at the potential for economic growth with a consistent approach to investment.

--- Later in debate ---

[David Mowat (Warrington South) (Con)]

I, too, congratulate the Select Committee on their coherent report and I want to focus on one aspect of it, which is the issue of regional imbalances in spend and how they happen, and to give some of my thoughts on how we can avoid them. Those thoughts are about the appraisal mechanisms used in the Department for Transport and the Treasury, the approach to appraisal and the Treasury Green Book.

Let us get the facts out of the way first. Table 2 of the Committee’s report makes it clear that in the period under review—2008-09—one region received substantially more funding than any other, and that was London. In broad terms, London received about two or three times more per head than the English regions. That matters as billions of pounds of capital spend generate high-quality private sector jobs that translate, through the power of the economic multiplier, into prosperity. The effect is transformative.

I cannot be the only Member of the House who thinks that it is odd that under the previous Government, in 2009, the discrepancy in gross value added per head between London and the English regions doubled at a time when that capital spending was being poured into London. That discrepancy by a factor of two between the capital city and other parts of the country does not exist in any other European country; it is unique to Britain.

I had hoped that after the election we would get all that sorted out with the new Government, and I was confident that serious attempts would be made to use the power of capital spending to fix the north-south divide. I was disappointed, like others who have already spoken, to see that in the autumn statement 84% of the £30 billion accelerated capital spend was allocated to London. Let me put it in context: that is £2,731 per head in London compared with £150 per head in my region, the north-west, and £5 per head in the north-east. I have heard Ministers talk about and challenge those figures and I would like the Minister to address that specific point.

The difference in spend is partly but not entirely to do with Crossrail, Thameslink and the underground, but even after those projects are removed from consideration, London and the south-east still receive approximately double what is received in the north. This is very serious and makes a mockery of our attempts to use the regional growth fund, and previously the regional development agencies, to redress that balance. If we put capital spend of that quantity into one part of the country in that way, then giving £1 billion here and £1 billion there in regional spend does not make much of a difference. I am not a conspiracy theorist: I do not think that the Opposition, when they were in government, or my own Government have done that on purpose. There is a deeper issue here—a systemic bias that drives these decisions—and it is to do with the method of appraisal.

As far as I can make out, the mechanism that the Department for Transport uses—the new approach to appraisal—leans heavily on a system of multiplying small, incremental changes by the number of people involved to generate the business case. The system specifically is not allowed to take into account wider economic benefits. The consequence of that appraisal mechanism, which has been used both by the previous Government and by this Government, is that there is a bias towards the parts of the country that are most congested and where the greatest number of people will benefit from relatively small changes in journey times to create a huge economic benefit. As a consequence of that system, resources for projects are continually allocated to one part of the country.

[Ian Mearns (Gateshead) (Lab)]

I welcome the fact that the hon. Gentleman has brought to the House’s attention the disparities with proposed investment packages in transport. Ministers will try to argue this away but they cannot argue away the extent of the disparity when more than £2,500 per head of population is being spent in the south-east compared with just a fiver in the north-east.

[David Mowat]

The hon. Gentleman echoes the point I am making. Just to take the politics out of it, let me point out that broadly the same thing happened under the previous Government, so we go back to my previous point: something systemic is happening here in the way that projects are appraised within the Department for Transport. I do not believe that either the previous Labour Government or the current Government wished that to be the out-turn. Frankly, the resulting disparity is not even very good for London, because the consequence of having a mechanism that removes congestion is to enable further congestion to gravitate towards our capital city and we start all over again. Enough is enough—Ministers have to challenge the appraisal mechanism.

I have thought about how the system could work and I shall leave the Minister with my suggestion. We should allocate capital budgets by region as the starting point for where money is spent. Then we would not get the issue with the north-east getting £5 a head while London gets £2,700. I understand that one risk of such a system would be sub-optimisation and that there is a need to manage cross-regional projects, but that could be done—other organisations do things of that nature. It clearly is not satisfactory for things to carry on as they are. I would like the Minister to give his view on why the appraisal mechanisms used by the Department continue to give the answers they do.