Transport and the Economy

Ian Mearns Excerpts

Tuesday 28th February 2012 Commons Chamber

[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.