Transport and the Economy

Louise Ellman Excerpts

Tuesday 28th February 2012 Commons Chamber

[Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)]

I am pleased to have the opportunity to launch a debate on two reports from the Transport Committee about expenditure by the Department for Transport. The first, “Transport and the economy”, considered how spending on transport could boost economic growth, and was published last March. The second, “Counting the cost”, was published only last week. That report follows up important aspects of our earlier work and comments on changes to departmental expenditure plans, particularly the new transport projects announced by the Chancellor of the Exchequer in the autumn.

I should begin by putting the Department’s expenditure into context. In 2010-11 the Department’s budget was £12.8 billion, which was split between capital projects and ongoing resources spending. As a result of the spending review, that budget was due to decrease by 15% in real terms by 2015. Resource spending, covering items such as local authority grants and the bus service operators’ grant bus subsidy scheme, was cut by 21%.

[Derek Twigg (Halton) (Lab)]

I congratulate my hon. Friend. During the last two or three months, I have observed an increasing number of complaints from constituents whose bus services are being cut in Runcorn and Widnes. Has the Committee made any assessment of the wider impact on bus services throughout the country?

[Mrs Ellman]

The Committee investigated the impact of spending cuts on bus services, and found that cuts had been made in more than 70% of transport authorities. My hon. Friend may be interested to know that it is currently re-examining the issue.

The cut in the bus subsidy scheme was larger than the 11% cut in capital spending. The situation has changed a little following the autumn statement, with some extra money provided for capital projects

The fact that most of the Department’s budget is spent by external agencies, specifically Network Rail, Transport for London and local authorities, makes it more difficult for the Department to have detailed control over those areas. However, the Department was generally regarded as having emerged relatively well from the spending review, despite the significant cut in its budget. I welcome the Government’s statement that they believe that spending on transport infrastructure can help to boost the economy.

It is important to recognise that congestion on the road, rail and air networks remains a major constraint on connectivity and growth. There is clear evidence that relieving congestion by providing new capacity helps to increase productivity and promotes economic development. It is also important to note that congestion is not the only indication of the need for transport investment, particularly where regeneration is required and disparities are evident.

The last major Government study of the relationship between transport and economic growth was the Eddington report, commissioned by the previous Administration. It showed that transport is necessary for economic growth, but of itself is not sufficient. To be effective, transport and economic development must go hand in hand. Building transport links to Canary Wharf regenerated the area because that was linked with an economic strategy. It is not clear that the Government appreciate the significance of this point made strongly in our report.

Our report expressed concern that the abolition of regional structures may lead to the absence of economic development strategies required to maximise the potential of transport investment across local authority boundaries as well as making it more difficult to prioritise transport projects of wider significance. The Department has encouraged the local enterprise partnerships to fill that gap and it is now suggesting that transport funding could be devolved to groups of local authorities and LEPs. How will this work in practice, however? This new approach to regional planning might work well in some areas but could struggle to take off in others, and there will be parts of the country which lack a strong voice or which fall between two strong regional centres and are overlooked by both.

The Department did not identify the issues it is seeking to tackle through its spending on transport. For example, the Government state that they want to “rebalance the economy”. That can mean a number of different policies, perhaps including more private sector employment, reducing disparities between regions, or reducing reliance on the banking sector and encouraging manufacturing. How are the decisions on transport spending related to these objectives and what assessment takes place to identify which transport modes are most appropriate to deliver them? How is the balance of spending between road and rail determined? Has any assessment been made of the significance of the absence of an aviation policy on economic activity generated by international connectivity? The answers to those questions are not clear. That is because the Department does not have an explicit transport strategy and lacks a coherent framework for deciding which transport schemes to prioritise.

I must note, however, that some progress is being made. Rail and aviation policy papers are due very soon and the Committee is looking forward to scrutinising them. There has been an important review of the Highways Agency, a national policy statement regarding ports has been agreed, and a policy statement for national networks is awaited. Will the Minister assure us that we will soon see a Government strategy for transport? That is greatly needed and has been long awaited.

The Committee considered the appraisal that is undertaken of transport projects. There is sometimes too much focus on cost-benefit analysis: not all the costs and benefits of a project can be monetised. For example, the wider economic benefits of a project or its environmental impacts are often excluded. It is also often forgotten that the economic appraisal is just one aspect of a more complex appraisal process based on five areas, including strategic fit and project affordability. Unless an overall strategy is identified, it is not possible to assess the strategic fit of any individual investment. Greater transparency in decision making is important. No doubt we will debate High Speed 2 in more detail on another occasion, but it is notable that although a huge amount of material about the project has been published, no information about how it is to be financed has been made public.

In respect of smaller schemes, there is often very little published information about the strategic fit or how they are to be funded. The new projects announced in the autumn statement seem to have been funded on the basis that they were ready to proceed. It is unclear whether they are necessarily the investments that offer the best value for money or that will meet transport objectives. The Department contributes significantly to two cross-departmental funds—the regional growth fund and the growing places fund—but no information is available on where the Department’s financial contributions have been invested or to what effect.

Strategic fit should include consideration of how a scheme contributes to rebalancing the economy. The major investment that has taken place in transport infrastructure in London and the south-east is clearly necessary, but transport investment across the UK is required. Interestingly, £15 billion will be invested in Crossrail, about £5 billion of it directly from Government funds, and £5.5 billion will be invested in Thameslink, while a reappraisal is taking place on whether half a billion pounds should be invested in The Northern Way, improving rail services right across the north.

The new transport spending announced in the autumn statement is welcome, but the analysis of the regional breakdown published by the Institute for Public Policy Research North raises concerns. It found that 84% of planned new infrastructure spending would be in London and the south-east, compared with just 6% in northern England. That works out at an average spend per head of £2,731 in London compared with just £5 in the north-east. The Passenger Transport Executive Group has produced similar information showing that transport spending is more than twice as much per head in London and the south-east than it is in Yorkshire and Humberside, the west midlands and the north-east. That imbalance is a matter of concern.

[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.

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[Stephen Hammond]

Indeed I do, and I thank the hon. Lady for making that point because it helps me to make my next point. One thing that this Government have recognised is that, although there was some mix of RDAs, the reality is that a differing of approach in different areas will be the solution.

I also think it is quite clear that the report has prejudged the efficacy of local enterprise partnerships. It seems to me that all the initial evidence, anecdotal though it is because they have been in place for so short a time, shows that they are taking their responsibilities towards transport seriously.

[Mrs Ellman]

I thank the hon. Gentleman for his comments. The report reflected the evidence that was given to the Committee. In taking this further, the Prime Minister and the then Secretary of State recognised the potential gap that would be caused by the removal of the previous regional structures. Indeed, efforts are being made to replace them through other means, but the comprehensive picture and the total results of the changes are as yet unclear.

[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.

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[Norman Baker]

I am delighted to hear that, because my hon. Friend the Member for Cambridge (Dr Huppert) has written to the hon. Lady’s boss, the hon. Member for Garston and Halewood (Maria Eagle), the shadow Transport Secretary, asking for details of the £6 billion of cuts, and so far no answer has been forthcoming.

Our growth review package will deliver £1 billion of new investment by Network Rail, more than £1 billion to the strategic road network and £500 million for local schemes and, in particular, for schemes that can make the earliest possible contribution to economic recovery.

We recognise that spending is one thing but that spending wisely is something else, so we are determined to ensure that every pound of public money invested in our transport system is made to count. That is why, although our rail investment programme is the largest and most ambitious since the Victorian era, we are committed to reforming the rail industry in order to reduce costs significantly and to improve efficiency. Members have today welcomed the electrification of the north trans-Pennine rail route between Manchester, York and Leeds, which is part of the northern hub project, as well as other major investment processes.

The Chair of the Transport Committee referred in her opening remarks to her view that an explicit transport strategy was missing, but with respect I do not accept that point. She made it to the Secretary of State for Transport on 19 October 2011, when my right hon. Friend gave evidence, and I refer the hon. Lady to her own question, Q16, from that session. The Transport Secretary said:

“To all intents and purposes, …what you will end up with…the aviation framework…the rail reform… the work being undertaken by Alan Cook to look at the Highways Agency”

is what will produce, certainly for the medium term, a strategy. When the Committee looks at the rail reform and aviation papers, which will both be out shortly, the Chair will see that. If she is making the point that we need to look over the longer term, say over 40 or 50 years, she is making a fair point, which the Government will take on board.

[Mrs Ellman]

The fact is that currently there is neither a rail strategy paper nor an aviation paper. They are both awaited.

[Norman Baker]

I agree, and we inherited that position from the previous Government, but I have already said that the rail reform and aviation papers are both due very shortly, and I hope that the Committee will do its usual good job of examining the documents and making comments to the Government following its analysis.

My hon. Friend the Member for Warrington South (David Mowat) was concerned about the transport business case, but my hon. Friend the Member for Wimbledon (Stephen Hammond), who is no longer in his place, made the point that we have refreshed the transport business case, and we also have the departmental plan for transport, which sets out our priorities in the short term. The transport business case does include wider aspects of economic development, which my hon. Friend the Member for Warrington South was concerned about, so the Government have now put in place a wide -ranging formula to ensure that those essential points are captured in our assessment of individual transport projects.

The hon. Member for Sedgefield (Phil Wilson) referred to declining rural bus services, a point that he had made before, but 78% of bus services are commercially run by commercial operators and are therefore not under the Government’s control, as he will appreciate. They have been affected only by the BSOG reduction, of which we gave 18 months’ notice, unlike what happened in Wales and Scotland, where bus companies were given almost no notice.