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Tough choices ahead for North and Mids rail spending – NIC


24 July 2020


Stakeholder aspirations for major rail investments in the Midlands and North of England will be collectively unaffordable and ministers will have to make tough choices on what to deliver, the National Infrastructure Commission has said. 

The message is contained in the NIC’s interim report on its  rail needs assessment for the Midlands and the North of England. The final report, due to be published in November, will feed into the Government’s proposed integrated rail plan for the regions announced in February (LTT 21 Feb). 

The NIC is considering the scoping, phasing and sequencing of projects and programmes such as HS2 Phase 2b, Northern Powerhouse Rail and Midlands Engine Rail, the redevelopment of Manchester Piccadilly, the Transpennine Route Upgrade, improvements to existing lines such as the East Coast and Midland main lines, and more generic interventions such as electrification and signalling. 

It will prepare packages of investments with similar cost profiles between now and 2045. Three cost profiles will be used, based on the Commission’s binding fiscal remit. The Government says the NIC must be able to “demonstrate that its recommendations for economic infrastructure are consistent with gross public investment in economic infrastructure of between 1.0 per cent and 1.2 per cent of GDP in each year between 2020 and 2050”.

The lowest cost profile will be £86.2bn, consistent with the strategic rail spending proposed in the NIC’s National Infrastructure Assessment of July 2018. The second will assume that the money available for rail spending is 25 per cent higher (£107.8bn), and the third assumes the money available is 50 per cent higher (£129.3bn). 

The £86.2bn comprises £47.4bn on HS2 (phases 1 and 2a: £21.4bn, phase 2b: £26bn); £24bn on Northern Powerhouse Rail; and £14.9bn for the North /Midlands share of strategic rail enhancements. 

The NIC acknowledges, however, that these are old costings. “The total estimated cost of HS2, Northern Powerhouse Rail and the Midlands Engine Rail [package] is in the region of £101bn-£139bn in 2019/20 prices between 2020 and 2045. 

“The + 25 per cent and + 50 per cent scenarios could be achieved through a combination of additional government spending, or reprioritisation of spending, although the Commission advises the Government not to reprioritise spending within the fiscal remit.

“While important, rail accounts for less than ten per cent of total journey miles,” it says. “This means that the recommended fiscal remit allocations to roads, local and urban transport, and other infrastructure sectors will all remain as specified in the National Infrastructure Assessment.”

The NIC says it is ultimately for the Government to decide on the level of spending on rail investments in the Midlands and the North. 

“There is a lot more uncertainty now than when the NIA was published as to the amount of money available under the fiscal remit. Current estimates for GDP have higher levels of uncertainty, due to the ongoing Covid-19 outbreak. The Government has stated that they intend to review their fiscal framework ahead of Autumn Budget 2020, and the latest Budget implied a significant uplift in capital spending.”

The Commission will take a cautious approach to capital cost estimates. It points to the unhappy history of overspends on recent major projects such as the West Coast Main Line upgrade, HS2, Great Western electrification and Crossrail. 

“Current allowances for optimism bias do not seem to be enough,” it says. “Therefore, rather than just accepting the current estimated costs for proposals, the Commission will undertake further analysis of optimism bias, based on historic data on rail scheme costs (reference class forecasting).”

It will also consider lessons from the Infrastructure and Projects Authority’s review of HS2 Phases 1 and 2a (LTT 21 Feb). 

Each investment package presented in the final report will have a different set of potential benefits. “Some may deliver more economic growth and competitiveness benefits, and some more sustainability and quality of life benefits. Some may present a mixture of both, and some packages may benefit certain areas more than others.” 

 The Commission is inviting comments on its proposals by 15 August. 

Commission eschews BCRs and complex modelling

The National Infrastructure Commission has rejected using conventional cost benefit analysis or sophisticated land use-transport modelling to assess its rail package recommendations for the Midlands and the North of England. 

Conventional cost benefit analysis fails to fully capture the interactions between rail investments and other factors, such as skilled employment and urban development, it says. “This risks public investment in transport being channelled to areas that are already doing well, as the effects of transport in isolation are highest there.” 

Meanwhile, complex models “that try to capture interactions” between transport investment and the economy “lack transparency”. 

The Commission is taking a “more straightforward approach of assessing the potential for rail investments to support both economic growth and competitiveness, and sustainability and quality of life”.

“It will set out clearly what decision-makers would have to believe to think that this potential would be realised – for example, that other interventions in areas such as skills, governance and local transport are successful.”

For productivity impacts, the Commission will calculate agglomeration benefits from the increase in effective density enabled by greater rail capacity. This increase will then be multiplied by the impact of greater density on productivity, for which a range of estimates already exist. The approach was set out in the Commission’s working paper Capturing the value of urban transport investments. This starts from an assumption that, in growing cities, new transport capacity is fully used. For rail, this implies that additional capacity leads to an increase in the number of passengers carried rather than a reduction in crowding. 

On connectivity, the Commission says rail can enable benefits of trade between firms in more distant cities by offering faster journeys between city centres. As part of the evidence base for the National Infrastructure Assessment, the Commission asked Prospective Labs to construct a set of measures of transport connectivity. Two sets of measures were calculated: urban connectivity (connectivity within places) and inter-urban connectivity (between places), for both public and private transport. 

The measures were calculated using the average travel times between two places. The average travel time is divided by the time it would take to travel in a straight line between the places at an assumed speed of 50 km per hour (the crow-flies travel time). The metric is then weighted by the demand in each place (population or employment) and calibrated so that places further away are given less weight, to reflect the impact of travel time on willingness to travel. 

Rail investment can also unlock investment in land around stations. The potential land value coordination benefits will be estimated based on the difference between land values around key station investments, and those in other well-connected areas of the same city.

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