Institute for Transport Studies FACULTY OF ENVIRONMENT SINTROPHER Workshop Bruges th April 2013 Making the Case for Urban Public Transport – the Development of Cost Benefit Techniques in England. Tom Worsley Visiting Fellow Institute for Transport Studies

Outline Quick review of cost benefit analysis – a key part of the transport decision making process Recent developments in Department for Transport practice The role of Wider Economic Impacts – agglomeration and labour supply effects – in strengthening the economic case for urban public transport schemes The increasing relevance of understanding local economic impacts How this compares with some other EU countries

The Use of Cost Benefit Analysis in the UK Department for Transport HM Treasury require all public investment to be appraised using CBA - Treasury Green Book guidance DfT WebTAG (Web Based Transport Appraisl Guidance) for all (non-commercial) transport schemes and policies Why does CBA/ transport scheme appraisal matter? Public accountability – evidence based- for Parliament and local inquiries Informs decision-makers about impacts and value for money Helps prioritise and to set a threshold for a given budget Outputs of CBA needed by engineers for design/capacity CBA concerned with more than economic growth

What constitutes a transport CBA? Comprehensive estimate of benefits and costs (financial and others) to all affected; Providers – govt, transport authority, private sector providers (eg franchised pt operators). Transport users – pt passengers, car users, CV users, freight consignors, businesses (personal and goods) Others affected – environment, access, options, a more productive city What are the key costs/benefits? Time savings, crowding relief, reliability, interchange Environment – landscape, carbon, air quality, noise, etc Safety, security, accessibility Investment and operating costs

Measuring the costs and benefits Non-commercial investments - revenues from ticket sales are an incomplete measure of benefits Impacts measured in terms of Market prices – fares revenues, construction and operating costs Willingness to pay estimates, based on market research or analysis of observed behaviour Costs of meeting a target (carbon) or of damage (health) Quantities/qualitative changes (eg landscape, heritage), impact on deprived communities

Transport models Transport models- representation of past and/or current travel behaviour and explain changes in behaviour used to estimate and forecast the number of travellers quantity of benefits spatial representation of demand – location of population and economic activity – and of transport supply – networks, services etc Concept of generalised costs – fare, time, reliability, comfort/convenience. Responses to changes in generalised costs – depends on journey purpose etc Responses directly related to economic benefits – a time saving induces more people to travel and provides economic benefit

Estimating the BCR Investment long lived – forecasts are needed Comparison of preferred and other options with do-minimum Two elements of the forecasting method: Exogenous demand – forecast demand explained by changes in level and composition of the population, employment, income growth, fuel costs, planned land use changes etc Endogenous demand generated by people’s responses to the scheme - impact on mode choice, route and destination choice and land use. Forecasting models/methods Behavioural models based on surveys of persons and households Aggregate models based analysis of changes in past trends.

Using the BCR BCR – present value of discounted benefits/pv discounted costs (or NPV) plus unquantifiables provides an indicator for priority Ministers have to weigh up costs/benefits along with other considerations – eg funding, procurement Transport schemes in England generally need to have a BCR of 2.0 or more – ‘high value for money’ – to be approved – 99.6% of DfT’s investment in 2011 was on ‘high vfm’ schemes High BCRs essential to success of scheme Evidence based method, accountable, ‘fair’

Recent developments in appraisal in England Extension of the impacts valued in money terms – increases the evidence, leaves less to judgement Recent valuations for; Carbon, noise, air quality- NOx and PM10s Reliability, crowding, physical fitness (walking and cycling schemes) Wider Economic Impacts All generally increase the BCRs of public transport schemes relative to roads

Wider Economic Impacts Perception in the past that urban scheme benefits undervalued – costs high because of high land prices SACTRA (1999) – “Transport & the Economy” – in conventional CBA benefits can be incomplete. Research into agglomeration benefits Cities provide proximity -Knowledge transfer and spill-overs -Sharing – public goods -Matching - people, jobs, products, firms, goods – more efficient markets Some cities attracts innovators/ the creative class Successful cities attract firms and labour

Agglomeration benefits Concept of Effective Density relationship between level of employment in each zone and the proximity of those jobs to all other jobs - declines with distance Relationship ED and productivity an increase in ED will increase output per worker – values between 0.02 and 0.08 Proximity can be changed by transport improvements resulting in changes in ED and in output These output changes are additional to the generalised cost savings to transport users in the conventional CBA ED/productivity elasticity Causal, based on distance, not generalised cost

Labour Supply Effects Department for Transport CBA now includes impact of increased labour supply – response to reduction in generalised costs. Individuals respond to post tax wage – benefit of generated trips in the conventional CBA Increase in labour supply provides additional tax revenues which increase societal benefits Increased labour supply also adds to local GDP, an output separate from and different to the CBA based benefits Evidence of labour supply response to lower costs of working from labour market studies. Land use planning policies constrain increase in jobs/households

Sources of labour supply increase People who Join the labour force previously voluntarily unemployed previously seeking work Move from a less productive job elsewhere, in response to a change in the sectoral mix of jobs Move in response to an increase in the number of jobs, as employers shift to a more productive location Some differences in the estimation of benefits for each of these responses Some challenges to transport modelling methods

Composition of Crossrail benefits Category of BenefitBenefits £bn 2002 prices Public transport users; commuting and leisure 6.1 Public transport users - business 4.1 Road users; commuting and leisure 1.6 Road users; business 0.6 Indirect tax change-1.4 Total transport user benefits11.0 Agglomeration 3.1 Move to more productive jobs 2.0 Labour force participation 0.8 Imperfect competition 0.5 Total Wider Impacts 6.4

Local economic impacts Policy of more local and less central control over transport spending in cities in GB Cities need to know both CBA and effect on local economic activity Variety of methods used including; Surveys of firms’ intentions Wage equation models – linking accessibility with wage rates DfT-type agglomeration methods Transport/land use models with relocation of activity Regional macro-economic or I/O models Problems Cause/effect Data People/place Land use/transport modelling Potential conflicts between national and local objectives Research on options in progress – no recommended method.

Other EU countries ‘Northern Europe’ generally uses CBA, many similarities with DfT Use of wider economic benefits Netherlands Agglomeration elasticity – 1% increase in agglomeration – 0.023% increase in wages Sweden Wage effect – increase in accessibility – increase in wages (not part of the CBA) Germany Regional ‘points’ for mode shift and for schemes in low income reg ions BCR influential but not the only consideration in the decision on the scheme Other countries – academic discipline, less influential in decisions

Conclusions Evidence based methods are needed by decision-makers CBA provides a sound evidence based method CBA in England has been extended to identify and value the additional impacts of urban schemes, rebalancing between modes and location. Inclusion of wider economic impacts has made a difference to urban schemes Increasing interest in local economic impacts, to identify sources of funding and meet local objectives DfT practice in line with many other countries