Institute for Transport Studies FACULTY OF ENVIRONMENT Research Day; the Art & Science of Decision-making How does the Government make decisions? Tom Worsley Visiting Fellow 15 th April

The Question Are the decisions made by Government; Transparent? Logical? Consistent? Accountable? How does the DfT rate?

Outline Investment appraisal Well documented (Green Book, WebTAG) set of methods/rules What’s missing from documentation Evolution, extension and broadening of the documented processes Remaining scope for ministerial discretion Other types of decision Revenue spending Broader policy Research

Investment decisions Investment decisions better codified than revenue spending or other policy decisions; Irreversible, long lived, subject to externalities, inadequate financial returns etc Treasury control over public spending - Green Book/CBA for sifting and prioritisation Public inquiries require evidence of public interest

Evolution of the DfT investment scheme decision-making process CBA established for transport schemes since 1960s 1977 ACTRA Leitch Report – EIA/Framework 1998 White Paper “A New Deal for Transport – Better for Everyone” – an integrated transport policy AST – distillation of evidence provided to ministers on all impacts – generally published Mix of quantified/valued costs & benefits and qualitative assessments; increasing proportion of valued impacts Nellthorp & Mackie – influence of regeneration on selection process

Policy is more than the BCR Eddington showed the wide range of returns to recent projects

Why are decision-makers deflected from the BCR? Delivering an economically optimal solution is rarely the minister’s only priority. Other influences are; The role of lobby groups The media, often influenced by lobby groups ‘Champions’ sponsoring a specific scheme The weakness of the option generation process- no one wants to be associated with the rejected option Short-term solutions crowding out longer term strategy Other government ministers/departments

What matters to decision-makers but is missing from transport appraisal? DfT’s WebTAG is intended to be comprehensive but Some impacts are given a qualitative assessment and so weights on these are judgemental Some impacts may be absent because of lack of data and research Some ministers remain unconvinced by welfare economics The welfare economic framework is under threat with more focus on GDP Much of what government does is about inter-personal and inter- regional equity and transport policy should play its part in this overall objective. Gainers and losers not separately identified.

What is being done to augment the appraisal? More impacts are now quantified and valued Valuation of road reliability and resilience being trialled, but supply side remains a problem. Carbon, air quality (Nox and PM10s), noise all now valued Fewer claims for regeneration. Valuing the impact of a new railway through the Chiltern Hills will inevitably remain subjective. Some ministers remain unconvinced by welfare economics Wider Economic Impacts – agglomeration, labour supply and imperfect markets added to CBA. GDP per £’s spend metric – identify ‘real’ impacts (eg business time/cost savings)- as supplementary to BCR.

What is being done to augment the appraisal? Decision-makers’ concerns about regional and inter-personal equity DfT is reviewing options for estimating the regional, sub-regional and local economic impacts of transport schemes. DfT new guidance on social and distributional impacts addresses local level incidence only. National average value of time savings (other than in TfL London schemes) has been universal practice But choices and decisions on local schemes increasingly devolved to local authorities

DfT Value for Money Guidance A means of moving from the BCR (all quantified/valued impacts) to Value for Money. Value for Money Category ‘Adjusted’ Benefit Cost Ratio Poor Less than 1.0 Low Between 1.0 and 1.5 Medium Between 1.5 and 2.0 High Between 2.0 and 4.0 Very High Greater than 4.0 No projects with poor, low or medium VfM expected to be approved in present economic circumstances.

Is the Decision-making Process Becoming More Rational? DfT Business Planning Input Indicator: %age of investment spending on schemes in ‘high’ vfm categories 2011

Does the input indicator ensure rational decisions? Table restricted to investment schemes approved by ministers Proposed projects omitted; eg Some of the 2007 HLOS schemes – average BCR of all schemes was 1.5:1 Certain planned rail schemes – several proposals in Network Rail’s Initial Industry Plan (2011) had BCRs of <2.0 – few are DfT schemes Will the >99% be maintained in subsequent publications? How might national VfM be reconciled with local schemes/objectives? Constraints on spending – strong discipline.

The DfT 5 Case Business Case Model Economic case is only part of the HMT/DfT decision-making process. Financial (funding), management (planning, delivery, governance) and commercial ( procurement, risks during procurement) cases – basically binary decisions, with possible interations. Strategic case – fit with overall policy, consistency with wider government objectives,

Checks and Balances on the Decision-making Process Transport Committee 11 MPs (chair Louise Ellman ) examines /challenges DfT ministers and officials – spending, admin, policy Public Accounts Committee 14 MPs (Chair Margaret Hodge) examines a sample of public spending decisions – recent transport investigations include ; HS1 Funding local transport West Coast Franchise Accounting Officer direction. HM Treasury – Managing Public Money. If a minister wishes to approve a scheme which is ‘poor’ vfm, Permanent Secretary, as chief accounting officer, must inform minister and HMT

Gaps in the logic Allocation between modes and local/central now OK with publication of VfM? Weight on non-quantifiables, but proportion of unquantifiables in total has diminished Role of Strategic Case LA scheme selection – scope of devolution Trade-offs between policy and schemes – eg pricing Fitness for purpose of WebTAG

Current or Resource Spending No GB/Webtag mandate, although CBA increasingly used Rail franchise increments/decrements. (Most of franchise renewal has been concerned with minimum full life cost maintenance of existing service etc and so no change in output) Rail fare increases RPI+3% reversed to RPI+1% Some technical/modelling problems eg spec of counterfactual – assn about revenue constraint Assumption – policy easily reversible. Political considerations remain significant Policy quick to deliver Free concessionary travel for >60s – ‘No assessment of the benefits’..’a political decision’

How are Policies Decided? Manifesto commitments On election, limited role for evidence Lobby groups Political commitment After time for consideration Eg NATA/WebTAG New/changed policies while in office ‘Events’ Hatfield crash/ Network Rail Pragmatism - head of the queue/ cannot be postponed HLOS HA route based strategy Fuel duty (not DfT)

Why do some policies fail? Eg Demise of “Roads for Prosperity” (1989), failure of “Ten Year Plan for Transport” (2000). Both very ‘political’ policies – the great car economy, an integrated transport policy (with targets). Both very specific – n miles of road, x light rail schemes. What changed? Events - recession, funding (rail maintenance backlog) Unrealistic expectations – LAs implementing local area charging, Public attitudes misperceived – to roadbuilding, to fuel costs/motorists’ perception of fuel prices Unanticipated effectiveness of lobby groups

DfT Research and decision- making How does the Department decide on a research agenda? Pre 2010 Rolling programme – VTTS, NATA refresh New policy concerns – reliability, p.t.crowding Curiosity – SACTRA Transport & the Economy Academic research – eg agglomeration Post 2010 Reactive – eg VBTTS (prompted by HS2), international comparisons, local economic impacts Gradually making good the backlog? How might the DfT formulate a research programme and prioritise projects?

Conclusions Decision-making and investment/revenue projects Decision making process for investment increasingly transparent: some progress on current spending Lack of transparency in weights on unquantifiables in economic case and on role of strategic case open to challenge Evidence on criteria and weights will reduce ministerial discretion and increase accountability Devolution/localism – accountability unclear Decision-making and policy Patchy record of decision-making process Often evolutionary, making counterfactual difficult Hence focus on the details/projects, not the bigger picture