The Basis for Decisions on UK Major Transport Projects Chris Smith UK Department for Transport

Overview of presentation Outline of the way transport is organised in the UK Brief discussion of heavy rail Brief outline of evolving UK policy framework & lessons learned Outline of steps in planning process for major projects Overview of basis for decision making The New Approach To Appraisal (NATA) Value for Money (VfM) Some details of particular importance Future developments in methods Lessons learned

Types of major projects The strategic road network Responsibility of the Secretary of State for Transport Managed by the Highways Agency (HA), part of the Department for Transport (DfT) The local road network and local public transport Responsibility of, and managed by local highway authorities (LAs) Major schemes usually DfT funded Heavy rail network Largely privatised – Network Rail, train operating companies Significant element of funding from DfT

Heavy Rail Planning process is different from that for road and other public transport Reflects the structure of the rail industry in UK Operational and engineering considerations a major factor But there are many similarities Project identification driven by wider land use planning considerations Projects appraised within the NATA framework Modelling, cost benefit analysis, environmental assessment processes generally consistent – variations reflect nature of rail Ministerial decisions informed by VfM analysis – provides cross modal consistency Differences not discussed in rest of presentation

UK Policy Framework An evolving process 1998 Roads Review established HA’s Targetted Programme of Improvements (TPI), Multi-Modal Studies (MMSs) and NATA MMSs identified further projects to be added to TPI and, to a limited extent, to local authority plans and for rail First round Local Transport Plans (2000) identified LA major projects Ten Year Plan established 10 year funding package 2004 ‘Future of Transport’ extended that to 2014-15 Regional funding allocations process introduced 2005 for HA schemes of regional importance, LA roads and pt – aspiration to include regional rail Highlighted use of NATA and VfM in decision making and prioritisation

Planning process – to programme entry Problem identification Regional planning process for HA, some LA Local transport planning process for LA Review of possible options to provide a solution HA/LA Modelling, CBA, environmental assessment, stakeholder involvement Prioritisation within Regional Funding Allocation (RFA) Regional bodies DfT VfM assessment, decision by Ministers on whether project should enter programme DfT officials, Ministers For LA projects, acceptance of case for project, intention to provide funding For HA projects, conditional commitment to delivery

Project process – to Public Inquiry Detailed design LA/HA, usually employing consultants Further modelling, CBA, environmental assessment, stakeholder involvement Early contractor involvement (ECI) for HA Obtain legal powers Usually involves a Public Inquiry Independent inspectors – report to SoS Objectors test technical case for scheme Key driver for quality, robustness

Project process - to opening Decision by Ministers leading to implementation For HA, SoS announces decision based on Inspectors report For LA, DfT re-examines business case, gives firm committment to fund, subject to cost Revised scheme appraisal Procurement and implementation Risk of cost increases may still stop scheme ECI reduces this risk and speeds up this step Further appraisal may be needed For LA schemes, full approval by DfT required before construction begins

Basis for Decision Making For LA major projects, Business Case covers: Strategic fit with local, regional and national objectives Appraisal and value for money Ability to deliver Sound financial basis Sound procurement strategy These are also key issues for HA major projects

Appraisal New Approach To Appraisal (NATA) Study process problem solutions preferred option Appraisal summary info Appraisal Summary Table (AST) local objectives/problems supporting analyses

The Appraisal Summary Table (AST)

The AST Described Five objectives, 23 sub-objectives – Aim to cover 3 dimensions of sustainability: economic, environmental & social Impacts assessed qualitatively, quantitatively &, where possible, in money terms Purpose A concise summary of project impacts To enable decision makers to assess overall value of project

Value for Money (VfM) Decision makers not comfortable with judgmental assessment based on AST Concern externally that elements not valued were not given adequate weight VfM aims to combine all impacts in systematic manner Leads to standard VfM categories VFM analysis carried out by DfT, based on AST

VfM – the details Value for money categories High - where benefits are at least double the costs Medium - where benefits are between 1.5 and 2 times costs Low - where benefits are between 1 and 1.5 times costs Poor - where benefits are less than costs Our stated policy is to generally fund, subject to affordability most, if not all, projects with high vfm some, but by no means all, projects with medium VfM very few projects with low VfM no projects with poor VfM

VfM – discussion VfM is NOT the same as a Benefit to Cost Ratio (BCR) Assessment of benefits and disbenefits includes the Those transport benefits and costs usually included in the BCR, Combined with the best available evidence on impacts that are difficult but tentatively possible to value, such as greenhouse gases (CO2), landscape And a judgemental assessment for impacts that can’t be valued, such as heritage, severance

Costs Cost increases are a key issue for DfT Forward planning driven by the availability of funding Cost increases cause difficulty for DfT financial planning Cost increases also reduce the VfM of projects So DfT have focussed increased attention on cost estimation, including Quantified risk assessment (QRA) Allowance for optimism bias (OB) – high at early stages, reducing later Aiming to keep overall costs (base estimate + QRA + OB) fixed

Distributional issues Limited coverage within NATA Through ‘willingness to pay’ approach to cost-benefit analysis As a supporting analysis Project process Projects identified by regional and local bodies Regional bodies prioritise projects for funding within regional funding allocation

Transport Economic Efficiency

Public Accounts table

‘Willingness to pay’ in CBA Willingness to pay means that benefits to users include taxes, fares Must identify compensating impacts on Transport providers government For multi-modal studies, impacts by mode could readily provide splits by purpose, income groups (depending on model) Provides useful, if coarse, info on distributional impacts

Improving the process Overall process likely to change To improve control of costs To speed up delivery Closer integration of heavy rail, especially with respect to appraisal process Rolling programme of improvements in modelling and appraisal Valuation of impacts Reliability Wider economic impacts

Valuation of environmental impacts Done for noise – guidance February, 2006 Global emissions nearly complete – guidance within weeks? Local air quality – need to sort out some snags Landscape – primary research initiated Physical fitness – guidance drafted Journey ambience – project specific: crowding on rail, for example

Reliability Important for modelling and appraisal Two key issues: Impact of schemes on reliability Value for improvements in reliability Research in UK and Europe on both topics Some progress in UK On appraisal of motorway and dual carriageways For urban networks - maybe

Wider economic benefits Work has focussed on market imperfections Agglomeration Imperfect competition Increased employment and productivity Standard appraisal methods capture most economic benefits but wider economic benefits not always trivially small Positive benefits more likely than negative

Lessons learned A good analytic framework Helps to separate strong projects from weak Reduces scope for benefits optimism Helps to defend project against critics Can be costly and time consuming (especially modelling) Need to identify ways of summarising information for decision makers

Lessons learned Importance of consistency Encourages comparison across wider range of options Across modes Between different promoters (HA, LA) Ensures a more balanced approach to all projects Makes a complex process more transparent for decision makers and for stakeholders

Lessons learned Robust cost estimates Essential for decision making And for managing the overall budget Important to allow for change as the project develops But not to allow costs to drift upwards

www.webtag.ork.uk Chrisa.smith@dft.gsi.gov.uk +44 20 7944 4910 Any Questions? www.webtag.ork.uk Chrisa.smith@dft.gsi.gov.uk +44 20 7944 4910