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In item 5 on our agenda, we will hear about the Government’s draft budget for 2012-13 and the spending review from academics and experts in transport infrastructure. I welcome our witnesses: Professor Tom Rye is from the school of engineering and the built environment at the Napier University transport research institute, David Connolly is the director of technical development at MVA Consultancy, and Professor Iain Docherty is a professor in public policy and governance at the University of Glasgow. Gentlemen, I apologise for keeping you waiting.
The plans would be slightly short-termist if they were to boost the economy only by creating construction jobs. If the aim is to boost the economy in the long term, I am all in favour of that, so a project such as the Forth replacement crossing probably comes into that category. However, I would be cautious about approaches that simply generate jobs in construction. Yes—they will boost the economy, but it is perhaps not the best use of the investment.
So, in the long-term strategic direction, you would put more emphasis on freight. Are there other areas that you would emphasise?
I would put the emphasis on freight and on links to places beyond Scotland, because they would help the Scottish economy. Moving things about within Scotland is important, but not as important as considering the links to England and English ports by air and sea, or as important as moving freight to Europe and beyond. The budget is a little bit inward-focused: it should consider schemes for links beyond Scotland, as well as just faster and better links within Scotland. As I say, not enough consideration seems to have been given to the needs of freight and to the benefits that improved freight will bring to the most remote parts of Scotland.
I would like to take a slightly different line. It is extremely difficult to find empirical evidence that investment in transport infrastructure—especially large-scale transport infrastructure—grows the overall economy. You can find a lot of evidence that investing in specific pieces of transport infrastructure will move economic activity around it, but trying to find evidence that it will grow the economy overall is really difficult.
I have not been left with much to say after all that, although I ferociously agree with most of what has just been said.
We heard the cabinet secretary say that our emphasis on capital investment has helped us to have a lower unemployment rate and a higher employment rate. Do you disagree with that contention in the short term?
Colleagues have mentioned two other issues, one of which is the timing of the benefits from the investment. We will clearly create jobs while we construct projects. Those of us who still think that Keynes has something to say would agree with the value of capital investment per se; it is certainly a better approach to spending public money than is supporting yet more consumption of overseas goods, which is what successive UK Governments have tried to do over the past few years in response to the recession. Is the switch from revenue to capital a good thing in that sense? Yes.
Where do you think the committee should focus its scrutiny over the next few months? What specific lines of inquiry should we pursue with the cabinet secretary?
It is worth making the general statement near the start of the evidence session that, if we examine how well transport has done in the budget, we see that it has emerged remarkably unscathed from a very negative public spending environment. One reason for that is the belief that—at least, in the short to medium term—spending on transport generates employment. It is, as I said, much better to be left, after the expenditure, with better infrastructure than it is just to have had more consumption of services, so that is an entirely sensible approach.
I agree with Iain Docherty’s points. The committee might want to pursue in its inquiries over the next few months and years the idea of commissioning some research on the economic development impacts of the transport investments that are going ahead. As I have said, there is a shortage of empirical evidence.
I agree with the point about concessionary travel. A lot of money is spent on paying people who are economically active, and who are perfectly able to walk, cycle or pay for a bus, to sail about for free. Even people who are not economically active take the bus, because it is free, for journeys that they could walk. The committee should examine that. I understand the political risks, but that money is being wasted and is not doing anything useful.
Iain Docherty answered my first question before I even asked it, which was very prescient of him. I will ask my question, and he can tell me whether I have interpreted what he said correctly. It was about the money that is invested in the rail sector through the transport budget. There are concerns about that, which Iain Docherty expressed. Are there still concerns, given what is presented in the draft budget? You can probably give a yes or no answer.
It is worth reiterating that the rail industry has begun to address the substantive and diverse calls to improve its value for money. I am sure that committee members will be aware of the McNulty report on rail value for money that the Department for Transport recently published—
You are veering into my next question.
That report said in round terms that we are still spending 30 per cent too much on our railway in comparison with European benchmark countries. That is a lot of money from the annual budget that we could save. We must ask whether we are content to let the industry continue to be more or less 30 per cent inefficient over the lifetime of the budget, and consider what else we could spend the money on.
I do not think that you heard me just then say that you were veering into my next question, which was very prescient of you. Do Professor Docherty’s colleagues agree with that perspective?
Completely.
Yes. In terms of the number of passengers who use it daily and the number of passenger kilometres, the system is massively overfunded by the Scottish Government and taxpayers’ money. The funding is out of step with use, which affects the impact that it has and the benefits that the sector can bring to the economy and elsewhere.
We do not need to restrict our consideration of value for money to the rail sector—it is important in other sectors, including civil engineering.
Notwithstanding that remark, I will restrict our consideration to rail.
I am on record several times as saying that I do not think that the current structure of the railway industry is appropriate. In round terms, we spend 400 per cent as much as we used to before privatisation, and we have achieved 40 per cent growth in passenger and freight capacity on the railways. That is not the definition of productivity in my book. We must get the amount of public money that we spend on the railways down substantially. We are beginning to do that, and we must give the rail industry credit for taking up that challenge. We have also begun to make sensible investment decisions.
If there is the potential for a 30 per cent saving, what are the practicalities of going back to a form—I will not say which form—of ownership or structure in the industry that works? Are there practical difficulties in terms of how that would be achieved?
The biggest practical difficulty is that that power is currently reserved. It would be for Whitehall to determine whether it wished to let Scotland go down that track. The UK Government has already become nervous about calls from the English regions—particularly Merseyside, which has a small well-run integrated local network—to move further outside the Great Britain-wide rail industry.
Are there any franchising issues that we could resolve, even if we do not have the overall powers to do the other stuff that we want to do?
The biggest challenge facing the Scottish Government in the current franchising system is the length of the franchise. There has been a lot of debate in Scotland, and in the Great Britain system as a whole, about whether longer franchises would encourage train operating companies to invest more and to do so more efficiently and cheaply.
Does that go back to your point that the franchising system itself could be called into question as part of the overall structure?
Yes.
I want to move on to some important issues that are of general relevance for our consideration of the budget, although I would like to thank you for your opening statements, which were probably the most interesting comments I have ever heard about transport, and were certainly music to my ears, as I have been arguing for years that we should be shifting money from transport into housing—others might not agree with that.
The information is clear, but there appears to be a mismatch between the fine words about what we as a nation are going to do and the fact that that particular budget line is being slashed by 46 per cent, for example. If someone read those words but did not see the numbers, they would think that everything was fine, but there are some quite surprising cuts in some quite small lines in the budget. It might be that those cuts are being made because the money is coming from other sources or we are tapping into other funds, but there are a number of cases in which the words describe a fine set of aspirations although the budget line has been hacked by 50 per cent or 60 per cent or 40 per cent. What was being cut was not being highlighted.
I found certain aspects around sustainable transport difficult to unravel. In particular, what is happening to the cycling, walking and safer streets fund is not clear. I apologise for having to refer to my notes. What is being covered in transport by the fund that is a subset of the Scottish sustainable futures fund, and how much is going on electric vehicles, cycling or walking, for example? That was not particularly clear to me in my reading of the budget.
There is an issue, because we only get figures to level 3 and I think that you are talking about level 4 figures. That is an on-going issue that committees have with the budget process.
Two things struck me when I was looking at the numbers. One of them was that I got a sense of business as usual in the numbers compared with spending priorities in the last cycles. The other issue is that there are some headings under which the numbers appear to be very finely calculated for each year, and there are often quite significant changes where projects have been planned and thought about very carefully; and then there are others where the number is just static, and it is a nice round number. For example, there is £10 million under British Waterways for each year. That strikes me as saying that, once we get down to that level of small project—rather than the big infrastructure projects at which people like to cut ribbons—there is much less creative thinking about what we should be doing with those budget headings, and that some of them are an afterthought in the system more generally.
That was helpful, and we will ask some related questions later.
The budget does not draw out the benefits of increasing walking and cycling, particularly among young people, and establishing a culture of walking and cycling first and then using public transport. That is the biggest preventative investment that could be made, but the snag is that it will take time before the effects show up. Anything that increases walking and cycling should be encouraged, to prevent future ill health, obesity and other downsides that are related to lack of exercise. The benefits of such an approach are established.
I concur with that. The funding for sustainable transport, cycling and walking is currently a very small proportion of the budget and will be an even smaller proportion if the draft budget is adopted. I take slight issue with Iain Docherty’s suggestion that this is a business-as-usual budget for those sectors. For cycling, a 25 per cent cut—that is the most optimistic projection—is not business as usual. Indeed, a 15 per cent real-terms increase for trunk roads is not business as usual.
I think that we agree, because my point was that the recent increases in the cycling budget were a departure from business as usual, whereas the draft budget shows a reversion to the status quo ante.
The previous two answers remind us that, although we are considering the Scottish budget, what happens in local authority budgets will be relevant to the issues. That is sometimes a problem, because that is even less transparent than the budget documents.
We should remember that people who are walking about might well be tourists who will recommend Scotland to their friends, who will return or who will consider investing in Scotland. If they are shaken about in the back of taxis because of the potholes, as in some sort of third-world nation, that does not set a good example. As well as the impact on our residents’ health and general wellbeing, another impact comes through the link to tourists’ experience.
We have touched on concessionary fares, but can we consider them in more detail? Given that concessionary fares expenditure is set to rise and the bus service operators grant, which is based on operators’ mileage, is set to fall, is the draft budget’s provision for bus services equitable? Will that disadvantage some groups or localities?
As long as bus operators are not funded to run empty buses, the system is good. Conversely, if bus operators are funded to run empty buses, that should be discouraged. Operators should be encouraged and funded on the basis of the number of passenger kilometres.
The distribution of funding between bus service support and concessionary fares support is definitely inequitable. Concessionary fares funding is not supposed to be a subsidy to bus companies, but the evidence that it is a subsidy is irrefutable. If bus companies are to be subsidised, that can be done in much more economically efficient ways.
I, too, will adopt the customary recognition of the political sensitivities of any comments on the issue. If the budget is supposed to be about economic recovery and if we want to subsidise people to travel more, we must make it easier for people to travel to jobs, because that is how we grow the economy and achieve social inclusion and all the benefits that employment brings. However, the concessionary fares structure does not achieve that, because it focuses on a particular group, many of whose members are not travelling to work—and those who are can probably afford to pay to travel.
You rightly said that the concessionary scheme is highly popular among the public, but bearing it in mind that we spend about £180 million a year on this subsidy to the bus industry, is it sustainable in the current economic climate? Is there any scope to save money on the management of the scheme or the validation of operators’ claims?
Transport Scotland has done and is doing a lot of work on validation, and there will be savings from that. The Government faces a number of choices. It could change the eligibility criteria for the scheme, and in a sense the change to the retirement age presents an opportunity to do that over a number of years. It could cap the scheme. It could give people a notional amount that they can spend on bus fares or other transport or even other services for which the smart card would pay. That would immediately address some of the equity issues. Again, I and colleagues round the table have put forward evidence on that. We have to focus on whether we get value for money from the scheme, and we should be able to use the technology more to ensure that we are getting that value.
Any cut should not be applied to students and young people, because they are the ones we wish to subsidise. They will probably walk for the shorter distances, so the short-trip issue is not as big for them, but the longer we can prevent them from thinking that they need a car, the better. In that way, they will establish a sensible approach to car use rather than thinking, first, that there is no bus and secondly that public transport is too expensive, which might lead them to buy a car because they think it is cheaper. If anything, we should increase the subsidy for young people’s use of public transport via the concession. They should not be lumped in with any cuts that are considered. Instead, we should focus on the 60 to 65-year-old, possibly economically active population who are being subsidised to use the bus.
In England, the reimbursement mechanism for the scheme is not uniform throughout the country. Different formulae are used in different areas to reflect the different bus markets in them. In Scotland, as I understand it, we still have a single national reimbursement mechanism. You might want to ask Mick Wilson from Transport Scotland about the degree to which it would be possible to have more local mechanisms for reimbursing operators in Scotland, which might allow some savings.
The local schemes that existed prior to the introduction of the national scheme had individual reimbursement rates, exactly as you said. Do you feel that we should revisit that?
I studied it at the time and recall that there were 17 or 18 different reimbursement schemes, which might be too many. However, it is curious that we now have one reimbursement mechanism for both urban and rural areas when it is well known from academic study that those are different markets with different characteristics and, therefore, different elasticities of demand. The reimbursement formula should take into account elasticities of demand, but it does not at the moment in Scotland.
Is there any way in which we can manage the burden of the concessionary fares scheme for the foreseeable future, bearing in mind how popular it is? You have talked about capping the scheme, raising the age of eligibility and introducing local reimbursement rates. Is there any other issue that we should consider?
It might be worth undertaking some research to find out how concessionary passengers would react to the introduction of a small, flat fare that would price off some of the trips to which David Connolly referred—the very short walk substitution trips. That may prove politically unacceptable but, to my knowledge, it is not being investigated at the moment. I have previously undertaken research with concessionary passengers and I know that they would not all react badly to such an idea.
That existed in Edinburgh prior to the national scheme.
There is also, however, evidence of the demand that was created when the small, flat fare was taken away. It would have an impact on demand, but it would not have an impact on access to the shops, to social events, to jobs or to whatever the people who make those short trips require.
I would like to see some data and modelling of the impact of a cap. That information may already exist, but it has not made it into the public domain. I suspect that some research has been done. I would expect to find that a relatively small number of people are responsible for a relatively high number of journeys. Therefore, if the cap were pitched at the right level, it would have almost no effect on the social inclusion benefits that we seek to generate through the scheme.
Has an analysis been done of the cost and possible benefits of regulating the buses?
A number of small pieces of research have been undertaken, but they tend to focus on particular bus markets. You have heard that bus markets in different places are diverse. The greatest experiment has been in London, which retains a system that is very different from that which operates in the rest of Great Britain. The studies that I am aware of tell us that we get what we pay for. The bus companies are commercial organisations, and the services and networks that we have reflect that. They meet the needs of those markets that are commercially viable, which was the objective of the system that we have—it was simply to reduce the amount of public support for the bus industry. Bus deregulation was successful in doing that, and we must not forget that it achieved its stated aims.
A number of English passenger transport executives have investigated in some detail the possibility of introducing quality contracts in their areas. They have developed business models and considered, for example, the levels of subsidy that would be required for different types of network. I am not familiar with those studies, but an organisation called the Passenger Transport Executive Group operates out of Leeds, and Pedro Abrantes, who works for the group, would probably be able to tell you about those studies and to what degree they are relevant to the situation in Scotland.
I do not mind who runs the buses as long as they share their information. If a tourist, or another infrequent user of the bus, is using an app on their phone to work out where the bus is, they should not have to guess which bus is going to come first. People should not be able to find route information for half the buses but not the other half. The fact that bus information is shared will be more important than who is driving the buses or whether several companies are competing in a given area. The bus user should see a seamless service. If the cost model with competing services turns out to be more efficient, the user should not need to know that the organisations providing the service might be competing. Passengers and tourists should be able to get information through apps or published information. We should be considering ways of encouraging the use of public transport by providing full information—probably through apps—to residents and visitors. Whatever is done to the buses, such dissemination of information should be invested in and supported.
I want to ask about how the capital investment programme will be paid for. In particular, I am interested in your views on non-profit-distributing finance and Network Rail’s regulatory asset base funding. This may be related to my earlier question about transparency. Some payments may not start until the next spending review period, but are they transparent in the budget? Are you comfortable with those approaches to funding? Do any problems concern you?
In the roads budget, it is interesting to consider the continuing impact of PFI payments. They last for a significant time, and they are gobbling up an increasing share of the budget. That those decisions have long-term implications is often forgotten.
When I read the page in the draft budget about the revenue-financed investment idea, I thought that it was very welcome that some of the problems with the PFI model had been recognised in that way.
I will duck the question because it is not my area of expertise, but I will air my one hobbyhorse again because I do not have to be re-elected. It is quite ridiculous that people are getting a new Forth crossing and, in effect, not paying for the use of it, particularly those in single-occupancy vehicles. To give away the right to charge for a piece of infrastructure that was needed is a crime in my opinion. I know that for political reasons you cannot, but if you could prevent the new bridge from bringing additional car traffic across the Forth and into the Lothians by having a charge, particularly on single-occupancy vehicles, I would encourage you to consider that very seriously.
I suppose the recent example that people have in mind with regard to different funding methods is the Borders rail project. I do not know whether you feel that there was a unique set of circumstances around the tendering process for that. However, some ask whether that process casts doubt on the NPD model. I wonder whether you have any comments on that—do not worry if you do not.
Any project of that scale is unique. I would be cautious about reading too much into the potential for future projects to be funded by different means just because of the local circumstances of a particular project at a particular time, given how volatile the financial context has been.
I have no comment on that specific scheme.
I presume that you heard my exchange with the cabinet secretary about the delays in, or the disappearance of, some shovel-ready projects that could be brought forward. I think that you share my interpretation that those projects could have an economic impact. The cabinet secretary indicated that other funds would have to become available in order to activate projects. Where do you think the Scottish Government could obtain other capital or revenue resources from?
I heard the cabinet secretary say that when I was sitting in the public gallery and I took his response to refer to borrowing powers and what any money from that could do. We have had a discussion already about the size of particular budgets. For example, the railway budget is very significant. I am not for a moment arguing for a net transfer of resources from railway to roads. However, with savings from the overall running costs of the industry as it is currently structured, we could spend more money on small capital infrastructure projects such as accessibility to stations, information or any of the small things that really make a difference to people.
I will pick up the point that Jackson Carlaw made earlier, while we were sitting in the public gallery, that it is unfair that the money saved from the Forth crossing efficiencies has gone out of the transport and infrastructure budget. We have to be careful about that because of the way that departments work. If they know that they will lose the budget by admitting that they have saved some money, they will find ways of not saving that money. That should be discouraged. If money is promised to a given department, it seems sensible from a behavioural point of view to leave the money with the department and not take any savings away from it.
My only point to add relates to the cycling infrastructure industry, such as it is. Sustrans points out that a condition of the money that it has received from Transport Scotland to fund cycling projects around Scotland is 50 per cent cash match funding from the local authorities involved. That is another way of obtaining resources for projects. Although trunk road projects are on the strategic network, most of the users of the vast majority of those strategic projects are people who live locally. Therefore, it might bring about a slight difference in thinking about the priorities of the projects if local authorities were asked to come up with some level of match funding for them.
I will expand on that point. If we were to give you an unbounded answer to the question, we would begin to look at a series of cans of very wriggly worms in terms of whether our taxation system reflects rational behaviour and whether we capture the benefit from our investments. At the risk of prolonging the discussion about the Forth replacement crossing, I will say that the additional capacity that will be generated by having two bridges—however we decide to use the current one—plus the greater reliability and all the benefits that we get from that investment will increase the land values around the falls on either side of the bridge. The project is designed to do that and stimulate development, but we are not capturing the benefit.
I would like to come back on that briefly. I agree absolutely with Iain Docherty that the infrastructure investments move economic development around, which means that land values are moved around. We really need some way to capture those benefits, as significant benefits to landowners that result from public investment in infrastructure are currently going untaxed.
In my opinion, the link between planning and transport is generally appalling across Scotland.
You talked about a 20-year programme. The strategic transport projects review is supposed to take into account that sort of timescale in considering our needs. To what extent will the budget underpin the STPR’s progress and delivery?
We are marking time. A generous interpretation would be that the two priority projects from that review—the Edinburgh to Glasgow rail improvements and the Forth replacement crossing—have been prioritised in the budget. Notwithstanding the comment about the distribution of resources and the return of benefits from projects of a different scale, if the objective is to deliver the STPR as it currently stands, the budget is moving towards doing that. In that sense, it could be regarded as entirely appropriate.
We have talked quite a lot about low-carbon Scotland and active travel methods such as cycling and walking. Should the Government be more explicit and prescriptive about active travel in the transport part of the Scottish futures fund? That could even include a dedicated revenue and capital funding line for cycling, and active travel could be embedded in the forthcoming cities strategy.
The short answer is yes: the Government should prioritise it more. My favourite interview response from all the academic interviews that I have done in my career thus far is that there are two definitions of policy: either it is what you put in your policy documents or it is what you spend your money on.
Such a budget line would be extremely welcome, as would a budget line that restores spending on sustainable transport to the level at which it has stood until now. We must remember that around 20 per cent of trips in Scotland are made on foot. While cycling rates are still low—cycling accounts for perhaps 1 per cent of journeys—walking is an extremely important mode of transport. I would add to Iain Docherty’s list of benefits the important impact that walking has on the local economy and local shopping streets.
I confirm that my answer to your first question is yes. I also agree that we should stop putting the active travel modes together. From pedestrians’ point of view, the worst thing that we can do is to mix them with the cyclists; similarly, the cyclists are much happier if they have a dedicated off-road lane, not just a ridiculous bit of paint up the side of a busy dual carriageway. It is appalling that some of the 32 local authorities—I cannot remember how many—do not have as one of their indicators the level of active travel among either their schoolchildren or their adults. Active travel is very important for its health benefits and in cutting carbon emissions, et cetera. I would ask the people who are responsible for those single outcome agreements why they think that active travel is not important as an indicator of local authorities’ provision, support and general infrastructure for promoting both walking and cycling. It should be made clear in a budget line and local authorities should spell out some of their ideas for rewarding good behaviour in respect of carbon use or active travel. It is all low cost rather than big schemes; delivering more walking and cycling is useful, cost-effective spend.
That leads on to our final questions.
You said that we are marking time in making progress on the STPR. How would you evaluate the budget against the indicators in the national performance framework?
You have taken us full circle, back to our opening comments. It is almost impossible to generate evidence that we could confidently say pointed to the delivery of economic benefits from investment in transport infrastructure. I detect that I am slightly less negative than my colleagues about the importance of investment in infrastructure, as I think that a case can be made for the wider economic impacts that are not picked up and for quality-of-life and safety benefits, and that if we pick the right schemes, we can come up with a justification that would survive analysis. However, asking me to measure the impact of the budget against the performance objectives—smarter, wealthier or whatever—is asking me to make a very difficult call. I am not sure that, in 50 years of modern transport economics, anybody has ever really cracked it, and I am not going to volunteer to be the person who says that he will.
The outcome that we will get will be the healthier one, although you will not see that. Air quality is almost entirely missing from both this and other aspects of the budget, although the poor air quality in some of our cities is almost certainly transport related. There will also be active travel benefits. So, one of the deliverables of any investment in transport and mobility in Scotland will be the healthier objective. I also think that there is scope to boost the economy, particularly the tourist experience, which is very important, and the ability to do business outside Scotland, which was my point when I talked about links and so forth. The total carbon footprint of all aspects of life and consumption in Scotland, including the emissions from traffic, is a good indicator, and the current budget will push the figure up rather than improve it through its focus on big road schemes and increasing road capacity.
On the greener objective, I do not think that this is a very green budget. Infrastructure investments in road and rail encourage people to travel further, and if people travel further they use more energy. Is the budget fairer? I do not think that it is particularly fair because an emphasis on large-scale rail and road schemes is regressive. It is also mainly wealthier people who use rail. On the final indicator, are we going to be wealthier as a result of the budget? We have already discussed the doubts that exist about how much additional wealth this package of investment plans will generate.
No one has any further questions.
That evidence session has certainly given our budget adviser David Gray lots to work with and report back to us on at future meetings.