Tom Worsley Visiting Fellow Institute for Transport Studies

1. SINTROPHER Workshop Bruges 24-26th April 2013Making the Case for Urban Public Transport – the Development of Cost Benefit Techniques in England. Tom Worsley Visiting Fellow Institute for Transport Studies

2. 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

3. 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 • DfTWebTAG (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

4. 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

5. 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

6. 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

7. Estimating the BCR • Investment long lived – forecasts are needed • Comparison of preferred and other optionswith 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.

8. 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’

9. 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

10. 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

11. 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

12. 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

13. 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

14. Composition of Crossrail benefits

15. 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.

16. 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 regions BCR influential but not the only consideration in the decision on the scheme Other countries – academic discipline, less influential in decisions

17. 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