How WEBs could significantly change transport investment priorities

What a tangled WEB we weave

The on-going Transport Select Committee (TSC) Inquiry into Transport and the Economy has put the spotlight once again on the link between transport investment and economic growth. While its starting point is the acknowledgement that “a good transport system is a pre-condition of (…) the UK’s economic recovery” the TSC is now tasked with revisiting the findings of the Eddington report and to answer two key questions:

  1. What types of transport investment should we prioritise?
  2. Do we have the right tools for the job?

A significant amount of work has taken place in the wake of Eddington, and especially over the past year, which suggests that the right tools do exist. The problem, I would argue, is that we are not using them in the right way. As a result, we are failing to give due weight to some of those projects which can deliver the greatest impact on jobs and the economy. I am of course talking about the treatment of wider economic benefits (WEBs) in the Department for Transport Transport’s Appraisal Guidance.

In a perfect world

It is worth taking a minute to examine the approach to appraisal currently followed by the DfT. Its key underlying assumptions are, in my view, that markets are perfectly competitive, that there is no unemployment or the potential for transport investment to influence exogenous growth.

Sorry Doc - you can't fool the DfT with that travel time saving approach

This gives rise to the DfT’s classic welfare approach which concentrates on valuing travel time savings (plus a few monetised externalities). In this parallel world, every minute of monetised travel time saved is worth the same wherever it may take place (although this does vary by trip purpose) and will eventually affect the behaviour of firms and individuals to generate a new optimal state of equilibrium across the economy.

Back to reality

The Eddington report (and before it the 1999 SACTRA report) brought these assumptions into question by recognising that, under conditions of imperfect competition (some people would call this the real world), transport can contribute towards agglomeration economies. Increased agglomeration, it has been shown, can drive up productivity and wages and may also lead towards a more efficient labour market and lower consumer prices. The impact of transport investment on agglomeration is also much more pronounced in large urban areas, where there is a much higher density of businesses and workers than elsewhere. The accelerated growth over the recent years in city centre employment in the largest UK conurbations, and the concomitant growth in rail commuting, can be interpreted as a sign of agglomeration economies at play.

The effect of transport investment on agglomeration economies and productivity was recognised by the DfT with the publication, almost a year ago, of TAG Unit 2.8 on Wider Impacts and Regeneration, which remains under consultation to this day. While this guidance document provides a robust methodology for assessing wider economic benefits of transport projects the DfT has shown no sign of intending to allow the inclusion of WEBs in the calculation of benefit cost ratios (BCRs). This is somewhat alarming given the explicit objective of the Coalition Government to re-focus spending on those projects with the potential to deliver the greatest returns in terms of economic growth. If WEBs vary between different types of scheme then excluding such benefits from appraisal would surely undermine national objectives.

But do WEBs vary to any great amount between schemes and do they have a material impact on BCRs? Well, I’m afraid that the answer is yes on both counts. With respect to the first question, a recent report by Deloitte and PBA compared several UK schemes and found that those significantly improving accessibility across large urban areas, and to city centres in particular, are likely to have much greater agglomeration benefits than inter-urban or rural projects. On the other hand, the report also suggests that while London public transport schemes produce the greatest agglomeration effects in absolute terms, higher unit construction costs mean that the impact of WEBs on BCRs is of a similar size in the capital and in the metropolitan areas.

Economic benefits of the planned Leeds trolleybus are just as significant as travel time savings

WEBs cannot be ignored


Turning to the second question, there’s a growing body of evidence which highlights the scale of the potential economic impact of transport investments:

  • Analysis of the Leeds trolleybus proposal by Steer Davies Gleave shows that its impacts in terms of job creation and economic output are of approximately the same order of magnitude as the direct benefits to transport users in terms of travel time savings;
  • Analysis by CEBR in the West Midlands shows that the job creation benefits of the Coventry Spirit Bus Rapid Transit and of phase 1 of the Midland Metro light rail scheme are, respectively, 30% and 50% higher than the capital cost of these schemes.
  • These findings are echoed by SDG’s analysis of the Northern Rail Hub scheme in Manchester and the Centre for Cities work on agglomeration and growth in the Leeds City Region. These reports agree that public transport schemes improving city centre accessibility can generate wider economic benefits corresponding to 20-25% of total benefits.

While some methodological issues do remain on the extent to which the totality of these benefits represent national net impacts it is clear that WEBs cannot be ignored if we are to make the right investment decisions for the economy and the public purse. At a more fundamental level, it has been argued by some that, at times of financial difficulty in particular, investment decisions should prioritise financial benefits accruing directly to the the Exchequer (such as the increased taxation arising from agglomeration economies) over those accruing to individuals (such as pure travel time savings to commuters). This is already the approach followed by some government bodies such as the Department for Work and Pensions (DWP). And while the DfT and DWP may be worlds apart in policy terms I would suggest that in the looming age of de-ringfenced budgets, localism, tight financial constraints and focus on economic growth investment appraisal needs to become increasingly consistent across departments. Instead of concentrating on improving the accuracy of existing methodologies further the DfT needs perhaps to take a step back and make sure that it is actually counting the right benefits in the first place. That should help ensure that we all get the greatest bang for our buck in the difficult times ahead.

Pedro Abrantes

This article was first published in Local Transport Today.

Paralysis by analysis?

This is the ‘webTAG’ manual – all 650 double sided pages of it! It’s one of the hurdles that PTE transport schemes have to vault if they are to get the go-ahead from Whitehall. It’s become part of a wider debate about whether we are getting better at appraising things than we are at doing things? About whether appraisal and process is becoming a mini-industry itself? and to what extent is DfT imposed process getting in the way of decisions that should be made locally and for which decision makers should be locally accountable. The text of an article pteg submitted to Local Transport Today 544 (30th April) explores the issue in more detail…

As the strategic transport planning bodies for the city regions pteg believes it is essential that there is a consistent and comprehensive system for promoters and funders to assess transport schemes on a comparable basis. Whether they be highways or public transport schemes, or measures such as smarter choices.  This is why pteg has worked closely over the past decade with the Department for Transport on the development of NATA. It’s right that NATA should also develop to make the best of new modelling and appraisal techniques and that it should be amended so that the appraisal framework captures current priorities. The debate in these pages on the future of NATA is therefore timely.

Although the NATA framework ensures the BCR is presented within the Appraisal Summary Table, pteg still has a concern regarding the level of influence given to the scheme BCR (Benefit Cost Ratio) in decision making. It should be remembered that all BCRs will be calculated on a range of assumptions and caveats and some costs and benefits are captured with more certainty that others. Because of this, pteg believes that the BCR should be used to aid decision making alongside a broader qualitative and quantitative assessment of a scheme’s impacts, rather than simply being used as the principal criteria to make a decision.

Promoters are required to spend significant resources building increasingly complex and large forecasting models in order to meet WebTAG and NATA criteria. There is an important debate to be had as to whether this results in better decisions, especially when as part of the approvals process, the Department calculates its own ‘DfT adjusted’ scheme BCR. It is this ‘DfT adjusted’ BCR that forms the advice to Ministers and does not necessarily reflect the costly modelling work which was undertaken by Promoters. We’re also concerned that the ‘DfT adjusted’ BCR, nor the rationale behind it, is also not readily available to scheme promoters.

Responding to the Department’s recent consultation, pteg  highlighted a number of key themes which the Department for Transport should follow when reviewing NATA:

  • Proportionality with scheme complexity

Ensure that there is greater proportionality between appraisal effort and scheme capital cost through the greater formalisation of a light touch approach. A light touch approach would only be beneficial if it reduced the promoter development costs and shortened project development timescales, thereby increasing the number of schemes delivered. pteg believes that the current approach falls well short of this goal.


  • Making guidance transparent and easy to use

pteg believes that much of the modelling guidance provided in WebTAG and NATA guidance is too onerous and unnecessarily complex. In other sectors, decisions are made on other public sector investments without the level of modelling work required by the DfT.

  • Linking with wider initiatives

Integrate DfT Major Scheme guidance within the NATA/WebTAG guidance in order to provide greater alignment between DaSTS, LTP3 and Regional Funding Allocation systems. There also needs to be clearer guidance in development of rail schemes which cross over between GRIP and Major Scheme processes. As part of this a light touch GRIP approach would be useful for developing some rail scheme proposals.

It’s important to emphasise again that pteg supports the principle of NATA. Our concerns are around the detail of its application.  Fundamentally though, while NATA has been incredibly beneficial in improving the information provided to decision makers, NATA has not helped to resolve the inequalities in the levels of capital spending between the English regions and London. Appraisal using NATA shows the benefits to the economy and the environment that will be delivered by investing in transport in the regions. But, the £500m London Victoria Station proposals which is just one of many huge investments in the Capital is equivalent to the total 5 year spend for the entire Yorkshire & Humber Region in the Regional Funding Allocation. This huge disparity will increase further if the Treasury cuts the funds available for transport investment in the Regions.