Gearing up for growth: how reforming roads policy can aid economic recovery

The efficiency of the transport sector has a significant impact on the wider economy. Only housing takes a larger share of household spending, while transport is also a major business cost. Accordingly, transport improvements have the potential to bring significant productivity gains. Faster and cheaper journeys enable greater economies of scale, more trade and increased labour mobility. Efficiency gains in transport are clearly a major driver of economic growth.

In this context, it is difficult to overestimate the economic damage done by the last government. Its approach ignored the fact that around 85 per cent of passenger travel within the UK is by private car, compared with 8 per cent by rail. Roads also carry 65 per cent of freight traffic, while rail only accounts for 9 per cent.

The economic importance of roads is therefore an order of magnitude greater than other modes. And despite the wishes of environmentalists, this is unlikely to change. Serving low-density suburbs and rural areas with frequent train services would be prohibitively expensive. Moreover, many journeys simply take too long on public transport, particularly if they involve multiple destinations. Immense time savings are achieved by the door-to-door convenience of cars, vans and lorries.

New Labour denied the economic logic behind the dominance of road transport. It focused investment on the loss-making rail network and launched a ‘war on the motorist’ designed to push people out of their cars. 

Across the UK road improvements were cancelled, capacity removed, bus and cycling lanes introduced, parking restricted, pavements widened and speed limits reduced. The number of traffic controls exploded.

Councils received central government grants to deter private motoring and incentivise more people to use other modes. Scant regard was given to the economic impact.

As a result Britain’s 35 million drivers faced longer journey times; firms suffered higher transport costs; productivity decreased. Taxpayers also faced growing bills for uneconomic tram lines and often poorly used bus and train services. For several years, rail subsidies exceeded fare revenues.

Such anti-business transport policies were ill-conceived in the boom times, but in the context of prolonged recession their continuation is scandalous. But unfortunately the coalition has so far adopted a similar approach.

New Labour’s transport bureaucracies, such as Transport for London, have remained intact, and little effort has been made to address their ideological hostility to private transport. They continue to deploy harmful measures that place questionable social and environmental objectives above the urgent need for increased economic efficiency.

At the same time, the government is squandering billions on uneconomic rail projects such as Crossrail and High Speed 2, the former costing £16 billion and the latter at least £33 billion. To put this into perspective, the total expenditure on just these two schemes could build approximately 1,500 miles of six-lane motorway, which would realistically carry more than twice the passenger and freight traffic using the entire rail network.

Indeed, the government’s own figures show that road improvements produce far higher economic returns than public transport projects. This is the case despite severe distortions to the transport market caused by discriminatory taxation. While most rail passengers are subsidised by taxpayers and pay no VAT, motorists and hauliers are burdened with the fuel duty supertax, road tax and VAT.

It is difficult to justify such differential treatment. Egalitarian arguments might apply to buses but certainly not to trains. Rail users are on average much wealthier than the general population. A high proportion of passengers are well-paid middle-class commuters from the home counties.

The environmental arguments don’t stack up either. By incentivising passengers to live further and further from their place of work, public transport subsidies encourage lifestyles that are likely to be more carbon-intensive overall. And some forms of public transport are actually less green than motoring. High speed trains use approximately twice as much energy per passenger mile as modern, fuel-efficient cars. Then, of course, there are all the underused bus and train services that use large vehicles to carry just a handful of passengers. The average bus service carries just 9 people.

It is indefensible, from both an economic and environmental perspective, that taxpayers are forced to subsidise bus and train services that provide such miniscule benefits. At the same time, there is no good rationale for continuing to spend taxpayers’ money on measures that deliberately lower the efficiency of the road network, needlessly heaping additional costs on motorists and businesses.

A shift in this approach could rapidly deliver major economic gains. The government should adopt a win-win policy that lowers the tax burden by cutting subsidies to uneconomic public transport services while at the same time freeing road users from unnecessary burdens.

A good start would be cutting off the flow of money to anti-car measures, encouraging local authorities to rip out most of their traffic controls (which create congestion while doing nothing to improve safety). Underused bus and cycle lanes – that waste vast amounts of valuable road space – should also be removed, together with bus and cycle priority measures that cause delays. Parking restrictions should be limited to the few areas where there is a genuine shortage of space.

The government should push through increases in speed limits as a matter of urgency. This would quickly translate into significant time savings, bringing a much need productivity boost to the economy, while making little difference to overall road safety.

But the policy needs to go much further than raising the limit to 80mph on small sections of the motorway network. Safe dual carriageways should be included, while some single carriageway locations may also be suitable for 70mph running. In addition, coach and bus limits should be increased to the same speed as cars.

There is a particularly strong economic case for raising limits for goods vehicles – a measure likely to improve safety by preventing the bunching of traffic and reducing overtaking. Perhaps heavier lorries could be permitted, including the multi-trailer road-trains commonplace in Canada and Australia.

Significant economic benefits would also come from a more rational approach to transport investment. Currently public transport projects with low returns are given priority over road schemes with high returns. This is a very poor use of scarce resources if growth is the key priority. A rational transport strategy would prioritise investments with the highest returns, without modal bias.

Looking further ahead, the ownership and management of transport infrastructure should gradually be moved from government to the private sector. Private investors have much stronger incentives to allocate their funds wisely and to provide services that respond to the needs of consumers. They cannot force taxpayers to cover their costs and guarantee the financial risks. While politicians and senior officials are swayed by special interest lobbying, the private sector focuses on commercial viability.

The mismanagement of Britain’s transport infrastructure is therefore a symptom of its politicisation. While policymakers can deliver substantial efficiency gains by applying economic logic to their decisions, the best long-term solution is to transfer control to the private sector.

September 2012, Crossbow

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