Institute for Transport Studies FACULTY OF ENVIRONMENT Appraisal Practice; The Crossrail Approach Tom Worsley

Crossrail – the scheme Crossrail map with connections Journey time savings Liverpool St - Heathrow 23 mins(55 now), - - Paddington - Canary Wharf 14 mins (30 now) Addition to London’s rail capacity – overall 6%, C.Area 10%

Crossrail – from first proposal to start of works 1944 Abercrombie Plan CLRS E-W and N-S Crossrail – best options Docklands - a different type of scheme – referred to ELRS – JLE Decision deferred – recession and decline in demand 2002 CLRL established by SRA and TfL 2005 Montagu review of 2003 Business Case 2005 Updated business case – WEBs Supplementary Business Rate – Crossrail Bill/royal assent 2009 Start of works

Standard Appraisal and modelling practice - CLRS Models and appraisal – (required to follow DfT guidance) LTS and RAILPLAN – Fixed employment, fixed trip totals - route, mode and for non-work trips destination choice allowed to change. Delta GC for appraisal. Conventional benefits plus weights on time savings for interchange, walk, wait and crowding. Road decongestion externalities. BCRs of between 1.6 and 1.9 for the better options – E-W and N-S Crossrail Unresolved Funding Institutional arrangements/governance Scheme champion Labour supply effects – zonal job totals fixed Exogenous – recession and decline in demand – Crossrail proposal deferred.

Links to Docklands ELRS – Jubilee Line Extension Modelling and appraisal as for CLRS – extreme crowding in do-minimum BCR<1.0 but scheme approved – completed in 1999 In place Funding (subsequently unravelled) Institutional arrangements to deliver scheme and land use changes (London Transport, LDDC) and measures to induce development Scheme champion (PM’s support, private developers and LDDC) LDDC’s forecasts shifted jobs to Docklands zones, but no overall effect on labour supply Modelling and appraisal methods failed to capture regeneration effects Very different circumstances from C. London proposals

Transport and the Economy Increasing policy focus on transport and the economy - DfT and HMT interest SACTRA 1999 – identified links, focus on imperfect markets in transport and land use Eddington 2005 – Noted good BCRs for transport, changes to DfT delivery processes recommended Well established appraisal and modelling methods – incremental changes Dependence on data, evidence and models to capture wider benefits Main developments Economic Impact Report – regeneration in policy priority areas Wider Economic Benefits

Wider Economic Impacts in DfT Appraisal Guidance Wider Economic Impacts – extension of standard CBA Agglomeration Increased competition between firms (not applicable in England) Imperfect competition Labour supply Increased participation Move to more productive jobs Now used for most larger schemes – requirement from 2012

Agglomeration Benefits A measure of the proximity of businesses and of workers to each other resulting in external benefits Based on evidence of effective density and productivity by sector Delta ED as estimated from transport model’s delta GC for commuting and business and zonal employment data/forecasts Data /forecasts of value added per worker in DfT guidance Coefficients defined in guidance Distance decay parameter Productivity wrt ED Requires multi-modal model compliant with DfT guidance

Labour Supply Effects Increased participation Labour supply elasticity wrt post tax wages plus change in generalised cost of journey to work Welfare benefit – additional tax receipts GDP effect – gross output from increase in numbers working Move to more productive jobs (sensitivity test) LUTI model to estimate changes in location of employment Data on output per worker by zone Welfare and GDP effects as above

Appraisal and decision rules in DfT No absolutes, but the Department has; Published a definition of value for money Provided categories based on adjusted BCRs which define poor, low medium, high and very high vfm Made use of these categories for ranking and sifting out all poor, most low and many medium schemes Adopted HM Treasury’s 5 case business model, setting the economic case into context

Crossrail and Wider Economic Benefits Proposal reviewed in 2003 following upturn in commuting and approved in 2008 All the now standard transport user benefits plus (post 2005) WEBs adding around 50%+ to user benefits No LUTI model – delta capacity constraint redistributed workers to C.London What had changed since CLRS? Institutions/governance – Montague Funding – WEBs helped High vfm – new DfT guidance includes WEBs Champion – changed institutions

Composition of Crossrail benefits Category of benefit £bn 2002 prices DfT TfL Public transport users; commuting and leisure 6.1 Public transport users - business4.1 Road users; commuting and leisure1.6 Road users; business0.6 Indirect tax change-1.4 Total transport user benefits Agglomeration3.1 Move to more productive jobs2.0 Labour force participation0.8 Imperfect competition0.5 Total Wider Impacts

Alternative metrics/objectives GDP per £’s worth of public spending GDP defined as PV of generalised cost savings for ‘productive’ trips, defined for this purpose as commuting, freight and business Used by DfT ministers but Not a pass/fail test – at the best sets priorities Identification of GDP/non-GDP very crude Impossible to audit/evaluate Not in line with National Accounts

An alternative approach – GVA effects KPMG approach makes estimates of Productivity effects of increased agglomeration Changes in the distribution of employment in response to increased accessibility Wage equation – elasticities of 0.11 business to business and 0.09 labour to business for wage rate wrt generalised cost 80% of this productivity gain explained by changes in sectoral mix; 20% changes in productivity within sectors Redistribution through an elasticity of employment density wrt labour and business accessibility – some allowance for intra- regional shift.

Conclusions and Challenges Is CBA plus WEBs an adequate guide for decision-makers? Issues Translating time savings into real effects Is the BCR/VfM the right metric? Appraisal of land use and other changes to deliver the overall outcome Identifying beneficiaries – potential funding sources Optimism bias in forecasts Does it come early enough to influence decisions? In support of CBA plus WEBs Has worked for most schemes – exceptions – JLE, HS2 Provides consistency between schemes and between forecasts and of appraisal methods It relies on the transport model and so has low costs