Institute for Transport Studies FACULTY OF EARTH AND ENVIRONMENT The Economic Evaluation of Transport Projects Seminar Madrid, November 2010 Current debates on the cost-benefit analysis of transport projects in Great Britain. Chris Nash Institute for Transport Studies University of Leeds

Outline 1.Introduction 2.Current British Approach to Transport Appraisal 3.Optimism Bias 4.Value of Time 5.Wider Economic Benefits 6.Accessibility 7.Decision criteria 8.Distribution of costs and benefits 9.Conclusions

New Approach to Transport Appraisal (NATA) 1998 To be applied to all decisions: -Road investment -Public transport investment -Subsidies Move to 3.5% discount rate and 60 year time horizon

NATA objectives Environment Economy Safety Accessibility Integration Note. DASTS (2008) replaces accessibility with equality of opportunity and abandons integration

Transport Economic Efficiency Table User Benefits (time, operating costs, user charges, delays during construction) Private Sector Provider Impact (revenues, costs, grants and subsidies) Other Impacts Net Business Impact Total

Public Accounts Table Local Government Funding Central Government Funding (inc. impact on tax revenues) Total

Monetarised Costs and Benefits Table (adds in) Noise Local air quality Greenhouse gases Journey ambience Reliability Interchanges Option Values

Appraisal summary table Environment Noise Local Air Quality Greenhouse Gases Landscape Townscape Heritage of Historic Resources Biodiversity Water Environment Physical Fitness Journey Ambience

Appraisal summary table CTD Safety Accidents Security Economy Public Accounts Transport Economic Efficiency Reliability Wider Economic Impacts Accessibility Option values Severance Access to the Transport System Integration Transport Interchange Land-Use Policy Other Government Policies

Valuation of costs and benefits – key issues Optimism bias Value of time (esp business travel and small time savings) Wider Economic Benefits Accessibility Decision Criterion Distribution

Risk and Optimism Bias Adjustments for Capital Expenditure Project Development Level 1. Prefeasibility66% 2. Project Definition50% 3. Option Selection40% 4. Single option refinement with QRA 18% 5. Design development with QRA6% Source: WEBTAG

Value of Time Savings for rail Passengers in the UK Standard Valuations(£ per hour, 2002 market prices) Leisure4.46 Commuting5.04 Business39.96 Source: DfT: WEBTAG Unit (

Wider economic benefits from generated traffic Causes? Agglomeration externalities Imperfect competition in output markets Labour supply Magnitude up to 30% of direct benefits?

Crossrail CBA (£mPV) Time savings Crowding 2889 Other transport benefits 372 Wider economic benefits 7161 Total benefits Total costs13902 Less revenues Plus tax loss 1207 Cost to government 8960 BCR2.6 (1.8 excl Wider economic benefits)

Draft WebTAG guideline Option values for commuter services Mode / Package Value per household per annum Option value and non-use value Sensitivity tests Excluding non-use value Value of mixed mode package Train£170£ Bus£90£54--- Train and bus £170£102£260

Decision Criterion and Value for Money BCR < 1Poor(None) 1 to 1.5Low(Very few) 1.5 to 2Medium(Some) > 2High(Most) NB Negative costs and positive benefits implies high value for money

Treatment of distribution Need to forecast final impact of costs and benefits (note - they may be passed on through land prices, wage rates, prices of goods in shops) Then apply weighting system NB Jubilee line extension to Docklands raised property values by £1.5b!

Quantitative Significance of Possible Weighting Systems Weights relative to mean income INCOMEβ LEVEL0+1+2 ¼ ỹ1416 ½ ỹ124 ỹ111 2 ỹ1½¼ 4 ỹ1¼ 1/16 i.e. w i may just reflect differences in MU y or may reflect this and equity weights

Conclusions British transport appraisal is state of the art BUT Problem of estimating costs Still concerns about value of time Uncertainty over wider economic benefits Treatment of accessibility Issue over capital rationing Inadequate treatment of distribution General treatment of uncertainty and robustness