The government is off track with its uneconomic transport policy

Richard Wellings
Follow Richard
IS ELECTRIFYING branch lines in Wales a top priority for transport investment? It seems unlikely. But then again the government’s plans to invest £9.4bn in rail infrastructure show scant regard for economics. Cynical political calculation seems to be the driving force.

Regional interests have long complained that London receives a disproportionate share of transport spending. Now the provinces will get their pet projects: the north of England gains more services through the much-hyped Northern Hub; the East Midlands benefit from the electrification of the Midland Main Line; and so on.

But most of these schemes are difficult to justify from an economic perspective. In commercial terms they are loss-making and require substantial taxpayer support. Indeed, it seems likely that, as the number of train services increases, additional operating subsidies will be required. Taxpayers already pay around £5bn per year towards the railways.

The government has claimed that much of the cost will be recouped from higher passenger numbers and efficiency gains. This is doubtful. There are numerous examples of rail planners forecasting passenger growth that failed to materialise. And while efficiency gains are possible, they will be difficult to deliver given the complex artificial structure imposed on the industry.

Then there is the argument that rail improvements deliver wider regeneration benefits, boosting growth. This is also questionable. There is little evidence of economic resurgence in many of the provincial towns already enjoying fast rail links, such as Doncaster, Darlington or Wigan.

Worse still, new rail projects often become magnets for expensive taxpayer-funded regeneration schemes, promoted by local political elites. The government has spent billions along the route of High Speed 1, for example. Such regeneration efforts are counterproductive. If favoured areas improve, others tend to decline, due to the redistribution of taxpayers’ money.

The railways are a classic example of a politically distorted market. There is huge variation in the level of subsidy to different parts of the network. London commuter routes generally receive little funding from government, in marked contrast to rural provincial routes that are almost entirely dependent on handouts. This system means passengers on more profitable lines (including in and around London) may end up cross-subsidising those on loss-making ones. At the same time, those choosing to drive instead of travelling by train face very high rates of taxation through the imposition of both VAT and fuel duty – a clear instance of unfair competition.

Many of these distortions are deliberate. New Labour pursued policies to force people out of their cars and on to the trains. A combination of strict planning policies and regeneration subsidies was used to push economic activity into congested city centres and around public transport hubs. At the same time, measures were introduced that artificially raised the costs of commuting by car and road investment was slashed. As peak-time trains became more and more crowded, the pressure increased for investment in new capacity, even though demand had been artificially inflated by various government interventions.

In this context, the government should be extremely cautious about investing in rail. Rather than risking billions of pounds of taxpayers’ money, it should focus on creating a level playing field in transport so that investment can be based on genuine patterns of demand.

Phasing out taxpayer subsidies to uneconomic lines should be a key priority. Another important step would be to introduce more flexibility for train operators to tackle overcrowding without the need for expensive new track infrastructure, for example by providing more frequent services and extra rolling stock. Further action is also needed on planning controls. Businesses should be free to operate in uncongested, out-of-town locations, even if this means fewer people using public transport.

A radically different policy on investment is needed. Ideally it should be left to the private sector, which would only undertake rail schemes that were commercially viable. However, in the absence of a larger role for private investors, the government should take a far more rigorous economic approach to new infrastructure.

Dr Richard Wellings is head of transport at the Institute of Economic Affairs.