Can the PM hold his nerve on road private investment?

Written by Total Politics has a free weekly Friday email bulletin. Follow this link to register. on 19 March 2012 in Diary
IPPR welcomes the prime minister's review of Britain's road network - but believes the devil will be in the detail

Today’s announcement by the prime minister of a review on the funding and financing of Britain’s roads network is a welcome step. Leasing our roads to private investors may provide the much needed injection of resources to upgrade our infrastructure.

With the right regulatory and finance system in place, it can also help reduce carbon emissions from Britain’s transport network. But there are a number of risks to this approach which need to be acknowledged.

The roads in question are motorways and major trunk roads, which are critical to our economy. Although they represent only three per cent of our road network they accommodate a third of all traffic and two thirds of all freight.

As things stand, our roads system is underfunded and lacks capacity. Pressure on the road network is increasing all the time – the Department for Transport projects that congestion will be 46 per cent higher in 2035 and that means long delays for motorists. The revenues taken from motor taxes such as fuel duty and Vehicle Excise Duty (VED) only bring in a quarter of the investment needed to modernise our road network.

Last year, the boss of the highways agency, Alan Cook, admitted that his agency was ineffective and inefficient in managing the road network. He blamed the cosy relationship with DfT, a risk averse culture and an inability to take decisions based on longer term commercial goals. 

Private sector investors could have a greater incentive for managing and expanding the network while also striving for the greatest efficiency. At a time when government spending is under strain, private firms can offer an alternative pool of funding for expansion and improvement.

There is a strong argument for bringing private sector investment into our roads network. But getting the regulation and financing structures right will be critical to ensuring poorer motorists are not excluded. This can only work if fair road pricing is part of the agenda.

Road pricing is widely recognised in the transport community as the most effective way to control congestion, increase choice for motorists, and generate a sustainable source of income from motorists. By reducing congestion cars use less fuel because they spend less time in traffic jams. Studies on the impact of congestion charging, such as the scheme introduced in London, have shown that CO2 emissions are reduced as a result of more free flowing traffic. 

IPPR research shows that income from VED and fuel duty are declining due to higher engine efficiency and greater take up of electric vehicles. Fuel sales are projected to halve by 2030. So is fuel duty the best tool for taxing road travel?

Replacing fuel duty with a road pricing scheme could be a fairer approach. It could allow motorists cheaper travel at off peak times. Fuel duty is a less flexible tax, represents a greater proportion of income for lower earners and does not tackle congestion.

It is critical that any move towards private investment does not increase the inequality of investment between our regions. IPPR analysis highlights a vast disparity in infrastructure spending, for example London and the South East were allocated 84 per cent of the investment in the National Infrastructure Plan.

But what if private sector firms decided that they did not want to invest? There may be an argument for government pump priming investment in the roads network. A National Investment Bank is the best way to do this. Countries like Germany, Sweden and Brazil all have investment banks that are able to make strategically important investments where there is insufficient private sector activity.

The UK government is setting up a Green Investment Bank but it will not be able to borrow until after the next election and only has £3bn in capital at present. This is woefully inadequate to upgrade Britain’s infrastructure and hasten the transition to a low carbon economy.

The prime minister’s call for greater “vision, funding and nerve” in our transport system should be supported and involving the private sector to a greater extent is no bad idea. But the devil will be in the detail. The financing arrangements used and safeguards put in place must be able to deliver greater equity and access for road users. As the prime minister acknowledged “we need to use the power of the state to unlock the dynamism of the market” and in the current economic environment this will require strategic national investment.

Laura Bradley is a Researcher at IPPR – follow her on twitter @IPPR_LauraB

Will Straw is Associate Director at IPPR

Tags: Privatisation, Road investment, Transport network

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