The IoD's View

The economy is now reaping the legacy of decades of under-investment in the transport system in the form of increasing delays and congestion. It is therefore essential to provide more and better transport infrastructure in order to sustain the UK's competitiveness. Transport investment is one thing the government should be spending more on, and not less.

Key Points

• The state of the transport system regularly features as one of the main bugbears of business, alongside tax, regulation, and skills. as the economy has begun to suffer adversely from a long period of under-investment in the transport infrastructure, transport has belatedly started to move up the political agenda too.
  
  
• Significant parts of the UK's transport infrastructure are inadequate, as the system has not kept up with the rapid growth in demand for transport in a prosperous and expanding economy. More and better infrastructure is needed to sustain the competitiveness of the UK economy - especially as we have to compete with other countries where congested transport facilities do not restrain the economy's performance as severely.
  
  
• The Government acknowledges the important economic role played by good transport links. Transport has therefore seen a substantial increase in government spending since 2000 - with more pledged over a 10-year planning horizon. But this is still too low. as a share of GDP, public transport spending on transport is still only 1.5% of GDP, lower than during the first half of the 1990s.
  
  
• The Government has accepted the core recommendations of the Eddington transport study that a strategic approach to transport should be adopted. Investment should be focused on locations where shortcomings of the transport infrastructure act as restraints on the performance of the economy - principally surface links to ports and airports, and congested urban corridors and inter-urban routes.
  
  
• The Government has been willing to put its head above the parapet on key issues such as a new runway at Heathrow airport. Heathrow is the UK’s major international hub airport, and it is seriously congested. additional runway capacity (conditional on strict environmental conditions being met) is vital if the status of London and the UK as an international business location is to be maintained.
  
  
• The acid test lies in whether extra transport investment will be delivered. Since major transport projects take years – often decades – to bring on stream, this may be a tall order. Even current levels of backing for transport investment may evaporate when there is a change of government, or when a less enlightened minister comes to the role. The IoD supports the reforms to the planning system outlined in the Planning Bill which should reduce planning delays – including the establishment of a infrastructure planning commission to rule on projects of strategic national importance.
  
  
• While the important economic role played by transport is belatedly being recognised, the willingness to pay for it is still absent. This puts a premium on the search for low cost, small-scale improvements to the transport network, such as junction improvements, re-siting crossings and bus-stops, etc. But such measures do not eliminate the need for major investment in new and improved transport facilities.
  
  
• New investment in transport infrastructure can be paid for in two ways - by the taxpayer or by passengers themselves. There are good reasons why the taxpayer should foot part of the bill - the public service nature of transport and the large externalities generated, both costs and benefits - and the government should therefore invest more in transport.
  
  
• Following the pioneering funding arrangements for Crossrail, the government has indicated that business should contribute to the costs of new transport infrastructure, and has proposed that local authorities have the power to raise business rate supplements (BRS). The IoD opposes BRS in principle. While we should not preclude the role of business funding for transport schemes under certain, heavily prescribed conditions, a better approach is for all users to pay their share and to be able to see clearly what they are paying for, eg M6 Toll.

Q & A

Q. Under what circumstances does the IoD believe that businesses should be expected to pay for transport projects, for instance through supplementary business rates (SBRs)?

A. The IoD strongly opposes BRS in principle. They would be an additional burden on business which would bear no relation to profits and could jeopardise their commercial viability. BRS might not lead to an increase in overall spending to the benefit of business if there was a reduction in spending financed from other sources. There may however be a case for short-term levies linked to specific infrastructure projects, such as Crossrail, as long as such levies are ring-fenced, time-limited, and subject to the approval of the business community itself in each case. There would then be a direct and highly visible link between any extra tax that businesses pay and the extra service they get in return.

Q. New high speed rail links should be built?

A. Where it can be shown that there is an economic case for new high-speed rail links, for instance to relieve congestion, then they should go ahead. However in some cases, serious congestion problems are confined to a relatively short corridor, in which case there may be more cost-effective ways of tackling the problem.

Q. I thought the IoD wanted to reduce public spending? How does that square with extra taxpayer funding for investment in transport?

A. The level of public spending is much too high, and the IoD regards long term reductions in the level of spending as a priority. That does not mean that there should not be higher spending in some key areas such as transport investment, as long as any extra transport outlays are at least offset by lower public spending elsewhere.