New rail links can’t solve London’s transport crisis

Busway 205London’s population is forecast to hit 10 million in 2030 and it’s difficult to see how the transport system will cope. Already a high proportion of commuters endure severe overcrowding, standing in jam-packed carriages or even struggling to find enough space to get on trains.

The government sees additional rail capacity as the best way to address rising demand. But this is unrealistic. With further spending cuts needed to reduce government debt, there is no way the Treasury will be able to fund the scale of investment required.

Part of the problem is that rail schemes in London are hugely expensive. The proposed Crossrail 2 scheme, which will add relatively little to the capital’s transport capacity, is predicted to cost an astounding £27 billion. Many more big projects would be needed for the network to accommodate the projected additional numbers of passengers. This is simply unaffordable. Public transport subsidies already cost taxpayers £12 billion a year, with roughly half of this spent in London.

An alternative strategy would be to manage demand by raising fares. Yet despite the economic logic, fare hikes have become politically toxic. Even rises of just 1 per cent above inflation are now deemed unacceptable.

Future governments will therefore face a difficult predicament. They won’t be able to afford to increase rail capacity to cope with growing demand and they will struggle to manage congestion with fare increases due to political constraints. But fortunately there is a potential solution if policymakers are prepared to think outside the box and take a more flexible approach to the use of transport infrastructure.

The rapidly growing cities of Latin America and Asia have faced similar issues: rising demand but severe budgetary constraints. But rather than investing in hyper-expensive rail infrastructure, local governments have often decided to build much cheaper high-capacity busways instead. From Istanbul to Mexico City, these busways carry vast numbers of commuters while offering cheap and affordable fares.

So, why not do this in London? One apparent reason is the lack of space, the city lacking the wide boulevards used for busways elsewhere. But London does have an extensive rail network with often vast corridors reaching right into the centre. This raises the question, would some of these routes deliver better value for money if they were converted into busways?

There is certainly strong evidence that this would bring a major increase in capacity. A single bus lane in New York’s Lincoln Tunnel carries up to 30,000 commuters in the peak hour, compared with a figure closer to 10,000 for a typical railway track entering Central London. And on former railway routes managed to avoid congestion, the potential capacity of busways would be much higher.

There could also be a big reduction in fares. Operating costs are likely to be much lower than on comparable rail routes. Busways are far simpler to manage and maintain.

Concerns about journey times can also be dismissed. On the shorter commuter routes where busways would be most appropriate, a combination of more direct services and increased frequency would deliver faster door-to-door travel times for the vast majority of passengers.

While busways may not be the best option in every location, the next government should not set transport infrastructure in stone. A more flexible approach may be the only way to avoid a severe capacity crunch.

For more details see Paving Over the Tracks…a better use of railways?

An earlier version of this article was published in City AM, February 2015

Unless otherwise stated, all articles on this website are written in a personal capacity.

Scrap HS2 to ease government debt crisis

Hyperinflation 206x167The recent announcement that the projected cost of Crossrail 2 has risen to £27 billion should be cause for deep concern within the Treasury. Added to High Speed 2 and High Speed 3, this means the total budget of just three planned or proposed rail schemes could be close to £100 billion – or perhaps even higher, given the overruns so typical of big government projects.

Economic conditions amplify the financial risks. The deficit remains stubbornly high, while robust medium-term growth cannot be guaranteed given the ongoing crisis in the euro zone and the fragile condition of the banking sector. This implies that a large proportion of future transport investment may be funded by government borrowing, adding a not insignificant amount to a national debt that has already reached £1.5 trillion.

There are clear echoes of Japan in the 1990s: a heavily-indebted government viewing transport investment as a way to stimulate growth after a deep recession.

To be fair, there is some merit in this argument. Improved transport links tend to raise productivity and boost growth by lowering the costs of trade. Greater specialisation and economies of scale are facilitated. Workers find it easier to access jobs that make good use of their skills and talents.

But transport spending also has major downsides. The additional tax burden needed to fund schemes directly, or repay debt incurred, suppresses economic activity. Incentives for work and entrepreneurship are diminished, while resources are misallocated due to the distorting effects of taxation. The overall cost to the economy is substantially higher than the direct tax bill.

The negative effects may be particularly severe if transport spending pushes levels of government borrowing into dangerous territory, such that market confidence is undermined. This risks a ‘debt spiral’, with a larger and larger share of tax revenues used to pay back investors in government bonds.

Heavily indebted governments should therefore exercise particular caution on transport investment. They must ensure that the economic benefits outweigh the full costs, taking proper account of the downside risks of budget overruns and the impact on public debt.

This didn’t happen in Japan. Vast sums were wasted on poor value schemes with low benefits – including the notorious ‘bridges to nowhere’. Government borrowing was pushed up, while taxpayers were also forced to pay ongoing maintenance and operating costs.

Unfortunately, a similar pattern is now emerging in the UK, as an ‘infrastructure craze’ grips our politicians. Rather than focusing on high-return, low-risk projects, the government is favouring low-return, high-risk schemes such as HS2. Once the negative effects on the wider economy of the additional taxation and borrowing are factored in, there is a significant chance that the costs of these projects will exceed their benefits.

The dangers are further exacerbated by rapidly changing technology. Developments such as advanced video-conferencing and driverless cars have the potential to completely transform transport markets by 2030. New technologies, for example in rail signalling or road pricing, also mean congestion and capacity problems can now be tackled at a tiny fraction of the cost of building brand new infrastructure.

Fortunately, there is still time for the UK to change course. One of the new government’s first priorities next year will be to instil confidence in its deficit reduction plan. Scrapping poor value transport projects would achieve this at minimal political cost.

City AM, December 2014