Assessing all the impacts of investment on the wider economy is critical in ensuring transport receives its fair share of future Government capital spend.
'Time is money', an adage originally penned in 1748 and as relevant now as it was then. We are always trying to get to places faster, and saving time whilst travelling is said to maximise the productive time at your destination, whether that be in work meetings, seeing friends and relatives or going to the shops. It is people's willingness to pay for these travel time savings which has for years has been the basis for how we assess the value for money of transport schemes.
Typically two thirds of the assessed benefits of a major transport investment are comprised of these travel time savings. Projects are therefore defined by their ability to get people to their destination quicker whether that be through relieving congestion, providing new links between places, or using higher speed trains or roads. This makes sense given that the purpose of transport is to get people from A to B, thus doing it quicker obviously delivers benefits.
A time saving based approach however, focuses on the benefits to the individual - their journey, the time it takes and what they are willing to pay for improvements. Little consideration is given to the wider economic and social impacts of their travel and how new investments can drive economic growth.
Over the years the framework for assessing projects has expanded to reflect the wider impact transport can deliver, first by covering these 'Wider Economic Impacts' through the consideration of static effects. This assumes people and businesses don't change where they locate, but improvements in transport connectivity between businesses and between employers and their workforce increases productivity through clustering effects and delivers an expanded supply of labour.
Over time and as modelling capability and our understanding of how transport impacts on the economy have improved, some major transport appraisals have started to incorporate a more dynamic approach. This typically considers the impacts of land-use change resulting from transport infrastructure on land values, the dynamic clustering impacts as transport improvements mean businesses relocate closer together thus creating economic clusters and employers having access to a wider pool of labour as people choose to relocate.
Even this however is partial, it doesn't consider factors like changes in house prices that may result from an increase in housing supply unlocked by major transport schemes. It also fails to adequately capture how transport improvements lower business costs and therefore drive increases in private investment (and the resulting impacts of that in terms of economic output). What this means in practice is that we don't actually assess what impact a specific project or transport investment can have on overall GDP.
With the new Government emphasising the importance of investing to grow the economy alongside fiscal restraint, there is a risk that the lack of understanding of the true potential of transport to unlock housing development and private investment means it will be undersold as a potential driver of economic growth and social wellbeing. With a forthcoming Budget and a Comprehensive Spending Review due in 2025 transport will need to put its best foot forward - emphasising further these wider economy impacts - to secure a strong investment pipeline. This is especially true in these times of constrained spending and competing spending demands as highlighted in the recent Public Spending Audit conducted by the new Government.
While it is recognised that answering these wider economy questions is inherently complex, the tools to do so do exist. We have transport models to model the changes in connectivity, we have land-use models which can assess how people and businesses change location and their use of land in response to improvements in connectivity and we have wider economy models which can assess how these locational changes impact on capital and labour and then in-turn on trade, labour supply and supply chains.
Enough theoretical discussion of the effects of transport on the economy has already taken place. What is needed now is the practical application of this, through integrating the tools and approaches available to deliver a true view of the impact of transport investment on GDP, as well as ensure that we deliver transport schemes which maximise their impact on the economy.
