08 October 2012
Government must overhaul current structures to meet funding gaps
A new CBI report argues that the UK needs a gear change in investment, performance and efficiency if it is to develop a road network fit for the 21st century. With public finances constrained, the Government must show bold thinking in how to secure new sources of funding to help support economic growth in the long-term, the head of the CBI said today (Monday).
Launching Bold Thinking: A model to fund our future roads, John Cridland, the CBI’s Director-General, made a call to action from the Government to overcome the funding gaps in our creaking road network. The UK economy is already losing up to £8 billion each year from congestion on the roads, which could potentially rise to £22 billion by 2025. The CBI’s recent infrastructure survey also showed that three in four businesses were not confident that transport networks will improve in the next five years.
The CBI is calling for the introduction of a Regulatory Asset Base (RAB) model to secure the private investment necessary to overcome the current funding gaps in the UK’s road network. A £10bn shortfall in funding for Highways Agency projects and the prospect of declining motoring tax revenue due to ever-increasing efficiencies in new vehicles makes the current model unsustainable.
A regulated model for the road network would address the problem of long-term funding and one year cycles by taking the road network out of the Government’s budget. Users would have a proportion of their motoring taxes converted to a user charge – controlled by the regulator – to access the strategic road network. This charge would provide a funding stream for private operators – licenced by the regulator – who would operate regional sections of the network.
But in the long term the charge alone might not be sufficient to leverage the levels of future investment needed to finance bigger capacity projects. Private operators would have to finance such projects through long-term borrowing, which could require additional revenue streams, such as tolling, above a standard charge. The regulator would continue to cap charges and manage the overall cost burden on drivers.
To achieve this, the Government should examine the most suitable elements of existing RAB models in the UK, which have a track record in attracting private capital, regulating performance and controlling prices.
Similar models have successfully been applied in other sectors and could open up major private sector investment over the long-term – the water industry alone has generated £98bn of private investment since the1980s, with capped charges on customers.
John Cridland, CBI Director-General, said:
“Every day, people up and down the UK lose time and money because of our clogged-up roads – whether you’re a business waiting for an urgent delivery, or a commuter stuck in the morning rush-hour. Gridlock is an all too familiar tale of life in the UK, and one that is already costing us £8 billion a year.
“With public spending checked, the case for new funding solutions is even more compelling, and the Government recognises this. Infrastructure matters to business, and delivering upgrades to our networks is one of the highest priorities for the CBI to get the economy moving again.
“It’s clear we need a gear change in how we manage and pay for our road network in the 21st century. A lack of investment means we are really struggling to increase road capacity, let alone adequately maintain what we already have.”
Independent regulation can raise standards
As part of this new model, the CBI is pressing for a new governance structure for the UK road network - including the set-up of a new independent roads regulator - to raise the performance standards of our roads, provide greater cost efficiencies and help improve the experience of all users. A regulator would cap costs for business and the public, while controlling the level of returns for private investors.
The current system has created a two-tier system between strategic and local roads. Motorists are not concerned whether a road is national or local – they just expect a smooth journey from A to B. However, with many roads still classified as ‘local’ now important economic routes, motorists can face gridlock when moving between the networks. The CBI is proposing a redefinition of the strategic network to incorporate key economic routes and help support business activity.
Private providers would manage regional sections of this expanded strategic road network, creating competition and greater innovation, meaning performance and cost efficiency could be measured across the network by the regulator. Strictly enforced performance standards and a price cap would help to ensure an affordable, quality road network, providing a fair deal for users and investors alike.
But in looking to the future, the Government cannot allow much-needed network improvements to be put on hold while a new governance and funding model is put in place. The Government needs to push ahead with current capital programmes and front-load investment to get projects underway and growth moving as quickly as possible. This activity will help to build momentum towards the introduction of a new model and greater potential private investment.
John Cridland, CBI Director-General, said:
“An independent regulator is essential to the success of a new governance structure, delivering a fair deal for motorists and investors. While lessons need to be learnt from past experiences, such regulators have been regarded as successful by injecting greater investment and getting real value for money where they have been properly used.”
Why it matters
With 83% of all goods in the UK transported by road, the quality and reliability of our road network is critical to ensuring that the UK is an attractive place to invest. A well-functioning road network is inherently linked to the UK’s potential for economic growth.
While 84% of businesses regard the quality and reliability of their transport networks as significant to their investment choices, over half have seen a decline in motorway standards and two-thirds report deterioration in local roads.
Alain Bourguignon, CEO of Aggregate Industries, added:
“We understand that Government tries to make the most of its limited cash – but unfortunately the most cost-effective course of action is rarely followed. A ‘best value’ approach is not always taken in repair and maintenance programmes.
“By transferring the management and maintenance of the road infrastructure to long term investment vehicles, we will see better planning, procurement and design of the assets, leading to better results for all.”
The road network is vital for business
• The Strategic Road Network carries a third of all road traffic in England and two thirds of all heavy goods vehicle traffic (http://www.highways.gov.uk/about-us/what-we-do/)
• 83% of goods in the UK travel by road (Investment in Highways Transport Scheme Projects, Department for Transport, 2010)
• Between 2009 and 2010, the amount of goods moved by GB-registered HGVs operating in the UK increased by 11 per cent to 139 billion tonne kilometres (Road Freight Statistics 2010, Department for Transport, 2011)
• 84 per cent of businesses reported that the quality and reliability of transport infrastructure had a significant bearing on their investment decisions (CBI/KPMG infrastructure survey 2012, Better Connected, Better Business)
Projections showing increasing traffic and a fall in motoring tax revenue will have an impact on the quality of our future road network
• DfT projections predict a rise of 46% in traffic volumes by 2035 and 54% longer average delays than in 2003 (Road Transport Forecasts 2011, Department for Transport, 2012)
• In 2009-10, motorists paid £35bn in taxes specific to road users (including VED and fuel duty) but in that same period, expenditure on the road network – including maintenance and the local network – was only around £9.4bn (Transport Statistics Great Britain, Department for Transport, 2011)
• In 2009-10 motorists paid £5.6bn in Vehicle Excise Duty; in the same period, expenditure on the Strategic Road Network was around £2.9bn (Transport Statistics Great Britain, Department for Transport, 2011)
• Fuel duty receipts are predicted to fall from 1.8% of GDP in 2010 to 1% by 2030. Vehicle Excise Duty could fall from 0.4% of GDP to 0.1% in the same period (Fuel for thought: The what, why and how of motoring taxation, The Institute of Fiscal Studies, 2012)
The state of the road network has an impact on the UK’s competitiveness and attractiveness as a place to invest
• Congestion costs the UK economy £8bn each year, and without measures to tackle this, the figure could rise by £22bn a year by 2025 (Sir Rod Eddington’s Transport Study, 2006)
• 95% of businesses are worried about levels of congestion on the road network (CBI/KPMG infrastructure survey 2012, Better Connected, Better Business)
• A balance of -23% of businesses are not confident that the motorway network will improve in the next 5 years (CBI/KPMG infrastructure survey 2012, Better Connected, Better Business)
• The UK ranks 24th in the world on quality of roads infrastructure, way behind our closest competitors – France 1st, Germany 10th (World Economic Forum’s 2012 Global Competitiveness report).
Heidi Mottram OBE, CEO of Northumbrian Water Ltd and Regional Chair for CBI North East:
“The RAB model has secured significant levels of investment for Northumbrian Water and has helped to drive improved services for our customers. As a business that depends on our roads every day to manage our network and offer good customer service, we expect the same high quality operation from our road network.
“We welcome the Government’s feasibility study on the governance and funding arrangements of the future road network and this report provides valuable input to the debate.”
‘Bold Thinking: A model to fund our future roads’ is attached.
The CBI is the UK′s leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. With offices across the UK as well as representation in Brussels, Washington, Beijing and Delhi, the CBI communicates the British business voice around the world.
The CBI Annual Conference 2012, Forging a New Economic Future, will take place on Monday 19 November at the Grosvenor House Hotel in London, featuring an exceptional line-up of business and political speakers.
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