A mountain to climb

As the biggest funding shortage the transport sector has seen in recent history looms over us, Steer Davies Gleave takes a closer look at how we can help fill the gap.

The coming years and decades will witness a funding challenge of unprecedented scale for the transport sector. The costs of maintaining and enhancing the UK’s road network already exceed what the Government can afford. On top of this, tax receipts are set to fall with the reduction in fuel duty and a shift towards low-carbon vehicles. One way forward would be to internalise as much transport funding as possible, through charges and levies on users to add to the Exchequer.

Corridors of Choice offers a means to increase capacity, reduce congestion and improve safety on the UK road network. Just as importantly, the paradigm has the potential to help fill the funding gap, especially in the longer term. With a charge as low as five pence per km, a traffic flow of 80,000 per day would give rise to a revenue of £1.5m annually for every km of motorway. On a national basis, this could yield many hundreds of millions of pounds each year. Receipts could be even higher, and economic signals all the more potent, if charges were designed to respond to congestion or emissions levels.

Naturally, these revenues would be partially offset by the costs of setting up the system, and ongoing operations. However, experience on the M42 scheme and elsewhere suggests that the initial outlay could easily be repaid within the first few years of operation.

Moreover, our estimates suggest that the modest fee of five pence per km could not only fund the ongoing operation of a scheme but, just as importantly, pay for transport improvements elsewhere on that part of the strategic road network and surrounding local routes.

From idea to reality

Corridors of Choice offers just one of a range of funding options. In addition, it inevitably raises questions on funding for areas not proposed as Corridors of Choice, particularly in the short term. Other funding possibilities that are in many respects complementary to Corridors of Choice include:

• Local Sustainable Transport Fund (LSTF). This £560m fund, available to local transport authorities, seeks to promote economic growth and to help tackle climate change. A focus on improved traffic management and localism makes the LSTF an especially promising source of funding for supporting Corridors of Choice.
• Private-sector financing. A private sector concessionaire could be appointed to develop and operate the system, in return for part or all of the revenues. A robust legal contract would need to stipulate the outputs to be delivered by the concessionaire, not only on the Managed Motorway, but also the required improvements to local infrastructure. An attractive arrangement
  might be to create a public sector body with the technical knowhow to grant concessions that maximise local benefits while minimising risks to government.
• Regional Growth Fund (RGF). This is a £1.4bn pot designed to stimulate enterprise in England over the next three years. Guidance purposely cites investment in transport and infrastructure as being eligible for funding and schemes envisaged under Corridors of Choice align especially closely with the government’s objectives for the Fund. A funding approach for this source would need to come from a private enterprise, or a Public Private Partnership (including Local Enterprise Partnerships (LEPs)).
• Tax Increment Financing (TIF). This model, adopted from the US, could be deployed in principle. If they could demonstrate improved economic performance and increases in taxation
  revenues as a result of Corridors of Choice, local authorities might be able to borrow against these future tax receipts to fund the initial improvements. (See January 2011 issue of The Review for more on TIF).
•  Community Infrastructure Levy (CIL). This mechanism involves imposing a levy on building developments, with the revenues deployed for local infrastructure investment. This funding source may be available in some, although not all, instances of a Corridors of Choice scheme. CIL can only be deployed for capacity enhancements, which applies to Corridors of Choice if they are essential for the development to proceed or if the development will itself cause additional problems).

Conclusion

Corridors of Choice not only offers the possibility of significant direct benefits to end users, but may also provide a means of funding local transport interventions, plugging the unprecedented funding gap, particularly where synergies with existing funding mechanisms can be identified. In the short term, a number of funding possibilities arise, some involving private sector participation, and all in keeping with the government’s localism agenda.