Devolved transport budgets: Not enough to bank on?

Dominic WalleyWhat can you buy with a devolved major scheme budget?

Plans to devolve local transport capital funding risk spreading it too thinly.  Major local transport projects such as new roads, light rail schemes or interchanges come with price tags and cost profiles that that need large dollops of capital funding rather steady trickles.  If funding devolution is to happen, it needs to go hand in hand with long term certainty over budgets.  If it doesn’t, some important local projects offering great value for money may never be able to come forward.

So how much can you expect from devolved major transport scheme budgets?  Let’s play with some numbers.  Over the CSR period, capital funding for major projects was intended to average £386m per year, although rising substantially in the final year (2014-15) to £417m.  Being optimistic we can assume that the pressure for austerity is a short or medium term problem that will slacken, so perhaps we may end up with around £500m per year to play with after the end of the current CSR period.

Taking a rural example from the South West, Devon receives around 3.6% of local transport capital block funding (excluding the unitary authorities).  If this is a guide to its share of major local scheme funding, Devon could expect around £18m per annum, or about £72 million in the next CSR period.

For decades, a major transport priority for Devon has been the upgrade of the A380 South Devon Link Road (SDLR) with a price tag of £108m.  On this basis, Devon could not fund the road within a single CSR period.  A natural collaboration with Torbay unitary authority might only increase available funding by around £1m per year.  Fortunately, funding for the SDLR was agreed in the Chancellor’s last Autumn statement, but it is a useful way of thinking about some of the challenges that devolution will bring.  Similarly, Leeds’ proposed trolleybus system comes at a cost of £250m, but West Yorkshire Integrated Transport Authority takes 4.1% of the total local transport capital block funding, implying devolved major scheme funding of only around £21m per year.

What if it isn't enough?

With devolved funding, Devon and Torbay would essentially have two options.  First, they could reach critical mass by forming a larger partnership of authorities.  However, this risks forcing together some odd and awkward combinations.  How does a new road that supports the economies of Devon and Torbay benefit places further afield like Plymouth or Somerset?  Indeed, there is a risk that economic growth released in Torbay and Devon might otherwise occur in these places instead.  With the new financial ‘rewards’ for achieving economic growth, a consensus across more partners would be difficult to reach except where:

  • schemes have wide geographical effects that benefit all partners (perhaps rail improvements);
  • schemes are individually small enough so that all authorities can benefit from a package of projects (in which case why the need to collaborate?); or
  • authorities are thinking more broadly, so support for a transport scheme in Devon could be traded for support for, say, a housing or regeneration scheme in another area.

Option c essentially solves the problem of lumpy capital requirements in transport by combining it with funding for other areas. The government is inexorably driving things in this direction, for example, through the formation of Local Enterprise Partnerships, Growing Places Funds, Local transport boards, etc.  However, it will be a long road to get there.

Alternatively, Devon and Torbay could save or borrow for longer.  If they began a six year saving programme, they would need confidence that budgets would continue to be available under the next government and in the next CSR period.  If they borrowed, they would similarly need the confidence that the budget would be available in the longer term to repay the loan.  Currently only Transport for London benefits from an agreed 10 year funding deal with central government, although others have started to act as if they do.  A large part of Greater Manchester’s transport package, for example, was based on the projections of central government funding with no explicit guarantees that this would be provided.

Longer term certainty

Longer term certainty about capital funding sits uneasily with our democratic terms, but is essential in infrastructure planning.  It is no surprise that a spotlight report by KPMG in 2010 found that “Public Authorities should set a long-term strategy and then work continuously towards it.  When they do this, the prospects for the delivery of successful transportation project outcomes increases substantially.”  At a local level, greater certainty would free planners to put together coherent long-term funded plans for supporting economic growth. It makes more sense where the financial benefits come back around to local authorities in the longer term through the tax system.  New homes bonus lasts for six years and plans for localised business rates have 10 years between resets.

So by all means encourage collaboration across local authorities where projects are of mutual benefit, but the fundamental need is for longer term funding certainty.  With this in place everything becomes easier and local infrastructure planning really can start to break new ground.