Blog: March 2013

Budget 2013: Build more transport infrastructure

21st March 2013

With fuel duty paused, transport budgets rising, the heavily trailed single pot confirmed and £3bn a year of additional infrastructure spending promised, this seems like a good budget for the transport sector.  While the fuel duty escalator was the biggest news of the day, behind the headlines lie some good news for transport capital funding – in the medium and the longer term.

As the dust settles from yesterday’s announcements and MPs debate, Connected Economics has been through the detail of budget announcements to distil the important features for the transport sector.

Taxes: Big change now for fuel duty

On the tax side, the biggest financial change comes from the extended freeze of the fuel duty escalator.  HM Treasury expect this to have an annual cost that rises to £900m a year by 2017/18.  This dwarfs all the other transport tax measures and, based on standard DfT parameters could lead to over 2.6 million additional kilometres driven on our roads in cars vans and taxis each year*.  Some additional financial benefits for motorists came from lowering capital allowances for Low Emissions Vehicles.  These changes are in effect now and the sustained freeze on fuel costs could is likely to have a significant long term impact on transport and traffic.

However, on the corporate side, the assault on company cars continues.  Big changes from the last budget come through now and add around £400m a year to the costs of company car tax, alongside reductions in capital allowances for company cars that cost businesses about half as much.

Spending: So how have transport budgets changed?

On the spending side, transport resource budgets have shrunk while capital budgets have grown, particularly in the medium term.  However, the biggest story is the underspend in capital resource budgets which fell around 14% (£700m) short of anticipated expenditure in the last financial year 2012-13 – larger than the much touted £500m underspend in 2011-12 under Phillip Hammond.

Transport capital budgets grew again.  Taking the longer view, the last Comprehensive Spending Review budgeted for £30.8bn of transport capital expenditure over four years.  In last year’s budget this rose to £31.6bn and now rises again to £32.9bn.  This is made up of a substantial 10% increase in 2013-14 and 8.5% increase in 2014-15.  However, these large percentage increases on previous estimates are partly due to a shift in the timing of expenditure while most is already committed to projects.

Budget 2013: transport budgets

More jam tomorrow

Prospects for developing new transport projects will depend on what happens to budgets after 2014-15 and here the news is promising but patchy.

After April 2015 we are told that infrastructure budgets will rise by £3bn per year.  However, there are no details as yet of how this will be allocated between departments or how it will be spent.  Similarly, we have an acceptance of Lord Heseltine’s proposal for a competitive single pot of funding directed at local growth.  The Single Local Growth Fund will be carved out from existing budgets and will again be available from April 2015.  More details of this are available in the government’s response to the Heseltine review.

In our view, transport capital will continue to prosper under the current government, but it will increasingly be devolved and wrapped up with other infrastructure spending.  The governance challenge here continues, both for central and local government.  Expect the spending review to extend commitments to local integrated budgets, but potentially at the expense of devolved major scheme budgets and LTB funding.  In the long term this promises a lot, but with a message of ‘wait and see until the next spending review’.  We should know more after the details on June 26th.

Summary

  • A big tax break for motorists through the fuel duty freeze which happens immediately;
  • Another large underspend on transport resource budgets and cuts going forwards;
  • Substantially bigger transport capital budgets  for the next two years, even after accounting for rescheduling expenditure; and
  • Promises of additional capital spending in the next spending review period, but few details yet.

So private motorists are better off while publicly funded transport operations suffer.  But there is much better news on capital expenditure with more jam tomorrow and the promise of further increases in capital budgets on the horizon.
 

21st March 2013

 

* Based on a fuel price saving of 1.89 pence per litre and a fuel price elasticity of -0.3 from the DfT’s web based Transport Appraisal Guidance

 

 

 

 

 

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