On 12 December 2011 the Department for Transport,
Cambridgeshire, Northamptonshire and Suffolk Councils launched the
A14 Challenge as flagged in November's National Infrastructure
Plan 2011 (NIP11). The challenge seeks to find solutions to
congestion on the A14. Nick Maltby explores how these might be
funded.
Central to the challenge is the need for innovative ideas to
finance major road improvements, which may include both tolling for
enhanced capacity and other cost sharing arrangements (such as
capturing land value increases). The Government hopes to engage the
development industry, financiers, local authorities and LEPs in the
challenge. Steer Davies Gleave has produced a report
accompanying the study. The Government is looking for a solution
which will deliver the upgrade for significantly less than
the previous budget of £1.2bn. If the challenge is
successful it seems likely that it will be rolled out more widely.
Responses were due at the end of January and recommendations will
be published in the summer.
The question of how we are to fund our roads has been much in evidence since the advent of the Coalition. In framing NIP11, the Government came to the view that an extension of the Regulated Asset Base concept to roads was not appropriate (or politically desirable) while leaving open the possibility of concessions for new roads. So are concessions the way forward for roads?
In November 2011, Arup and the RAC Foundation published a
report, 'Providing and Funding Strategic Roads'. The report
noted that there is a £12.8bn shortfall for the
motorway and trunk road network in the UK with 96 unfunded
projects. The report compared the approach to road delivery in
the UK and elsewhere and reached the conclusion that the UK spends
less than other developed countries
and there is little by way of long term planning (a point
also highlighted by the Cook Report). Reforms are
therefore needed to give the sector a dedicated funding stream away
from political interference. It also noted a weakened appetite for
private finance schemes in the UK, unlike other countries.
The Arup/RAC report is important as it highlights the degree of underspend and the UK's performance against international benchmarks. While it is possible that there are trunk roads in the UK that are fully fundable through concessions, such an approach is not going to provide a long term dedicated funding stream with 5 yearly regulatory settlements as exist in the rail or utilities sectors and it is also questionable how widely such an approach will work. In particular, what percentage of the current unfunded schemes will it assist?
It is also notable that the one potential concession project currently in procurement, the Mersey Gateway Bridge, is being procured as a PFI where the local authority takes the revenue risk. The government launched a wholesale review of the PFI model at the same time as launching the A14 Challenge from which it is clear that there is little appetite to revisit this procurement methodology either generally or for roads unless the issue of equity return and the cost of debt can be adequately addressed.
If the A14 Challenge is to come up with something deliverable it will need to focus on capturing increases in land values or factoring in business rate growth via a tax increment financing approach in addition to any element of real tolls. Whether the public will stomach the latter remains to be seen.
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