UK private road-building plan 'a win-win'
by Ian Simpson
With congestion increasing, the British government is right to look into financing road building from outside the public purse – but there are many questions that still need answering
The announcement that the British government is looking into the possibility of introducing new ownership models with tolls and charging for growing road capacity is a welcome addition to the funding mix for transport.
Demand for road space will continue to grow on all major arteries and by 2025 the English road network will be 27 per cent more congested that it was in 2003. With the economy in its current state, investment in infrastructure is one of the best ways to unlock economic growth. New road building financed from outside the public purse is clearly a win-win.
The challenge now facing the Treasury and Department for Transport is to design a system for delivering this that achieves a tricky three-way balancing act: attractive to investors, efficient for taxpayers and capable of winning over sceptical motorists. No easy feat. With this in mind, the government needs to address many critical questions in their forthcoming review.
Firstly, what is the scope for tolling of either new roads or additional lanes on existing ones? A 2008 study by the previous government found that charging motorists to use extra lanes on current roads would be both technically and financially viable and would help improve capacity in a much shorter time frame. This deserves consideration once more.
How to avoid another situation like the M6 toll road? While it offers a much better experience for its customers, the road struggles to make adequate returns for investors and constrains the Highways Agency in terms of overall management of that area of the network. If investors cannot make money from a new road in one of the busiest parts of the road network, why will schemes to toll other roads be any different?
How can the government create the incentives to attract private investors? The risks associated with the construction phases of infrastructure projects often deter investors, particularly the large pension and insurance funds. There are a number of external factors that can also unnerve investors if they are asked to take the risk for variation in traffic demand which could he heavily affected by such factors as fuel prices, consumer spending and performance of the wider economy.
How can new ownership be structured to make sure that investment is targeted towards the worst bottlenecks in the system which may not be those offering the best financial return? Investors will look for steady and predictable profit streams but the government will want to make sure jobs are created and those roads really in need of upgrades come first. The two may well clash.
What will the regulatory regime look like? Presumably a new regulatory body would need to be set up to oversee the new ownership and any network of tolled roads. That needs considerable thought and design. Comparative regulation by region in the water sector, the model touted as a blueprint, has been successful in driving down costs and exposing cost variances and would be effective if also applied to the roads network.
How can the value for money case be made clear? While a new system may attract financing from the likes of pension funds and sovereign wealth funds, how can the government ensure that, in the medium to long term, taxpayers are still getting bang for their buck?
How will new operators interact with the current stakeholders? The road network covers a myriad of organisations from government departments, the Highways Agency, local councils, local enterprise zones and local transport bodies all of whom will play a part in the United Kingdom's road network. For some new operators, this will be uncharted territory.
So while encouraged by the potential of the government's roads plan some huge challenges in terms of designing and implementing this lay ahead. We await the autumn feasibility study with great interest.
Ian Simpson is head of transport at Deloitte
Anyone considering supporting such a scheme should look at an article in the British Journal of General Practice on the costs incurred and ongoing of two private finance initiatives in the NHS. They are going to cost us and our children way over the amount it cost to build the estates involved. This is criminal and is the big reason why a similar situation should be avoided for road building.