The House of Commons Transport Committee has published its Report on Rail Infrastructure Investment and the Department for Transport is consulting on amending its WebTAG appraisal guidance.


Rail Infrastructure Investment Inquiry

Back in November 2017, the Transport Committee opened an inquiry into rail infrastructure investment, as we reported in our article, Transport Committee launches rail infrastructure inquiry. The Committee has now published its Report which recommends

  • The three electrification schemes that were cancelled last year (Midland Mainline, Great Western Mainline and Lakes Line) should be recategorised as pending.  Electrification remains the best approach and the DfT should make a comparative cost/benefit analysis of new battery and hydrogen technology as against electrification; and should consider third party funded electrification schemes.
  • For CP6, the Committee supports the devolution to Network Rail's routes but wants more transparency about the enhancements pipeline and, by the end of the year, a list of specific projects likely to be available for third party investment under the market-led proposals process.
  • There are regional disparities in transport infrastructure spending but the Committee welcomes the DfT's efforts to improve the rebalancing toolkit.
Market-led proposals

Let's look at what the Report means for market-led proposals (for the background to these, see our article Time to Invest in Rail).

The oral evidence that the Inquiry heard was that there was a healthy appetite amongst investors for third-party funded schemes, in particular a scheme to electrify the Midland Mainline. The Report recommends that the DfT and Network Rail must demonstrate a greater willingness to engage with third-party proposals for alternatively-funded schemes.

The main difficulty with market-led proposals is the problem of allocating risk and reward in an effective and cost-efficient way. There needs to be more work done to establish the condition of existing railway infrastructure assets before third parties would have the confidence to invest more widely.

Following the Bowe Review, enhancements were taken out of the Periodic Review process. The DfT now effectively "buys" them from Network Rail and the ORR oversees the milestones. The Inquiry supported this process and the intention behind the Rail Networks Enhancements Pipeline (RNEP), but thought that more transparency about the RNEP and the decision-making processes within the DfT, was needed, to increase third-party investment.  They recommended there should be a list of specific projects available for third-party investment and the strategic priorities for investment in each region should be set out.

The Inquiry was concerned that there was no "Plan B" if market-led proposals do not materialise as hoped, and that "the rush to deliver poorly planned and scoped schemes in the current period will be replaced by a different problem – a slowdown or interregnum in new enhancement projects".

WebTAG appraisal guidance

The other main finding from the Inquiry was that there are regional disparities in transport infrastructure spending. The Inquiry found that current transport scheme appraisal methods disadvantage regions in need of economic regeneration, which is working against the Government's intention to rebalance the economy. Serendipitously, the DfT issued a consultation at the same time on its appraisal and modelling strategy, known as the WebTAG guidance.

To take a step back, when the DfT takes a decision to invest in a transport project, it uses the Five Case Model as recommended by HM Treasury. This looks at transport schemes from five perspectives and assesses whether they:

are supported by a robust case for change that fits with wider public policy objectives – the 'strategic case';

  • demonstrate value for money – the 'economic case';
  • are commercially viable – the 'commercial case';
  • are financially affordable – the 'financial case'; and
  • are achievable – the 'management case'.

The WebTAG guidance primarily focuses on providing information for the economic case, and is consistent with HM Treasury's Green Book appraisal and evaluation framework, which recommends the cost benefit analysis approach to appraisal. It looks at economic, environmental and social impacts of a transport scheme and tries to put a monetary value on each.

Looking at what the guidance should focus on over the next five years, the DfT have identified five themes and priorities:

  • People and place: capturing the range of impacts relevant to transport policy – there needs to be more focus on cities and devolution, improvements to the urban realm and a better way to value journey time reliability.
  • Uncertainty over the future of travel – the DfT needs to develop their understanding of emerging and future technologies that could fundamentally change the transport market, such as autonomous vehicles, mobility as a service and electric vehicles.  Behaviour trends are also changing.
  • Modelling and appraising transformational investments and housing – "Transformational" schemes such as Northern Powerhouse Rail have strategic objectives that extend well beyond "traditional" transport outcomes, and the guidance needs to capture the full impact of these schemes.
  • Supporting the application of WebTAG and making it more user friendly – including developing case studies and simplifying and streamlining the guidance.
  • Developing and maintaining modelling and appraisal tools to meet user needs – including better modelling of freight.
Comment

The Inquiry's recommendations on market-led proposals are welcome and we hope that the DfT take them on board: the Government response is still awaited at the time of writing. Transparency around the enhancements pipeline and the strategic priorities for investment in each region would greatly help third parties trying to scope proposals that will deliver them an acceptable return on investment.

The WebTAG consultation shows that the DfT is moving with the times and wants to make sure its guidance reflects the changing transport needs and drivers, so that the true benefits of a transport project can be analysed.

Taken together, this is encouraging news for potential third party investors who need to prove their project meets the DfT's business case if they want any public contribution to funding.

Key contacts

Anna Heaton

Anna Heaton

Partner, Real Estate
United Kingdom

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Paul Hirst

Paul Hirst

Partner, Head of Transport
United Kingdom

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