Speech by Rod Eddington to the Commonwealth Club in London on 1 December 2006

1 December 2006

Speech by Rod Eddington to the Commonwealth Club in London

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I would like to begin by welcoming you all here this morning - you have made one of 167 million transport journeys made today in the UK. My journey today starts in London - ranked in recent surveys as the top European city to do business - before I travel up to Birmingham, the centre of the logistics network of the UK, and then on to Manchester, one of the fastest growing cities in the UK.

The UK economy starts from a position of considerable strength. GDP growth is forecast to grow 2.6% this year - higher than that in Germany, France and Italy. UK remains attractive for foreign investment - averaging some 4.2% of GDP for the last 10 years and attracting the highest share of incoming investment in the world last year.

Economic growth drives transport demand. This creates both opportunities and challenges - including its impact on the environment. Government and the private sector will need to show considerable foresight to deliver a transport system capable of supporting the continued success of the UK economy, able to continue to compete globally and meeting its environmental challenges.

I was asked to advise the Government on the long-term links between transport and the UK's economic productivity, growth and stability, within the context of sustainable development.

Many would say that the answer is obvious: of course transport matters to productivity and competitiveness.

And they would be right. I am told railways were fundamental to the creation of the national football league founded in 1888. Preston North End, in Preston, Lancashire, won the first league title without losing a game.

Transport matters to people and to the economy. History provides many compelling examples of transport's role in economic transformation: rail, shipping, road and air transport revolutions drove industrialisation; created the world's great cities; gave birth to international trade and globalisation; and gave individuals unprecedented freedom to travel around their own countries and the world.

Today we must ask ourselves where, and in what ways, can transport make a contribution to the future productivity and competitiveness of the UK? Being smart about the types of policy options that are most likely to deliver for sustainable growth can yield significant benefits to the economy.

My approach to this Study began with the basics - to understand the fundamental relationship between transport and the economy. I have reviewed academic literature, commissioned and undertaken new pieces of work. I have benefited hugely from wide-ranging stakeholder input across the country - helping me understand what business and citizens in the UK really want from their transport system. I have consulted widely with key stakeholder groups in the UK, received well over 200 submissions, personally chaired many meetings and travelled widely around the UK to meet many of these stakeholders in their cities and towns.

The evidence on transport's role in the economy is clear. The UK transport system supports a staggering 61 billion passenger journeys and 250 billion tonne-kilometres of goods moved a year. Transport networks support the productivity and success of the UK economy. A 10% reduction in journey time by car in urban areas can deliver productivity improvements of 1.1%. Transport corridors and international gateways are the arteries of domestic and international trade, allowing citizens to enjoy a diverse range of products and business to access far-reaching markets. In the last 40 years falling international transport costs have boosted trade and contributed 2.5% to UK GDP.

So how do we ensure that the transport system continues to support the UK economy? Today, I am publishing my findings - "Transport role in sustaining UK's Productivity and Competitiveness: The Case for Action". The case for action, because, I know that business as usual is not an option.

I have looked hard at the evidence and I make five key recommendations for Government. Implementing these recommendations is essential to maintaining the UK's current strong economic position and equipping the UK to grasp future opportunities and to meet future challenges.

I begin by defining the challenge. By international standards the UK is a small country with a compact economic geography. But lets be clear, it is a very big player - the fifth largest economy in the world, and growing. Continued economic success means higher incomes and rising populations creating new and changing pressures on the transport network. These geographic and economic characteristics define the transport needs of the economy.

Today, I find that the UK transport network provides the right connections, in the right places, to support the journeys that matter to economic performance. The UK has a greater proportion of its population connected to the strategic road and rail networks than its European competitors. Nearly two-thirds of the UK's largest towns and cities are within an hour's free-flow travel of a major international airport. And the 10 biggest UK ports on the British mainland all have rail connections to the main intercity rail networks.

Much of the transport system works well. In many places outside the peak hours, roads are relatively uncongested. Over 90% of trains arrive on time...although this will be of little consolation to those who do suffer congestion and delays.

The transport challenges for the UK are not ones of connectivity or distance - the infrastructure networks are broadly in the right place - but of competing demands and overloads.

Congestion on England's roads, if unchecked, will increase costs to businesses and freight by over £10 billion a year, and a further £12 billion of wasted time for households in 2025.

Rail demand has been growing strongly over the last 10 years - a break in previous trends. Overcrowding is forecast to increase significantly near and around cities. Rail unreliability problems have recently cost business at least £400 million a year, and without action, will ultimately rise as growing demand puts more pressure on the network.

Growth in trade - with increasing imports from Europe and Asia - will squeeze port capacity - and without further expansion the costs of getting goods to market will increase.

And for airports, not adding additional capacity in line with the Government's Air Transport White Paper will cost business £6 billion.

There is no escaping these realities. Better utilising existing transport assets makes great economic and environmental sense. A 5% reduction in travel time for all business travel on the road network alone could generate £2.5 billion of cost savings - equivalent to some 0.2% of UK GDP.

Networks are in place. But the problem is one of congestion.

My first recommendation to Government is therefore to improve the capacity and the performance of the existing transport network.

Incremental improvements will not be sufficient. New capacity will be needed so where in the UK should transport investment be prioritised? My view is that this is not about picking winners - but about investing in sustained success. I have no doubt that the right policies in the right places can make a significant contribution to UK productivity and competitiveness to the benefit of all.

Transport demand in the UK is predominantly local, and is concentrated within cities and their surrounding catchment areas. The majority of journeys are local - 69% of business journeys and 84% of commuter journeys are shorter than 15 miles. The flows of services are large: each day there are 72,000 international air and rail business passenger journeys made to and from the UK (compared to approximately 60,000 long distance domestic business trips).

This density of demand creates substantial pressures on the network. As a result congestion, declining reliability and overcrowding are real problems at peak times: particularly on those parts of the network where commuters, business travellers and freight traffic compete for access to the same sections of infrastructure.

Over recent decades the UK economy has increasingly specialised in services and high value manufacturing, with an increasing reliance on the import of raw materials and low value manufactured goods. The service sector today delivers some three-quarters of UK GDP and some 80% of employment having grown by an average rate of 3.5% this decade. Trade represents 28% of UK GDP. Transport's role in supporting the UK's cities as centres of services growth, and its international trade gateways, will become increasingly important.

I'm in no doubt that the key challenge is to ensure the transport networks can support the success of one, the growing urban catchments; two, key inter-urban corridors; and three, key international gateways. These should be the economic priorities for the UK because they are both highly productive and growing. These key transport links are heavily used today and show congestion and reliability problems, which will get worse. These are the places where transport constraints hold back economic growth.

My second recommendation to Government is therefore to target future growth-focused investment on growing urban catchments; key inter-urban corridors; and key international gateways.

So what should the appropriate policy response be? Finding the right policy mix on these three strategic economic priorities - growing urban catchments; key inter-urban corridors; and key international gateways.

This year, public spending on transport - ranging from roads to public transport including rail, buses, and cycling schemes will be £21 billion - equivalent to 1.6% of GDP.

Investment will be essential to maintain and improve the transport infrastructure - and the Government and the private sector must work together across all modes to deliver this. The returns from public and private investment can be very high -with benefits four times in excess of costs on many schemes.

But let us be clear. This does not always have to entail large-scale projects. Some of the best projects are small scale - tackling bottlenecks in the existing network - such as rail platform lengthening, roads linking to ports - and walking and cycling schemes. However, I am sure a series of small-scale projects alone will not be able to alleviate major transport pressures over the long term.

Ambitions and dreams of extensive new networks - that will only ever make marginal improvements to connectivity of the UK - are not a priority. Transport policy needs to avoid wasting time and money pursuing alluring new super high-speed motorway or rail networks or pursuing 'grands projets' with speculative returns.

Getting the prices right, across all modes, including roads, also matters. The UK must be prepared to move the road pricing debate on from if, to how. And I welcome the opportunity to contribute.

Sir Nick Stern's review has demonstrated powerfully that tackling climate change is the pro environment, pro growth strategy. Transport will need to be part of this response.

I have long argued that the transport sector - including aviation - should meet its full environmental costs. Indeed, my report extends that principle and argues that, for economic reasons as well as social or environmental, all transport users should meet all their external costs and investment appraisal should take account of environment costs.

The UK cannot build itself out of current road congestion. Where road space is limited this needs to be utilised efficiently. There is currently a system of prioritising access to the UK road network - it's called congestion. It is indiscriminate, unreliable, and damaging to the environment.

Ask yourself the question: do you in 20 years time want to waste up to 4 more working days of your life each year sitting in congested peak traffic in UK's largest cities? Or are you prepared to change your travel patterns, and pay a full, but reasonable price to reflect environmental impacts, and benefits in terms of improved speed and reliability of your car journey? In a recent survey by the British Chambers of Commerce, 87% of members indicated that they would be willing to pay some form of road pricing.

The principles of meeting environmental cost applies to congestion as well, hence my strong backing for congestion-targeted road pricing. Clearly while this is not feasible in the near term - for instance the technology for implementing this does not exist and costs are unknown - but for me, in the end - road pricing is an economic no-brainer.

I know that there are barriers to making this happen: we must learn lessons of pilot schemes; the technology must be developed and be cost-effective; overall costs must be reasonable. It will take some time to implement, but getting this right has a huge prize attached. My work has shown that the benefits to Great Britain could be worth up to £28 billion a year by 2025. This figure includes welfare benefits and will depend on scheme costs. It is a classic win-win. While firm estimates of the costs are not developed at this stage, they would have to be extremely high to outweigh the benefits of this scale. Government must work together with you to make widespread pricing feasible within the next 10 years.

However a sensible road pricing regime will still require additional road build - Government will need to strike the right balance.

My third recommendation to Government is therefore to deploy a sophisticated policy mix of pricing, better use, and investment.

How do we make this all happen? My advice to policy makers is simple: Look for clear signals before taking action. Transport improvements aimed at tackling demonstrable problems and shortages are most likely to offer real benefits: this is not about picking winners, but about sustaining success. Any investor would look at the current health of the business and its future prospects before committing investment. In transport terms this is where the demand for infrastructure and services is already strong and further growth is projected as reflected in growing number of jobs and business activity.

Policymaking should start with the policy goal or problem, and fully assess a range of solutions across modes that could be adopted in order to address the situation. Implementing my recommendations means doing things differently through rigorous prioritisation: doing more of some and possibly less of others.

It is evident from my work that, in transport debates across the world, the opposite process sometime occurs. We see situations where the solution develops first - perhaps driven by the prospect of an exciting new technology, aspirations of transforming the economic fortunes of a region, or simply because a competitor city or country "has one". The idea rapidly becomes a solution looking for a problem.

My fourth recommendation is for the UK to enshrine a systematic and transparent approach to policymaking and funding.

For this to be worthwhile then ensuring the delivery system is ready to meet the future challenges with the right tools, capacity and funding at its disposal is essential.

I am strongly of the view that the Government needs to take a hard look at the current governance arrangements at the sub-national level. Of course, these are difficult decisions, but the sub-national bodies must have the right responsibilities and scope to support the evolving patterns of local and regional journeys, if transport improvements are to be targeted and visible on the ground. The way bus services are delivered in urban areas is one such area.

There are many conflicting views as to whether the current planning system achieves the right balance between national, regional and local costs and benefits; between economic, environmental, and social objectives; and between the rights of individuals and society as a whole.

For my part, I am not convinced that the planning system gets the balance wrong: sensible judgements are made that allow the UK to grow and develop, but only where the schemes do not impose unjustified costs on individuals, the environmental or society.

However, I am convinced - and having listened to stakeholders' views throughout the UK- that the planning system as it has evolved over several decades imposes unacceptable cost, uncertainty and delay on all participants and the UK more broadly. For example, the Thameslink 2000 scheme required over 30 consents, under four different Acts of Parliament - and over 8 years to get the go-ahead. This problem is not unique to the UK - and is shared with many European counterparts. There is a strong case for reforming the planning process for major transport infrastructure projects to provide greater clarity and certainty without comprising fairness and thoroughness.

My proposals therefore: put democratically accountable Ministers at right part in the process - upfront, producing clear statements of strategic objectives; introduce new statutory provisions to reinforce the requirement for full and wide-ranging public consultation, enshrining the role of individuals, local communities and interest groups in shaping the future of the UK; and remove Ministers from the decision stage through the establishment of a new independent Planning Commission to take the final decision on specific schemes.

My fifth and final recommendation is therefore to ensure that the delivery system, including planning and governance arrangements are ready to meet the future challenges with the right tools, capacity and funding at its disposal.

To recap, I am making 5 headline recommendations for Government to act on:

first, make the most of the existing transport infrastructure by tackling congestion and capacity issues;
second, identify the strategic economic priorities - today, in the UK these are congested and growing cities, key inter-urban and international gateways
third, introduce a sophisticated mix of pricing, better use and sustained transport infrastructure investment
fourth, policy and strategy must adopt to these economic priorities; and
fifth, ensure the delivery system can support these policies.

In closing, I would like to thank the many individuals and organisations around the country that have contributed so thoughtfully to my review and I hope you will continue to contribute.

I believe that, if Government implements my recommendations, the UK will create and maintain a modern, responsive and efficient transport system for the future - the type of system that is needed to improve the experiences of all who use the UK's transport networks, continue to boost UK's productivity and competitiveness, help businesses to compete on the global stage, whilst equipping government to meet its challenging environmental goals and improving the quality of life for all who live in this country.