Advancing the Funding for Transport Infrastructure

Deciding on the timing of transport investment can be as important as deciding which investment to make. A rail station that opens a few months ahead of new homes being built, is used very differently from the same rail station built a few years after the same houses have bene constructed. Over time, different short term effects may converge towards similar long term benefits, but this can take 30 years or more. The lifetime benefits of the investment depend on scheduling around the needs of the economy.

Over £2bn of Transport Scotland’s transport investment in the Forth Road Bridge, M8 Motorway and Edinburgh to Glasgow Railway are due to be completed over the next few months. The news headlines are about whether these schemes will be on time. When is the right time for these schemes to open?

Large transport investment is typically planned over decades. By the time the benefits are delivered, the needs of the economy may be very different from when the schemes were conceived. Public expectations that large projects will be delivered grow over time, and people plan their lives around the expected changes. People have been expecting the completion of the motorway between Glasgow and Edinburgh for a while, so it is not clear whether the opening this year will be a few weeks early or 50 years late. Similarly, with the Forth Road Bridge, people have been planning around its completion since the early 1990s when contracts were first scheduled for issue, so there are 25 years of expectations to add to the new three month delay recent scheduled.

One positive aspect of the timing of these major construction projects has been to create jobs to soften the effects of the economic downturn. In a previous downturn in the 1990s after Black Wednesday an earlier attempt to complete the M8 contact was within hours of being signed with the winning tenderer but a rethink on public spending halted the scheme. Jobs in construction at a time when workers were being made redundant from the Ravenscraig steel plant, could have been an important boost to the economic benefits of the scheme but the required investment structures were not available in the 1990s.

The current deal to finance the M8 includes a bond issue and a loan from the European Investment Bank. The consortium responsible for designing, building and operating the road recovers the funds over 33 years from payments made to them by the Scottish Government. The financing structures for the Forth Road Bridge, and the Edinburgh to Glasgow railway also envisage loans paid back in the years ahead.

There is logic in shifting back when the payments are made to allow the benefits of the transport investment in the economy to help generate the wealth to service the debt. However, borrowing to invest is only a good strategy if the right investment is made. The economy has changed radically in the last 25 years, so legacy transport projects will not necessarily be the top priorities for this type of investment.

In the 1980s one transport planning controversy was whether to build a dual or single carriageway road to Inverness. At that time, dual carriageways were being built to similarly remote areas of Italy, Portugal, Spain and France, but the A9 was built as a single carriageway. The next £3bn of road investment now planned by the Scottish Government, to dual the A9, should bring it into line with the rest of Europe. Playing catch up is not necessarily the best investment strategy. By the time the A9 is dualled it is already reasonably clear that the interactions between the road infrastructure and the vehicles will be as important as the configuration of the road itself. Lanes may be being taken out to accommodate new types of technology. Borrowing £3bn for infrastructure that needs a major refit would not be such a good investment.

The future in uncertain. A major challenge for government is that uncertainty and public investment do not go well together. The public do not agree what risks public authorities should take. Transport Scotland’s investment model for the M8 is a good one since the road operator can potentially be allowed to take risks, such as on future technology needs, alongside delivering more certain contractual obligations. The business models for big projects like Crossrail, HS2 and the Forth Bridge attract the headlines. Perhaps it is time to review how bigger, and more expensive, investment challenges than these can be tackled, so that future transport investment capabilities can be available in time, rather than 25 years late like for the M8.

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