Making the cut: UK spending review special - Steer Davies Gleave

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special uk spending review The outcome of the UK government’s spending review this autumn will have a dramatic impact on the way transport is planned, financed, delivered and operated across the country. New thinking, new tools and new ways of working are needed in an economic climate where scarce resources will have to work smarter and harder than ever before. In the following pages, Steer Davies Gleave offers some ideas to consider. 10 making cut the uk spending review
It’s the new economy, stupid! In an economy with less funding, new tools are needed to help make the right decisions. By Lars Rognlien The current economic climate, with sluggish growth and severely constrained public purses, demands a change in the way transport projects are prioritised. With less money to go around, local authorities and central government departments alike need to consider carefully how to extract the most value for money out of the resources they have. For transport this will most likely mean a stronger focus on revenue schemes and quick wins/ low cost options such as smarter choices and travel planning. The need for private funding arrangements may also be on the rise, although the appetite for investment may not be as great. However, if the current economy means a change in how limited funds should be prioritised, should not also the way we assess and prioritise projects change to reflect that? Two key economic challenges are restoring growth and reducing the public debt, so schemes that deliver productivity gains quickly should be given a higher priority than those that deliver consumer benefits that are spread over a long period of time. Firstly, schemes that deliver economic growth quickly aid the recovery. But more importantly, economic growth means sorely needed tax revenues. At the same time, partnerships of councils will replace the regional administrations. This will increase the focus on understanding the local economic impacts of schemes. Councils may care less about delivering time savings and national value for money and more about growth in local employment, population, productivity and land values. All this requires new tools. The guidance on Wider Impacts can help to an extent, but only at a national level. There are regional models that can help but these are typically costly to set up and maintain. Wanting to help fill the gap between national appraisal and bespoke regional models, we have developed a sub-regional economic impacts model. Technically it falls within a class of economic models called Computable Generalised Equilibrium (CGE) model. It represents detailed interactions between economic sectors and households in a given area, as well as trade with other parts of the world. This type of model has strong foundations in how economists believe actors in the economy interact, where prices adjust to ensure supply and demand are in balance. Based on standard outputs from transport appraisal and published official statistics, the model can help to understand how a scheme affects the economy ‘on the ground’. Time savings to business travellers, for instance, are converted into productivity gains to the firms employing them – giving a boost to their production. This in turn forces a reduction in prices, which ensures demand for their products keeps up. In order to increase production, the firms will increase the use of labour and other inputs, bidding up the price for those. Households are better off because of a combination of higher real wages, lower prices and, ultimately, higher consumption. The final outcome is a composite of all these effects. The new model will not find any ‘new’ benefits that the appraisal did not capture. But it will give us an understanding of the distribution of impacts special uk spending review across space and economic sectors (including households) as well as the manifestation of the benefits in terms of prices, wages, output, jobs and incomes. With this model we will be able to advise local and regional stakeholders about how individual projects deliver against their economic objectives as well as helping them demonstrate how schemes deliver economic growth and tax dividends at a national level. To find out more contact Lars Rognlien t +44 (0)20 7910 5000 e lars.rognlien@sdgworld.net 11
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Making the cut: UK spending review special - Steer Davies Gleave

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