Transport Infrastructure: Adding Value

New report argues that ‘economy class’ carriages would cost around 20% less than the standard class fare

Summary:

• The public sector should learn from the continual experimentation of the private sector and address the quality issue by exploring the different preferences that travellers have for different attributes of the transport service. Consequently, when adding capacity, it should offer travellers a choice of different price-quality bundles, in the manner of the de-regulated aviation sector.
• Segmentation of the transport market and the introduction of priced options provide an opportunity to add smaller and less expensive tranches of capacity while achieving equal if not higher levels of overall benefit.
• Rail commuters, for example, could be given more choice regarding the quality of service and the cost of fares. An additional high-density ‘economy class’ section could be introduced on commuter trains, access to which would be priced during the peak at a large discount to current fares. From the resource cost point of view, there would be more passengers on a standard- length train without the recourse to high levels of taxpayer-funded investment in expensive new infrastructure.
• Motorists could also be given more choice. The development of the strategic network should allow for priced alternatives running parallel or close to congested roads. These alternatives could place an emphasis on features that add value over and above their potential for reducing travel time, for example by offering reliable, hassle-free journeys on routes or lanes free of heavy goods vehicles.
• Congestion is endemic across both the rail and road networks. As a result, travellers often experience a degraded quality of service in the form of overcrowded trains or long queues of traffic.
• The government is seeking to address these problems through public spending on transport infrastructure. It is assumed that such expenditure will reap future dividends by boosting productivity and contributing to economic growth.
• Political intervention and perverse incentives mean, however, that there is a high risk that resources will be squandered on poor- value schemes. Weak control over capital costs, bad management and lack of accountability are also symptomatic of the non- commercial approach of the public sector. The problems associated with government transport investment are exacerbated by shortcomings in the appraisal methods used to evaluate projects.
• The transition from the market driven, privately promoted, risk- taking infrastructure provision prior to the 20th century, to the politically influenced welfare economics approach of today, has had the effect of breaking the important nexus that formerly existed between the choice of a project, the quality of service it was to provide and the pricing of its use.

The publication appeared in The Daily Mail, City AM and The Metro.

Read the press release here.

Discussion Paper 50, 2013.

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