Written evidence submitted by Edmund Camerer Cuss (SRI0003)

This submission highlights a single Road Investment Strategy (RIS) inefficiency: in making value for money judgements, sensitivity analysis is inadequate for assessing exaggerated benefit : cost ratios (BCRs) in individually-judged schemes in a single corridor. What follows shows time and money are wasted by such individual corridor projects within the RIS.

The National Audit Office has previously noted to the Committee the difficulties that arise when there is no overarching value for money (VfM) business case for a series of projects in a single road corridor, and this is particularly the case in corridors where there is a preponderance of regional or through-traffic, which is frequently the case.

As they are currently handled, adjacent RIS projects that are treated and judged individually - with no overarching VfM case and which are not made subject to National Highways’ July 2022 Technical Annex for Programmatic Appraisal - are very likely to have their individual VfMs overstated. This happens for a single, base, reason but that reason is then potentially amplified by at least four other overlying elements.

Base Reason: The issue is sensitive to the timing of individual projects and the distance between them. A significant proportion of the individual project benefit is derived from the cohort of vehicles that travels through the whole or most of the subject traffic corridor on a (regional) trip. Removal of congestion and delay by individual Project A at Location A results in Benefit A. If the cohort is then delayed at adjacent Location B in the same corridor, then the same benefit is captured again by individual Project B, as Benefit B. And so on through individually-assessed schemes in a single corridor, each counting or re-counting the same improved traffic flow benefit at its own individual location.

However, if the individual projects are close set (e.g. within five miles), then the re-counting of the same benefit would probably be unjustified on public benefit grounds. From the viewpoint of the cohort of vehicles using all or most of the corridor on a regional trip, the congestion and delay has been moved a few miles upstream or downstream, increasing the congestion and delay at that point and not noticeably benefitting drivers’ experience; the cohort might not perceive any overall benefit as having accrued at Location A if its delay is instead experienced at Location B, in addition the Location B’s own congestion. Yet the two individual projects can each use or re-use the traffic flow benefit that falls strictly within their own scheme boundaries; within their own scheme boundaries, congestion and delay may indeed have been resolved and benefit thereby accrued. It is relevant that road schemes costing below £500 million, as individually-handled schemes are more likely to do, are largely delegated by the Department for Transport to National Highways.

Element One: Benefit is often assessed by way of a comparison between a without-scheme world and a with-scheme world. The without-scheme scenario may include the adjacent project (e.g., at Location B), as if it were a completed scheme; the guidance followed by National Highways on this topic changed in 2018 and again in 2020, to give three different regimes in the recent past. The current guidance, issued to National Highways’ project teams by its own Transport Planning Group is attached as Appendix A. This indicates that National Highways schemes are excluded from the core scenario unless they are in the published RIS programme and have a preferred route. This sets a high bar for National Highways’ own schemes being assumed as present in the without-scheme, core, scenario. When a nearby scheme is held back or delayed or for some reason is not in the RIS, it provides a distinct BCR advantage to the subject scheme because the without-scheme, core, scenario will then tend to produce a lower figure, thus providing a greater subject scheme benefit calculation outcome. Where an adjoining scheme is excluded from the core scenario, it will not obviously be excluded from the scheme BCR or from its VfM by sensitivity analyses. Thus, the same benefit is re-counted by the second scheme in the corridor, chronologically, and potentially by several schemes in a chain. The guidance that National Highways issues to its own project teams for them to follow, that gives rise to this exaggeration of net public benefit, can easily be critical to the size of individual scheme benefits as a result of its guidance’s definitions.

Element Two: Local highway authority proposed schemes that impact a RIS scheme are excluded from the RIS without-scheme, core, scenarios unless they are “near certain” or are “more than likely”, which is a lower bar for such highway authority schemes. The traffic flow advantages they produce are, then, more likely to appear in the core scenarios. These highway authority schemes will have their own BCR calculations, often based on increasing traffic flow. They may principally serve a different traffic corridor. But National Highways can reflect that increased traffic flow and can benefit in its own project without reflecting any of the costs that bought the benefit into being. In this way, the highway authority benefit may be reflected twice, once in the justification of its own scheme and once again by National Highways who will also, cost-free, reflect the whole benefit accruing to its own project. The timing of individual schemes and the point at which highway authority schemes become “more than likely” can potentially be critical to the net public benefit attributable to a National Highways project.

Element Three: When two or more projects combine and support each other, their total of benefit can be greater than their individual benefit. These can be seen as synergy benefit, for example when derived from enhanced traffic volumes flowing over both or all the individual schemes. There is no need for projects to be serving the same traffic corridor, but only that there is a mutual, synergistic, benefit beyond that created by their own individual scheme costs. The synergy benefit between either a National Highways or highway authority project in combination with another National Highways project enables National Highways to capture the whole of the synergy benefit arising - and not just a part of it or a due proportion of it - at no cost to the project being assessed.

Element Four: The Department for Transport approves of this threefold capturing of benefit-at-no-cost, one that leads to the re-counting of a benefit within separate scheme BCR calculations which then influence VfM judgements about resulting net public benefit. In one example, the Department contributed some 30% of the cost of an adjoining highway authority scheme to assist its commissioning, making it “more than likely” but the impact of this contribution then moved the National Highways adjoining project from a very poor BCR classification up into a low BCR classification, and this was achieved at no visible cost to the National Highways project itself. This is another example of an overlying element that can manufacture a taxpayer-funded benefit advantage for the RIS scheme but without there necessarily being any additional net public advantage from it nor one for which a cost is shown in its BCR calculation.

The timing or delay or guideline definition of core scenario schemes means that a National Highways scheme can have several different levels of benefit for BCR purposes, without there necessarily being any change in its actual traffic flow advantages. These several different benefit outcomes extend to include elements that frequently increase in line with traffic flow, such as benefits from increased safety, and local or regional economic benefits that are accrued from better accessibility, traffic flow and volumes, that likewise remain unchanged in practise. Sensitivity analyses, individual and cumulative, do not necessarily show up these features nor are they explained fully to the public at consultations.

It can be seen that fortuitous - or even judicious - combinations of guideline definition, delay, inclusion or not in separate RIS programmes, and the dovetailing with other projects or local highway authority schemes, allows for significant BCR benefit improvements in RIS projects. No cost is shown to match the benefit’s inclusion and in practise, no actual additional benefit has arisen, in the sense of improvement in the travelling public’s experience.

These situations are not just theoretical but are shown to occur in practise. One example of the base reason and all four overlying elements being in use - in just one RIS project not subject to the Programmatic Technical Annex mentioned above - is the A27 Arundel Bypass; Department for Transport, National Audit Office and National Highways correspondence, showing this, is available on the scheme.

Proposal

The Department for Transport is shown to support the current illogical and wasteful processes that can and do help poor value projects to be seen in an over-flattering light.

An evaluation of where the real, net, public benefit might best be accounted for in individually-appraised projects, or how that benefit might be apportioned between schemes, has hopefully been shown to be necessary. I suggest that the Committee needs to request a thorough evaluation and solution from a body other than the Department.

I also suggest it is important that consideration is given as to how National Highways’ Transport Planning Group, in its guidance to RIS project teams, would give effect to any solution both initially and over the longer term.

The Committee might separately consider the setting of RIS budgets for a single traffic corridors’ individual schemes in an overarching manner, as highlighted by the National Audit Office, so as to avoid the waste and double-counting that has clearly been allowed to creep into the process over time, as highlighted above, at the interface of the Department with National Highways.

Appendix A

Revised Traffic Forecasting Guidance, June 2020

Background

In January 2018, the Highways England Transport Planning Group (TPG) issued guidance on when a Highways England road scheme should be included within the core scenario when developing future year models to underpin scheme appraisal.

The guidance stated that any scheme within a published Roads Investment Strategy (RIS) should be considered as within the ‘more than likely’ category as defined in DfT’s TAG guidance[1], since the ‘outcome is likely to happen but there is some uncertainty’.

Looking back across the first Road Investment Period (RIP1), and contemplating the lessons learnt from it, TPG wish to update this guidance. This is because a number of schemes announced in RIS1 have been paused, delayed or withdrawn for various reasons and this has caused problems for other schemes that have included the paused, delayed or withdrawn schemes in their core appraisal. For this reason, TPG are withdrawing the January 2018 advice and replacing it with the updated advice below.

Updated Advice

When developing future year traffic models, an Uncertainty Log should be developed as defined in TAG Unit M4. Full consideration should be given to local developments (housing, retail, employment, educational etc) and transport interventions of all types, whether road-based or public transport related. Road schemes should not be limited to the strategic road network; interventions on local authority roads should also be considered. For inclusion in the core scenario then all schemes and developments should be ‘near certain’ or ‘more than likely’ based on TAG terminology and definitions.

When considering schemes specifically being promoted by Highways England then to be included in the forecast year core scenario the following two criteria must be met:

• The scheme must be included in a published RIS; and
• The scheme must be at PCF Stage 3 or later in its development process.

Including the second criterion ensures that the route for the scheme is known (it is past its Preferred Route Announcement), its affordability and Value for Money are established (as it will usually have its Outline Business Case approved) and its buildability and environmental impacts will have been established.

Sensitivity Testing

There are two instances when sensitivity testing is required.

First, there will be instances when there is another scheme, which could impact the scheme being appraised and is announced in a published RIS, but is not yet at PCF Stage 3. The second instance is when there is another scheme, which could impact the scheme being appraised and is announced in a published RIS and is at PCF Stage 3 or beyond, but there remains considerable uncertainty around the other scheme. For example, in terms of the other scheme’s affordability or funding.

In both these circumstances, a sensitivity test should be undertaken to determine the impact of the other scheme on the scheme being appraised. Impacts could include economic, operational/design or environmental impacts, or any combination of these.

Other Considerations

This updated guidance does not change TPG’s position on other sensitivity tests that may be required such as the standard national low and high growth scenarios required by TAG which assume no supply side (network) changes.

Should we wish to look at additional supply side changes in the upside (high) case, such as including ‘reasonably foreseeable’ schemes, then we term such a test an ‘optimistic’ scenario. If there is a need to keep costs down and/or to minimise the impact on scheme programmes, then previous pragmatic TPG guidance remains in place, with respect to looking at only three scenarios – core, low and optimistic.

With regard to the DfT programme of strategic studies or future RIS pipeline schemes, then these can be considered as not yet in a published RIS programme and should not be included within the core scenario for any scheme appraisal. If, however, a strategic study or future RIS pipeline scheme clearly impacts the scheme being appraised then it may be prudent to undertake a sensitivity test to look at the impact of the strategic study or pipeline scheme on the scheme being appraised.

Implementation

With regard to implementation of this new guidance then, as always, TPG promote a proportionate approach to scheme appraisal. So, for schemes that are well advanced and past the forecasting stage, we would recommend that scheme programmes are not adversely impacted by going back immediately to re-forecast. Please implement this new guidance at the next convenient point in the scheme programme, or when updating forecasts for the next PCF Stage.

The exceptions to this are scheme appraisals where there is either a pre-PCF Stage 3 scheme or an uncertain PCF Stage 3 or beyond scheme nearby. In these circumstances a sensitivity test should be carried out. As always, if there is uncertainty, seek advice from the scheme’s TPG Business Partner.

January 2023

Endnote