Monday, March 19, 2012

Roads for Sale

David Cameron has dared to raise the idea of privatising roads. This is a concept that this blog suggested back near the start of the Coalition government. After all, roads are assets that have value, and we're desperate to reduce the national debt, so the whole thing makes sense. Providing you do it right of course. In the same speech, he's also proposed more airport capacity. That makes less sense.

Roads first. It's not clear how the government propose to structure any roads privatisation deal, but they've ruled out tolling - for existing roads. This blog has also pointed out that there are problems with selectively tolling roads. As the now-virtually-bankrupt M6 toll road shows, if there is a toll-free alternative, it is difficult to get people to pay for something they could get for nothing. The other problem is that selective tolls aren't fair. Why should people wanting to cross the Thames on the east side of London via the M25 have to pay, when people wanting to cross the Thames on the west side do not?

We saw with the public-private partnership (PPP) financing that governments are not good at striking value-for-money deals, and the consequences of getting them wrong can be injurious to the public purse. Presumably, any deal will have to give a good prospect for the investors of a reasonable return over a good period of time. Yet there are many factors that make investing in roads a risky business, if you're relying on income that's related to traffic levels. The oil price may increase, forcing businesses and individuals to reduce their vehicle use. Improvements in technology such as broadband communications may mean there is less need for travel. People may well choose to live closer to their work, or work from home more. And finally, the government may actively try to reduce car use for environmental reasons. If the road-owner's income isn't related to traffic levels, and the government effectively rents the road back for a fixed yearly payment, then it simply becomes a liability to the government, no different to its other debts. Lastly, there is the perennial problem of new roads: if you build a new trunk road to relieve congestion, you simply create more congestion elsewhere, in the smaller roads that feed the new road. Those roads won't be private, so it'll back to the government to spend more money upgrading those roads. Before we all sign up to a massive programme of new road-building, supposedly privately financed, we would do well to ask what the consequences will be.

Airports next. Cameron apparently now accepts the need for increased airport capacity in the south-east of England. I'm not sure I do. Some existing airport capacity could be freed up by diverting short-haul journeys to rail. Rising oil prices may choke off demand for air travel, and will also encourage a move to larger, more fuel-efficient planes like the Airbus A380, which require fewer landing slots per passenger. A third factor is that there are new communication technologies that enable businesses to replace air trips with videoconferencing. In other words, as the economy becomes more efficient in response to cost pressures, we will make better use of our existing airport capacity, and may not need any additions to service the needs of visitors to the UK and UK-based travellers.

The other justification for airport expansion is the 'hub' market, where we are supposed to be competing with Frankfurt, Amsterdam and Dubai for passengers who are just passing through on their way somewhere else. There is a problem here. Those hubs already exist. Dubai has few constraints on its expansion. It would only be worth competing with other hubs given two prerequisites: a) if London can do it better and cheaper than its rivals; b) if the market expands. I've already made the case that increasing fuel costs may limit the market for air travel. Businesses are increasingly replacing air travel with cheaper alternatives such as videoconferencing. And London land prices, construction and labour costs seem unlikely to be competitive. Lastly, do we really want to be increasing London noise and air pollution to attract passengers whose destination isn't London?

To summarise, government strategy seems to be to invest in the infrastructure needed for an oil-dependent economy, just at the time when the prudent thing to do would be trying to reduce oil-dependency. Sure, you could create jobs in the airport industry, but you also create jobs elsewhere, in renewable energy, high-speed broadband and lower-carbon transport for example. And the latter industries are more likely to make other industries more efficient, by reducing their reliance on the dwindling and increasingly-expensive oil supply. There is something fundamentally wrong with this government's thinking. They are assuming that we're going to return to business-as-usual pretty soon, and the future will be very much like the past: consumer-fuelled growth, and increased road and air travel. So if they get their way, by 2030 we could have spent hundreds of billions building roads and airports that are fit for a late-20th-century oil-fuelled economy, on the assumption that the 21st century will require much the same.

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