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Spending Review - Industry Comment - Deloitte

Ian Simpson, head of transport, at Deloitte on the Spending Review.

“Today’s Spending Review announcement has emphasised the £30bn which will be spent on transport investment in this country over the next four years and made the point that this is greater than was spent in the last four. This level of capital spend is better than might have been feared and reflects a strong desire to protect the infrastructure which will support the growth of the economy in both the short and medium term.  The Spending Review prioritises capital spending on transport projects which can offer high economic returns when compared to investment projects in other sectors. By focusing on projects that deliver greater benefits in return for their costs, the positive impact of capital spending on the wider economy can be maximised

“Crossrail is, as expected, to go ahead.  What is positive is that it will go ahead in full without cuts to either lines or stations, although with a reduction in budget and a clear message that overruns will not be tolerated.  Those responsible for delivery of Crossrail face some very real challenges in delivering the scheme to a very tight budget and an efficient delivery mechanism combined with strong management and financial controls will be required.

“The wider TfL budget is to be reduced by 28%.  Coming on top of cuts already included in the TfL Business Plan brought about in large part by the impact of the recession on fares income, this reduction marks a very real challenge to TfL and is almost certainly a price that had to be paid by the Mayor, Boris Johnson, for the preservation in full of both Crossrail and the Tube Upgrade programme.

“The central Transport Department is due to suffer significant cuts with a reduction of 21% in its budget over the period to 2014/15.  Much of this cost is headcount related and there must be a very real prospect of compulsory redundancies.  The role  of the Department will change given this reduction and we will see much tighter control of how money is spent in terms of both assessing how monies are dealt out as well as the level of control in how it is spent.

“Other areas of transport will see user charges increase, affecting both rail passengers (who will see the price cap on regulated fares increased for the next three years) and road users who are going to see charges increase on the Dartford Crossing.   Bus subsidies paid directly to operators will be reduced by 20% but there is good news for passengers who make use of the Concessionary Fares Scheme who will retain their free passes.

“With the cut-backs, new sources of funding will have to be found to plug the gap for  transport projects, including new public sources of funding such as the Urban Challenge Fund and Tax Increment Financing (TIF) or private monies. It is our belief that more complex and innovative funding packages will be required, needing a strong degree of local public-private support and partnership.  Public sector transport organisations will be under more pressure to realise cash from the sale of surplus assets, which should include under-utilised land and property. Local authorities and central government departments in particular will need to take a long, hard look at their land and property assets to ensure that income-generating potential is maximised.  Disposal will either be through straightforward sale or, increasingly, through some form of partnering arrangement, such as a Local Asset Backed Vehicle.”

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