Table of Contents
Summary
Outside of London, Britain’s cities are struggling. By devolving approvals and funding mechanisms, local leaders could champion much needed local transport investments, while helping improve connectivity within our country’s towns and cities.
Our cities are struggling in part because they lack mass transit like many European counterparts. Only nine British cities have a tram or tube, compared to 30 French cities and 60 German cities.
The currently centralised system of approval and funding adds up to four years of delay, millions in consultant fees, and lowers the incentives for cost-effective construction.
The next Government needs to devolve Transport and Works Act Orders (TWAO) to metro mayors, who know more about what their local area needs. This would speed up the planning process and allow local leaders to champion transit projects from start to finish.
The next Government also needs to devolve new funding mechanisms to metro mayors and local authorities. These should include:
A 1p uplift on employer national insurance contributions ring fenced directly to new transport infrastructure. This should be modelled after the French versement transport, which was vital for their tram renaissance.
Business Rate Supplements
Council Tax and Stamp Duty precepts to capture the value uplift that new trams and light rail bring to properties.
An expansion of workplace parking levies, with power to enact them devolved to local authorities and metro mayors.
Expanding Tax Increment Financing (TIF), which enables councils to borrow ahead of future uplift in revenue from business rates, which local transport infrastructure brings.
Challenge and Opportunity
Outside of London, Britain’s cities are struggling. In most Western countries, cities that are not the capital are at least as productive as the national average. Yet in the UK, these cities are just 86% as productive. The output per worker in these cities is 30% less than similar German cities, 23% less than French cities, and 18% less than Italian cities.
A big reason for this is the lack of public transport infrastructure in our cities and towns (Figure 1), which makes it harder for people to reach good, high paying jobs that are aligned with their skill sets. Mass transit supports more people moving in and out of city centres, encourages denser development, and higher productivity with greater specialisation and innovation.
Leeds and Marseille are about the same size. Yet while Leeds is the largest city in Europe without any mass transit, Marseille has two metro lines and three tram lines. Consequently, only 38% of Leeds residents can reach the city centre within 30 minutes, while 87% of Marseille residents can. As a result, the average Marseille resident is roughly 20% more productive than the average Leeds resident. There are only nine British cities that have a tram or metro compared to 30 French cities and 60 Germany ones, making the lack of mass transit in our towns and cities a national problem. In fact, more of Britain’s cities lack public transport than any other wealthy western country, including America.
Figure 1: UK's Public Transport Compared to Other Developed Countries
One of the reasons why we haven’t built enough local transport systems is because of the centralised funding and approval process. While a French local authority and mayor can plan, fund, and build a tram project within a single six year mayoral term, a British tram project would take at least a decade to do that. Three to four years of this is spent getting central approval with a transport and works act order.
Building transport infrastructure in the UK is more expensive than in similar European countries. Underground lines cost six times more per mile than Spanish ones and British trams are four times more expensive per mile than their German counterparts. One reason for this is poor incentives on design tradeoffs. When building new infrastructure there is often a tension between budget and nice to haves, like architecturally interesting stations, higher capacity or frequency, and urban realm improvements. Whilst HM Treasury pays for the transport project, the ‘nice to haves’ decisions are made on a local level. If we devolved approval and funding for transport projects, local leaders would have to grapple with these trade offs, and would have much stronger incentives to choose the most cost-effective options, helping to deal with Britain’s transport construction cost challenges.
New trams and light rail increase land values, but we currently do not capture this to fund the infrastructure. House prices go up in the area near the tram stops because people want to live near public transport. Two years after tramlines opened in Manchester, Edinburgh, and the West Midlands, prices of homes near the line were on average 15% higher. This is compared to essentially no house prices changes in the two years prior to the tramline opening. Yet under the current centralised funding system, we have no way of capturing some of this uplift to help fund the transportation project.
By devolving both funding and approval of local transport projects to metro mayors and local authorities, local leaders—who know what their area needs best—would be able to champion projects from start to finish. Local politicians could campaign on pledges to get trams built for their town or city, then deliver them cheaply and efficiently in office without having to continually appeal to central government for funding or approval. Expanding local transport across the UK is vital if Britain’s towns and cities are going to prosper.
Plan of Action
We need to fund and approve projects at the appropriate level of government. Big railway projects like HS2 and East West Rail should be handled centrally, but local transport projects like trams should be at the discretion of locally elected leaders who know their area best. Devolving local transport presents the opportunity to deliver faster and more reliable transport for Britain’s cities and towns, while lowering the cost of construction.
To kickstart a renaissance in local transport infrastructure, the next Government should:
Devolve Transport and Works Act orders (TWAO) to metro mayors. TWAOs are useful for tram and light rail projects as they give planning permission and legal protections, yet they can take up to four years for the projects to get a yes/no answer, while costing local authorities millions in consultant fees. Metro mayors should be allowed to approve construction of new tram and light rail projects, as they are better placed to know what their local area needs.
Enable local authorities to levy an extra penny on employer’s national insurance on the condition it is ring fenced for new transport infrastructure and approved at local referendum. A similar tax in France, called the Versement Transport, helped to fund France’s tram renaissance with 21 different cities building tram systems since 2000. If this tax was implemented in Leeds, the largest city in Europe without rapid transit, it could raise £70mn per year for new transport infrastructure in the city.
Enable councils who are planning a tram or light rail project to capture the value uplift of land to help fund the line. The Treasury should allow councils to collect stamp duty uplifts for houses on sale nearby tramlines as well as council tax precepts. Two years after tramlines opened in Manchester, Edinburgh, and the West Midlands, prices of houses near the line went up by 15% on average. This is compared to essentially no house price changes in the two years prior to the tramline opening. A tram project should be able to capture some of this uplift to help fund construction.
Encourage councils to use the powers given to them by the Business Rate Supplements Act 2009 to levy an increased rate on businesses located near new transport infrastructure. Business Rate Supplements were used to partly fund Crossrail (the Elizabeth Line), and will raise £8.1bn by 2041.
Expand Tax Increment Financing (TIF) to council tax precepts and stamp duty uplifts for projects that boost property values like trams. Costs of new infrastructure are upfront, while the benefits in increased land values and economic activity are delivered only once the system starts running. American tram projects like Omaha’s, have successfully used TIF to borrow against future uplift in taxes, which trams create through regeneration and development of city centres. The Local Government Finance Act 2012 gives councils this power, but it has so far been underutilised. TfL used TIF to fund the Northern Line Extension to Battersea Power Station, which will generate £660mn in repayments over 25 years.
Devolve approvals of future workplace parking levies (WPL) to metro mayors and local authorities. Nottingham’s WPL was the first in Europe and enabled consistent revenue for the city council to fund phase 2 of Nottingham’s trams. However the preparation period was 12 years long, which included getting national regulations adopted. If another city wants to adopt a WPL, a power given to them by the Transport Act 2000, they have to get the approval of the Transport Secretary. The process of appealing to the DfT can take up to three years, limiting an effective funding source.
FAQs
What’s wrong with the current system for approving construction of local transport projects?
Britain has one of the most centralised systems for planning local transport projects. Whilst these projects only have local impacts, they cannot be approved by local officials, like other roadworks are. The Transport Secretary and the DfT currently approve every tram and light rail project through the Transport and Works Act 1992. This process can take up to four years, costing projects millions in consultant fees, delays, and unnecessary red tape. With four years of delays, local politicians cannot as easily run on a plan to build new transport links and then actually build them within their term, as French and Spanish politicians can do. Without an effective way for local leaders to back projects from proposals through construction, many projects are never built.
What’s wrong with the current system of funding local transport projects?
Similar to approvals, Britain has one of the most centralised systems for funding local projects. Projects are mostly or completely funded by the Treasury. This creates a problem as the funders of the project, the Treasury, are different from the people who deliver the project, either local authorities or delivery bodies. The latter has weaker incentives to make cost effective trade-offs, which are common in transport construction (e.g. capacity, station design, frequency, etc.). The current funding system also fails to capture the significant uplift in property values near new transport links, which should be used to fund the project.
Are there any international comparisons that we should draw on?
France and America both offer solutions to funding and approving new local transport projects. France approves projects with a declaration of public utility, which has two stages. The first is a public inquiry which allows citizens to comment on the project and whether it should go ahead. The second is the prefect (local representative of the central government) issuing the declaration based on the information sent. The inquiry tends to take one to two months and the whole process is a matter of months, not years as in the UK. France also allows local authorities to directly fund their transport projects from local taxes, including the versement transport.
American cities fund their local transport in a myriad of ways, showing how devolution can lead to creative solutions. The first step for many new projects is a Federal Transit Authority Grant (TIGER, BUILD, or RAISE grants), which allow local authorities to kickstart development, but this does not fund a majority of the costs, which are left to the cities and states. Oklahoma City and Phoenix have both used sales tax increases that were approved by voters in local referendums. Omaha’s streetcar is funded by Tax Increment Financing, which allows the city to borrow against future commercial property taxes.
How does the Versement Transport work in France?
The Versement Transport (VT) is a payroll tax on the total salaries of all employees who work for companies with 11 or more employees. It is set between 0.9% for smaller towns and cities, and rises to up to 2.85% in Paris. It is ring fenced for local public transport, originally solely for capital investment, but now is also used on operating expenses. 21 French cities have built tram systems since 2000, largely funded by introducing their own VTs, without having to ask the central government for permission.
How does Nottingham’s Workplace Parking Levy work?
Nottingham’s Workplace Parking Levy (WPL) charges employers that provide 11 or more liable workplace parking places a fee of £550 per space. This has a number of exemptions including for customers, NHS, front line emergency services, and delivery vehicles. All money raised must be invested into improving local transport in Nottingham. The WPL raises £9mn a year and is vital for paying for Nottingham’s Phase Two tram extension.
There seem to be a number of different funding mechanisms proposed, would this get too complicated, increasing risk?
A key benefit of devolution is the ability to try different policies and tailor them to a local area. Top down dictation of what best practice is does not always lead to the best outcomes for local authorities. Under a devolved system of approvals and financing, different local authorities would naturally try different policies, and importantly, would be able to learn from each other what works best for funding vital local transport upgrades.
Some of the options carry different risk profiles than others. The 1p extra on employer’s National Insurance is more predictable, but could be more politically challenging than the harder to predict stamp duty uplift and council tax precepts, which would be dependent on the new infrastructure positively increasing house prices. Ultimately, the goal of devolution of funding mechanisms should be empowering local leaders to choose solutions which work best for their local areas, rather than dictating what they should do.
What would stop local leaders from approving their own projects, which would limit oversight?
A devolved transport and works act order process would still include a public inquiry where individuals could raise any issues that they have with local transport infrastructure projects. Ultimately devolving the process would actually increase democratic accountability. Local leaders could campaign on pledges to build more infrastructure, and in turn enact those pledges once in office. The voters can then judge at the next election if their elected leaders are effectively implementing their promised improvements to local infrastructure.
What is land value capture and how could it work in the UK?
Land value capture aims to monetise the increase in land values that happens when a new transport link opens. Through taxation on the property price increases, this property value increase can be used to help fund the project. The UK has three main taxes on property: stamp duty land tax on purchasing property, council tax on domestic properties, and business rates on commercial property. The Valuation Office Agency gives the government valuations of properties, which could be used to determine how much property values increased nearby new transport infrastructure. The local authority should then be allowed to tax this uplift through a combination of business rates supplements, stamp duty uplift, and council tax precepts.
Ben Hopkinson is policy researcher at Britain Remade, a campaign for economic growth. He is keen to see the UK build more transport links, houses, and clean energy sources. He was previously a senior risk consultant at PwC. He holds a BA from the University of Oxford and an MSc from the London School of Economics.