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Autumn 2016

Where next for transport policy?

Policy challenges

Prime Minister Theresa May has called for “a plan to help not one or even two of our great regional cities but every single one of them”, with infrastructure investment playing a central role. Fulfilling this ambition will be difficult just as the Treasury is grappling with the fallout from Brexit. The key challenges are capacity – travel is growing faster than infrastructure – and cost: the Treasury will struggle to invest at the necessary rate.

The department may also face challenges around delivery, given how much is already on its plate. Once the High Speed Rail Hybrid Bill for Phase One gains Royal Assent, attention will turn to Phase 2A (to Crewe) and 2 (to Manchester and Leeds). Crossrail 2 is not far behind. The South East runway issue also remains unresolved, with the new secretary of state having to handle the fallout from what will ultimately be a decision for the prime minister to back Heathrow or Gatwick.

Heathrow vs Gatwick


Crossrail 2

Politics and personalities The prime minister ignored calls for a new department for infrastructure, deciding the Department for Transport (DfT) had enough on its plate.

New Treasury-backed bonds demonstrate the Prime Minister’s commitment to infrastructure spending to get the economy moving. New Chancellor Philip Hammond is expected to be less involved in cross-government policy than his predecessor, but Theresa May will need his support to make this approach a success. The Chancellor has already signaled a willingness to boost rail and road spending in the Autumn Statement to stimulate the economy. Transport Secretary Chris Grayling was promoted from leader of the House of Commons after managing May’s leadership campaign and has called it a “dream job”. He is not new to the brief having served as shadow transport secretary from 2005-2007. The transport secretary is supported by Special Adviser Simon Jones, a former-PPC and seasoned Tory activist, who follows Graying from his previous role. John Hayes has returned to the department after a year working under Theresa May in the Home Office, and has been handed back responsibility for national roads. Seen as hard working and a safe pair of hands, he will play a crucial role in ensuring that the first Roads Investment Strategy is delivered and that the second goes ahead, this time with the added complexity of various devolution arrangements across England.

The other new addition to the department, alongside remaining ministers Andrew Jones and Lord Ahmad, is Paul Maynard, with responsibility for rail. He is expected to seek to encourage innovation in the rail sector and create more distance between his officials and the day-to-day running of the railway. Given widespread industrial action, that will be difficult.

Chris Grayling, Secretary of State for Transport

John Hayes, Minister of State for Transport

Paul Maynard, Parliamentary Under Secretary of State for Transport

Continuity will be brought by Neil O’Brien, May’s cerebral infrastructure policy adviser, who has moved from the Treasury to Number 10. In addition, Theresa May’s widely-respected Director of Policy John Godfrey has significant experience of infrastructure projects from his previous role at Legal & General. Secretary of State for Business, Energy and Industrial Strategy Greg Clark will also be a key ally for Grayling, with his department supporting the UK’s all-important automotive sector. This relationship will be crucial for achieving reductions of vehicle emissions as well as making the UK central to the driverless car industry.

Impact of Brexit Airports and airlines are pressing for the UK to remain in the Single Aviation Market and open market deals established between the EU and non-member states. They also have concerns over any new and onerous immigration arrangements for visiting EU nationals and UK visitors to Europe, although it is unclear how the current regime could be maintained whilst the UK seeks to reduce freedom of movement.

In the wake of Brexit, many have called for additional spending on infrastructure projects to fuel the economy.

In an attempt to build confidence, the transport secretary moved quickly to dispel concerns over HS2 and has promised a quick decision on airport expansion. The chancellor has also spoken of investing in transport to stimulate the economy.

Some may hope that leaving the EU will result in a relaxation of emissions limits. However, the government has a manifesto commitment to achieve cleaner air and is taking a proactive approach with calls to introduce Clean Air Zones and support for low emission vehicles. Finally, many transport sectors hope that Brexit will somehow reduce the costs of business, particularly through a reduction of regulation, although they are also concerned about skills shortages from immigration limits. Some airports and ports will also want to see a relaxation of state aid rules, and are looking forward to be able to the sell dutyfree products to people leaving the UK for Europe. Leaving the single market may also mean the opportunity for the government to avoid the onerous OJEU process and specify more local suppliers for government contracts.

Policy risks Beyond delivering on promised infrastructure projects, ministers will be occupied for the next few years about how to deliver new technology, devolution and funding. Even if the new chancellor does not reduce the ÂŁ61bn that George Osborne committed to transport infrastructure for the Parliament, demand may continue to outstrip supply. There are also indications that there will be little left in the pot for major road and rail upgrades post-2020, putting renewed importance of the ability of regions to pay for their own investment.

Treasury backed bonds will help but will not be the whole solution.

We are also waiting to hear whether Philip Hammond will commit to George Osborne’s policy of hypothecating Vehicle Excise Duty (VED) into roads investment by 2020 and, related to this, how he will stop the slide in VED receipts resulting from policies to encourage the purchase of ultra-low emission cars.

On the technology front, it is hoped that digital signalling could get more trains on the line and reduce delays, just as smart motorways have increased road capacity. The industry is waiting to see whether spending commitments are forthcoming or whether, as Network Rail Chair Sir Peter Hendy has suggested, mechanisms are put in place for train operators to finance the upgrades themselves.

Over the next few months we will also get a clearer view of the role Transport for the North and Midlands Connect will play.

These bodies envisage being able to work with the DfT to set their own regions’ roads and rail investment priorities for Highways England and Network Rail. However, getting this through will require unprecedented levels of agreement between local authorities, cities, regions and Whitehall. The government also faces the challenge of reengineering Network Rail in a way that gives genuine control over infrastructure to English regions. These pan-regional bodies are also key to getting smart multi-modal ticketing rolled out beyond London. However, stitching together multiple transport systems whilst not harming the rail franchise premium and subsidy system will not be easy.

Where next?

For transport, it is all about devolution and technology. Advances in connected transport technologies offer the opportunity to improve transit, create a private market for mobility and make the UK attractive for investment.

The government is seeking to change regulations to make it easier to test autonomous vehicles in the UK and will need to consider the consequences for infrastructure. However, ministers will know from their experience with Southern that the introduction of new technologies is not always welcomed.

If the devolution agenda is to be a success, ministers will need to make decisions over funding. George Osborne said that, by 2020, local authorities would keep 100 per cent of business rates and that rates could be increased to fund infrastructure projects. However, there is a push back from rural areas who currently see a huge proportion of their potential taxes disappear in rate reliefs.

Westbourne team

James Bethell Managing Director Jennifer Powers Partner, Head of Advocacy Ben Garratt Account Director Paul Chapman Associate, Cities and Infrastructure

For further information please contact: jennifer.powers 020 3397 2413 07903 078488

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Westbourne - Where Next for Transport Policy Paper