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Transport: Appraisals

House of Lords written question – answered on 6th April 2011.

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Photo of Lord Berkeley Lord Berkeley Labour

To ask Her Majesty's Government why they have changed the values for reliability impacts and wider economic benefits in the New Approach to Appraisal for transport; and what consultation took place with non-governmental organisations and others affected.

To ask Her Majesty's Government what is the reason for the reduced carbon adjustment in appraisals under the New Approach to Appraisal of major road schemes between 2002 and 2010.

To ask Her Majesty's Government what are the Department for Transport's road schemes for which the adjusted net present value has reduced between 2002 and 2010.

To ask Her Majesty's Government what adjustments were made to the formulation of net present value estimates used to appraise the relative value of transport schemes for spending review 2010; why those changes were made; and what consultation took place on the proposed changes.

Photo of Earl Attlee Earl Attlee Lords Spokesperson (Department for Transport), Lord in Waiting (HM Household) (Whip)

Work was undertaken during spending review 2010 to update the value for money information held on major capital schemes. It is not correct to say that there has been a reduced carbon adjustment in appraisals under the New Approach to Appraisal of major road schemes between 2002 and 2010. The adjustments made are undertaken for three main reasons.

First, when assessing value for money during transport appraisal, it is standard practice to consider a broader range of factors than are captured within the central New Approach to Appraisal net present value (NPV). DfT appraisal guidance on wider impacts, reliability and landscape is still evolving, but these factors are considered when assessing value for money. They were therefore incorporated into information provided to the Treasury during the spending review to ensure it reflected recent developments in appraisal methods and provided the fullest possible representation of the value for money of transport schemes.

Secondly, there was a need to ensure consistency across schemes. This was particularly important given that data for schemes in the spending review were produced over a period of many years. It would have been disproportionately costly to reassess all spending review schemes using the detailed calculations and models held by scheme promoters, so high-level adjustments were made to individual business cases. These adjustments were evidence based and typically informed by tests on a sample of schemes. While these adjustments do not necessarily replicate the results that would be obtained from applying the relevant appraisal guidance in full, they provide an indication of the scale of additional impacts and the effect their inclusion may have on the relative value for money of different schemes.

Thirdly, the Treasury requested information to inform an analysis of value for money across government departments. To facilitate the comparison of DfT information with that of other government departments, NPVs were uprated to a 2010 price and discount base year. In addition, carbon impacts were uplifted to reflect values published by DECC in 2009.

Full details of the adjustments made are set out below. These adjustments were made purely for the purposes of the 2010 spending review and should not be considered changes to the department's Transport Appraisal Guidance (WebTAG). Stakeholders have had, and continue to have, the opportunity to comment on WebTAG units before they become definitive.

Because the adjusted NPV methodology was used only in the 2010 spending review, no comparable adjusted NPV figures are available from 2002. It is not therefore possible to assess the number of road schemes for which the adjusted NPV has reduced between 2002 and 2010.

Detailed description of adjustments made to NPV information used in the 2010 spending review

Wider impacts

Unless directly estimated by the promoter, wider impacts were proxied as 10 per cent of consumer and business benefits for those schemes falling predominantly within a functional urban region (as defined in WebTAG unit 2.8C). Previous analysis of wider impacts suggests this is likely to represent a conservative assumption for most schemes.

Reliability

Where available, reliability estimates provided by scheme promoters were used to adjust net present value information for local authority major schemes. For other local authority schemes, reliability impacts were monetised based on the qualitative assessment of schemes at programme entry. Additional benefits of 5/10/20 per cent of time savings were added to those schemes with slight/moderate/significant beneficial impacts respectively. These uplifts are based on the judgment of DfT analysts and the top of the range is broadly consistent with the findings of the Eddington review which identified that reliability benefits could be worth 20 to 30 per cent of time savings.

For Highways Agency (HA) schemes, reliability impacts were included where they had been modelled as part of an original scheme appraisal. For other HA schemes, uplifts were applied to business and consumer user benefits as follows:

no uplift for junction improvement schemes;20 per cent uplift for regional road schemes; and50 per cent uplift for motorway schemes.

These uplift factors were based on analysis undertaken during development of the specialist software (incident cost-benefit assessment, or INCA) used to estimate reliability impacts in road scheme appraisal.

Landscape

The value of landscape impacts was added to benefits if they were estimated by DfT at the time of programme entry award (local authority schemes) or as part of the scheme appraisal process (Highways Agency schemes). The appraisal methodology for landscape impacts takes values from the ODPM report Valuing the External Benefits of Undeveloped Land and has been adapted to take account of factors such as existing man made features or mitigating improvements.

Adjustment to the price of carbon

We have not reduced the valuation of road vehicle carbon emissions in the New Approach To Appraisal between 2002 and 2010. Adjustments were made in the spending review analysis to ensure consistency with the latest DECC carbon values. These new values for road transport emissions are not only significantly larger than those used before, but also represent a year on year increase for each and every year of the appraisal period.

The definitive WebTAG guidance (and the unadjusted NPVs that informed the spending review) includes the Shadow Price of Carbon published by Defra in 2007. For the spending review, the carbon impact component of the NPV was uplifted to ensure consistency with newer values released by DECC in 2009. Where modelled estimates of carbon impacts based on both old and updated values were available, the difference between these two values was used as the carbon uplift adjustment.

Where modelled values were not available, pre-existing estimates of the value of carbon impacts were increased by 150 per cent to proxy the impact of the new values. This was informed by an analysis of the carbon impacts of schemes which had been appraised using both the new and old values, and separate analysis which examined the value of one tonne of carbon abated over a 60 year period. No adjustment was made to schemes that did not estimate carbon impacts as part of their original business case submission (eg because they used a fixed demand modelling method).

Upscaling to 2010 price and discount base year

DfT's WebTAG appraisal guidance requires values to be expressed in 2002 prices and discounted to a 2002 base year. To facilitate comparison across government departments during the spending review, DfT values were uplifted to a 2010 price and discount base year by multiplying the adjusted NPV by 1.61.

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