Government pulls the plug on Light Rail schemes

New Labour ministers have blown hot and cold about trams ever since they first came to power in 1997. At first there was no money available and schemes were put on ice and then the ten year transport plan published in July 2000 promised ‘up to 25 new light rail lines in major cities’ by 2010.

Not any more. Now all tram schemes seem to have hit the buffers. A little publicised sentence in the announcement on the review of the ten year transport plan effectively shelved all three schemes that were advanced in their development – new systems in Leeds and South Hampshire and three new lines in Manchester.

The revised ten year plan, set out in The Future of Transport, a network for 2030, made clear that light rail schemes were definitely out of fashion: ‘Bus options are likely to offer the most cost-effective solutions on most corridors’, it stressed.

However, while the government may get away with dropping schemes in the likes of Gosport, it is quite another matter scrapping the Metrolink extensions in Manchester where 25 out of 28 MPs are Labour, especially given that £200m had been spent including the construction of a tunnel into the airport and the demolition of a school.

The campaign to reverse the decision has already led to street demonstrations and massive coverage in the local press which portrays it as a North – South divide issue because the government simultaneously gave a qualified go-ahead for the £10bn Crossrail route in London (although supporters of that project suggest that there is still much uncertainty over its future).

The government’s explanation is that soaring costs made the decision inevitable. The overall cost of the three new lines was originally supposed to be in the order of £820m with £520m coming from public sources including £390m from the Exchequer. However, these already very high numbers started to rise inexorably – the £300m from the private sector was no longer guaranteed because evidence from other completed schemes suggested that revenue forecasts were optimistic and there were fears that the construction costs were rising, pushing up the overall amount to over £900m. The Treasury was therefore envisaging a bill of up to half a billion.

So Darling pulled the plug, with a little homily about the price of light rail. However, he underestimated the strength of feeling in the city and the Metrolink supporters have already managed to extract a concession out of him. While initially the Alistair Darling, the Transport Secretary, suggested in his announcement that the scheme had been killed off permanently, now ministers are saying that provided the costs can be kept down, Metrolink can go ahead. In order to examine this, a joint committee created on the instigation of John Prescott and chaired by transport minister Tony McNulty has been set up consisting of tram supporters and officials from both the Greater Manchester Passenger Transport Executive as well as the Treasury and the Department for Transport and its remit is to look at alternative forms of procurement.

In fact, the committee need look no further than the recent National Audit Office report on tram schemes which demonstrates the simple truth that we do not do light rail very well in this country and that the procurement methods, combined with a failure to integrate schemes effectively into transport networks, push up prices.

Most fundamentally, the Department for Transport insists on complicated private finance initiative deals to build schemes. The Department does contribute much of the construction cost but then requires the systems to be self-financing, an unrealistic goal for most public transport infrastructure. The schemes cannot be run by the local authorities which have initially proposed the idea but instead, the Government insists they are operated by private sector consortia of construction companies, financiers and operators which design, construct and run them.

These deals are partnerships of the unwilling forced into these arrangements as a way of making money. As Peter Hendy, the director of surface transport at Transport for London, who was involved in the contract for Croydon Tramlink when he was at FirstGroup, put it: “Why is a construction company interested in a 99-year concession to run trams in Croydon? The answer is that they are not. They are interested in building it, and getting out.” Hendy says that a lot of money was wasted because the Government insisted on a scheme in which, supposedly, the private sector bears the risk. First, there are all the advisers – the lawyers and consultants – who are in limited supply and thus able to charge very high rates.

Then there is the issue of risk. The private consortia all costed the risk into their bid prices – if they thought they might lose £20m on the deal, they just added that amount to the contract, and since all the bidders do that, the money simply comes out of the public purse.

The financial difficulties have been compounded by the fact that forecasts of passenger numbers, often set deliberately high to make schemes look viable, have not been achieved. That does not mean the trams have failed as an important transport facility but simply that financial targets determined by the procurement method were set impossibly high.

The Croydon scheme has been a financial failure, but a transport success. The annual number of users is an impressive 19 million, but that a quarter less than forecast. TfL has refused to pick up the bill and the private sector has taken a hit, but this means that other private investors have become less ready to bid for new schemes such as Manchester without putting in lots of extra for contingency, thus pushing up the price.

Add to this lots of other mistakes in the British way of doing things. In France and Germany, which the NAO visited, systems are fully integrated with other forms of public transport. Buses feed the trams whereas in Britain, thanks to deregulation not reversed by Labour, councils do not have that power. They are also subsidised through measures such as the French employment tax. Then there are important details like the fact that British promoters of trams have to pay virtually all the costs of moving utilities, whereas in Europe most of that is borne by other parties.

The argument that buses do the same job does not stand up. Sure they are cheaper but they do not have the same cachet and therefore, crucially, do not attract better off motorists out of their cars. The enormous benefits of tram systems are highlighted in a study by Todd Litman of the Victoria Transport Policy Institute in Canada who found that cities with extensive rail systems were more affluent and successful than those which only operated buses. Accident rates and transportation costs were lower and economies more successful.

In Britain governments have traditionally failed to recognise the regenerative effects of transport systems. The Underground system in London has long been a victim of this shortsightedness and now, it seems, provincial cities are to suffer in the same way unless the working party set up by Prescott leads to a change in attitude on how tram systems are procured.

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