Budget thinking could define this Government’s term for transport

SPECULATION IS GROWING about the transport implications of the new Labour government’s first Budget on 30 October. Both prime minister Kier Starmer and Chancellor Rachel Reeves have continued to warn of ‘tough choices’ to address a funding gap which will impact both the government’s tax and spending policies, whilst they talk the language of ‘new priorities’ and more rigorous approaches to meeting objectives and securing value for money from investment.

The thinking, ideas generation, outcome testing and political temperature-taking across Government these next few weeks will surely be uniquely intense - no more so than in the Department for Transport and for Secretary of State Louise Haigh. Chastened by the hostile response to the cut to pensioners’ winter fuel payments, there will surely be an acute sensitivity in Government to any more mis-steps in where the hard decisions hit.

A range of potential actions on transport include new charges and duties imposed on road users - maybe even a step towards a replacement for the declining income from fuel duty on petrol and diesel with something that catches electric vehicles too. There may be reductions in Department for Transport, Local Transport Authority and the spending allocations to other agencies such as Active Travel England; changes to grant schemes like bus industry support; axing projects like the £2 maximum bus fare; decisions on rail fare levels; and a new framework for investment in road and rail schemes and their funding models, including mechanisms to bring in private sector money.

A DfT review of road schemes is meanwhile underway, led, it has emerged this week, by Rachel Skinner, a highly regarded engineer with much transport experience.

All these emerging decisions will reveal how the government intends its robust fiscal rules will be met: bringing the current budget into balance so that day-to-day costs are met by revenues,and getting debt falling as a share of the economy by the fifth year of the forecast, whilst still ‘investing for growth’.

The initial audit carried out by the Treasury before the summer recess of Parliament showed that the forecast overspend on departmental spending is expected to be £21.9 billion above totals set at the Spring Budget 2024, with a fair chunk of that at the DfT.

Reeves then announced the government was taking immediate action by identifying immediate savings, setting out a clear process for the autumn Spending Review, and making reforms to the spending and fiscal frameworks to prevent this happening again. The immediate savings identified in transport would help reduce the pressure from £21.9 billion to £16.4 billion in this financial year. “This is just the first step,” Reeves warned. “The government will continue to manage down the pressure and will take further decisions across tax and spending at the Budget. Departmental expenditure limits for 2025-26 will be set alongside the Budget in October, which will also confirm control totals for the current year 2024-25.”

The Chancellor has meanwhile launched a multi-year Spending Review to conclude next spring, on which individual departments have been working. The government says it will use the Spending Review to change the way public services are delivered by embedding “a mission-led approach, driving forward public service reform and making the best use of technology to better deliver services.” The Spending Review will set spending plans for a minimum of three years of the five-year forecast period.

In her emergency statement at the end of August, Reeves highlighted a number of unfunded policy decisions that have increased pressures on public spending in 2024-25 by a total of £2.6 billion. These included additional bus services support and the extension of the £2 bus fare cap by Rishi Sunak a year ago until this December, at an estimated cost of £250 million. This raises the obvious question of whether the scheme will now be scrapped.

Reeves also hit out at DfT’s road project £785m overspend, cancelling the A303 Stonehenge tunnel and the A27 schemes and demanding a Review of the transport infrastructure portfolio, as well as dropping the Restoring Your Railways programme.

The Chancellor also complained of spiralling rail support during and since the pandemic, primarily due to the weaker-than-expected recovery in passenger demand, meaning a £1.6 billion void in 2024-25. What options has she got to stem that substantial ongoing bill.

She said the review of the previous government’s transport commitments would ensure the transport infrastructure portfolio now drives economic growth and delivers value for money for taxpayers, indicating there will be a new basis of setting priorities. The overall approach of the Government “will change the way public services are delivered by embedding a mission-led approach. This will support preparations for the Spending Review, where the government will ensure departments are working together to deliver key priorities in a more effective and efficient way,” according to Reeves.

How will the DfT approach the change in the Government’s agenda and the concept of mission-led decisions? But whose missions, and how defined? And also the outcomes of the Skinner review. They seem certain to bring a significant overhaul of the Department’s decision-making and appraisal processes.

As we report in this issue, it is understood a panel of external experts has now been appointed to advise on how this thinking will be embraced at the DfT, led, now it is known, by Rachel Skinner - who will need all her skills acquired as an acknowledged luminary of the transport sector, having run consultant WSP’s large transport division, led the Institution of Civil Engineers, and contributed to numerous professional discussions.

So how will the DfT approach this change in the Government’s agenda and the outcomes of the Skinner review? They seem certain to bring a significant overhaul of the DfT’s decision-making and appraisal processes - usefully now under the leadership of its new chief analyst Ian Mulheirn.

Reeves has trumpeted the concept of mission-led decisions. But whose missions, and how defined? “Missions are about much more than how public funding is allocated; they are about using all the tools at the government’s disposal to drive change and reform to improve outcomes,” Reeves has said. She has promised new ‘Mission Boards’ to drive collaboration, “delivering robust performance management practices that track progress and outcomes”. The government will also launch the National Infrastructure and Service Transformation Authority (NISTA), “which will drive more effective delivery of infrastructure across the country and support the delivery of a 10-year infrastructure strategy.”

But where is the money coming from for all this? Reeves has indicated she’s looking to the private sector, and the Juergen Maier Review put more flesh on those bones. On private finance the Budget might see the announcement of a showcase privately-funded project or two - like the Lower Thames Crossing, or the plan for a Midlands-North West rail link drawn up by the Mayors of the West Midlands and Greater Manchester. But there could also be cuts or freezes to the spending allocations for road and rail (National Highways and Network Rail) on the same grounds that the tap for increased NHS spending has been turned off “until the plumbing is fixed” as the Prime Minister put it.

There is certainly plenty of discussion going on about all these topics, inside government and beyond, with those hoping for a chance to get new projects going by new mechanisms under the new government tempered by the scepticism of those like former Office of Rail and Road chief Stephen Glaister. He, as we report in this issue, has been looking highly critically at the prospect of a revival of the PPP/PFI concepts expensively deployed by the last Labour Government.

Within this matrix the future of the Lower Thames Crossing could be an acid test of the new government’s thinking on at least three fronts. These embody the role of infrastructure in driving economic growth (including new housing provision on ‘grey belt’ land); the potential for new public-private funding models (for which it is a candidate) ; and the analytical framework for allocation of available transport funding between different projects, objectives and geographies. A decision on the LTC is awaited from the Transport Secretary, and if given the go-ahead, it will be the country’s biggest transport project after the completion of HS2.

Perhaps more attention needs paying to the income side of the equation? Phil Goodwin in this issue examines the long, but still uncompleted, journey towards some form of pay-as-you-go road user charging. The logic and technology for it to achieve a significant and reliable new revenue flow to the Treasury, and send some useful market signals on modal choices, are not the problem- though the politics certainly are.

If something of this kind isn’t seen as possible in the first flush of radicalism and confidence of a new government, armed with a large majority and the justification of serious inherited financial problems from the last government, it is difficult to imagine what the ‘right circumstances’ will ever be.

We are learning fast what the new Government is all about on transport and beyond - and should learn a lot more from Rachel Reeves on October 30th, and perhaps sooner from Louise Haigh what she has decided regarding the Lower Thames Crossing and other road schemes.

Peter Stonham is the Editorial Director of TAPAS Network

This article was first published in LTT magazine, LTT899, 18 September 2024.