economic impact of road works

colin

buch

anan

.com

Road Works Count! March 2010

Final report

Road Works Count! Final report This report was commissioned by London First on behalf of the Road Works Count Steering Group. The authors would like to make it clear that it represents the views of the authors, and not necessarily those of London First or the members of the RWC Steering group

Project No: 17324 March 2010 10 Eastbourne Terrace, London, W2 6LG Email : [email protected] Prepared by: Approved by:

____________________________________________ ____________________________________________Kieran Arter Paul Buchanan Status: Final Issue no: 0 Date: 01 March 2010

17324 - rwc final report v4.4.doc

(C) Copyright Colin Buchanan and Partners Limited. All rights reserved. This report has been prepared for the exclusive use of the commissioning party and unless otherwise agreed in writing by Colin Buchanan and Partners Limited, no other party may copy, reproduce, distribute, make use of, or rely on the contents of the report. No liability is accepted by Colin Buchanan and Partners Limited for any use of this report, other than for the purposes for which it was originally prepared and provided. Opinions and information provided in this report are on the basis of Colin Buchanan and Partners Limited using due skill, care and diligence in the preparation of the same and no explicit warranty is provided as to their accuracy. It should be noted and is expressly stated that no independent verification of any of the documents or information supplied to Colin Buchanan and Partners Limited has been made

Road Works Count! Final report

Contents Summary 1 1 Introduction 5 2 Background 7 2.1 Recent system 7 2.2 London Permit Scheme 7 2.3 Alternative approaches 9 2.4 UK lane rental pilot schemes 10 3 Analysis 12 3.1 Introduction 12 3.2 Road works 12 3.3 Congestion costs 18 3.4 Costs per road work 19 3.5 Conclusions 20 4 Potential options 22 4.1 Introduction 22 4.2 Adjusted version of London Permit Scheme 22 4.3 Lane rental charge 23 4.4 Road work credits 24 4.5 Analysis of options 26 4.6 Comparison of options 30 5 Barriers to change 32 5.1 Introduction 32 5.2 Internal barriers 32 5.3 Pricing Highway Authorities 33 5.4 External barriers 34 5.5 Measuring success 35 5.6 Conclusions 35 6 Conclusions 36 Tables Table 2.1: London Permit Scheme details 8 Table 3.1: Road works on TLRN by promoter and type, 2009 15 Table 3.2: Average duration by road work type, TLRN (days) 16 Table 3.3: Deriving congestion costs of road works per hour 20 Table 4.1: Illustration of Adjusted London Permit Scheme details 23 Table 4.2: Summary of options 25 Table 4.3: Comparison of potential charging options 31


Figures Figure 3.1: TLRN and SRN 13 Figure 3.2: Road works on the TLRN split by promoter, 2009 14 Figure 3.3: Road works on the TLRN split by type, 2009 15 Figure 3.4: Total road work days on the TLRN split by promoter, 2009 16 Figure 3.5: Total road work days on the TLRN split by type, 2009 17 Figure 3.6: Proportion of total road work days on TLRN by promoter, 200918 Figure 3.7: Daily vehicle delay on the network of interest by time period and

location 19 Figure 4.1: Example of adjusted permit scheme (TLRN only) 27 Figure 4.2: Example of lane rental charge (TLRN only) 28 Figure 4.3: Example of road work credits scheme (TLRN only) 30

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Summary

Background There are estimated to be approximately 600,000 road works a year in London, lasting on average three to four days. In other words there are in excess of 5,000 road works taking place on any particular day. These works are undertaken by private sector utilities (of which there are over 100) and the 34 highway authorities (Transport for London (TfL) and the boroughs) in a rough 50:50 split.

London’s main road network combines high levels of demand often throughout the day with a high proportion of business travel. When road works take place on this network they impose significant congestion and reliability costs on road users and businesses.

The costs imposed by road works are difficult to value accurately. It is clear that congestion costs vary widely by time of day, day of the week and location. TfL in assessing these costs used two approaches:

The first was a top-down approach using GPS data to quantify delays to traffic, leading to an estimate that some £750m worth of delays a year were attributable to road works in London.

The second was a bottom-up approach derived from analysis of individual sites suggesting that delay costs might average up to £10,000 a site a day which would give a total delay cost perhaps five times higher than the top-down approach.

In our view the answer is probably closer to the high value than the lower one. Both approaches exclude other impacts such as those on cyclists, pedestrians and safety.

London First, in response to issues raised by their members, asked Colin Buchanan to look at options for changing the way in which access to roads is managed and in particular to investigate options for charging for use of roads by utility and highway authorities.

Current management system Until recently the utilities and highway authorities had virtually free access to the road network as and when they required it. There was a system of notice for planned road works to enable some co-ordination, but that co-ordination was severely undermined by the high proportion of works undertaken with little or no notice and by the extremely low penalties that could be imposed on utilities for failing to perform, as well as the lack of any obvious penalties or incentives for highway authorities.

The London Permit Scheme has now been introduced (11 January 2010). The scheme will improve co-ordination of road works (permits can be issued such that multiple works occur at particular locations at the same time) and hence reduce unnecessary road delays. It will also make it easier for authorities to challenge the proposed timescale of individual works. Nonetheless, there are a number of associated issues that should be borne in mind:

The scheme will significantly increase administration costs for utilities, local authorities and TfL, with more paperwork having to be processed for each individual road work;

The revenues arising from permit charges will not even cover the administration costs. TfL estimates that the public sector administrative costs associated with the scheme will be £37m a year with permit fee income of only £11m. In addition the scheme imposes significant administrative costs onto the utilities;

The permit costs bear little relationship to the duration of the works or the congestion costs that they impose on road users; and

The scheme applies to all road works. This study is concerned with congestion costs imposed on businesses and those are disproportionately within central London and / or on main roads.

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Our view is that whilst the permit system will improve co-ordination between road works, it will have little effect on traffic congestion caused by road works and will be costly to administer. Our preference is for a charging system to be used and options for that are described below.

A charging system There are three broad objectives for the design of a pricing scheme:

Pricing – the price must be lower than the external costs imposed on road users and yet be high enough to bring about behavioural change on the part of utilities and highway authorities;

Differential pricing – prices need to reflect variations in congestion and the importance of key locations by covering particular time periods, locations and / or road types; and

Administration costs and simplicity – the system should minimise administration costs and / or build on the administrative system in place for the permit scheme. Any increase in administrative costs needs to be offset against the benefits that such a system would bring.

Three alternative charging systems were developed, each with their own advantages and disadvantages:

Adjusted Permit Scheme – this adjusts the charges in the permit scheme to better reflect likely impacts on congestion by eliminating charges on most roads and focusing only on main roads, and by revising the charges per road work so that they reflect duration of works rather than simply being a flat fee. Those changes would reduce the administrative burden of the permit scheme and provide greater incentives for reducing road work duration. Exemptions could be given for road works which made capacity available during peak hours and multiple users of a single site would only pay once, thereby encouraging co-ordination.

Lane Rental Charges (LRC) – these set out a charge per road work per day to be applied to all road works. Again our view is that this should only be applied to main roads and that works which avoided peak periods would pay no charge. Lane rental charges would offer large incentives to change behaviour and lead to better or faster ways of undertaking road works. Administrative costs would be reduced through the smaller area of application and the scheme would generate a significant financial surplus.

Road Work Credits – these would be modelled on a carbon credit-style scheme with highway authorities and utilities being assigned budgets for their road work days and being rewarded if they came in under their budget and penalised if they exceeded it. It would require more administration than the other options and would not generate significant net revenues, but it would provide incentives for behavioural change without placing net additional costs on utilities or highway authorities.

These options are summarised in Table S1. The legal issues are potentially complex. Our understanding is that to implement any of these systems across London would be likely to require new legislation rather than regulatory changes.

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Table S 1: Comparison of potential charging options

Issue Option 1 – Adjustment to

London Permit Scheme

Option 2 – Lane Rental Charge

Option 3 – Road Work Credits

Administration costs Medium Low Very High Net costs Likely to require

ongoing subsidyWould generate net

revenuesWill be cost neutral on average but may cost

money in the short termImpact on utility customers

Small change in costs Large increase in costs and higher bills

Neutral overall

Regulatory issues Depends on the scale of the charge

Significant increases to utility costs likely to

lead to higher charges and hence need for

regulator endorsement

Cost neutral – no regulatory issue

Speed of implementation

Likely to require legislative change and

hence slow

Largely dependent on regulator endorsement although could require

new legislation

Probably the most difficult to implement

and hence longest lead time

Level of economic efficiency

Depends on charge, but a half-way step to

LRC

High – pricing it correctly would lead to an optimal number of

road work days

Also high, albeit possibly not as high as

option 2 due to the higher admin costs

Allocation of surplus No surplus Could be reinvested in highway and road

works sector

No surplus

A number of key problems remain, especially surrounding the barriers that exist to changing behaviour. The main barriers are:

Charging public sector authorities – whilst price is a simple incentive to use for private sector utilities it is more difficult for highway authorities. Our preferred approach is for authorities to be charged for their use of highways and then to have those charges redistributed amongst the highway authorities according to an agreed formula. Thus there would be no overall cost to authorities but those that made the greatest efficiency improvements would gain and vice versa. There are potential alternatives covering internal charging mechanisms and performance league tables which would remove the financial incentive but might still deliver improvements.

Night working – in terms of avoiding congestion costs working at night is a very effective solution, but it does impose noise costs on residents. There is a balance to be drawn between quiet residential streets where works cause little congestion and night time working is unnecessary and busy roads where congestion costs are very high and night time working could be justified. A flexible approach is required.

Immediate works – 40% of road works are classified as emergency or urgent and give minimal notice which means they cannot be managed or co-ordinated with other works. Our view is that those should be charged a premium rate in order to improve co-ordination and drive investment in maintenance to reduce future emergencies. That premium rate could be targeted on the busiest, most congested roads.

Regulator endorsement – regulator endorsement would be a pre-requisite of schemes which added significantly to utility costs. The regulators take account of some external costs such as environmental

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impacts of utilities, but not currently congestion costs imposed on road users. The regulators should be made aware of the congestion implications of road works carried out by utilities.

Conclusions Our view is that any of the proposed approaches would be a significant improvement over both the recently introduced permit scheme and the system prior to that. Whatever system is taken forward our recommendation would be that it applies to highway authorities as well as utilities and that whatever rate is chosen a premium rate is applied to emergency works. Our summary of the alternatives is:

Adjusted London Permit Scheme – this is the easiest to implement in that it simply changes the costs of the existing system, but is probably the least effective of the three and would probably still require new legislation.

Lane Rental Charging – this is the most effective and efficient of the proposed solutions with the biggest impact on road works, but is also the most difficult to implement.

Road Work Credits – this would require the most administration and is perhaps less effective than LRC above, but because it would not add to overall costs it would be easier politically and might not require regulator endorsement.

Our preference would be for the Lane Rental Charging system. That judgement is for the following main reasons:

Economic Efficiency – the LRC system is the most effective end-state solution, with flexibility over charging, area of network to be covered, reduced administrative costs for both public and private sectors and financially viable;

Ease of Implementation – LRC is simpler to implement and administer than the road work credits system. Regulator endorsement is a potential barrier though as additional costs to utilities would be passed on to consumers; and

Financial performance – the real costs of supplying utility services should be incorporated in their price. That price should include the costs of maintaining the infrastructure and external costs falling on others. The LRC effectively internalises the external congestion costs and the administrative costs associated with enforcing the scheme. For highway authorities there would need to be no overall costs, but financial gains to more efficient authorities and vice versa.

The benefits of a lane rental scheme would be improved if:

Revenues raised from utilities were reinvested in congestion relief measures and, at least in part, invested to develop improved maintenance techniques;

Significant discounts were provided when roads were made available during peak periods; Emergency works at key locations were charged a premium; and Flexibility over night time working could be increased through proactive mitigation of

environmental constraints. London needs to manage its main highway network more effectively than it does at present. A pricing system would be a significant step forward.

Measures of success The direct measure would be the number of road work days used by utilities and highway authorities. We would expect to see a price-based solution result in a significant drop in usage of road space.

That reduction in road work days would be expected to lead to a significant fall in congestion and improved journey time reliability. Those impacts should be visible through TfL’s monitoring of traffic speeds and journey times.

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1 Introduction

1.1.1 Road space is at a premium in London and demand substantially exceeds the capacity of the network. This is demonstrated by high levels of congestion throughout the working day. The costs of that congestion are high both due to the level of demand and the high values of time of the users affected. Central London in particular has a high proportion of trips In Work Time (IWT) and these are adversely affected by delays and journey time unreliability.

1.1.2 High levels of congestion are combined with particularly high numbers of road works. Road works in London are in part caused by the need to repair and maintain the roads, but also by the requirements of the utility companies. The high density of population and employment places heavy demands on the utilities and their ageing infrastructure in terms of capacity, connections and maintenance. Thus the area most sensitive to traffic delays is also where road works occur most frequently.

1.1.3 Road works are the cause of a significant proportion of congestion in London, and even more so of journey time unreliability which is valued more highly by business travellers than others. Transport for London (TfL) estimates that at least 10% of all congestion in London is caused by road works. London First (LF) is concerned about this issue because of the costs that are being imposed on businesses - congestion and unreliability of journey times reduce business efficiency.

1.1.4 The perception from businesses in London is that road works are the most significant reason for delays. Respondents to a survey by London First were asked to rate a series of factors on a scale of 1 (not significant) to 4 (very significant) as to whether they contribute to significant daily delays. Road works (3.37) were rated as the most significant contributory factor above deliveries (2.35), accidents (2.07), traffic light failures (2.00) and breakdowns (1.79).

1.1.5 London Councils’ Manifesto for Londoners1 states that:

“London is unique in the scale of its congestion. Roadworks have a major impact on busy streets. Until recently local government had little influence on when, and how often, utilities dig up the streets. We propose:

• London boroughs should be given powers to better manage the disruption caused when utility companies dig up our streets. Boroughs should be allowed to set lane rental charges for roadworks by utilities, charging different rates for different days and times of day.”

1.1.6 Clearly road works both by utilities and highway authorities are vital, not just to deal with potential emergencies but to provide essential services to homes and businesses. The implications of significant failures in any of the utilities’ services on London businesses would be enormous. Any investigation into this issue needs to recognise the economic value of the utilities to London. Similarly, highway maintenance is essential for the safe and effective operation of the highway network. No policy could eliminate road works or their impacts on traffic, but there may be opportunities to reduce their number, their duration and to change the time of day at which they take place.

1.1.7 Those opportunities exist because:

1 http://www.londoncouncils.gov.uk/aboutus/corporatepublications/manifesto/default.htm

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Neither the utilities nor highway authorities currently pay for their use of road space – they impose a congestion cost on road users, without any direct financial cost to themselves; and

There are issues around the co-ordination of road works and whether more could

be done to reduce the frequency of works by undertaking multiple jobs at a location at the same time. TfL is seeking to address this through the London Permit Scheme.

1.1.8 Colin Buchanan (CB) was commissioned by LF to develop proposals to better incentivise

utilities and highway authorities to undertake road works in as efficient a manner as possible within the regulatory regime. During the course of the study advice has been provided by a Steering Group2 and High Level Technical Group3 and numerous stakeholder discussions have also been held, all with the aim of ensuring that the study is well-informed and takes into account a range of views and inputs.

1.1.9 The rest of this report is structured as follows:

Chapter 2: Background on the existing system and permit scheme being introduced in London;

Chapter 3: Analysis of road works and congestion in London; Chapter 4: Potential solutions and issues associated with each one; Chapter 5: Barriers to change; and Chapter 6: Conclusions.

2 The Steering Group includes representatives from Central London Forward, Crossrail, DHL, the Greater London Authority, the RAC Foundation for Motoring, Transport for London, Thames Water, First Group, Laing O’Rourke, AECOM, Mouchel, London First and a former Senior Partner at Ernst & Young. 3 The High Level Technical Group includes representatives from AECOM, BT, City of London, Crossrail, EDF, Laing O’Rourke, National Grid, Skanska, Transport for London, Thames Water and London First.

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2 Background

2.1 Recent system 2.1.1 TfL estimates that in the whole of London almost one million road and street works4 are

undertaken each year. There are over 100 utility companies active in London, and they are only required to give short notice when carrying out works – 80 per cent of works are carried out with less than three days’ notice to the highway authority.

2.1.2 The system prior to the recent introduction of the London Permit Scheme (see section 2.2) was largely voluntary and relied on co-operation between the utilities, TfL and the local authorities. The relevant authority then tried to co-ordinate road works between different utilities and with their own highway maintenance. The main problems seemed to be that:

There were no significant financial penalties, with the system relying on largely voluntary support;

There was a very high proportion of works for which little or no notice was given and hence for which no co-ordination was possible;

Attention seemed to be focused very much on controlling the works done by the utilities and much less on the maintenance activities of the highway authorities themselves;

The authorities could challenge the duration proposed for the works, but that is a time-consuming and ineffective approach and the fines imposed for over-running of works were inadequate to change behaviour anyway; and

There was, at least on the part of some utilities, a poor record for completing works to the required standard.

2.1.3 There was considerable effort by TfL, a number of the boroughs and a number of the utilities to improve co-ordination within that system, but any benefits resulting from that appear to have been more than outweighed by the significant increase in road works taking place. In response to the perceived inadequacies of the current regime the London Permit Scheme has been developed.

2.2 London Permit Scheme 2.2.1 TfL, in conjunction with 18 London boroughs5, implemented the ‘London Permit Scheme’

(LoPS) in January 2010. The intention is to make use of powers made available in the Traffic Management Act 2004 (TMA), which is intended to encourage a more proactive approach to managing the road network by local authorities.

2.2.2 Under the scheme, utility companies are required to apply for a permit before they can begin undertaking road works. The intention is to enable TfL and the London boroughs to co-ordinate the timing of works such that more works are carried out by utilities at complementary times, and with co-ordinated traffic management plans, helping to reduce disruption to road users. There is a charge for the permits and those companies that break the terms of their permit, or work without one, can be fined.

2.2.3 Table 2.1 shows the minimum application period that is required for each category of road work, and the cost per permit that applies for most of the boroughs involved (with slight variations in some cases).

4 http://www.tfl.gov.uk/corporate/media/newscentre/12316.aspx 5 The participating boroughs are: Barnet, Brent, Bromley, Camden, City of London, Croydon, Ealing, Enfield, Hackney, Hammersmith and Fulham, Haringey, Hounslow, Islington, Kensington and Chelsea, Lewisham, Redbridge, Wandsworth and Westminster.

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Table 2.1: London Permit Scheme details

Category of road work Minimum application for

permit ahead of proposed

start date

Cost per permit –

category 1 and 2 (traffic

sensitive) roads

Cost per permit –

category 3 and 4 (non-traffic

sensitive) roads

Major (>10 working days) 10 days £240 £150Standard (four – ten working days) 10 days £130 £75Minor (<4 working days) 3 days £65 £45Immediate (durations vary – permit is based on the work being emergency or urgent, rather than duration of work)

2 hours £60 £40

2.2.4 The LoPS would appear to be a step in the right direction for the following reasons:

It will improve co-ordination of road works (permits can be issued such that multiple works occur at particular locations at the same time) and hence reduce unnecessary delays;

The charges for permits may reduce the number of permits which are not used (‘phantom events’), and thus improve the potential for co-ordination;

The permit scheme gives much more potential to reduce road work days through challenge and negotiation of appropriate durations for individual road works; and

It will also seek improved protection for pedestrians and methods that reduce the damage caused to the highway by road works.

2.2.5 Nonetheless, the Mayor describes the permit scheme as “good as far as it goes, but it is

nothing like enough”6. There are a number of issues with the LoPS scheme that should be borne in mind:

The permit costs bear no relationship to the duration of the works nor the congestion costs that they are likely to impose on road users;

The scheme applies to all road works. This study is concerned with congestion costs imposed on businesses and those are disproportionately within central London and / or on main roads;

The LoPS will significantly increase administration costs for utility companies, local authorities and TfL, with more paperwork having to be processed for each individual road work; and

The revenues will not cover the administration costs for TfL and the local authorities. TfL estimates that the public sector administrative costs of the permit scheme will be £37m per annum with permit fee income only £16m. In addition the scheme imposes significant administrative costs onto the utilities in complying with the requirements.

2.2.6 It seems likely that the LoPS will be a start in addressing road work-related congestion and quality but certainly not a solution to the problem. TfL estimates an average annual benefit from the scheme of £53m. It is too early to draw firm conclusions on the economic viability and difficult to determine the change in administrative costs, but it is clearly possible that the congestion benefits are outweighed by the additional administrative costs of the scheme.

6 Daily Telegraph, The roadworks scam that costs Londoners £1 billion every year, 11 Jan 2010, Boris Johnson

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2.3 Alternative approaches 2.3.1 We start from a situation where, until recently, the utilities and highway authorities had

virtually free access to road space whenever they requested it. The system in place until recently provided some scope for co-ordination of those works that can be planned in advance and some modest penalties for works that overrun an agreed timetable. The permit scheme will ensure that all works are notified in advance and improve co-ordination, but is likely to have little impact on the duration of road works.

2.3.2 The main alternative approach seems to be to use price incentives to change the behaviour of those undertaking works on the highways. A price-based system has a number of inherent advantages:

Price is flexible and can be adjusted over time to deliver the desired outcome; Pricing is already used to allocate road space in central London through the

congestion charging scheme to reduce demand and in on-street parking charges; and

A price-based system would reduce the need for public sector administration by sending appropriate signals direct to the utilities and highway authorities.

2.3.3 It is possible to set out a number of key characteristics of a pricing system:

The charge needs to be time-based. A road work that lasts for ten days should pay ten times as much as one that lasts for a single day;

The charge needs to internalise the external costs of undertaking road works which are predominantly - and hence vary in line with - congestion. It should be high on busy roads and low on quiet / uncongested roads, similarly it should be high during peak periods and low in the off-peak;

The charge needs to be high enough to change behaviour. The objective of the charge is not to raise money but to reduce the congestion effects of road works; and

The charge should apply to all road works whether by utilities, highway authorities or even road works for major projects like Crossrail. They cause the same amount of congestion and should be charged the same.

2.3.4 Price-based systems tend to be variants of a lane rental charge (LRC) system where a charge is levied per day / hour for taking a lane out of use for road users. The LRC system says that anyone who needs to stop traffic from using a lane should pay a charge to do so. Crucially that charge is based on the length of time for which the lane is out of use and can be varied between different road types, geographic locations and times of day.

2.3.5 Similar systems have already been applied in the UK, including:

Very large fines to the Underground PPP concessionaires if they fail to complete overnight works before the morning peak;

Significant fines for peak lane availability under the PPP highway maintenance concessions; and

A similar regime for Network Rail whereby peak period unavailability is punished by large fines.

2.3.6 In the USA there are slightly different schemes aimed at improving public sector decision making. These add the notional lane rental costs on to contractor fee proposals in order to choose the winning proposal. They use the “A+B” pricing system where A is the financial cost and B is the number of lane days multiplied by the appropriate lane rental charge per day. The choice of contractor is made on the basis of the total “A+B” cost and that contractor is then penalised if they exceed the number of lane days and incentivised to deliver in fewer days.

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2.3.7 A price-based system also needs to consider who pays the price directly and ultimately. Here there may be differences between the utilities and the highway authorities although both cause similar levels of congestion (the main external cost of road works).

2.3.8 The utilities will bear the direct costs of any pricing schemes as they are the agency responsible, but we would expect a proportion of those costs to be ultimately passed on to consumers. Road works are an essential part of supplying utilities to residents and businesses, so they, the consumers, should bear the external costs as well as the direct ones. This issue will need to be discussed with the utility regulators so that the additional costs are allowable within the utilities’ cost base, as the utility companies will have to make this argument when the regulators are determining their settlement. There is a strong economic argument for such an allowance, but regulator endorsement would clearly make implementation easier for the utilities.

2.3.9 For the highway authorities the situation is more complex. The highway authorities would clearly bear the direct costs, but in the absence of a full road pricing scheme would be unable to pass that cost on to consumers (highway users). In order to overcome that problem our proposed solution would be for charges levied on the highway authorities to be retained within a special pot and for those charges to be returned to highway authorities at the end of each year, but critically not in proportion to the charges paid. The objective is to drive greater efficiency in the usage of road space by highway authorities, but not to financially penalise them overall. Although the money would be returned those authorities which achieved the greatest improvements in efficiency would be net winners and those which did not would be net losers.

2.3.10 There are possible alternative approaches to this. One might be to use some form of internal charging mechanism such that money was paid from one part of the local authority to another. A second would be to encourage improved performance through league tables of highway maintenance efficiency. In our view a mechanism that does not cost real money is likely to be much less effective, but these alternatives might produce improved efficiency without the difficulties of moving real money around between boroughs.

2.3.11 These issues are discussed further in Chapter 5.

2.4 UK lane rental pilot schemes 2.4.1 Between 2002 and 2004 a lane rental charge (applied only to utilities) was piloted in

Middlesbrough and the London Borough of Camden as a result of a Government Local Public Service Agreement (PSA). Camden subsequently produced a report outlining the outcomes from the scheme.

2.4.2 Camden was set a PSA target to reduce congestion by 10% during the lane rental trial; this was exceeded. The effects of the lane rental scheme differed between the routes that were monitored, with a larger reduction in journey times in the parts of Camden within central London than in the inner London areas.

2.4.3 Overall there was a reduction in journey times of 27% for routes in Camden, compared with a reduction of 6-12% in Islington, which was used for the control routes as the lane rental was not applied there. This could indicate that the lane rental scheme played a significant role in reducing congestion, although the DfT (Department for Transport) concluded that there was not sufficient proof to reach any definitive conclusion.

2.4.4 Camden noted a number of lessons that could be learnt for future applications of a similar scheme:

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A need to ring fence funds from the scheme towards higher amounts of traffic management and co-ordination;

A need for improved data to be provided in terms of notices for when works are scheduled to take place;

A need to simplify the noticing system in place; A need for the charge to provide sufficient incentive for works to be carried out

more efficiently whilst not being overly punitive; and A need for proper measures of performance of any scheme introduced.

2.4.5 It seems likely that a pricing system would be the next step in improving the management of the road network. In the next chapter we explore the numbers, types and frequency of road works and the congestion costs imposed on road users.

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3 Analysis

3.1 Introduction 3.1.1 This chapter provides an outline of the numbers of road works in London, the existing

costs of congestion and hence an indication of the congestion costs per road work.

3.1.2 The costs of congestion will vary by:

Time of day – at peak times removing capacity dramatically increases congestion whereas at night impacts may be minimal, although it is worth noting that in central London there is no drop off in traffic in between the peak periods;

Location – central London tends to have a higher proportion of business trips than the suburbs and hence higher costs of delay;

Tidal direction; Road type – main roads are likely to have higher congestion costs due to the

volume and composition of traffic; and Road work category – different utilities and work types will have different road

space requirements and work durations, and hence will have different congestion costs.

3.2 Road works 3.2.1 The total number of road and street works in London is approaching one million a year.

Consistent data splitting all road works between different promoters and road work categories is difficult to obtain. However, Transport for London was able to provide some detailed 2009 data for the TfL Road Network (TLRN), the roads in London that are owned and maintained by TfL. These account for just five per cent of the roads in London but are used by around one third of the city’s traffic. Figure 3.1 shows both the TLRN and Strategic Road Network (SRN).

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Figure 3.1: TLRN and SRN

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Figure 3.2: Road works on the TLRN split by promoter, 2009

400

4,400

16,600

3,250

9,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Water Electricity Gas Telecoms TfL

Num

ber

of ro

ad w

orks

3.2.2 Figure 3.2 shows total road works on the TLRN in 2009, split by promoter. Out of the utilities it was water companies that undertook the most road works during this time. There was an even split between works undertaken by TfL and those by utility companies (a 49%:51% split).

3.2.3 Figure 3.3 shows the works split by category instead of promoter. The definitions of the categories are as follows:

Major works: longer than ten working days; Standard works: four to ten working days; Minor works: less than four working days; and Immediate (emergency and urgent) works: can be of any duration.

3.2.4 The category with the highest number of road works was ‘minor’. The average split between immediate works and other was 44%:56%.

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Figure 3.3: Road works on the TLRN split by type, 2009

15,800

8,300

750

2,350

6,450

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Immediate -Emergency

Immediate -Urgent

Major Minor Standard

Num

ber

of ro

ad w

orks

3.2.5 Table 3.1 combines the information shown in the figures above to give the split of road works by promoter and category. There are large differences between the splits of work types by promoter, the key points being:

TfL, as the highway authority on the TLRN, undertakes more immediate works than the utilities do. However it should be noted that these tend to be very minor works, often on footways and without much effect on traffic;

Water is much the largest of the utilities in terms of road works and particularly so in terms of emergency works.

Table 3.1: Road works on TLRN by promoter and type, 2009

Immediate - emergency

Immediate - urgent

Major Minor Standard Total

Water 5,000 200 100 3,500 200 9,000 Electricity 150 0 0 50 200 400 Gas 650 550 150 300 1,600 3,250 Telecoms 400 150 50 3,700 100 4,400 TfL 2,100 5,550 450 8,250 250 16,600 Total 8,300 6,450 750 15,800 2,350 33,650

3.2.6 In terms of the length of works, a split is not available by promoter. However, Table 3.2 shows the average duration of works by category between 2007 and 2009. Major works last over 50 days on average, whereas minor and emergency works usually last two days.

16


Table 3.2: Average duration by road work type, TLRN (days)

Work type 2007-09Immediate - emergency 2Immediate – urgent 4Major 56Standard 9Minor 2

3.2.7 If it is assumed that the average values in Table 3.2 can be applied to road works by all promoters, the total number of road work days by promoter can then be estimated, as seen in Figure 3.4. Figure 3.5 goes on to show the equivalent number of road work days by category.

Figure 3.4: Total road work days on the TLRN split by promoter, 2009

12,100

38,800

68,000

26,700

20,500

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Water Electricity Gas Telecoms TfL

Num

ber o

f roa

d w

ork

days

17


Figure 3.5: Total road work days on the TLRN split by type, 2009

21,85022,600

31,650

16,550

38,900

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Immediate -Emergency

Immediate -Urgent

Major Minor Standard

Num

ber o

f roa

d w

ork

days

3.2.8 The upshot, as shown in Figure 3.6, is that the split of road work days between TfL and utilities is 50%:50% (very similar to the 49%:51% if the split is estimated purely on number of road works).

18


Figure 3.6: Proportion of total road work days on TLRN by promoter, 2009

19%

2%

19%

9%

50%

WaterElectricityGasTelecomsTfL

Conclusions 3.2.9 There are a very large number of road works carried out on London’s streets each year,

TfL estimates approximately 600,000. With an average duration of three days that means almost two million road work days per year or an average of 5,000 active road works on any single day. This is a serious issue with important consequences for London’s businesses.

3.3 Congestion costs 3.3.1 One of the difficulties in developing an appropriate charging system is the variation in

congestion costs. The congestion costs imposed on road users will be significantly affected by time of day, location and road type as described above but also the:

Precise location of works - in particular works which affect junction capacity rather than link capacity will have a much greater effect;

Opportunities for rerouting - where alternative routes are available, congestion impacts will be reduced;

Duration of works – longer works will enable drivers to take them into account and may hence have lower marginal impacts on congestion than short works; and

Direction of flow - using the outbound carriageway during the morning peak may cause relatively little congestion, but outbound in the evening peak is very different.

3.3.2 A useful source of data on current congestion costs in London is the Application Support Document7 that TfL produced for the permit scheme. This defines a ‘Network of Interest’ (NOI) comprising all ‘M’ and ‘A’ roads plus busy minor roads and bus routes in London – a total of 2,930 km. GPS-based tracking data is then used to estimate vehicle delays.

7 Transport for London, London Permit Scheme for controlling works related activities in the street – Consultation Draft Application Support Document

19


3.3.3 Various splits of delays are possible. Figure 3.7 shows delays split by area of London and time of day (it is assumed that there are no delay costs at night). A version of the table shown was originally provided in the Application Support Document, but the figures were subsequently updated by TfL in RNPR Traffic Note 4 (January 2010). Figure 3.7 uses the updated values.

Figure 3.7: Daily vehicle delay on the network of interest by time period and location

Source: TfL

3.3.4 Applying appropriate annualisation factors and an average value of time of £17 an hour derived by TfL, this data suggests that the total cost of vehicle delay on the Network of Interest is £4 billion a year. This is a highly cautious estimate of the congestion costs, because it assumes that all the congestion caused is on the road itself. The impacts of vehicles rerouting around the road works on other roads will not be picked up, nor the delays that those impose on others, nor blocking back from affected junctions etc.

3.3.5 TfL then estimates that the proportion of this attributable to road works is approximately 10% (roughly 5% each for road works undertaken by utilities and highway authorities). Taking into account an additional allowance for diversions generating longer trips (not captured in the £4 billion) and worse reliability, the annual congestion cost attributable to road works is estimated to be £750m.

3.4 Costs per road work 3.4.1 To derive individual road work costs, the TfL Application Support Document can also be

used. In that document TfL took a sample of individual works, with estimates of the average delay and total length of disruption made in each case.

20


3.4.2 Table 3.3 below uses the TfL data to derive an average congestion cost per hour for road works in London.

Table 3.3: Deriving congestion costs of road works per hour

Category of road work Major Standard Minor Number of works on sample roads in TfL document 768 6,649 10,042 Number that caused disruption to traffic 152 559 925 Average length of disruption (hours) 325 40 10 Estimate of average vehicle flow per hour 1,690 Average delay per vehicle (hours) 0.05 0.067 0.083 Value of time (£/hour) £17 Total congestion cost (£m) 117.8 43.0 13.3 Implied congestion cost per road work per hour (£) - all road works 472 162 132 Implied congestion cost per road work per hour (£) - only road works that cause disruption 2,384 1,924 1,437

3.4.3 The results in Table 3.3 suggest that the congestion cost per hour of road works in London is in the region of £1,500 – 2,400. As a weighted average, the cost per hour is approximately £2,000.

3.4.4 That figure is based on those road works that are deemed to lead to a congestion cost. As can be seen in Table 3.3, however, only abut 10% of road works cause significant disruption to traffic. If the cost was spread across all road works, the figure would be much lower (£100 - £400 an hour). Clearly it is very important to focus the charges on the minority of locations and road works that cause congestion.

3.4.5 It should be noted that this chapter has concentrated on the congestion costs imposed on cars, buses and goods vehicles. There are other impacts of road works, particularly on pedestrians and cyclists who are the most vulnerable of road users. Reducing road work durations would bring safety benefits to pedestrians, cyclists and motorcyclists, would reduce the noise and visual intrusion caused by road works and reduce disruption caused by moving bus stops and pedestrian crossings, loss of parking spaces (and revenues) and changes to delivery bays.

3.5 Conclusions 3.5.1 There is a lot of variability in the congestion costs caused by road works and uncertainty

in the valuation of those costs. That uncertainty makes it harder to come to a definitive answer as to what the costs imposed on road users are and hence what an appropriate charge might be.

3.5.2 The average cost of road works that had a noticeable impact on congestion of £2,000 per hour in Table 3.3 would imply a cost of at least £10,000 per day. On the other hand the £750m per annum which is the value derived by TfL from analysis of traffic cameras implies a lower congestion cost, probably around £1-2,000 per day. Those differences arise largely because the majority of road works do not cause congestion. Those costs only include the impacts on road traffic, they take no account of delays caused to pedestrians or cyclists nor of the visual intrusion or noise caused by road works.

3.5.3 Difficulty over giving precise answers about the congestion costs of road works should not obscure the issue however, the one thing we can say with a high degree of certainty is

21


that on main roads in London the charge should not be zero at peak times. In fact we can go further than that and suggest that the charge should be significant. The next chapter sets out some options as to how those charges could be implemented.

22


4 Potential options

4.1 Introduction 4.1.1 In describing what a charging system should look like we need to be clear about what we

want to achieve. There are three broad objectives for the design of a pricing scheme:

Pricing – the price must be lower than the external costs imposed on road users and yet be high enough to bring about behavioural change on the part of utilities and highway authorities;

Differential pricing – prices need to reflect variations in congestion by covering particular time periods and geographic locations and / or road types; and

Administration costs and simplicity – the system should minimise administration costs and / or build on the administrative system that will be in place for the permit scheme. Any increase in administrative costs needs to be offset against the benefits that such a system would bring.

4.1.2 Setting the price is difficult, because it is hard to know in advance how much behaviour will respond to price. A big advantage of a price-based system however is that it is easy to adjust the price in line with observed behaviour. A sensible strategy seems likely to start with a relatively low price and increase it gradually over time unless actual outcomes suggest otherwise. It will be important however to take account of the timing of regulatory review periods within that process.

4.1.3 The administrative costs and complexity are important to the success of the charging system. The permit scheme looks likely to be very demanding in the burden that it imposes both on the utilities and the local authorities. TfL estimates a £37m administrative cost to the public sector and one of the major utilities active in London believes that the permit schemes will add some £10 million a year to their administrative costs. A further advantage of the price system may be that the price itself drives better behaviour and hence should require less detailed scrutiny of what is being done and budgeting appropriate timescales. If utilities and highway contractors are being billed by the hour / day for usage of road space then they will be highly incentivised to do the job as quickly as possible.

4.1.4 From those objectives we have identified three potential options that could feasibly be used to incentivise utilities and highway authorities towards undertaking road works in a more efficient manner. This chapter outlines those three options and provides a broad-brush quantitative analysis of the impacts. However, at this stage it is not possible for the figures to be more than an approximation; an overall consideration of how the scheme would work is more important. The three options are, in increasing order of complexity:

An adjusted London Permit Scheme approach; A Lane Rental Charge; and A Road Works Credits scheme.

These are described in more detail in the sections below.

4.2 Adjusted version of London Permit Scheme 4.2.1 Seemingly a relatively easy option to put in place would be to modify the planned London

Permit Scheme in order to try to provide a better focus on reducing congestion. That would mean:

23


Removing the permit system from all non-major roads (ie those that are not on the network of interest defined in section 3.3) because the congestion costs are generally much lower; and

Increasing the price of permits significantly (perhaps five to tenfold) for road works being undertaken on major roads where congestion costs are high and ensuring that those prices reflected the duration of the works.

4.2.2 The idea would be to create a half-way house between the efficient pricing options discussed above, but through the existing system thereby minimising the change and administrative requirements. Our understanding however is that this option would be likely to require new legislation as the current permit fees are only allowed to cover the direct administrative costs associated with them.

Table 4.1: Illustration of Adjusted London Permit Scheme details

Category of road work Cost per permit –

category 1 and 2 roads

Possible revised charge

Cost per permit –

category 3 and 4 roads

Possible revised charge

Major £240 £20,000 £150 NilStandard £130 £6,000 £75 NilMinor £65 £2,000 £45 NilImmediate £60 £2,000 £40 Nil

4.2.3 That sort of charge structure would at least better reflect the congestion costs imposed by the different road work types, and because three quarters of the road network would be exempted from the scheme there would be significant savings in administration costs for both public and private sectors. The downside is that a fixed cost by road work type would still not give any incentive to reduce the number of days taken to complete the works. A way around this may be to request an estimate of the length of time for the work at the outset and then set a price for the permit based on a charge per day – so instead of charging a fixed £20,000 for a permit to undertaken major works as shown in Table 4.1, the permit could be based on a charge of £400 per day (since major works take around 50 days on average).

4.3 Lane Rental Charge 4.3.1 A LRC is simply a fixed charge per day (or per hour) for the use of a road lane. It could

cover all roads in London, but our advice would be to restrict the LRC to major roads. That would focus the charge on the areas where the congestion costs are highest and hence the benefits of behavioural change the greatest. Further work would be required to determine the exact area that should be covered, although for the sake of simplicity we have assumed the same area as TfL in their permit scheme document, which includes the TLRN and SRN.

4.3.2 The value of the daily charge would need to be carefully determined. The analysis in section 3.4 suggests that the congestion costs of road works in London could be as large as £2,000 an hour, although this implies a charge in excess of £10,000 a day which seems prohibitively high. Our view is that a charge of £1,000 a day would be appropriate for the proposed network. It might be possible to introduce some differentiation in charges according to local conditions, that means striking a balance between simplicity and accuracy. Similarly charges could differentiate between peak hours and non-peak. Charges would be likely to be zero between 7pm and 7am to encourage evening and night time working.

24


4.3.3 The administrative costs of an LRC system would be much less than those of the permit scheme. That is largely because most of the roads in London would be exempted from LRC, whereas all roads are included in the permit scheme. There would clearly be a need to monitor the road works undertaken and to ensure that authorities were aware of the amount of time spent. The authorities will need to know when works start in order to determine the charge. An inspection-based system seems most appropriate where a substantial fine is imposed on anyone working without having previously informed the authorities (that would mean they would avoid the charge). The utility companies / highway authorities would have a big incentive to let the administrators know when they had finished working (because the charge would stop) but again, inspection would be required to ensure that they did not claim that the works had been completed ahead of time.

4.3.4 One of the advantages of a price-based system is that the price can be adjusted until it delivers the desired outcome. Thus if a price at the bottom of the range, eg £1,000 per day, has little effect on total road work days then it may be worth trying a higher charge. On the other hand, if it has halved the number of road work days then that may be as much as can be expected and a further raise would be punitive rather than justified. The issue is made more complex because some responses will take a long time to deliver (eg preventative maintenance leading to reductions in future emergency works).

4.3.5 To know more about the outcomes of the charge would require more information about the current costs to utility companies and highway authorities of undertaking road works. Within the constraints of this study it has not been possible to obtain detailed cost information due in part to commercial confidentiality issues and in part to the difficulties of breaking down aggregate cost information into typical individual road works.

4.3.6 It seems likely that a wide-ranging LRC policy would require legislation to be enacted and would probably need regulator endorsement for the affected utilities as it would increase their costs (although some of that increase would be offset by reduced administrative costs). It is possible that an LRC that applied only to very local areas might not require legislation, but that one which applied across the NOI as recommended in this study would need new legislation.

4.3.7 To the extent that the charge leads to a reduction of road work days, it is highly likely to be successful in terms of reducing congestion in London. It could also raise substantial revenues. The possible uses of those revenues is discussed in section 4.5.

4.4 Road Work Credits 4.4.1 The final option would be to implement a ‘road work credits’ scheme. As with the LRC

option, this would involve a charge to utility companies and highway authorities when undertaking road works. However, it would be set up such that road work promoters would have the opportunity to make money from the scheme if they improved efficiency by more than the targets set.

4.4.2 Essentially, the scheme would work in a similar way to the type of ‘carbon credit’ schemes that are used as a way of reducing carbon emissions. The following steps would be taken:

Establish the total existing number of road work days on the network of interest. This would need to split emergency works from routine maintenance and capital investment;

Set a target for the desired level of road work days appropriate for each utility and highway authority. Those targets would need to be set together with the appropriate regulatory bodies. Different targets would be required separating capital investment from more regular routine maintenance and emergency works; and

25


Monitor the road work days by utility after the scheme is implemented. For each utility there are three possibilities: - They spend the allocated number of days undertaking road works – in which

case they neither pay nor receive any additional costs; - They spend more days on road works than allocated – in which case they

pay a daily charge for each day above the target; or - They spend fewer days on road works than the set target – in which case

they can sell their excess road work credits to other utilities or authorities. 4.4.3 This option would have higher administration costs than the lane rental charge as it would

require budgeting as well as monitoring and would need administration of the market in road work credits. A significant advantage would be that it would be more acceptable to utility companies as it would be cost neutral (on average) and for the most efficient utilities and highway authorities it would be profitable.

4.4.4 There would need to be a lengthy and complex process of legislation and negotiation with the affected parties in agreeing the basis of the charge and ensuring that it was well understood. It would be important to split between different types of works, with special allowance in the budgets for major investments such as the Victorian Water Main Replacement programme.

Summary of Options 4.4.5 Table 4.2 provides a brief summary of how the three options compare under a number of

categories, relative to the forthcoming London Permit Scheme.

Table 4.2: Summary of options


Option 1 – Adjustment to


Option 2 – Lane Rental

Charge


Daily charge Charge is by permit rather

than day, £60 to £240 per

permit

Much higher charges for key

roads, zero elsewhere

In the region of £1,000 per day

Free up to the target. Beyond

this, the charge would probably be higher than

the LRCDifferential by time period

No differential Difficult to differentiate by

time period

Can vary between peak,

inter peak, evenings and

weekends

Exclude night / weekend working

from the credits scheme

Differential by location

Differentiates between major

/ minor roads

Should focus on main roads / central London

Should focus on main roads / central London

Should focus on main roads /

central LondonAdmin costs High Medium Low Very high

4.4.6 In all of the options described it would be possible to introduce a higher charge for some or all emergency works. That higher charge might be justified because with such works there is no opportunity to co-ordinate them with other works and less opportunity to design appropriate traffic management arrangements, hence they are likely to impose greater congestion costs on traffic. In the longer term a higher charge on emergency works would be expected to reduce the number and / or duration of such works either by

26


encouraging innovation in delivery or increased maintenance spend. In the short term it might simply increase the amount of monitoring work undertaken to try and spot faults before they occur.

4.4.7 The emergency rate could be 25% or 50% more than the standard rate. There would however be a time lag between any differential price on emergency works and the ability of the utilities / authorities to influence the incidence of emergency works. It might therefore be appropriate to indicate that a premium rate for emergency works would be introduced, for instance, in two years’ time rather than introduce it immediately. That might deliver the same benefits without penalising the utilities and authorities before they had a chance to respond. It would also be possible to trial the premium for an emergency rate on particularly sensitive parts of the network. Again the objective is to change behaviour, not to levy financial penalties unnecessarily.

4.5 Analysis of options

Adjusted permit scheme 4.5.2 Figure 4.1 shows how congestion and financial costs may change if the adjusted version

of the permit scheme was adopted compared with the base scheme. It is based on the idea of setting permit prices by basing them on a charge per day, as suggested in section 4.2. It should be noted that the figures are based on TLRN only, meaning there are no category 3 or 4 roads in Figure 4.1. In the adjusted permit scheme, the permit would become free for works undertaken on category 3 or 4 roads.

27


Figure 4.1: Example of adjusted permit scheme (TLRN only) Base ‐ planned LoPS

Category 0 ‐ 2 roads

Number of permits issued

Fixed cost per permit

(£)

Average days per

RW

Average cost per permit (£)

Total RW days

Total income (£)

Congestion cost per RW per day (£)

Total congestion cost (£m)

Admin cost per permit

(£)Total admin

cost


Total income (£m)

Total admin

cost (£m)Net financial impact (£m)

Major 448 240 55.5 240 24,836 107,400 16,000 397.4 400 179,000Standard 4,172 130 9.0 130 37,548 542,360 16,000 600.8 250 1,043,000Minor 9,339 65 2.0 65 18,678 607,035 16,000 298.8 150 1,400,850Immediate 6,565 60 2.3 60 15,188 393,900 16,000 243.0 150 984,750

Total 20,524 96,250 1,650,695 1540.0 3,607,600 1,540.0 1.7 3.6 ‐2.0

Adjusted LoPSCategory 0 ‐ 2 roads

Number of permits issued

Permit cost per day (£)

Average days per

RW

Average cost per permit (£)

Total RW days

Total income (£)

Congestion cost per day

(£)


Admin cost per permit

(£)Total admin

cost


Total income (£m)

Total admin

cost (£m)Net financial impact (£m)

Major 448 400 53.8 21,534 24,091 179,000 16,000 385.5 400 179,000Standard 4,172 650 8.6 5,565 35,718 2,711,800 16,000 571.5 250 1,043,000Minor 9,339 1000 1.9 1,850 17,277 9,339,000 16,000 276.4 150 1,400,850Immediate 6,565 1000 2.1 2,140 14,049 6,565,000 16,000 224.8 150 984,750

Total 20,524 91,134 18,794,800 1458.2 3,607,600 1,458.2 18.8 3.6 15.2

Change ‐81.8 17.1 0.0 17.1

Net financial impact (£m) 17.1

Reduction of congestion (£m) 81.8

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Lane rental charge 4.5.3 Figure 4.2 below shows the impact of differing levels of lane rental charge if certain

assumptions are made about the road work elasticity (ie the extent to which total road work days change in response to a change in the costs of undertaking road works) and the proportion that the charge would add to existing costs.

Figure 4.2: Example of lane rental charge (TLRN only)

Charge per day (£) 1,000 2,000 4,000 Number of road works affected 39,357 39,357 39,357 Equivalent road work days (base) 166,198 166,198 166,198 % additional daily costs due to lane rental charge 25% 50% 100% Elasticity of road work days with respect to cost -0.3 -0.3 -0.3 Number of road work days (new) 153,733 141,268 116,339 A. Total revenue per year (£m) 153.7 282.5 465.4 Administration cost per road work (£) 500 500 500 B. Total administration cost (£m) 19.68 19.68 19.68 Congestion cost per hour (£) 2,000 2,000 2,000 Hours of disruption per day per roadwork 8 8 8 Reduction in congestion costs (£m) 199.4 398.9 797.8 Summary Reduction of congestion (£m) 199.4 398.9 797.8 A – B Net financial impact (£m) 134.1 262.9 445.7

4.5.4 It is important to note that Figure 4.2 is based on assumptions that have been made in order to provide indicative figures; the road work elasticity or administration cost per road work could be very different in reality and could vary widely between different utilities and highway authorities and by road work type. The figures for the number of road works are based on TLRN only and therefore do not reflect the whole area that the charge would be applied to. The key assumptions are:

That the average total cost of doing road works is £4,000 per day per site. It was not possible within this study to obtain average costs, so this is a pure assumption. The total cost changes how much impact the additional charge has;

The elasticity which predicts how much a change in costs will impact on road work duration. An elasticity of -0.3 suggests that a 10% increase in the cost of undertaking road works would result in a 3% reduction in RW duration. Again we have no justification for that assumption; it is used simply to illustrate a possible outcome.

4.5.5 The extent to which road work durations are reduced by the introduction of a charging system is the key to a successful policy. How behaviour changes is unknown, but the changes are likely to come about over different timescales:


29

Short term – there are likely to be simple management and working practice changes which could reduce duration of road works, for example by resurfacing without delay or working more intensively, or improved co-ordination between utilities driven by the financial savings possible from shared sites. Those changes might not cost any more than existing methods and simply reflect changing priorities;

Medium term – charging will make some existing techniques cost-effective which

are not so currently. Thus plating road works to allow peak period traffic to flow has no financial return currently, but if it halved or eliminated the charge then that would change. Thus there are a wide range of potential changes from night time working to increased inspections and preventative maintenance that will be used more under a charging system; and

Long term – charging will create a financial incentive to invest in new more efficient

maintenance techniques. It is not possible to predict what those are but they might include: keyhole surgery techniques, enabling more repair with less digging, noise screening techniques enabling more night time working, investment in more effective machinery.

4.5.6 The examples in Figure 4.2 show that under the assumptions used, the total value of the

reduction in congestion would be roughly double the charges made to the utilities and highway authorities. The scheme would raise significant sums of money8 well in excess of the administrative costs and plans would be needed for how that excess should be spent. Our recommendations are that:

The money should be hypothecated and kept within the highways / congestion related sector;

Any surplus should be reallocated into areas that help the highway authorities and the utilities, possibly as an annual rebate; but

That rebate should not be in line with the amount of money paid, otherwise the incentive to change behaviour would be reduced, but could perhaps be split in two with one half allocated between the utilities in proportion to the number of works and the other between local authorities in proportion to the size of their highway network. Alternatively the surplus funds could be invested in developing new and more efficient techniques for road works which would benefit utilities, authorities and road users.

4.5.7 Thus, although the LRC scheme is highly profitable those profits are the outcome of a desire to change behaviour through charging, not the objective. Re-investing the surplus into the sector would greatly improve the acceptability of the proposals.

Road work credits 4.5.8 Figure 4.3 below indicates how the scheme would work and what the impacts would be

depending on the extent to which road work promoters achieve their targets. It is only based on road works on the TLRN.

8 It should be noted that the revenue from the scheme may reduce over time to the extent that it leads to a reduction in total road work days.


30

Figure 4.3: Example of road work credits scheme (TLRN only)

1. Estimate current Current total road works 39,357 total road works / road work days Current total road work days 166,198 2. Set an overall target Target number of road work days 155,000 and split for each road work promoter 3. Calculate the Required reduction 11,198 resulting reduction in road work days required from each promoter 4. Monitor the actual Actual reduction achieved Scenario 1 Scenario 2 Scenario 3 amount of reduction 11,198 12,000 10,000 that occurs 5. Estimate the net Charge / subsidy per day (£) 3,000 3,000 3,000 impacts of the scheme Admin cost per road work (£) 667 667 667 based on the charge Congestion cost per road work day (£) 16,000 16,000 16,000 that has been set Revenue from road work credits (£m) 0.0 -2.4 3.6 Total admin cost (£m) 26.2 26.2 26.2 Net financial impact (£m) -26.2 -28.6 -22.6 Reduction of congestion (£m) 179.2 192.0 160.0

4.5.9 Essentially the scheme could make a small profit or loss in any given year, but on average would be intended to break even. Revenues would be much smaller than the LRC because only the excess over target is charged, but the combination of target setting and charging when targets are exceeded would provide a strong incentive to change behaviour.

4.5.10 The real problem with the road work credits scheme would be the administrative costs involved in determining the targets, monitoring performance and setting up an internal market.

4.6 Comparison of options 4.6.1 Table 4.3 outlines a set of issues that would need to be considered in order to implement

a new scheme, and how each of the three options rates against those.


31

Table 4.3: Comparison of potential charging options

Issue Option 1 – Adjustment to London Permit Scheme

Option 2 – Lane Rental Charge


Administration costs

Medium Low Very High

Net costs Likely to require ongoing subsidy

Would generate net revenues

Will be cost neutral on average but may cost money

in the short termImpact on utility customers

Small change in costs Large increase in costs and higher bills

Neutral overall

Regulatory issues Depends on the scale of the charge

Significant increases to utility costs likely to lead to higher charges and hence

need for regulator endorsement

Cost neutral – no regulatory issue

Speed of implementation

Likely to require legislative change and hence slow

Largely dependent on regulator endorsement

although could require new legislation

Probably the most difficult to implement and hence longest

lead time

Level of economic efficiency

Depends on charge, but a half-way step to LRC

High – pricing it correctly would lead to an optimal

number of road work days

Also high, albeit possibly not as high as option 2 due to the

higher admin costs Allocation of surplus

No surplus Could be reinvested in highway and road works

sector

No surplus


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5 Barriers to change

5.1 Introduction 5.1.1 For a charging system to have the desired effect it will need to drive behavioural change

on those who reduce the effective capacity of the road network. It is important to understand what barriers there might be both to driving behavioural change and to allowing for those barriers in predicting the impacts of a charging scheme.

5.1.2 The barriers have been split into three sections:

Internal barriers – those which restrict the ability of utilities and / or highway authorities to respond;

Pricing highway authorities; and External barriers – which make the introduction of such a system more difficult.

5.1.3 In all cases we need to be careful that any proposed change to the system does not create bigger problems elsewhere. A system that banned all road works indefinitely, for example, would rapidly lead to dangerous gas leaks, electricity cuts, telephone blackouts and poorly maintained highways, problems that might well be considerably more severe than a reduction in highway congestion. Thus any system must also enable important works to take place on the highway network.

5.2 Internal barriers 5.2.1 Internal barriers are issues which restrict the ability of utilities and / or highway authorities

to respond to price signals. The main ones are considered below.

Night working 5.2.2 An obvious option for reducing congestion costs would be to incentivise utilities and

highway authorities to undertake more road works at night instead of during busy periods. Vehicle flows are much lower at night, hence the congestion costs resulting from road works would also be much lower (in fact, the TfL permit application document assumes no congestion at night as a simplifying assumption). That could easily be achieved through differential charges by time of day.

5.2.3 However, there are at least two major reasons why this may be difficult to implement in practice:

Environmental health regulations generally prohibit road works in residential areas at night because of the associated noise pollution, although this is a matter of interpretation for each local authority; and

Safety must also be taken into account – it can be more costly and difficult for road works to be undertaken at night. There is a much higher risk that, for instance, an electrical cable could be accidentally cut due to poor visibility.

5.2.4 The possibility of more night works should certainly not be discounted, but these issues must be considered. On main roads in central London it may be that night working is a good thing, and the reduced congestion cost outweighs the noise issues, whereas in quiet residential streets that is unlikely to be the case. A flexible approach is required.


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Immediate works 5.2.5 Section 3.2 showed that over 40% of road works in London are ‘immediate’ (either

emergency or urgent). If it is not possible to make any changes to those works then the impact would be significantly reduced. In practice, although these works are able to start immediately (meaning that there is little scope for co-ordination with other works), the duration of the works is clearly still likely to be affected by a time-based charging system.

5.2.6 There is a perception that road works may sometimes be classified by utilities as an emergency so that they need to give shorter notice for undertaking the work. A way of dealing with this may be to price immediate works higher than other works. This would help to ensure that only the road works with a genuine need to take place immediately would be undertaken with the smallest possible notice. Higher costs for emergency works may result in improved preventative maintenance and thereby fewer emergency works over the longer term (although there is insufficient evidence for us to be certain of this).

5.2.7 It might be possible to trial emergency charges on particularly important sections of the network in order to determine their effectiveness and see whether they should be applied more widely.

Changes to working practices 5.2.8 Over time we would expect a charging system to change the way the utilities and

highway authorities organise their work. When use of road space is free there is no incentive to speed up delivery, if there is no differential between small and large roads or between peak and night time working then incentives to change are low. In fact as it costs more to undertake works at night the authorities are faced with a financial disincentive for night time working.

5.2.9 A charging system will have long term implications driving changes such as:

More mitigation including increased use of trench plates to make the carriageway available at peak times;

More investment in techniques that reduce the time required to complete road works; and

Adopting keyhole surgery-style techniques enabling repairs to be undertaken with less digging of holes.

5.2.10 It is not easy to predict precisely what will happen, but it is realistic to suggest that a system which charges for road use on a time basis will result in the development of working practices which reduce the amount of time required to complete the job.

5.3 Pricing Highway Authorities 5.3.1 Pricing the use of public highways by private sector utility businesses is a straightforward

concept, even if there are practical difficulties in doing so. Pricing the public sector owners of the road network for the space they use whilst maintaining the roads is clearly more difficult. Nonetheless in seeking to reduce the congestion impacts of road works on businesses in London, highway authorities cause a significant share of those costs. A pricing system that addresses only the utilities, deals with only half the problem. In addition pricing is likely to be more acceptable to the utilities if it is also being imposed on the highway authorities.

5.3.2 This issue is linked to how funds raised by a charging system are subsequently allocated. It will be difficult to charge highway authorities in a way which genuinely changes their behaviour if they believe that they will eventually get all of that money back. The utilities


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will have a direct financial incentive to reduce the duration of road works but it may prove difficult to give the same incentives to TfL and the boroughs.

5.3.3 We have come up with three ways in which the system could be adapted in order to be effective for the highway authorities as well as the utilities.

One approach would be to adopt a similar system to that used by some US states (see section 2.3). If the same charge was applied to both the utilities and the highway authorities, but the highway authorities simply had to take that charge into account in awarding contracts without paying the charge, that might deliver a similar outcome. That would work well for major works which are let by competitive tender, but not for routine and emergency works which tend to be single sourced;

Alternatively it might be possible to collect the charges from the various highway

authorities and redistribute them within authority budgets but reallocated according to a pre-determined measure such as highway kilometres or vehicle kilometres within each authority area. That way there would still be a financial incentive to reduce the use of road space for road works without any overall reduction in authority funds. There would be individual winners and losers amongst the authorities, but that may be the price to pay for driving behavioural change;

Another alternative would be to incentivise highway authorities by allocating the

revenues from utility works to them, weighted in line with which authorities had performed most efficiently relative to targets set – this would be a way of providing incentives to the highway authorities without the complications involved with charging them and reallocating their own money between them.

5.3.4 This is an important issue. We have no desire to increase the administrative costs of the system by an elaborate circular flow of money, but unless a scheme can be devised that incentivises highway authorities as well as the utilities to reduce their use of road space then the impact on congestion and business efficiency is greatly reduced.

5.3.5 There are some alternatives to a pricing solution. These are likely to come under two broad categories:

An internal charging system – this would see the highway authority “pay” a charge from one part of the local authority to another. Real money would move around within the organisation but there would be no external loss (or gain);

A benchmarking system – this would seek to drive behavioural change through monitoring and publicising performance of different highway authorities through some sort of league table of efficiency.

5.3.6 It is possible that the incentives provided to the utilities and the changes in behaviour that result from them will eventually “trickle-down” to the highway authorities even without a pricing system. Thus technical innovations once established in the private sector will subsequently be adopted by the public sector. It is also possible that targets set for highway authorities on the basis of the improvements delivered by the private sector might eventually deliver similar gains. Both of those are possible, but our view remains that it would be better to use price rather than to rely on persuasion.

5.4 External barriers 5.4.1 Internal barriers reflect the ability of the utilities and highway authorities to respond to the

price signals. The external barriers are ones which would make the introduction of such a price signal more difficult.


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Regulator endorsement 5.4.2 Any change of approach involving a significant increase in costs to the utility companies

may need to be endorsed by the relevant government regulators as at least some of that cost is likely to be passed on to consumers. The regulators will therefore need to be convinced of the merits of a proposed new approach.

5.4.3 The regulators do take account of some of the external costs of the utilities, notably concerning environmental issues, but do not currently recognise any external costs on congestion. There are many different regulators involved and there will be a need to convince all of them of the merits of the proposed approach. As the primary responsibility of the regulators is to keep bills low for consumers that may prove difficult, even though the economic logic seems strong.

Political acceptability 5.4.4 This is related to the issue of regulator endorsement above. To the extent that a new

scheme leads to financial costs being passed on to utility customers, there will effectively be a situation where all residents and businesses in London (and possibly beyond, since many utilities that operate in London also operate elsewhere and could pass the costs on to other customers too) pay extra in order to benefit a much lower number of highway users through reduced congestion. Although delivering a net benefit overall, such a scheme could still prove to be politically difficult to implement. It should be noted however that the increase in user bills from a lane rental charge, even assuming no change in the number of road work days, would be relatively small; perhaps of the order of £10-20 per person per year in London9.

5.5 Measuring success 5.5.1 The direct measure would be road work days used by utilities and highway authorities.

We would expect a price-based solution to significantly reduce the usage of road space.

5.5.2 That reduction in road work days would be expected to lead to a significant fall in congestion and improved journey time reliability. Those impacts should be visible through TfL’s monitoring of traffic speeds and journey times.

5.6 Conclusions 5.6.1 There are some significant barriers that will impact on the potential of a pricing system to

deliver efficiency improvements. An effective policy will need to try and overcome those barriers and:

Review the potential for more night working, especially on the major roads. Increased night working is a relatively low-cost way of reducing the congestion impacts of road works;

Place a premium price on emergency works, in part to encourage more co-ordination and in part to encourage improved long term maintenance;

Encourage and spread innovation in road works, development of new techniques and approaches;

Find a way of incentivising highway authorities as well as utilities; Convince the regulators of the economic benefits of such a policy; and Generate political support.

9 Although this assumes that additional costs are only passed on to households, whereas in reality businesses would also pay higher utility bills, thus effectively reducing the additional cost per person.


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6 Conclusions

6.1.1 Our conclusion is that the potential to reduce congestion through further administration and co-ordination is limited and that a price mechanism would be more effective. All three of the proposed approaches would be a significant improvement over both the current system and the permit scheme. All three should apply only to the busiest roads in London. Whatever system is taken forward our recommendation would be that the principles should apply to highway authorities as well as utilities. Our summary of the alternatives is:

Adjusted London Permit Scheme – this is the smallest change in that it simply changes the costs of the existing system, but is the least effective of the three and would probably still require new legislation.

Lane Rental Charging – this is the most effective of the proposed solutions with the biggest impact on road works. It would be a significant change to utility costs and hence to user bills and is will be difficult to introduce.

Road Work Credits – this would require the most administration and is less effective than LRC above but because it would not add to overall costs it would be easier to introduce politically and would not increase prices for consumers.

6.1.2 Our preferred option is the Lane Rental Charging system. That judgement is for the following main reasons:

Economic Efficiency – the LRC system is the most effective end-state solution, with flexibility over charging, area of network to be covered, reduced administrative costs for both public and private sectors and financially viable;

Ease of Implementation – LRC is simpler to implement and administer than the road work credits system. Regulator endorsement is a potential barrier though as additional costs to utilities would likely be passed on to consumers; and

Financial performance – the real costs of supplying utility services should be incorporated in their price. That price should include the costs of maintaining the infrastructure and external costs falling on others. The LRC effectively internalises the external congestion costs and the administrative costs associated with enforcing the scheme. For highway authorities there would need to be no overall costs, but financial gains to more efficient authorities and vice versa.

6.1.3 The benefits of a Lane Rental Charging system would be improved if:

Revenues raised from utilities were reinvested in the congestion relief and, at least in part, invested to develop improved maintenance techniques;

Significant discounts provided if roads were made available during peak periods; Emergency works (at least in key locations) were charged a premium; and Flexibility over night time working could be increased through better understanding

of the importance of congestion and journey time unreliability. 6.1.4 It would be important to pick up on any potential unintended consequences from the

scheme. For instance, implementing a lane rental charge could lead to road work promoters attempting to make greater use of pavements for leaving equipment or excavated material whilst undertaking road works, which would impact on pedestrians.


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6.1.5 The key stages in the implementation process to bring in an LRC scheme would be:

Secure political approval; Undertake more detailed analysis of the economic and financial parameters and

consultation with the interested parties; Draft and deliver the required legislation to enable the new charge; Implement a trial system, probably with lower charges which increase over a few

years up to economically efficient levels; and Monitor the changes that result in terms of road work duration, costs of congestion

and unreliability and contractor costs. 6.1.6 A summary of the preferred Lane rental Charge options is shown below.

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Lane Rental Charge7am to 6pm – hours of operationCovers TLRN, SRN and main borough roads£1,000 per day charge for works on that networkDiscounts for shared works and if road made available during peak periodsRaise £280m p/a saves £400m congestion35% premium for emergency worksUtilities and hwy authorities charged equallyRegulator approval required if costs to be passed on to consumers

economic impact of road works

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