Volterra to present at Transport Practitioners Meeting

Volterra is delighted to announce that consultants Andy McNaught and Adam Sands have had their paper “Valuing Travel Time Savings in the Context of Achieving Net Zero” accepted to the Transport Practitioners Meeting (TPM). They will present at TPM on Thursday 30th June. Tickets are available here. This article acts a general introduction to the topic area, and will be the first in a series of blog posts presenting their research.

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One of the purported main aims of many transport projects is to save travel time for users. A new bypass around a town might reduce your commute from 40 minutes to 30 minutes. Transport models are used to forecast the amount of travel time a scheme might save us in the future against a scenario where the scheme is not introduced.

Such travel time savings are a benefit to users of the transport network. In economic analysis, these benefits are monetised in line with guidance from the Department for Transport (DfT).

These ‘values of travel time savings’ are determined through willingness to pay surveys. Members of the public are asked a number of questions concerning how much additional money they would be willing to pay on travel costs (mainly public transport fares and fuel) in exchange for travel time savings.

Such questions might follow the form “If your bus journey to work was 45 minutes and the ticket fair was £2, would you be happy to pay £4 for your ticket, if the journey was made 15 minutes quicker?”. Through surveying multiple people using different variations of this question, the DfT arrive at a general value of travel time savings, representative of the whole population on average.

For example, the DfT’s appraisal data book estimates that, on average, we currently value every minute of travel time saved on a commute by £0.24. In other words, saving someone one minute on their commute is worth £0.24 every time they travel.

This doesn’t sound like much but it can quickly add up. If a transport scheme reduces the travel time of 10,000 commuters by 10 minutes every working day of one year (assumed to be 256 days), this time saving is worth £6.1million (£0.24 x 10 x 10,000 x 256) each year.

Volterra wanted to understand further the role that travel time savings play in the appraisal of transport schemes. Therefore, we collected data from 50 transport business cases, covering a range of modes in different parts of the country.

The difficulty of locating these business cases should be noted, with there often being no clear central government location by which to access them. We were able to find these business cases using our industry knowledge to inform what and where to search – something stakeholders and members of the public may not have. Given the Green Book’s review emphasising greater transparency in decision making, and the volume of taxpayer money used to fund projects, it is important that there is sufficient availability of, and signposting to, business cases and their respective decisions.

Following this data collection exercise, our findings were that for most transport schemes, travel time savings form the overwhelming proportion of a scheme’s monetised benefits. In fact, in the case of highway schemes, they form on average 107% of benefits (they are able to exceed 100% as negative impacts – such as increased fuel usage – are put on the ‘benefit’ side of the calculation meaning they partially offset the positive travel time benefits).

Transport scheme type

Percentage of monetised benefits that are travel time savings

Number of business cases in sample

Highway

107%

24

Rail / Light Rail

72%

15

Other Modes

66%

11

Total

87%

50

Where data was available, we collected information on how the scheme’s travel time impacts where distributed by trip purpose. The purpose of a trip is normally categorized in three ways:

  • Business – trips done on a employers time and cost, for example travelling to a client meeting, travelling to a sales pitch, travelling to a training day, and so on. In the analysis presented below, we have disregarded freight trips;
  • Commute – trips where people commute to and from work; and
  • Other – all other trips. These may include trips to the shops, doing the school run, seeing family and friends, and other leisure activities.

We then compared the distribution of travel time benefits to the distribution of total trips by trip purpose.

The results were very revealing and showed large disparities. Business users (excluding freight) make up 3% of trips on the highway network, yet based on our selection of schemes, they account for an average of 22% of a highway scheme’s travel time benefits.

Conversely, ‘other’ users make up 82% of highway trips but only 39% of the travel time benefits.

The main reason for this is the value of time for business user and commuters (£0.39 per minute and £0.24 per minute respectively) is much greater than it is for ‘other’ users (£0.11 per minute). These values of time have implications for decision makers – there is a risk they place a greater weighting on schemes that favour business users and commuters. There is a wealth of literature outlining the extent to which our transport network is built to suit business users and commuters, and the social issues that arise from this. This will be investigated further in another blogpost.

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Our analysis has demonstrated the extent to which a transport scheme’s benefits rely on travel time savings. This in turn demonstrates the reliance a strong Benefit Cost Ratio (benefits divided by cost – BCR) – one of the main considerations in a scheme’s funding decision – has on travel time benefits.

For example, the benefits of HS2 (all phases) are £95bn and its cost to the government is £64bn. Therefore its Benefit-Cost-Ratio is 1.5. Of the £95bn of benefits, £48bn are from monetised travel time savings, derived using the methods outlined above. If these travel time savings were to be removed from the calculation, the BCR would drop to 0.7. The DfT classifies schemes below 1 as having a poor BCR, and between 1-1.5 as having a low BCR.

Given how integral these values are in determining which transport schemes the government fund, it would be expected that business cases might perform sensitivity tests, to understand how varying the values of travel time savings might affect a scheme’s BCR. Indeed the UK’s Transport Analysis Guidance recognises there is a significant degree of uncertainty surrounding the value of travel time savings, and recommends the following sensitivity test ranges are applied to values of time and reported in the economic case.

Trip purpose

Recommended range for varying the value of travel time savings in sensitivity tests

Business

+/- 25%

Commute

+/- 25%

Other

+/- 60%

Despite there being a clear need, and a formal requirement to undertake such sensitivity testing, it does not appear to be common practice. Of the 50 business cases surveyed, only 4 presented sensitivity tests for varying the value of travel time savings.

None of the 24 highway scheme business cases reviewed had tested the sensitivity of the results to changes in the value of time.

The values of travel time savings are one of the key assumptions in any transport appraisal. And these estimates are subject to significant uncertainty. It is therefore perplexing that more attention is not given to them in the development of transport business cases.

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The next blog post will investigate further the role that very small journey time savings have in transport appraisal, scheme funding decisions, and the drive to net zero.

 

Image source: Flikr

 

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ALEX O’BYRNE

Associate

e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.

ELLIE EVANS

Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.