The Government is committed to prioritising capital investment in economic infrastructure that supports growth. In the Comprehensive Spending Review in autumn 2010, the Government approved a number of road schemes concerning motorways and major trunk roads and confirmed that a smaller number of schemes in the Supported Pool will be funded following receipt of bids. As outlined above, the roads schemes in the Development Pool and those cancelled in the CSR remain problematic in terms of funding as there will be no public funding for unsuccessful schemes prior to 2015. The question remains how if at all these schemes might be funded?
Current funding options
At present, the options for funding new roads are limited. In theory, local authorities could fund new roads from their own resources or by borrowings either from the Public Works Loans Board or through a bond issue. In the 1990s a significant number of roads were funded by PPP/PFI but PPP/PFI is not currently flavour of the moment and the Highways Agency has adopted other approaches (the M25 PPP aside).
Another source of funding is tolls, which have not been widely used apart from the M6 toll road other than in relation to bridges and tunnels. New roads may also be paid for out of s106 or CIL contributions. More esoteric forms of funding include road user charging, the workplace parking levy and the newly created Regional Growth and Sustainability Funds. London aside, road user charging has not proved politically possible with substantial defeats for schemes in Edinburgh and Manchester. The current London mayor also reversed the western extension of the London scheme. On the workplace parking levy front, the Nottingham scheme is due to start in the autumn and it is understood other authorities are looking seriously at this option. No road schemes were successful in the first round of applications to the Regional Growth Fund.
Prospective funding options
So what of the future? The two significant proposals which could drive road funding over this decade are Tax Increment Financing and the extension of the Regulated Asset Base (RAB) concept to the road network. TIF works by allowing local authorities to borrow against future business rates and thereby invest in infrastructure. The Scottish Government introduced TIF legislation in late 2010 and among the schemes that are being piloted is North Lanarkshire’s £73m bid for a 7 mile dual carriage way linking the fringes of Hamilton with the M8. Construction of the road is seen as the likely catalyst for ambitious plans to create a new town on the Ravenscraig site. The project will be funded through a TIF scheme. The limitation of TIF is that it needs business rates to be generated to work and unless there are significant business rates it is difficult to see new roads happening. DCLG issued a consultation document on the introduction of TIF in July.
Of possibly more significance for the future is the RAB concept. In 2009, Policy Exchange published a paper, ‘Delivering a 21st Century Infrastructure for Britain’. This argued that the RAB concept, currently used in the utilities and rail sector and which tends to produce a lower cost of capital than PFI, should be extended to include road transport. To work this would involve the public paying charges to a roads authority which would then raise money on the back of this. Given the fate of road user charging in recent years, one suspects that such an extension of the RAB concept would be difficult politically. However, while road user charging appears to have been ruled out in this Parliament, it is clearly an issue that will not go away, particularly given current constraints on Government funding. Treasury was due to issue a paper on this in the Spring, which is still awaited.