Policy instruments (1) - Transport Policy and Planning in Great Britain - page 196

12.5 Recent government policy towards transport investment
Patterns of public expenditure are a mixture of design and accident (i.e. enforced
response to unanticipated events). For long periods in the second half of the 20th
century levels of public spending fluctuated unpredictably in response to a series of
'boom and bust' cycles in the national economy.
Investment programmes are especially vulnerable to such fluctuations. When the
economy slows, government income falls whilst demands for expenditure rise. If the
decline takes the form of a recession or 'slump' there is pressure on public accounts and
borrowing. Commitments can be reduced most easily by cutting capital rather than
revenue budgets - the latter typically have a high proportion of staff costs involved
in delivering basic services. To focus on these would aggravate unemployment and
provoke inconvenience and hardship amongst service users which would be very
visible and politically damaging.
By contrast, deferring structural maintenance and renewals is relatively painless
(providing the deficit is made good when the economy recovers) and deferring new
projects especially so. (Potential beneficiaries may be disappointed but their immediate
conditions are not actually worsened.) However the fact that capital spending on any
major project extends over several years means that, to achieve significant savings at
any particular point in time, a quite dramatic cut has to be made in the number of new
starts. This was the situation with major road schemes in the mid/late 1990s, giving
an exaggerated impression of a change in transport policy rather than a response to
expenditure constraints.
Because of these cyclical fluctuations, identifying genuine changes in transport
policy over the medium term from bald figures of public expenditure is not an easy
matter. The situation is complicated by the fact that government expenditure is
published in money terms for the year in question (so-called 'out-turn prices'). As a
first step therefore all figures need to be converted to a common price base in order
that the real changes in spending can be determined. In the case of future spending
this involves making assumptions about future levels of inflation.
The Ten Year Plan provided information on actual expenditure for the previous
decade (i.e. 1991-2000) and planned spending for the decade to come (i.e. to 2010).
Total spending was divided into public investment, public resource (i.e. revenue)
and private investment. The resource figure omits capital charges (including support
payments for privately financed investments) so as to avoid double counting.
In Figure 12.1 these expenditure figures have been converted to constant prices
and presented as a series of indices with 1991-92 = 100. For comparison the actual
growth in the national economy (GDP) to 2005-06 has been shown in a similar
manner. Private investment is not shown separately but is the difference between the
'ALL public' and 'Private investment and ALL public' components.
Points to note are:
• Planned public spending in the latter part of the 20-year period is almost exactly
the same as actual spending in the early years. (It does not rise in line with GDP
which has increased at a fairly stable rate during most of the period to date.)
• Private investment began to make a significant contribution from 1995/96,
increasing rapidly to 2001-02 , but held at much the same level thereafter.
• Public expenditure fell markedly during the four years from 1994 to 1995 but this
was directed almost entirely at cuts in investment.