Research Day; the Art & Science of Decision-making How does the Government make d ecisions?

1. Research Day; the Art & Science of Decision-makingHow does the Government make decisions? Tom Worsley Visiting Fellow 15th April

2. The Question • Are the decisions made by Government; • Transparent? • Logical? • Consistent? • Accountable? • How does the DfT rate?

3. Outline • Investment appraisal • Well documented (Green Book, WebTAG) set of methods/rules • What’s missing from documentation • Evolution , extension and broadening of the documented processes • Remaining scope for ministerial discretion • Other types of decision • Revenue spending • Broader policy • Research

4. Investment decisions • Investment decisions better codified than revenue spending or other policy decisions; • Irreversible, long lived, subject to externalities, inadequate financial returns etc • Treasury control over public spending - Green Book/CBA for sifting and prioritisation • Public inquiries require evidence of public interest

5. Evolution of the DfT investment scheme decision-making process • CBA established for transport schemes since 1960s • 1977 ACTRA Leitch Report – EIA/Framework • 1998 White Paper “A New Deal for Transport – Better for Everyone” – an integrated transport policy • AST – distillation of evidence provided to ministers on all impacts – generally published • Mix of quantified/valued costs & benefits and qualitative assessments; increasing proportion of valued impacts • Nellthorp & Mackie – influence of regeneration on selection process

6. Policy is more than the BCR • Eddington showed the wide range of returns to recent projects

7. Why are decision-makers deflected from the BCR? • Delivering an economically optimal solution is rarely the minister’s only priority. Other influences are; • The role of lobby groups • The media, often influenced by lobby groups • ‘Champions’ sponsoring a specific scheme • The weakness of the option generation process- no one wants to be associated with the rejected option • Short-term solutions crowding out longer term strategy • Other government ministers/departments

8. What matters to decision-makers but is missing from transport appraisal? • DfT’sWebTAG is intended to be comprehensive but • Some impacts are given a qualitative assessment and so weights on these are judgemental • Some impacts may be absent because of lack of data and research • Some ministers remain unconvinced by welfare economics • The welfare economic framework is under threat with more focus on GDP • Much of what government does is about inter-personal and inter-regional equity and transport policy should play its part in this overall objective. • Gainers and losers not separately identified.

9. What is being done to augment the appraisal? More impacts are now quantified and valued • Valuation of road reliability and resilience being trialled, but supply side remains a problem. • Carbon, air quality (Nox and PM10s), noise all now valued • Fewer claims for regeneration. Valuing the impact of a new railway through the Chiltern Hills will inevitably remain subjective. Some ministers remain unconvinced by welfare economics • Wider Economic Impacts – agglomeration, labour supply and imperfect markets added to CBA. • GDP per £’s spend metric – identify ‘real’ impacts (eg business time/cost savings)- as supplementary to BCR.

10. What is being done to augment the appraisal? • Decision-makers’ concerns about regional and inter-personal equity • DfT is reviewing options for estimating the regional, sub-regional and local economic impacts of transport schemes. • DfT new guidance on social and distributional impacts addresses local level incidence only. • National average value of time savings (other than in TfL London schemes) has been universal practice • But choices and decisions on local schemes increasingly devolved to local authorities

11. DfT Value for Money Guidance • A means of moving from the BCR (all quantified/valued impacts) to Value for Money. • Value for Money Category ‘Adjusted’ Benefit Cost Ratio • Poor Less than 1.0 • Low Between 1.0 and 1.5 • Medium Between 1.5 and 2.0 • High Between 2.0 and 4.0 • Very High Greater than 4.0 • No projects with poor, low or medium VfMexpected to be approved in present economic circumstances.

12. Is the Decision-making Process Becoming More Rational? • DfT Business Planning Input Indicator: %age of investment spending on schemes in ‘high’ vfm categories 2011

13. Does the input indicator ensure rational decisions? • Table restricted to investment schemes approved by ministers • Proposed projects omitted; eg • Some of the 2007 HLOS schemes – average BCR of all schemes was 1.5:1 • Certain planned rail schemes – several proposals in Network Rail’s Initial Industry Plan (2011) had BCRs of <2.0 – few are DfT schemes • Will the >99% be maintained in subsequent publications? • How might national VfM be reconciled with local schemes/objectives? • Constraints on spending – strong discipline • .

14. The DfT 5 Case Business Case Model • Economic case is only part of the HMT/DfT decision-making process. • Financial (funding), management (planning, delivery, governance) and commercial ( procurement, risks during procurement) cases – basically binary decisions, with possible interations. • Strategic case – fit with overall policy, consistency with wider government objectives,

15. Checks and Balances on the Decision-making Process • Transport Committee • 11 MPs (chair Louise Ellman ) examines /challenges DfT ministers and officials – spending, admin, policy • Public Accounts Committee • 14 MPs (Chair Margaret Hodge) examines a sample of public spending decisions – recent transport investigations include; • HS1 • Funding local transport • West Coast Franchise • Accounting Officer direction. HM Treasury – Managing Public Money. • If a minister wishes to approve a scheme which is ‘poor’ vfm, Permanent Secretary, as chief accounting officer, must inform minister and HMT

16. Gaps in the logic • Allocation between modes and local/central now OK with publication of VfM? • Weight on non-quantifiables, but proportion of unquantifiables in total has diminished • Role of Strategic Case • LA scheme selection – scope of devolution • Trade-offs between policy and schemes – egpricing • Fitness for purpose of WebTAG

17. Current or Resource Spending • No GB/Webtag mandate, although CBA increasingly used • Rail franchise increments/decrements. (Most of franchise renewal has been concerned with minimum full life cost maintenance of existing service etc and so no change in output) • Rail fare increases RPI+3% reversed to RPI+1% Some technical/modelling problems eg spec of counterfactual – assn about revenue constraint • Assumption – policy easily reversible. • Political considerations remain significant • Policy quick to deliver • Free concessionary travel for >60s – ‘No assessment of the benefits’..’a political decision’

18. How are Policies Decided? • Manifesto commitments • On election, limited role for evidence • Lobby groups • Political commitment • After time for consideration • Eg NATA/WebTAG • New/changed policies while in office • ‘Events’ • Hatfield crash/ Network Rail • Pragmatism - head of the queue/ cannot be postponed • HLOS • HA route based strategy • Fuel duty (not DfT)

19. Why do some policies fail? • Eg Demise of “Roads for Prosperity” (1989), failure of “Ten Year Plan for Transport” (2000). • Both very ‘political’ policies – the great car economy, an integrated transport policy (with targets). • Both very specific – n miles of road, x light rail schemes. • What changed? • Events - recession, funding (rail maintenance backlog) • Unrealistic expectations – LAs implementing local area charging, • Public attitudes misperceived – to roadbuilding, to fuel costs/motorists’ perception of fuel prices • Unanticipated effectiveness of lobby groups

20. DfT Research and decision-making • How does the Department decide on a research agenda? • Pre 2010 • Rolling programme – VTTS, NATA refresh • New policy concerns – reliability, p.t.crowding • Curiosity – SACTRA Transport & the Economy • Academic research – eg agglomeration • Post 2010 • Reactive – eg VBTTS (prompted by HS2), international comparisons, local economic impacts • Gradually making good the backlog? How might the DfT formulate a research programme and prioritise projects?

21. Conclusions • Decision-making and investment/revenue projects • Decision making process for investment increasingly transparent: some progress on current spending • Lack of transparency in weights on unquantifiables in economic case and on role of strategic case open to challenge • Evidence on criteria and weights will reduce ministerial discretion and increase accountability • Devolution/localism – accountability unclear Decision-making and policy • Patchy record of decision-making process • Often evolutionary, making counterfactual difficult • Hence focus on the details/projects, not the bigger picture