On 12 December 2011 the Department for Transport, Cambridgeshire, Northamptonshire and Suffolk Councils launched the A14 Challenge as flagged in November's National Infrastructure Plan 2011 (NIP11). The challenge seeks to find solutions to congestion on the A14. Nick Maltby explores how these might be funded.

Central to the challenge is the need for innovative ideas to finance major road improvements, which may include both tolling for enhanced capacity and other cost sharing arrangements (such as capturing land value increases). The Government hopes to engage the development industry, financiers, local authorities and LEPs in the challenge. Steer  Davies Gleave has produced a report accompanying the study. The Government is looking for a solution which will deliver the upgrade for significantly less  than the previous budget of £1.2bn.  If the challenge is successful it seems likely that it will be rolled out more widely. Responses were due at the end of January and recommendations will be published in the summer.

The question of how we are to fund our roads has been much in evidence since the advent of the Coalition. In framing NIP11, the Government came to the view that an extension of the Regulated Asset Base concept to roads was not appropriate (or politically desirable) while leaving open the possibility of concessions for new roads.  So are concessions the way forward  for roads?

In November 2011, Arup and the RAC Foundation published a report, 'Providing and Funding Strategic Roads'. The report noted that there is a £12.8bn shortfall  for the motorway and trunk road network in the UK with 96 unfunded projects. The report compared the approach to road delivery in the UK and elsewhere and reached the conclusion that the UK spends less than other developed countries
and there is little by way of long term planning (a point also highlighted by the Cook Report). Reforms are therefore needed to give the sector a dedicated funding stream away from political interference. It also noted a weakened appetite for private finance schemes in the UK, unlike other countries.

The Arup/RAC report  is important as it highlights the degree of underspend and the UK's performance against international benchmarks. While it is possible that there are trunk roads in the UK that are fully fundable  through concessions, such an approach is not going to provide a long term dedicated funding stream with 5 yearly regulatory settlements as exist in the rail or utilities sectors and it is also questionable how widely such an approach will work. In particular, what percentage of the current unfunded schemes will it assist?

It is also notable that the one potential concession project currently in procurement, the Mersey Gateway Bridge, is being procured as a PFI where the local authority takes the revenue risk. The government launched a wholesale review of the PFI model at the same time as launching the A14 Challenge from which it is clear that there is little appetite to revisit this procurement methodology either generally or for roads unless the issue of equity return and the cost of debt can be adequately addressed.

If the A14 Challenge is to come up with something deliverable it will need to focus on capturing increases in land values or factoring in business rate growth via a tax increment financing approach in addition to any element of real tolls. Whether the public will stomach the latter remains to be seen.

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