Economics of Crossrail
-
Upload
tutor2u -
Category
Economy & Finance
-
view
9.184 -
download
0
Transcript of Economics of Crossrail
![Page 1: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/1.jpg)
Cross Rail
Applying the ideas of cost benefit analysis to a major transport
investment project
![Page 2: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/2.jpg)
Follow Geoff Riley on Twitter @tutor2u_econ
For the AS micro exam, follow the hash tag #econ1
www.tutor2u.net for extra revision resources
![Page 3: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/3.jpg)
Basics of the Crossrail Project• Europe’s largest construction project
• Crossrail will increase London's rail capacity by 10%
• Crossrail route will run >100km from Reading and Heathrow in the west to Shenfield and Abbey Wood in the east.
• 40 Crossrail stations including 10 new stations
• Crossrail will bring an extra 1.5 million people to within 45 minutes of central London
• Total funding available to deliver Crossrail is £14.8bn
• Costs outside the £14.8 billion funding package include the estimated £1 billion cost of buying trains, the majority of which will be funded directly by Transport for London
Source: Cross Rail website
![Page 4: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/4.jpg)
Funding of Crossrail
• “Crossrail is being financed by a combination of government grants, fares and an enhancement of land values. A business-rate supplement of 2p on non-domestic properties with a rateable value of £55,000 or more created £4 billion for the project, nearly as much as the government is providing.” (Source: The Economist, November 2013)
Benefit-Pay Principle: Over 60 per cent of Crossrail’s funding will come from Londoners and London businesses
![Page 5: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/5.jpg)
Funding of the Project
Source: Audit Commission
![Page 6: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/6.jpg)
Crossrail Map (2014 version)
![Page 7: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/7.jpg)
Crossrail Map (2014 version)
![Page 8: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/8.jpg)
Basics about cost benefit analysis
• Cost-benefit analysis is a framework and quantitative tool to inform policy making and decisions
![Page 9: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/9.jpg)
Costs Benefit Analysis Process
• Set key objectives for the project
• Set project decision criteria i.e. benefit to cost ratio
• Identify and value the costs of the project
• Identify and value the benefits of the project
• Consider distributional effects e.g. On inequality
• Discount annual value of future benefits (crucial)
• Adjust for risks and uncertainties
• Consider unvalued / non-monetised costs and benefits
• Measurement of the expected net social return
• Compare with expected returns from other projects i.e. The opportunity cost
![Page 10: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/10.jpg)
Some of the main aims of Crossrail
Improve transport efficiency
Promote economic
growth
Increase competitiv
eness
Improve consumer
welfare
Social welfare and
equity
![Page 11: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/11.jpg)
Some of the main aims of Crossrail
Improve transport efficiency
Promote economic
growth
Increase competitiv
eness
Improve consumer
welfare
Social welfare and
equity
Traditional cost-benefit analysis can leave out important macroeconomic effects
How important will Crossrail be to the wider health of the UK economy?
![Page 12: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/12.jpg)
Crossrail and Economic Growth
• Aggregate demand
• Incentives to work
• Cost of labour
• Labour market efficiency and skills
• Market competition
• Trade
• Enterprise and Innovation
• Investment
Drivers of Growth
![Page 13: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/13.jpg)
Social Benefits and Social Costs
• Social benefit is the accumulation of
– Private benefits to the agents involved
– External benefits to third parties
• Including environmental benefits
• Community benefits
• Social cost =
– Private costs (internal costs)
– External costs arising from a project
![Page 14: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/14.jpg)
Social Benefits and Social Costs
• Social benefit is the accumulation of
– Private benefits to the agents involved
– External benefits to third parties
• Including environmental benefits
• Community benefits
• Social cost =
– Private costs (internal costs)
– External costs arising from a project
![Page 15: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/15.jpg)
Main Objectives of Crossrail
Relieve congestion to the transport
network in and around London
Accommodate future travel demand
growth
Improve connectivity and reduce journey
times
Deliver wider economic impacts,
including supporting economic growth
![Page 16: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/16.jpg)
Main Objectives of Crossrail
Relieve congestion to the transport
network in and around London
Accommodate future travel demand
growth
Improve connectivity and reduce journey
times
Deliver wider economic impacts,
including supporting economic growth
![Page 17: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/17.jpg)
Main Objectives of Crossrail
Relieve congestion to the transport
network in and around London
Accommodate future travel demand
growth
Improve connectivity and reduce journey
times
Deliver wider economic
impacts, including supporting economic
growth
![Page 18: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/18.jpg)
Main Objectives of Crossrail
Relieve congestion to the transport
network in and around London
Accommodate future travel demand
growth
Improve connectivity and reduce journey
times
Deliver wider economic impacts,
including supporting economic growth
![Page 19: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/19.jpg)
Main Objectives of Crossrail
Relieve congestion to the transport
network in and around London
Accommodate future travel demand
growth
Improve connectivity and reduce journey
times
Deliver wider economic impacts,
including supporting economic growth
London's population is set to grow from 8.4 million today to around 10 million by 2030 – higher density of population
It is estimated that, when finished, Crossrail will generate 75,000 business opportunities and support 55,000 full time jobs in the UK
![Page 20: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/20.jpg)
Main Economic Benefits of Crossrail
Passenger travel time
savings
Congestion relief
Improved journey
ambience and station accessibility
![Page 21: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/21.jpg)
Main Economic Benefits of Crossrail
Passenger travel time
savings
Congestion relief
Improved journey
ambience and station accessibility
Source: Crossrail
![Page 22: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/22.jpg)
Wider Economic Benefits of Crossrail
Passenger travel time
savings
• A more comfortable journey
Congestion relief
Improved journey
ambience and station accessibility
Increased productivity from greater clustering of
firms
Employment creation effects
Makes London more attractive for
inward investment
![Page 23: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/23.jpg)
Passenger travel time
savings
Congestion relief
Improved journey
ambience and station accessibility
Increased productivity from greater clustering of
firms
Employment creation effects
Makes London more attractive for
inward investment
The benefits of a major infrastructure project occur over time – so there needs to be an adjustment to calculate the net present value of future benefits – i.e. A process of “discounting” the future benefits
![Page 24: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/24.jpg)
Economic concepts relevant here
• Consumer surplus – e.g. From lower fares
• The value of time / leisure (time saved)
• Economies of scale – agglomeration effects from supporting the growth of cities
How do you measure the value of enjoyment from being in cleaner, more accessible stations? Or the value of less stress from reduced congestion? Not all of the benefits can be valued easily or precisely!
![Page 25: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/25.jpg)
Crossrail and house prices
One in five new build homes sold in London since 2009 were within 1 mile of a Crossrail station
Housing transactions within a mile of Crossrail stations grew by 21% in 2013 against a London average of 13%
![Page 26: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/26.jpg)
Economic Costs of Crossrail
Construction costs of new
infrastructure
Costs of running and maintaining
new infrastructure
Reduced indirect tax revenue
because of fall in car use
![Page 27: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/27.jpg)
Economic Costs of Crossrail
Construction costs of new
infrastructure
Costs of running and maintaining
new infrastructure
Reduced indirect tax revenue
because of fall in car use
![Page 28: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/28.jpg)
Economic Costs of Crossrail
Construction costs of new
infrastructure
Costs of running and maintaining
new infrastructure
Reduced indirect tax revenue
because of fall in car use
![Page 29: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/29.jpg)
Economic and External Benefits / Costs
Type Costs Benefits
Economic • Construction costs• Operating costs• Cost of capital (interest
on loans)• Potential health and
safety costs / insurance liability
• Lower transport costs for businesses
• Time savings for travellers and businesses
• Potential innovation spill-overs and export potential in and around London
Social • Externalities from construction
• Landscape issues• Increased noise /
congestion in and around new stations
• Regeneration in potentiallydeprived communities
• Potential re-skilling of workforce employed
• Lower CO2 and other emissions
![Page 30: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/30.jpg)
Economic and External Benefits / Costs
Type Costs Benefits
Economic • Construction costs• Operating costs• Cost of capital (interest
on loans)• Potential health and
safety costs / insurance liability
• Lower transport costs for businesses
• Time savings for travellers and businesses
• Potential innovation spill-overs and export potential in and around London
Social • Externalities from construction
• Landscape issues• Increased noise /
congestion in and around new stations
• Regeneration in potentiallydeprived communities
• Potential re-skilling of workforce employed
• Lower CO2 and other emissions
![Page 31: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/31.jpg)
Benefit forecast
• “The business case for the line estimates that Crossrail will produce £1.97 of benefit for every £1 of cost, through reduced journey times, reduced crowding on public transport and quicker interchanges between services.”
• “This is within the Transport Department’s definition of ‘medium’ value for money, a range of 1.5 to 2. If estimated wider economic benefits are included, the benefit–cost ratio increases to 3.1”
• Source: Audit Commission Report, January 2014
![Page 32: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/32.jpg)
The Economist (April 2014)
“Big infrastructural projects often make economic sense only when consumer surplus is taken into account.”
“Time savings are often the biggest element of transport benefits.”
![Page 33: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/33.jpg)
COBA Problems: Monetising Values• Some can be assigned a monetary value
– Time savings e.g. For passengers and businesses– Operating costs of the project– Value of carbon emissions e.g. Lower CO2 from less
car use– Risk of death or injury
• Other variables much harder to assign values– Bio-diversity– Water quality– Air quality– Heritage – Social inclusion / accessibility
![Page 34: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/34.jpg)
COBA Problems: Monetising Values• Some can be assigned a monetary value
– Time savings e.g. For passengers and businesses– Operating costs of the project– Value of carbon emissions e.g. Lower CO2 from less
car use– Risk of death or injury
• Other variables much harder to assign values– Bio-diversity– Water quality– Air quality– Heritage – Social inclusion / accessibility
![Page 35: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/35.jpg)
COBA Problems: Uncertainties
• Many uncertainties / risks involved in major projects with long construction times and even longer operating times
1. Forecast errors for passenger numbers
2. Uncertainties about population growth
3. Uncertainties about operating costs
4. Future business growth / types of businesses / impact of new technologies
Supporters of projects may suffer from optimism bias when evaluating a project
![Page 36: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/36.jpg)
Related Videos on Cross Rail
![Page 37: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/37.jpg)
Related Videos on Cross Rail
![Page 38: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/38.jpg)
Related Videos on Cross Rail
![Page 39: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/39.jpg)
Related Videos on Cross Rail
![Page 40: Economics of Crossrail](https://reader030.fdocuments.us/reader030/viewer/2022032420/55a536931a28ab212c8b45e1/html5/thumbnails/40.jpg)
Follow Geoff Riley on Twitter @tutor2u_econ
For the AS micro exam, follow the hash tag #econ1
www.tutor2u.net for extra revision resources