New models urgently needed to finance road building and maintenance, experts say

A report (24-page / 2.9MB PDF) by business body the Confederation of British Industry (CBI) was "spot on" in its identification of the problems facing the UK's roads, said Jonathan Hart of Pinsent Masons, the law firm behind Out-Law.com. However its headline proposal to introduce a regulatory asset base (RAB) management model for the roads to secure private investment would require a "fairly hefty culture change" from road users, he said.

"There is not a great history of road tolling in the UK and moving to the model being proposed would require a fairly hefty culture change of road users," he said. "Adoption of an RAB model would need to be accompanied by a commensurate shift in taxation to make the change palatable and this, together with the legislation needed to establish a regulatory structure, would require a degree of cross-party consensus which at least currently seems to be unlikely."

The Treasury and Department for Transport (DfT) are due to report later this year on the feasibility of "new ownership and financing models" for roads under national control, following a study commissioned by Prime Minister David Cameron in March. At the time, Cameron said that private investment was "urgently" needed to fund improvements and reduce congestion.

The "scale of the problem", Hart said, could be seen by an announcement made by Transport Secretary Patrick McLoughlin in his speech to the Conservative Party conference today. McLoughlin pledged £170 million on works to improve 57 "pinch points" and bottlenecks on the road network.

"Whilst undoubtedly many of these schemes may have a significant effect locally, the overall capital spend and typical average value of the schemes in question suggests a patchwork of relatively minor investments, rather than the major transformation called for by the report," Hart said.

The CBI said that the introduction of an RAB model would secure the private investment necessary to overcome the current funding gap in the UK's road network. This gap was, it said, the result of a combination of a £10 billion shortfall in funding for Highways Agency projects and declining tax revenues due to the use of more energy efficient vehicles. In addition, it said, the UK economy is losing up to £8bn a year as a result of congestion; a figure which it said could potentially rise to £22bn by 2025.

The RAB model was introduced on privatisation of the utilities to ensure investors would receive a credible level of return. Under the CBI's proposals road users would see a proportion of their motoring taxes converted to a user charge, controlled by a central regulator, to access the network. This charge would provide a funding stream enabling licensed private operators to run regional sections of the network. The use of a similar model in the water sector has generated £98 billion of private investment since the 1980s, according to the CBI, while keeping customer charges capped.

However, the CBI said, additional revenue streams such as tolling would likely need to be introduced above the standard charge in order to enable private operators to finance improvements and bigger capacity projects. This would be needed to allow the regulator to cap charges and manage the overall cost burden on drivers.

The CBI is also calling for a redefinition of the strategic road network to ensure that what it describes as "key economic routes" are not classed as 'local' roads. The strategic road network covers the motorways and major trunk roads overseen by the Highways Agency, while other roads are managed by the relevant local authority. Trunk roads and motorways in Scotland are the responsibility of Transport Scotland, while those in Wales are overseen by the Welsh Assembly Government.

Hart said that encouraging investment in the local highways network was an "equal, if not greater challenge" than encouraging investment in the motorway and strategic road networks.

"The whole question of local authority funding of investments and sources of finance for highways is a complex one," he said. "It is difficult to see how an RAB-type model might be extended to cover this although the CBI rightly highlights the need for redefinition of what is meant by the strategic roads network, to bring this within the fold of a single national model and to avoid - although the report does not quite say so - the use of local 'rat runs' to avoid charges."

Infrastructure law expert Graham Robinson of Pinsent Masons said that it was "no coincidence" that the model being proposed was "similar to the models adopted by other nations" which rank higher than the UK on international quality of infrastructure rankings.

"The World Economic Forum, in its new 2012/13 Global Competitive Index published last month, explains that a nation's infrastructure is critical to the effective functioning of its economy and impacts economic growth, as well as helps to determine the location of economic activity," he said. "The UK is ranked eighth in the Index, but it is clear that the overall quality of infrastructure in the UK - ranked 24th in the world, three places behind Barbados and well behind most major UK neighbours - is causing a major drag on our ability to grow out way out of the current recession."