APP/P2.1/ECO. Economic Case Main Proof of Evidence Neil Chadwick

Transcription

1 Economic Case Main Proof of Evidence Neil Chadwick

2

3 PROOF OF EVIDENCE NEIL CHADWICK ECONOMIC CASE/VALUE FOR MONEY TRANSPORT AND WORKS ACT 1992 MIDLAND METRO (WOLVERHAMPTON CITY CENTRE EXTENSION) ORDER INQUIRY JUNE 2015 Page 1 of 17

4

5 1 Introduction 1.1 My name is Neil Chadwick. I am a Director with Steer Davies Gleave, a consultancy firm specialising in the transport sector. 1.2 My academic qualifications are: BA (Hons) Natural Science (Physics), University of Oxford MSc Transport, University of London MA Public Administration and Public Policy, University of York 1.3 I have 25 years transport planning experience. In that time I have led and contributed to business cases for rail and rapid transit schemes in the UK and overseas. I have appeared at previous Transport & Works Act Order and Local Planning Inquiries, as well as inquiries of a similar nature in the Republic of Ireland. Scope of Evidence 1.4 The scope of my evidence is to establish the Value for Money (Economic) Case for the Wolverhampton City Centre Extension. As such, my evidence contributes to the consideration of Matters 1, 5, 8, 11 and 13 of the Statement of Matters [INSP/4]. 1.5 In my evidence I set out the Value for Money of the Wolverhampton Interchange Project (the Scheme ), which comprises the extension to Midland Metro covered by this Order application and enhancements to Wolverhampton Station. I also distinguish the Value for Money of the Wolverhampton City Centre Extension (WCCE) (the scheme that is the subject of this Order) and of the station enhancements in the hypothetical case that they be implemented as separate projects. 1.6 I demonstrate that the overall Wolverhampton Interchange Project (WIP) has a good Value for Money Case, as do the WCCE (the scheme that is the subject of this Order) and the station enhancements as stand-alone schemes. In particular, the benefits of these schemes outweigh the monetary costs and other disbenefits, and as a consequence public sector funding of the project is warranted. Witness Declaration 1.7 The evidence I shall give is true, given in good faith and represents my professional opinion regarding the Value for Money case of the Order Scheme. Page 2 of 17

6 2 Value for Money Case Introduction 2.1 HM Treasury requires an assessment of the value that public spending would secure before a spending decision is made (this is known as the appraisal ). This requirement applies to all sectors, not just transport. The Treasury s requirements for the appraisal process are set out in the Green Book, which was published in 2003 [WCCE/D5]. 2.2 The Department for Transport s (DfT s) current approach to appraisal was developed following the Government s White Papers A New Deal for Trunk Roads (1997) and A New Deal for Transport (1998). In 2009, the DfT refreshed its appraisal framework to ensure that it was fully consistent with the Green Book approach. 2.3 The DfT produces detailed guidance on the application of its appraisal approach. This is called WebTAG, a suite of documents that sets out guidance on the approach to demand, revenue and benefit forecasting and how, along with other inputs, the outputs from such forecasting work are used to appraise the anticipated impacts of a transport intervention. Relevant excerpts of the WebTAG guidance are provided [WCCE/D7/D8/D9/D10]. 2.4 The appraisal of the Scheme has been undertaken in line with WebTAG and accordingly meets Treasury economic appraisal requirements. 2.5 While WebTAG prescribes how the economic case should be presented and sets out a number of minimum requirements for the modelling and appraisal, it is important to note that underpinning the DfT s guidance (and the Green Book) is the proportionality principle. This states that the requirement for detailed modelling, collection of bespoke evidence and monetisation of benefits should vary with the scale and complexity of the scheme under consideration. In my opinion, the appraisal of this Scheme has been undertaken in a way that is proportional to the cost of the Scheme and the scale of its impacts. The Five Case Model 2.6 Consistent with the Treasury s approach and as set out in the January 2013 DfT publication The Transport Business Cases (reproduced as Appendix 1 to my evidence), the DfT s approach requires the development of a Five Case business case. These cases are: Strategic Case, Economic Case, Financial Case, Commercial Case and Management Case. The purpose of the business case is to demonstrate that: There is a robust rationale for the proposed scheme (Strategic Case) The proposed scheme will deliver value for money (Economic Case) The proposed scheme is affordable in terms of sources of funding (for construction and operation) (Financial Case) Robust procurement arrangements for the necessary elements of the proposed scheme exist (Commercial Case) Robust governance arrangements exist and effective project management is in place (Management Case) 2.7 The Business Case [WCCE/D1] for this Scheme has followed this Five Case model. Page 3 of 17

7 2.8 As already stated, this evidence relates to the Economic Case. The other four cases in the Five Case model are addressed in the evidence of Mr Adams [APP/P1.1/SCH]. The Role of the Black Country LEP 2.9 The approach to funding major transport schemes such as extensions to Midland Metro has evolved in recent years to reflect both the availability of funds and the policies of past Governments to devolve funding decisions to a more local level Transport schemes with a cost in excess of 5m are eligible for Major Scheme grant funding. Following the devolution of this funding source from the Department of Transport to a Local Enterprise Partnership (LEP) level, decisions on the allocation of Major Scheme funding are now made by the Black Country LEP. As Mr Adams sets out in his evidence, Major Scheme funding is one of the funding sources that will be used to implement the Wolverhampton Interchange Project Also as Mr Adams establishes, a further source of funding is the Local Growth Fund. The award of funding from this source is also a Black Country LEP function As part of the devolution of transport capital funding decisions to a LEP level, the Black Country LEP s has developed an Assurance Framework [WCCE/D4] for its capital expenditure programme. As well as having regard to WebTAG, the Business Case for the Scheme has also had regard to this Assurance Framework For funding purposes, the Black County LEP is treating the Wolverhampton Interchange Project as a single scheme. This is why the Wolverhampton Interchange Project is subject to a single business case document, even though the powers to construct and then operate the scheme are subject to multiple processes. Status of the Business Case 2.14 In November 2013, the Black County LEP confirmed that it is minded to contribute 9.0m to co-fund the Wolverhampton Interchange Project [WCCE/D2]. It invited the promoters to submit an Outline Business Case. This was completed in August 2014 [WCCE/D2] In April 2014, the Black Country LEP submitted its Strategic Economic Plan to the Government. This also formed a bid to the Local Growth Fund. In July 2014, the Black Country LEP secured a Local Growth Fund Award of 138.7m [WCCE/D3], of which 4.5m has been allocated to the Wolverhampton Interchange Project Whether it be devolved Major Scheme or LGF monies, Black Country LEP capital expenditure is subject to an Assurance Framework [WCCE/D4]. The Business Case is an important requirement of that framework, giving the necessary information to the LEP that the Scheme contributes to its objectives, offers Value for Money and that management and commercial arrangements are in place to deliver the project as specified and to secure its anticipated outcomes In due course and should the TWAO be made, the Business Case will be updated to a Full Business Case to allow the Black Country LEP to give Full Approval to the scheme and for the promoters to draw down LEP funding The remainder of the funding for the Scheme comes from Centro from the Integrated Transport Block and Prudential Borrowing, and from Wolverhampton City Council. The Business Case forms an important and integral part of the information that is used by Centro and Wolverhampton City Council approval processes. Page 4 of 17

8 2.19 In his evidence, Mr Adams gives more information on the funding package for the Scheme. What is Value for Money? 2.20 A central part of the Economic Case is the Cost Benefit Analysis (CBA). The CBA compares two futures, one with the scheme and one without. Noting the proportionality principle, the DfT s guidance [WCCE/D8] sets out that those costs and benefits that can be monetised in a consistent and comparable way should be included in the CBA. Its guidance also explicitly recognises that not all costs and benefits can be readily monetised. The guidance sets out methods for assessing non-monetised costs and benefits which can be done in either quantitative or qualitative ways, depending on the particular impact concerned. These other Value for Money considerations form an important part of the overall Economic Case. Assessment Approach 2.21 A quantitative and qualitative approach has been used to assess the impacts of the scheme. An economic appraisal has been undertaken, where monetised costs and benefits of the scheme have been compared (against the situation without the scheme, known as the Do Minimum) and a benefit cost ratio calculated in line with the approach set out in WebTAG. The social, environmental and distributional impacts have been assessed qualitatively, with each categorised as to whether the impacts are beneficial, neutral or negative using a seven point scale (large, moderate or slight adverse/beneficial, or neutral impact). Do Minimum Midland Metro will run 10 trams per hour (tph) from Centenary Square to Wolverhampton St. George s, with a shuttle service (10 tph) between Centenary Square and Eastside from (The Centenary Square extension has TWA powers and confirmed funding and was subject to a recent TWA variation order to change the alignment to better serve the new Paradise Circus development and renew the CPOs.) HS2 operational from No improvements to Wolverhampton Station. Do Something Extension of Midland Metro Line 1 services (10 tph) from Centenary Square to Wolverhampton Interchange, with a shuttle service (10 tph) between Centenary Square and Eastside from For reasons of operational flexibility, the existing stop at Wolverhampton St George s will remain available for use. A redeveloped Wolverhampton station building with enhanced retail offer and extended station car park. Neptune mixed use development. Prices for Benefits and Costs 2.22 Before setting out the forecasts for the benefits and costs of the Wolverhampton Interchange Project, it is helpful to briefly explain the conventional way that these are expressed in an economic appraisal. To allow the benefits and costs of different schemes across the country to be compared on an equal footing, guidance asks that costs and benefits are set out in 2010 prices and also discounted to I follow this Page 5 of 17

9 convention in the evidence below. This is in contrast to Mr Adams s evidence in which he sets out costs in outturn (nominal) prices (i.e. the cost that is incurred when money is spent). The reason for this is that it is conventional for public sector budgets to be expressed in outturn prices, so when talking about funding it is therefore sensible to use outturn prices. Despite these presentational differences, the costs in Mr Adams s evidence and those in my evidence are consistent A number of adjustments are made to move from outturn prices to 2010 prices and these and how they are applied are set out in webtag guidance. In summary they are: The effect of general inflation is removed by applying what is called the GDP deflator. Allowance is then made for the fact that elements of the total costs and benefits of the Scheme experience different rates of inflation. Costs and benefits are discounted to This captures what is known as the time preference of money, which is that there is a preference to enjoy benefits sooner and pay costs later. Cost and benefits are expressed in market prices. Government does not incur VAT and other indirect taxes on its expenditure, but individuals and businesses do. To allow all costs and benefits to be compared on a common basis regardless of whether they are incurred or experienced by the public and private sectors, guidance says that tax-free prices (known as factor prices ) should all be converted into market prices. Demand, Revenue and Benefits Forecasting 2.24 The forecast change in Metro demand from the implementation of the scheme is a key driver of the user benefits, non-user benefits, wider economic benefits and revenue change Demand has been modelled using Centro s PT VISUM model. The model includes some base demand updates, such as the Neptune development and re-development of the railway station. The future year public transport networks include committed changes, including the bus route changes associated with the Wolverhampton City centre public realm scheme. In order to capture the likely demand for Metro services, demand updates for the Wolverhampton City Centre Area Action Plan (AAP) [WCCE/E4] have also been included. This includes the following developments: Shopping Core Westside Interchange & Commercial Gateway Canalside Quarter Chapel Ash & West Park St Peter s St John s and St George s Graiseley Blakenhall 2.26 The forecast years for the model are 2016 and The Metro extension to Wolverhampton railway station will offer benefits to users in the form of journey time savings. Metro passengers who currently wish to travel between Page 6 of 17

10 Wolverhampton station and its surrounding area and destinations along Line 1 must currently use a Metro stop approximately 600m to the south of the railway station at Wolverhampton St George s. Extending the Metro line to Wolverhampton railway station will allow for a more efficient interchange between rail and Metro at the station, and will reduce passengers journey times. This is a benefit to existing users and will encourage more people to use Midland Metro, which also results in economic benefits The user benefits resulting from these journey time savings have been calculated using the Department for Transport s standard software, TUBA, which is the approach recommended in WebTAG The reduction in highway kilometres has been estimated by assuming that 20% of the increase in Metro passenger kilometres have been abstracted from car. This assumption is based on Midland Metro Line 1 survey data. Using WebTAG values for Marginal External Costs, the monetised benefit of this reduction in road kilometres has been calculated Whilst the reduction in highway kilometres has a number of benefits, there will be a loss in tax from the reduction in car journeys, thus representing a cost of the scheme. Demand and Benefits 2.31 Current annual Midland Metro patronage is around 5 million. In the Do Minimum, this is forecast to rise to over 11 million in the forecast year 2016 due to the extension to New Street and then Centenary Square and the additional capacity provided by fleet expansion Extending the Metro line to Wolverhampton railway station is forecast to increase Midland Metro patronage by a further 4.6% in 2016 and 5.4% in 2026 respectively [see Table 2.1 on page B-4 of WCCE/D1]. The increase in passenger numbers results from mode transfer from bus and car, as well as Metro users making additional trips on the system The user benefits for the scheme are forecast to be an additional 0.46m and 0.73m (2010 prices) in the 2016 and 2026 modelled years respectively [see Table 2.2 on page B-4 of WCCE/D1]. Revenue 2.34 Using the Do Something demand forecast and 2014 fares, it is forecast that there will be an additional 1.27m and 1.56m (2010 prices) Midland Metro revenue generated in the 2016 and 2026 modelled years respectively [see Paragraph 2.16 on page B-5 of WCCE/D1] The redevelopment of Wolverhampton railway station will also generate additional revenue from the following sources: Increased rail travel: An increase in rail demand at Wolverhampton railway station is forecast. The expected additional revenue from this is calculated by multiplying the incremental journeys by an average yield. Reduced Fare Evasion: The introduction of ticket barriers at Wolverhampton railway station will reduce the rate of ticketless travel which is at significant levels at Wolverhampton. Retail & Advertising Revenue: The expansion of the station will increase the retail and advertising space available. Therefore, increased income from rents Page 7 of 17

11 and advertising has been included in the appraisal, pro-rated based on the increase in floor space Overall, these three station revenue streams account for an additional 4.9m per annum in 2026 (2010 prices) [see Paragraph 2.21 on page B-5 of WCCE/D1] Increasing the capacity of the station car park will generate income from both additional car park ticketing and additional fare-box revenue. Car Park Ticketing: The car park will contain 375 additional spaces for customer use. A yield per space per day has been applied, with a ramp-up in occupancy assumed over time. Farebox Revenue: More car parking capacity will enable more passengers to travel by train. The same ramp-up in occupancy over time as for the car park ticketing was assumed, as well as an average rail fare based on observed data at Wolverhampton station) From these two sources, the expansion of the car park is estimated to increase revenue by approximately 0.48m (2010 prices) in 2026 [see Paragraph 2.25 on page B-6 of WCCE/D1]. Costs Capital Costs 2.39 The extension of Midland Metro is estimated to cost 14.2m (2010 prices). These costs will be incurred over period 2013 to 2018 as the development of the scheme progresses [see Table 2.4 on Page B-6 of WCCE/D1] The development of the re-developed Wolverhampton station and car park is expected to cost 18.1m (2010 prices), with the development and construction costs spread between 2014 and 2017 [see Table 2.4 on Page B-6 of WCCE/D1]. Renewal Costs 2.41 Costs to cover the renewal of trams and the Midland Metro infrastructure have also been incorporated in the appraisal. It has been assumed that renewals will cost 15.3m (2010 prices) for the appraisal period, which represents 32% of capital costs [see Table 3.1 on Page B-9 of WCCE/D1]. Of this total, 6.8m is associated with the Midland Metro extension. Operating Costs 2.42 The extension of Midland Metro to Wolverhampton railway station will be associated with an increase in operating costs resulting from increased mileage, staffing and maintenance costs. The increment in these costs has been calculated for the forecast years 2016 and 2026, comparing the forecast operating costs for the do something against the do minimum The redevelopment of Wolverhampton railway station will also be associated with additional operating costs. The increased size of floor space of the station means additional maintenance and cleaning will be required across the station, as well as specific additional maintenance costs relating to the new gates and ticket vending machines. This will cost an estimated additional 415,000 per year (2010 prices) [see Paragraph 2.35 on Page B-7 of WCCE/D1]. Page 8 of 17

12 2.44 Increasing the size of the car park will similarly require additional maintenance and cleaning costs. The increase in operating costs is expected to be 210,000 (2010 prices) per year [see Paragraph 2.36 on Page B-7 of WCCE/D1]. Appraisal Assumptions 2.45 The appraisal was undertaken in line with WebTAG using the following assumptions: Results The station redevelopment and station car park extension is expected to open in 2017, whilst the Metro extension is planned to open in Apart from capital costs which are spent prior to opening, appraisal inputs have only been included from this opening year. The scheme has been appraised over a 60 year period from opening, from the point when the full scheme is open in 2018, and three years of costs prior to opening. Optimism bias values have been applied. In line with WebTAG guidance [WCCE/D10] for schemes applying for Programme Entry, optimism bias values of 66% and 51% have been applied to the Midland Metro extension and station re-development. Given Centro s recent experience with the extension from Snow Hill to New Street, this is a particularly conservative assumption. All prices have been re-based to 2010 prices, using a GDP deflator, consistent with WebTAG [WCCE/D8]. All values in the appraisal are in 2010 real prices. For certain inputs, such as capital costs, operating costs and revenues, real growth has been assumed. A real growth profile has been applied to all capital costs to represent real growth in construction prices. Up to 2026, operating costs and revenue have also been grown by a real growth rate. Operating costs are assumed to increase by 0.8% per annum, whilst a 1.1% real growth rate is applied to Midland Metro ticket revenue based on observed fares increases. Non Midland Metro revenue is grown by 1.0% per annum. All costs and benefits have been discounted to As required by WebTAG [WCCE/D8], a discount rate of 3.5% per annum has been applied for the next thirty years, with the rate reducing to 3.0% from then on Based on the inputs and assumptions outlined above, the benefit cost ratio of the scheme has been calculated as: Wolverhampton Interchange Project 2.9: Included within my Appendices (as Tables 1 to 4 of Appendix 2) are the tables from the Business Case document that set out the details of the cost benefit appraisal. The format of these three tables the Transport Economic Efficiency (TEE) table, the Public Accounts (PA) table and the Analysis of Monetised Costs and Benefits (AMCB) are prescribed by the Department for Transport in its WebTAG guidance. Also included in the Appendices is the Appraisal Summary Table (AST) for the Page 9 of 17

13 Wolverhampton Interchange Project scheme, which as its name suggests brings together all aspects of the appraisal in a summary format To understand the Value for Money offered by the different elements of the scheme, for this evidence I have had my team undertake further work to split the demand, benefits, revenues and costs between the Metro extension scheme and the station and car park redevelopment The benefit cost ratio of each has been calculated as: Wolverhampton Metro Extension 2.5:1 Station and car park developments 3.3: Included within my Appendices (as Tables 5 to 8 of Appendix 3) are versions of the TEE, PA and AMCB tables for the Metro extension part of the overall Wolverhampton Interchange Project. These have been produced specifically for this evidence The Department for Transport has established a set of categories for benefit cost ratios [WCCE/D6]. These are: Poor VfM if BCR is below 1.0 Low VfM if the BCR is between 1.0 and 1.5 Medium VfM if the BCR is between 1.5 and 2.0 High VfM if the BCR is between 2.0 and 4.0 Very High VfM if the BCR is greater than The benefit to cost ratio of the Wolverhampton Interchange Project means that it is considered high value for money. This is also the case for its Metro extension and station redevelopment elements of the overall Scheme. Wider Economic Benefits 2.53 As outlined in the Strategic Case, the re-development of Wolverhampton station and the extension to Midland Metro will contribute to the revitalisation of the local economy Wider economic impacts have been monetised in line with WebTAG. Three benefits have been assessed: Agglomeration impacts - the productivity gains generated by reducing journey times to other firms and larger labour markets Output change in imperfectly competitive markets - the increase in firms outputs due to decreasing transport costs Tax revenue resulting from labour market impacts - the changes in tax revenue resulting from an increase in labour supply 2.55 While the re-development of Wolverhampton station will support the re-vitalisation of the local economy, these monetised wider economic impacts have only been assessed for the Metro Extension These values have been incorporated into the appraisal using the same profile of benefits used in TUBA, which accounts for both demand and value of time growth. Page 10 of 17

14 2.57 Wider economic benefits have not been included in the BCR presented in paragraphs 2.46 and 2.49 above. If these benefits were included, the BCR of the Wolverhampton Interchange Project would increase to 3.1:1 [see Paragraph 3.16 on Page B-10 of WCCE/D1]. For this evidence I have asked my team to look at the impact of including wider economic benefits into the BCR of the Wolverhampton Metro Extension as a stand-alone project. Doing so would increase the BCR from 2.5:1 to 2.8:1. Environmental Impacts 2.58 Beyond the economic implications of the scheme, when coming to a view on Value for Money it is necessary to analyse the environmental impacts. As set out in the Business Case [WCCE/D1] for the purpose of the Value for Money assessment, noise, emissions, landscape, townscape, biodiversity and water quality have all been considered and the impacts are all considered neutral Since the completion of the Business Case, further work has been undertaken in relation to the environmental impacts of the order scheme. This is set out in the April 2015 Addendum to the Environmental Statement [WCCE/A15/6]. This includes further work on the assessment of heritage impacts. With regard to heritage, the conclusion of the Addendum is that there would be temporary adverse impacts during construction with no cumulative impact. It also identifies that in the operational phase there would be some minor adverse impacts which are not significant in their effect and do not result in significant cumulative effect. On this basis, I do not consider there is any need to amend the neutral assessment of heritage impacts in the Business Case The extension of Midland Metro will help to combat man-made climate change by encouraging transfer from private cars to the tram. While the tram will produce some carbon emissions due to electricity generation, well-used public transport is a more environmentally efficient means of transport than private car as the emissions per passenger-kilometre are lower. The impact on greenhouse gases has also been valued as part of the non-user benefits in the economic appraisal and the reduction in emissions is valued as an additional 4,349 (2010 prices) of benefit in 2026 [see Paragraph 4.8 on Page B-15 of WCCE/D1]. Social Impacts 2.61 The extension of Midland Metro will have a number of social impacts, as the journey experience and accessibility for the user will improve The Midland Metro extension will improve accessibility by providing direct access to Wolverhampton railway station, the bus station, as well as other locations along the existing Line 1. Therefore, the impact on accessibility is assessed as being beneficial There will be beneficial reliability impacts for those passengers who are new to the system due to the segregated nature of Midland Metro and its strong record of service reliability offering journey time certainty There will be a slight beneficial impact on security as the stops will be designed to enhance passenger security. They will include high quality lighting, passenger information, CCTV and emergency help buttons as well as on-board staff as currently Currently, the area around the station is not well catered for in terms of retail provision. The expansion of the station will provide new retail services to the area, as well as associated employment opportunities. Car park services will also improve with the extension of the station car park, meaning more people can access the retail services Page 11 of 17

15 in the station and the surrounding area. Therefore, in terms of service provision, the scheme is assessed as being beneficial Travelling by tram is generally seen as favourable compared to other public transport modes as it offers a smooth journey and is largely unaffected by highway congestion. Therefore, in comparison with walking or other modes of transport required to access Centenary Square, a tram extension offers beneficial journey quality impacts 2.67 Impacts on Affordability, Accidents, Physical Activity and Severance are all considered neutral. Distributional Impacts 2.68 It is expected that the impacts of the scheme will be distributed across a number of geographical scales, with benefits accruing to the immediate vicinity of the scheme, Wolverhampton and the wider West Midlands area. Some short-term negative impacts will be experienced in the vicinity of the extension during construction, but impacts in terms of geographical location are assessed as being beneficial By extending the line to Wolverhampton railway station, the improvements in accessibility will benefit deprived populations, who tend to rely heavily on public transport. This will enable these more deprived groups to have improved access to services and employment. Therefore, the impact is assessed as being slightly beneficial. Sensitivity Tests 2.70 In line with WebTAG, a series of tests have been undertaken to assess the sensitivity of the appraisal result to changes in key inputs. These sensitivity tests have been undertaken for the Wolverhampton Interchange Project as a whole Test 1 - Value of Time: sensitivity tests have been undertaken to test the impact on user benefits of increasing and decreasing the Value of Time (VoT) by 25%. Changes to the work VoT do not have a material impact upon the benefit cost ratio of the. Changing the non-work VoT by +\- 25% changes the BCR to 3.1:1 and 2.7:1 respectively Test 2 - Optimism Bias: a sensitivity test has been undertaken where the optimism bias applied is reduced from 66% to 40% for the Midland Metro extension costs (there is no change to the recommended optimism bias for the station developments between early and mid-stages in WebTAG). Decreasing the capital costs optimism bias, the value for money increases the BCR to 3.2: Test 3 - Non-User Benefits: a sensitivity test has also been undertaken to determine the relative contribution of the non-user benefits to the BCR. If non-user benefits are excluded from the appraisal, the impact is not material, the BCR marginally reducing to 2.8:1 and the net present value decreases from 92.7m to 88.5m over the appraisal period Test 4 - Value for Money Threshold Test: According to the categorisation of BCRs produced by the Department for Transport, the BCR calculated in the central case lies between 2.0:1 and 4.0:1, representing high value for money A sensitivity test has been undertaken in order to determine the reduction in benefits and increase in costs that would be required for the BCR to reduce to under 2.0:1 and therefore represent medium rather than high value for money. Page 12 of 17

16 A reduction in benefits of 45.1m PV (32% reduction) over the appraisal period would be required to reduce the BCR to under 2.0:1. This would reduce the net present value to 48.0m. Alternatively, an increase in costs of 22.7m PV (47% increase) would be necessary to reduce the BCR to under 2.0:1. The net present value would reduce to 69.9m The first three sensitivity tests demonstrate that altering the value of time, optimism bias level or excluding non-user benefits have a relatively modest or neutral effect on the BCR. The lowest BCR calculated from these three tests is 2.7:1, meaning that if one of these changes were to occur, the scheme would still represent high value for money Test 4 shows that costs would have to increase by 47% to lower the scheme s value for money categorisation. This is a very significant increase in costs (in addition to the level of optimism bias already applied), which is anticipated to have a low risk of occurring. Similarly, there is judged to be a low risk of benefits decreasing by 32% to change the value for money from high to medium. Value for Money Statement 2.78 In my opinion the economic performance the Scheme represents Value for Money. This view is derived from a consideration of the benefit cost ratio of the scheme, the additional wider impacts that do not form part of this benefit cost ratio, alongside the qualitative assessment of other impacts. Page 13 of 17

17 3 The Secretary of State s Statement of Matters 3.1 The Secretary of State has issued a Statement of Matters [INSP/4] about which he particularly wishes to be informed. My evidence addresses a number of these. In particular it considers Matters 1, 5, 8, 11 and 13. Matter 1 The aims and the need for the proposed Midland Metro Wolverhampton City Centre extension. 3.2 As Mr Adams sets out in his evidence the aims of the Midland Metro extension include enhancing the public transport connectivity of the city and thereby supporting its economic development and growth. My evidence shows that the planned Metro extension leads to a net economic benefit. Matter 5. The likely impact on the public, businesses and the environment of constructing and operating the scheme 3.3 My evidence shows that the travelling public will receive a net economic benefit from the Wolverhampton Interchange Project and from its component elements. It also shows that there will be a net benefit to the economy. It shows that environmental impacts have been considered when arriving at the assessment of the Scheme s Value for Money. Matter 8. The implications for rail users, train operators, Network Rail and businesses 3.4 My evidence identifies that extending Midland Metro to Wolverhampton Station will deliver an economic benefit to those rail users who use tram to access and egress the station. Matter 11. Whether there is a compelling case in the public interest for conferring on Centro powers compulsorily to acquire and use land for the purposes of the scheme 3.5 My evidence shows that the Wolverhampton Interchange Project delivers net economic benefits and is Value for Money. This is integral to the case for compulsory purchase and temporary possession powers. Matter 13. Centro s proposals for funding the scheme. 3.6 While the details of the proposals to fund the overall Wolverhampton Interchange Project have been covered by Mr Adams in his evidence, my evidence shows that the Scheme and its component elements represent Value for Money and accordingly public sector support for the required capital expenditure is warranted. Page 14 of 17

18 4 Response to Objectors 4.1 No objectors have raised any matters in relation to the Value for Money of the Wolverhampton Interchange Project in their respective objections or Statements of Case. Page 15 of 17

19 5 Summary and Conclusions 5.1 The scope of my evidence is to establish the Value for Money (Economic) Case for the Wolverhampton City Centre Extension. As such, my evidence contributes to the consideration of Matters 5, 8, 11 and 13 of the Statement of Matters [INSP/4]. 5.2 In my evidence I set out the Value for Money of the Wolverhampton Interchange Project (the Scheme ), which comprises the extension to the Midland Metro covered by this Order application and enhancements to Wolverhampton Station. I also distinguish the Value for Money of the Midland Metro extension and of the station enhancements in the hypothetical case that they be implemented as separate projects. 5.3 I state that the appraisal of the Scheme has been undertaken in line with the Department for Transport s appraisal guidance (WebTAG) and accordingly meets wider Treasury economic appraisal requirements. I go on to say that in my opinion, the appraisal of this Scheme has been undertaken in a way that is proportionate to the cost of the Scheme and the scale of its impacts. 5.4 In my evidence I state that the benefit cost ratio of the scheme has been calculated as: Wolverhampton Interchange Project 2.9: I also state that the benefit cost ratio of the two elements of the overall Project have been calculated as: Wolverhampton Metro Extension 2.5:1 Station and car park developments 3.3:1 5.6 The benefit to cost ratio of the Wolverhampton Interchange Project means that it is considered high value for money. This is also the case for the Metro extension and station redevelopment elements of the overall Scheme. 5.7 As well as the cost benefit analysis, an assessment of the scheme s wider social and economic impacts and it impact on the built and natural environment are integral to the consideration of whether a scheme offers Value for Money. 5.8 In my opinion the economic performance the Scheme does represent Value for Money. This view is derived from a consideration of the benefit cost ratio of the scheme, the additional wider impacts that do not form part of this benefit cost ratio, alongside the qualitative assessment of other impacts. Page 16 of 17

20 List of Appendices Paragraph Ref Appendix Description The Transport Business Cases (DfT, January 2013) Wolverhampton Interchange Project TEE, PA, AMCB Tables and AST Wolverhampton City Centre Extension TEE, PA, AMCB Tables Page 17 of 17