Contact: Iain Reeve, ext 5301 email: [email protected]

1. Summary

1.1 This report provides an update on the funding mechanism for the full Local Transport Plan (LTP) and seeks agreement to a proposed response to Government consultation.

2. Corporate Strategy

2.1 This report supports Aims 1 to 5 of the Corporate Strategy by developing a transport strategy that meets the County Council's wider aspirations for quality of life, stewardship of the environment, economic prosperity, strong and safe communities and improved services.

3. Funding Allocations

3.1 The Government is consulting on proposals to change the way that financial allocations are calculated for LTPs. LTP allocations are made for three different purposes:

(i) major schemes costing more than £5 million are assessed and funded on a case-by-case basis;

(ii) maintenance expenditure: allocations are calculated by a formula which takes into account the length and condition of roads in each authority's area; and

(iii) integrated transport allocations are made for all other transport capital schemes costing less than £5 million. This includes new roads, junctions, footpaths, cycleways, bus stops, bus lanes, bus stations, etc. Up to now, allocations for this type of expenditure have been based on an assessment of local authorities' LTPs.

3.2 The Government now proposes that integrated transport allocations should be calculated by a formula rather than by the assessment of the LTP submissions. LTPs must be written to show how the allocations produced by the formula would be used.

3.3 The Government is currently consulting on the formula and how it should be phased in. Two options for phasing in are proposed - over three years or five years. As the following table shows, the proposed formula would lead to a reduced allocation for Hampshire County Council of up to £8.2 million over the five years, depending on how quickly the transitional arrangements end.

Possible integrated transport allocations: (£ million)

Notes: "LTP1 projected" shows the allocation that Hampshire County Council would have received in the LTP2 period if its share of the LTP1 allocations were applied to national totals. This is the basis on which the provisional LTP has been written, in accordance with Government requirements.

3.4 The impact of the formula varies considerably from authority to authority. Within the South East region, the biggest increase goes to Kent County Council, which was relatively poorly funded in LTP1 and which sees its allocation rise from £6.7 million in LTP1 to as much as £17 million in 2010-11. Other authorities, notably Reading Borough Council and the Isle of Wight Council, face a 40% to 47% reduction in their allocations over the same period.

3.5 Allocations may be increased or decreased by as much as 25% depending on the strength of the LTP. Authorities rated as excellent under the CPA process are guaranteed not to have their allocations reduced below the amount produced by the formula. However, it is not clear whether there will be scope for many authorities to receive 25% increases in their allocations. Any reward funding will have to be taken as reductions from poor performing authorities, excluding CPA excellent authorities. As poor performing authorities tend to be the smaller authorities, this suggests that there will be less to allocate to larger authorities than the 25% proposed.

3.6 Therefore at present Hampshire County Council is guaranteed to receive the formula allocation by virtue of its CPA excellent status. There is a possibility of reward funding for a good LTP, although it is unlikely to be as high as the 25% that is theoretically possible. Reward funding will be recalculated each year according to how well authorities deliver their LTP programmes and meet their targets.

4. Details of the Formula

4.1 The formula allocates funding according to four "components":

(i) public transport - higher allocations are given to areas with higher levels of bus and light rail patronage;

(ii) road safety - higher allocations are given to areas with more casualties;

(iii) congestion and pollution - higher allocations are given to areas with more population and to urban areas above a defined size; and

(iv) accessibility - higher allocations are given to areas which score highly on the index of multiple deprivation, with account taken of the number of non-car owners and the extent to which an area is rural in nature.

4.2 A number of other additional factors are taken into account including whether the authority includes a "growth area". The amount of money distributed according to these factors is relatively small.

4.3 These allocations are relatively crude proxies for an estimate of the need to spend on integrated transport. In particular, they take no account of the level and type of infrastructure present in an authority's area. For example, the public transport component rewards authorities for having high levels of public transport patronage, without any estimate of the need to improve the public transport infrastructure. Thus, an area with excellent public transport provision and corresponding high levels of patronage would receive higher allocations than an area with poor public transport network and low levels of patronage.

4.4 The component relating to congestion does not take into account the problems of congestion, as the Government accepts that this is too difficult to measure. The recommended proxy for congestion (population size and size of urban areas) is not related to the effectiveness of existing infrastructure. This means that an urban area with relatively good transport infrastructure would receive the same allocation as an urban area of the same size with poor transport infrastructure.

4.5 A further problem is that the formula does not relate allocations to an authority's ability to spend. Some authorities may find that they have been allocated resources than they are capable of delivering effectively. Equally, some authorities may receive lower allocations. This can result in an ineffective use of public resources, as some authorities will have excess allocations to spend on expensive low value schemes while other authorities may be unable to fund essential works.

4.6 In this respect, the previous allocation system was better, since it based allocations on individual authorities' LTPs. This ensured that allocations respected authorities ability and to spend on integrated transport.

5. Other Options Considered by the Government

5.1 It is disappointing that the other options considered by the Government all relate to variations of the formula, such as inclusion of rail and traffic data. The Government does not appear to have considered alternative approaches to the formula, such as improved versions of the previous assessment methodology.

5.2 The timing of the consultation is very unfortunate. The consultation on the formula has been considerably delayed. As a consequence, there is little time for consultees to suggest alternative approaches. The consultation period ends on 12 October and the Government intends to announce the results in December. This leaves very little time for local authorities to incorporate the allocations into their full LTPs, which are due to be submitted to Government by the end of March 2006.

6. Likely Consultation Responses From Other Bodies

6.1 Other local authorities and representative organisations are currently considering their responses to the consultation. Informal contacts suggest that authorities are planning to respond on predictable lines. Local authorities who would secure increased allocations expect to welcome the formula in their response to the consultation. Similarly, authorities who would receive lower allocations are more critical. Representative organisations, such as the County Surveyors' Society and Local Government Association, are likely to take a more balanced approach, as some of their members will benefit and some will not.

7. Consultation

7.1 The Government has asked for consultation responses to the following questions:

Q1. Do you agree with the basis of the formula being a representation of the pressures related to the transport shared priorities and if not what alternative would you propose?

Q2. Do you generally agree with the variables used and the balance between them and if not what should be different?

Q3. Do you have any concerns related to specific variables and if so how might they be addressed?

Q4. Do you agree in principle that the formula should be phased in?

Q5. Which of the two options for phasing in do you prefer?

Q6. Do you have any comments about individual data items for a particular authority/plan area?

8. Proposed Hampshire County Council Response

8.1 It is proposed that Hampshire County Council should respond to the consultation exercise according to the points made in this section.

8.2 It is regrettable that the consultation exercise appears to be rushed. The considerable delay in launching the consultation has meant that there is little time for authorities to consider their responses and to develop alternative proposals. The timetable also provides less than two months for the Government to consider the responses and take sensible decisions. Announcing decisions in December gives local authorities little time to base their full LTPs on revised financial allocations. The County Council therefore recommends that decisions on the funding formula should be deferred for one year to allow more consideration of the issues raised and the consultation responses.

8.3 The consultation is also narrowly focused. The only alternative in the consultation paper is whether the formula should be reached from a three year or five year taper. Hampshire County Council believes that there are other approaches that should be considered, including a hybrid approach using both a formula and consideration of local authority LTP submissions. The extended consultation should therefore include consideration of a number of different funding approaches as well as the proposed formula.

8.4 In the view of the County Council, the LTP allocation mechanism should:

(i) be closely related to the need to spend on integrated transport, including consideration of specific transport-related problems faced by individual authorities;

(ii) take into account the ability of individual authorities to use financial allocations sensibly. There is little point in providing authorities with allocations that they do not have the capacity to use; and

(iii) reward authorities for good performance and innovation.

8.5 The proposed formula does not achieve any of these aims. It is not closely related to the need to spend on integrated transport, because its proxy values for the shared priority are too crude. Population or public transport patronage are not sensible proxies for congestion or accessibility, as they do not take into account the effectiveness of existing transport infrastructure and services. A town of 100,000 population with an excellent transport system arguably needs less capital expenditure than a town of 100,000 with a very poor transport system. A local authority with a high level of public transport usage does not demonstrably need more investment than an authority with lower public transport patronage.

8.6 The proposed formula does not take into account the ability to spend. As such, it can allocate some authorities more than they are able to use, given their staff resources. This will lead to some authorities funding sub-optimal schemes and to funds being transferred to non-transport schemes. The County Council does not believe that this is consistent with the Government's stated aims of improving efficiency and effectiveness. It is also possible that the radical financial reallocations proposed will lead to substantial skills imbalances between local authorities. Whilst extended transitional arrangements would assist with managing this process it is still likely to lead to reduced effectiveness of overall transport spending, and development of sub-optimal schemes in the early years of the second LTP period.

8.7 The County Council does not believe that the proposed system for rewarding good performance will be fully effective. There are unlikely to be enough resources to take from the lowest performing authorities to provide a significant reward for the highest performing authorities.

8.8 Any allocation mechanism should include a full dialogue between central and local Government. The starting point should be an assessment by local authorities of their need and ability to spend on integrated transport. These assessments should then be considered by Government, with allocations made accordingly. The County Council would be happy to work with the Department for Transport (DfT) to develop ways of assessing local authority submissions in a more transparent way than under LTP1. For example, a version of the formula could be used to assess whether proposed allocations are within sensible parameters. However, the formula as currently proposed is not fit for the purpose of allocating finances without significant interpretation through more detailed dialogue between DfT and local transport initiatives.

8.9 The County Council's recommendation is that the decision on allocations should be deferred for one year. Pending that decision, local authorities should continue to use the planning guidelines provided by the Government for the provisional LTPs.

8.10 The County Council's proposed responses to the consultation questions are as follows:

Q1. Do you agree with the basis of the formula being a representation of the pressures related to the transport shared priorities and if not what alternative would you propose?

A1. No. The formula is a crude approximation of transport pressures and contains some perverse indicators, such as the allocation of resources to authorities with high levels of public transport patronage. Instead, it is proposed that allocations should be made on the basis of submissions from local authorities which are considered by Government under a similar, but more transparent process than applied during the first LTPs.

Q2. Do you generally agree with the variables used and the balance between them and if not what should be different?

A2. No. The variables do not take into account need to invest in integrated transport or the ability of individual authorities to use allocations. The County Council's preference is for allocations to be made following an assessment of local authority needs. If the Government does decide to impose the formula, then the variables should be adjusted to reflect better the problems faced by individual authorities, such as measures of problems connected with congestion and accessibility. However, there is little or no time to do this in the Government's timetable. Because of this, the County Council recommends that the decision be deferred for a year.

Q3. Do you have any concerns related to specific variables and if so how might they be addressed?

A3. See above. The County Council is also concerned that the proposals for allocating reward funding will not be fully effective.

Q4. Do you agree in principle that the formula should be phased in?

A4. The implementation should be deferred for at least a year to allow for proper consideration of the formula and variables. If a formula is used, it should be phased in to allow authorities time to adjust their spending programmes and capacity to meet the revised allocations.

Q5. Which of the two options for phasing in do you prefer?

A5. The County Council prefers a longer phasing in, on the basis that this provides a less radical change for most authorities, and minimises the impact of sudden changes in the levels of resourcing available and required to fully deliver revised alterations.

Q6. Do you have any comments about individual data items for a particular authority plan area?

A6. Officers will provide detailed comments on individual data items as part of the County Council's response; they will be reported to the Cabinet when the proposed response to the consultation is considered.

9. Impact Assessments

9.1 This will relate to the funding of transport measures affecting all communities and groups.

10. Conclusions

10.1 The proposed funding formula could result in a slightly reduced allocation for Hampshire County Council. The basis for the formula appears to be flawed. It is recommended that the County Council's response to the Government's consultation exercise should:

(i) criticise the timetables and narrowness of the consultation, and recommend that the decision be deferred for a year;

(ii) advise that the proposed formula is a very crude approximation of need to spend on integrated transport;

(iii) recommend that alternative options be considered, especially options that include consideration of bids by authorities; and

(iv) indicate a preference for phasing in the changes over the longer period (ie the five year taper).

Recommendation

That the Committee be invited to consider this report and offer any comments which it believes the Cabinet should take into account in making its decision.

518ARpt/IR