The Transport Minister Edwina Hart’s decision to pursue the controversial ‘black route’ as a panacea to the congestion problems on the M4 in and around Newport was always likely to attract debate.
Tuesday and Wednesday on Click on Wales
Tomorrow Chris Sutton of the CBI in Wales responds to the FSB’s criticism of the Welsh Government’s business case for the M4 Relief Road.
One thing that is certain is that the amount of capital finance available to the Welsh Government is finite. In the absence of meaningful fiscal devolution, overall budgets are, and will continue to be, set by Westminster. Borrowing powers will merely enable the Welsh Government to slightly raise the ceiling on the finite resources available in the short term.
For instance, the current Economy, Science and Transport budget includes a capital allocation of around £420m for the budget years 2014/15 and 2015/16. Around £150m is specifically allocated to road and rail investment. The Welsh Government’s published plan for the M4 Relief Road suggests, rather ambitiously, that construction will start in 2018 and will be completed by autumn 2021.
Given that the headline cost for the project is £1bn, funding will need to be drawn from borrowing powers or elsewhere in the capital budget (including existing transport schemes outlined in the Wales Infrastructure Investment Plan (WIIP)). The Welsh Government, yet to clarify how the road will be funded, rather opaquely states: “As well as Welsh Government budgets, it is planned to utilise UK borrowing powers afforded by recent initiatives.”
Meanwhile, the Cardiff Capital Region Metro carries a headline cost of £2bn and is scheduled to commence in 2015 with completion by 2030. While the project would be delivered incrementally, during the period 2015-25 (when the M4 Relief Road is scheduled to be built) a projected £1.24bn would be spent.
Combined, both projects would cost in the region of £2.24bn at current estimates between 2015-25. In contrast, the Welsh Government’s road and rail investment budget is £150m per annum, suggesting a total of £1.5bn over the same period. Assuming the whole amount was split between these two projects (which would effectively shelve projects such as the Bontnewydd Bypass and improvements to the A40 west of St Clears) there would be a shortfall of roughly £240m after the Government’s £500m borrowing powers are taken into account.
It is for this reason FSB Wales has been supportive of the ‘Blue Route’ which could potentially deliver savings of between £600m and £400m compared to the ‘Black Route’. This would close the finance gap and allow the Welsh Government to continue financing projects in other parts of Wales.
The Welsh Government’s options for financing both the Metro and the ‘Black Route’ projects are limited. As opposed to the Metro, a project of the size and security of the ‘Black Route’ could be attractive to private finance. However, the Welsh Government has been reluctant to pursue this in the past and has indicated that conventional borrowing powers would be used, ruling out their use for the Metro. This leaves other options such as displacing health and education capital investment projects or controversially triggering a referendum on income tax powers to access increased borrowing powers.
Whilst funding is theoretically possible for both projects, it appears none of these options are palatable to the Welsh Government in the short term. Rather, the Welsh Government is likely to prioritise one project.
Regeneration north or south of the M4?
The project given priority will dictate the Welsh Labour Government’s direction for the Welsh economy. We’ve all become accustomed to Wales’ position at the bottom of the economic league table. At 74% of the UK average, our GVA at £15,799 per capita lags significantly behind other parts of the UK. The causes of this productivity gap have been well documented by research carried out for the (now defunct) Welsh Government Economic Research Advisory Panel. Travel time and population density contribute significantly, with Wales’ rural and peripheral characteristics serving to weaken productivity.
(Source: Welsh Government)
So how do the two big ticket infrastructure projects compare on that count? Figure 1 shows the impact on agglomeration of the ‘Black Route’ M4 relief road as proposed in the Welsh Government’s business plan. It’s no surprise that the largest impact is on the M4 corridor itself, with Cardiff East, Newport and Monmouthshire all being big winners, reinforcing the existing differences in productivity between Cardiff/Newport and their hinterlands. Of more surprise is the gain for Bristol, South Gloucestershire and North Somerset, areas outside of the Welsh Government’s remit that are part of the South West region, which is around 17% closer to the UK average in terms of GVA.
By contrast, the Metro spatial impact study suggests there would be a significant change in the accessibility of many communities in the event of the Metro project proceeding, bringing positive benefits across South East Wales and notably north of the M4 corridor. Crucially, the Metro proposals would remove a number of barriers to commercial and residential regeneration across the region as highlighted in the Metro Impact Study.
It is unlikely that a new road to the south of Newport, on what is essentially a protected landscape, would afford the same commercial and residential development opportunities. It is for this reason the Welsh Government finds itself at a critical juncture. What it chooses to do with infrastructure over the next decade will truly set the tone for how it intends to grapple with Wales’ economic problems in the future.