Appraisal of rail investment projects: recent British experience

There has long been conflict over the degree to which railways should follow commercial or social investment criteria. This paper outlines the components of a comprehensive social cost‐benefit analysis of railway investment, and then describes the current approach in Britain. British Rail investment proposals are subject to a purely financial appraisal, although in the subsidized sectors of the railway this is subject to the proviso that a ‘broadly comparable’ level of service should be maintained. Local authorities and private operators are able to apply for a central government grant towards the cost of schemes they sponsor. But grant is only payable in respect of external benefits—that is, benefits other than to public transport users. Sponsors are also expected to seek contributions from private developers wherever possible. The difficulties to which this approach leads are discussed, and illustrated with two case studies of actual schemes. In one, it appears that failing to consider disbenefits to bus operators (and in turn to users of bus services) could lead to investments being undertaken which are not justified. In the other, a scheme which yields a high Net Present Value could not go ahead, in the form that we evaluated, because there is no way of recouping enough of the user benefits as revenue. Both are examples of the sort of distorting effect on decision‐making the current regime may have.