Christian Wolmar

High price of railway projects.

The importance of the railways to society as a whole has always been undervalued.

Listen to any phone-in show about the railways, and you will inevitably get people asking why their taxes are wasted on them when they never use a train. The answer, of course, is that the railways are enormously beneficial to the economy in all kinds of ways. This is clearly illustrated by The Economic

Contribution of Rail, a new report from Oxford Economics commissioned by the Railway Industry Association, which has become a lot more proactive recently.

The study suggests that the rail industry results in a £36.4 billion addition to the economy (the proper term is now Gross Value Added, or GVA) annually, and associated with 600,000 jobs.

Now, as an economist, I am rather sceptical of these claims because the level of precision is normally rather spurious, suggesting a far more detailed understanding of the economy than the methodology really permits.

However, I have always thought that the figures used by the Government rather underestimate the value of rail to the economy, and this report confirms my instinct as the figures produced by Oxford Economics are much greater than those used by the Government.

Indeed, similar analysis in government reports suggest that the industry is worth only £10.4bn annually and supports only 240,000 jobs. This discrepancy is the result of taking into account the wider rail network such as metro, and indirect impacts such as services, and catering and retail at stations.

Yet even this report may underestimate the value of investment. The cost of a £100 million scheme, for example, is ultimately far less to the Exchequer than the figure might imply.

For example, any equipment bought is subject to 20% VAT, which goes straight back to government - as does tax and national insurance paid by the workers. Add in the fact that these workers might otherwise be unemployed and in receipt of Job Seekers Allowance and other benefits, and the £100m might (net) be around half that.

Then there is the one thing that is never measured… the way that railways contribute to the quality of life for many people - something which, as a society, we shockingly fail to measure.

As this report suggests, we really do need a completely new way of assessing the value of the railways generally. Moreover, to put these figures in perspective, the total GVA is far greater than that of industries such as TV and film production, mechanical machinery or even agriculture.

So, next time you hear someone quibble about whether the railways are worthwhile, this report gives an unequivocal answer.