Guidance on Rail Appraisal
TAG Unit 3.13.1

August 2007

1. Introduction
   1.1 Background
1.2 Scope and Structure

2. SRA Appraisal Criteria
   2.1 Status of the SRA Appraisal Criteria

3. Principles of Rail Appraisal
   3.1 Basic Appraisal Principles
   3.2 Project Development
   3.3 Demand Forecasting
   3.4 Unit of Account
   3.5 GDP and RPI growth uplifts
   3.6 Risk, Uncertainty and Optimism Bias
   3.7 Appraisal Period and Discounting

4. Impacts on Wider Society (Present Value Benefits)
   4.2 Non-Marketed Impacts
   4.3 External Costs of Car Use Estimates
   4.4 Changes in Rail Fares and Train Operating Company's Revenue
   4.5 Freight Appraisal

5. Impacts on Government (Present Value Costs)
   5.2 Indirect Costs to Government
   5.3 Financing Assumption

6. Benefit Cost Ratio and Value for Money
   6.1 Benefit-Cost Ratio and Appraisal Tables
   6.2 Value for Money
   6.3 Worked Example: Reinstatement of Double Track

7. Further Information

8. References

9. Document provenance

1. Introduction

1.1 Background

1.1.1 The SRA Appraisal Criteria (Strategic Rail Authority, April 2003) set out the general framework within which rail appraisal should be conducted. In light of the changing industry structure (as set out in the Railways Act 2005) this unit updates this guidance to bring it in line with current Department for Transport (DfT) Appraisal Guidance. It is also intended to support those conducting rail appraisals by providing a set of recommended values and assumptions.

1.1.2 The Department for Transport requires that all schemes it funds are appraised in line with the New Approach to Appraisal, NATA, which was set out in A New Deal for Trunk Roads in England: Understanding the New Approach to Appraisal (DETR, July 1998) and A New Deal for Trunk Roads in England: Guidance on the New Approach to Appraisal (DETR, July 1998). Since 1998, the New Approach To Appraisal has been revised and is now set out in the Department's web-based Transport Analysis Guidance, WebTAG. For a concise summary, see Introduction to Transport Analysis (TAG Unit 1.1).

1.2 Scope and Structure

1.2.1 This document is applicable to the appraisal of all initiatives with rail elements that are submitted to DfT for funding. For minor schemes with requested public transport funds of less than £5million, the Network Rail Discretionary Fund approach (Network Rail Discretionary Fund Schemes: Appraisal Guidance, DfT, March 2006) is used. Further guidance on appraisal of franchise specifications is available from DfT Rail; please email railtag@dft.gsi.gov.uk. Guidance on appraisal of rail closures and minor modifications is available in the document Government Response to the Consultation on the Implementation of the Railways Act 2005 Provisions on Closures and Minor Modifications, DfT, October 2006 which can be found on the DfT website. Proposals that are seeking funding through the Local Transport Plan (LTP) process should also consult LTP guidance (Final Guidance on LTP1 Delivery, DfT, December 2005).

1.2.2 Section 2 provides information on the SRA Appraisal Criteria. Section 3 provides further detailed guidance and information on the principals of appraisal within the context of WebTAG. Sections 4 and 5 look specifically at measuring the impacts of a proposal on both wider society and the impact on government within the appraisal process. Section 6 considers how the two impacts are brought together to form a benefit cost ratio and then how this and other considerations are taken into account when deciding the value for money of a scheme. Section 7 gives a list of documents that are sources for information in this unit or follow on directly from key topics in this unit.

2. SRA Appraisal Criteria

2.1 Status of the SRA Appraisal Criteria

2.1.1 The SRA Appraisal Criteria were developed in line with Treasury Green Book (Her Majesty's Treasury (HMT), January 2003) and NATA (A New Deal for Trunk Roads in England: Understanding the New Approach to Appraisal, Department for the Environment Transport and the Regions (DETR), July 1998 and A New Deal for Trunk Roads in England: Guidance on the New Approach to Appraisal, DETR, July 1998) to provide guidance on the appraisal of rail specific initiatives.

2.1.2 This unit integrates rail appraisal into WebTAG and supersedes the SRA Appraisal Criteria. Interested readers can still find the SRA Appraisal Criteria in the archive section of the WebTAG website.

2.1.3 It should be noted that the SRA Transport Economic Efficiency (TEE) Table (page 16) has been superseded by the Transport Economic Efficiency (TEE), Public Accounts (PA) and Analysis of Monetised Costs and Benefits (AMCB) tables, in line with standard DfT appraisal practise for other modes. Versions tailored to the special requirements of rail projects have been developed - see spreadsheet 1 below.

3. Principles on Rail Appraisal

3.1 Basic Principles of Appraisal

3.1.1 The basic principles of appraisal are explained in Introduction to Transport Analysis (TAG Unit 1.1). These principles should be followed. This document, together with the SRA Appraisal Criteria, provides more specific guidance on rail appraisal.

(a) An Appraisal Summary Table (AST), showing the impact of the project on all sub-objectives. This is a key output of an appraisal, as it is used by the Department when coming to a view on the value for money of a scheme. The AST can be found in Appraisal Summary Table (TAG Unit 2.7.2) and more detail in The Appraisal Process (TAG Unit 2.5).

(b) An assessment for every NATA sub-objective including supporting worksheets for each sub-objective including Transport Economic Efficiency (TEE) and Public Accounts (PA) tables (see spreadsheet 1). Where project promoters can clearly demonstrate that there will be no impact on some sub-objectives, the relevant supporting worksheets may be omitted.

(c) An Analysis of Monetised Costs and Benefits (AMCB) table (see spreadsheet 1).

(d) An assessment of the extent to which the project addresses the problem and contributes to local and regional objectives (see TAG Unit 2.5).

(e) Supporting Analyses:
- Distribution and Equity Analysis (TAG Unit 3.8.3) (please seek advice from DfT Rail Economists)
- Practicality and Public Acceptability (TAG Unit 3.8.4)
- Affordability and Financial Sustainability (note that the guidance in TAG Unit 3.8.1 is not applicable to rail schemes. However, the financial impacts of the scheme on DfT will need to be examined in the business case, and this should be discussed with DfT Rail policy).

3.2 Project Development

3.2.1 Guidance on the approach that should be taken to project development can be found in The Overall Approach: The Steps in the Process (TAG Unit 2.1). Problems should be clearly identified and all modes considered in possible solutions.

3.2.2 The appraisal must include a detailed assessment of the scheme against alternative options that would, as far as possible, broadly meet the same objectives. The testing of alternatives is not an add-on to the appraisal but an integral part of the process of determining the preferred option. Any scheme for which the appraisal of alternative options is considered inadequate may not be accepted for funding.

3.2.3 The assessment of alternatives should start from an initial wide base of possible options. The Department requires a clear understanding of why some particular options are preferred to others. Each option must be assessed against Government objectives. The assessment of alternatives must be sufficiently robust to allow a detailed comparison between the preferred scheme and its alternatives. The Department may wish to see ASTs and worksheets (including TEE tables) for the rejected alternatives, though the level of detail provided in these ASTs and worksheets should be proportionate to the stage at which the rejected alternative was considered.

3.2.4 After a thorough justification has been given for the rejection of some of the initial set of options, the Department requires that all major schemes move toward a final appraisal of the preferred option and a 'fully worked up' lower cost alternative. A scaled down version of this may be acceptable for smaller schemes, however only after prior agreement with the Department. A 'next best' alternative may also need to be carried through the appraisal process. In these cases promoters should enter into discussion with the Department to determine the exact requirements for their scheme.

3.3 Demand Forecasting

Where demand forecasting in rail is necessary, it is important that in order to ensure consistency between appraisals, demand growth is capped in the year 2026 in the central case. Sensitivities may be presented with different demand caps.

3.4 Unit of Account

3.4.1 Any cost benefit analysis (CBA) needs a unit of account, see paragraph 3.1.4 of Cost Benefit Analysis (TAG Unit 3.5.4) for which the DfT uses money. However, given the existence of indirect taxes, monetary values can be measured at factor cost (net of indirect taxes) or at market price (gross of indirect taxes).

3.4.2 DfT has chosen to express monetary values in the market price unit of account, see Cost Benefit Analysis (TAG Unit 3.5.4) and Values of Time and Operating Costs (TAG Unit 3.5.6). As most indirect taxes are levied at the final stage of production, companies and the government perceive their impacts in the factor cost unit of account (i.e. net of tax) whereas consumers do so in the market price unit (gross of tax).

3.4.3 In order to avoid using two units of account in the same appraisal, all impacts in the factor cost unit of account should be converted into the market price unit of account by up-rating by (1+t), where t represents the average indirect taxation rate throughout the economy, currently at 20.9%. The box below summarizes the necessary adjustment.

3.4.4 HM Treasury Guidance in the Green Book suggests appraisals be conducted in real terms. This means that the price base of all monetary values to be used will be set to one particular year. The DfT base year is fixed for long periods, see Cost Benefit Analysis (TAG Unit 3.5.4) for details. At the same time, these values will tend to grow throughout the life of an appraisal, to reflect growth in incomes. This leads to two adjustments:

1. Up-rating the values given in Table 1 for inflation and income growth to calculate the base year values.
2. Beyond the base year, up-rating the base values throughout the appraisal period to reflect that these will grow in parallel with real income.

3.4.5 For the purpose of setting nominal values to the base year the Department recommends the use of a GDP deflator. The GDP deflator can be viewed as a measure of general inflation in the domestic economy. For the latest figures and guidance on how to apply deflators see the "Economic Data and Tools" section of the HM Treasury website.

3.5 GDP Growth Uplifts

3.5.1 All monetary values (except the value of time for non-work purposes) should be up-rated in line with GDP growth per capita. See Values of Time and Operating Costs (TAG Unit 3.5.6)) for details on the growth in values of time. Also, note that the growth rate declines when the discount rate changes, as detailed in paragraph 1.2.22.

3.5.2 Non work values of time (VOT) ("Commuting" and "Other") should be up-rated using an elasticity of 0.8 as shown in the formula below:

VOT_t+1=VOT_t* ((GDP_t+1 / GDP_t) Λ0.8)

3.5.3 Recommended values for GDP growth per capita are provided in Table 3 of TAG Unit 3.5.6.

3.6 Risk, Uncertainty and Optimism Bias

3.6.1 The Department has issued guidance on The Estimation and Treatment of Transport Scheme Costs for Appraisal (TAG Unit 3.5.9). Rail schemes should be consistent with this guidance. Supplementary guidance is included below giving specific rail optimism bias factors during Network Rail project development stages.

3.6.2 For new proposals there is usually a difference between the projections of costs and benefits envisaged in appraisal and what happens after implementation. Table 2 below illustrates the two main sources of this error and suggests how these can be accounted for.

3.6.3 1.1.1 The corrections illustrated in table 1 can be incorporated to costs, following the formula below. Risk over benefits should be treated with the use of sensitivity analysis on key benefit drivers (e.g. patronage forecasts).

Risk and optimism bias adjusted cost = (Base cost + QRA) * (1+Optimism bias)

3.6.4 In the expression above, base cost refers to the technically derived costs of a scheme before allowing for risks, though realistic assumptions of changes in real costs over time should be incorporated e.g. cost increases above RPI growth. Further guidance on how to deal with inflation rates in the transport sector including construction inflation is given in the costs guidance (TAG Unit 3.5.9). Table 2 below shows the recommended uplifts for optimism bias in rail projects. This guidance is based on SRA guidance. This is temporary guidance whilst DfT is undertaking further research to ascertain more robust figures specific to rail. This research is expected to report in the near future. It is important to note that any rail risk and optimism bias adjustments are expected to be consistent with the principles in the general Departmental guidance. However, the figures presented below will not be fully consistent with those in the general guidance, The Treatment of Costs (TAG Unit 3.5.9), and will not be so until the new research is available.

3.6.5 Beyond project development level 2 and 3 (see table 2) optimism bias adjustments of 1% and 1.6% for operational expenditure are likely to be appropriate. However, where more specific evidence is available you should consult with the Department about its use.

Sources: Mott MacDonald 2002, Review of Large Public Procurement in UK (HM Treasury website), SRA and Network Rail research.
* Definition of project development levels is consistent with Network Rail's project development definition in GRIP (Guide to Rail Investment Projects).
# Added to each set of operational costs in the year that they occur. Not to be taken as a cumulative.

3.7 Appraisal Period and Discounting

3.7.1 DfT guidance (Section 5 of TAG Unit 3.5.4) distinguishes between projects for which determining an exact life is difficult (projects with indefinite lives) and projects with finite lives. For the former, the appraisal period should end 60 years from the opening year of the scheme and no residual value should be used beyond year 60. For projects with finite lives, project sponsors should provide evidence to justify a shorter appraisal period (e.g. asset lives, franchise expiry etc). In these cases residual values will reflect any benefits generated by assets beyond the selected appraisal period up to year 60 or will be based on their resale or scrap values. More guidance on how to calculate residual values and how to address long term modelling issues for a 60 year appraisal period can be found in Cost Benefit Analysis (TAG Unit 3.5.4).

3.7.2 Rarely, a scheme may involve a large capital expenditure towards the end of the 60 year appraisal. If this expenditure continues to generate large benefits for a significant time after the end of the appraisal period there may be a case to include a residual value for this capital stock. If this situation applies, please contact the Department for advice.

3.7.3 The Government's standard discount rates given in Cost Benefit Analysis (TAG Unit 3.5.4) are applied in the following manner: 3.5% for 30 years from the year the appraisal is carried out (e.g. the current year) and 3.0% for the remainder of the appraisal period (the discount rate drops again at 75 years from the current year, but this is unlikely to be relevant in most appraisals). It should be remembered that values should be discounted back to the Departments base year. This will often be before the current year implying more than 30 years discounting at 3.5%.

4. Impacts on Wider Society (Present Value Benefits)

4.1 This section discusses the Department's approach to calculating the present value benefits and dis-benefits of a scheme to wider society. The net value of benefits and dis-benefits forms the numerator in the BCR.

4.2 Non-Marketed Impacts

4.2.1 The NATA approach aims to identify all the impacts, marketable and non-marketable, of a proposal. Business cases should seek to express non-marketed impacts in monetary terms where robust methods exist to do so. Table 3 provides some suggested sources for parameters to perform this task. However the 'state of the art' on valuing non-marketed impacts varies considerably.

* Rail Passenger Quality of Service Valuations (Steer Davies Gleave, August 2000).

4.2.2 In table 3 there are references to PDFH, the Passenger Demand Forecasting Handbook. The Passenger Demand Forecasting Handbook (PDFH) is owned by a rail industry consortium including most train operating companies (TOCs). Advice about PDFH based estimates of the impact of crowding on patronage and revenues should be sought from the relevant TOC or funding authority. References to PDFH are provided for the convenience of promoters - they do not imply that the Department endorses the values and assumptions in PDFH. Project promoters may be required to justify the use of these or any other, values in studies.

4.2.3 It is important that no benefits are double-counted in appraisal. In particular for rail appraisal there are two similar categories of benefit - journey ambience and transport interchange. Following The Journey Ambience Sub-Objective (TAG Unit 3.3.13) and The Transport Interchange Sub-Objective (TAG Unit 3.7.1):

(a) Transport interchange includes station quality and station crowding
(b) Journey ambience should include rolling stock quality and in-vehicle crowding.

4.3 External Costs of Car Use Estimates

4.3.1 Guidance on Rail Appraisal: External Costs of Car Use (TAG Unit 3.13.2) provides a method to estimate the monetised external impacts of road traffic. This unit should be consulted for schemes that are not appraised using multi-modal models.

4.4 Changes in Rail Fares and Train Operating Company's Revenue

4.4.1 Where a proposal is expected to impact on rail fares (levels or structures) and therefore result in welfare changes for rail users please consult DfT for advice. Fare proposals can have implications for decisions about the longer term provision of services and capacity that would need to taken into account.

4.4.2 Where a proposal leads to a change in revenue for a train operating company (TOC), revenue transfer may be an issue. In this case, in the absence of other evidence, it should be assumed that 50% of any revenue increase accrues to the private sector TOC until the end of the current franchise agreement. Sensitivity tests around this assumption should be carried out. If these suggest that this is an important element of the appraisal then advice should be sought from DfT Rail. Following refranchising it should be assumed in the central case that all the extra revenue accrues to Government. This should be shown in the TEE table as a change in revenue to the private sector provider, negated by a change in the revenue transfer line. This should then be reflected in the central government revenue transfer line on the Public Accounts table. Where a proposal leads to a predicted change in Network Rail net revenues it should be assumed that this change is taken into account in the Office of Rail Regulation periodic review process. Therefore at the next periodic review process (TOC) operating costs can be assumed to change via track access charges - and these changes passed on to public accounts in the same way as explained above. Sub total 3 in the TEE table should never be a negative number and subsidy should be adjusted to ensure this does not happen.

4.5 Freight Appraisal

4.5.1 A scheme expected to change the amount of freight taken on the rail network is likely to lead to a change in the amount of freight taken by road. Standard values representing the net benefit of lorry miles avoided, known as 'sensitive lorry mile' (SLM) values, were developed for use in grant applications for freight facilities and similar purposes. With regard to appraisal, for relatively minor applications the SLM approach has on occasion proved useful for gauging the scale of likely benefits. However, the values were not intended for option appraisal and so DfT is developing values that would be more suitable for this purpose. Until this is published, advice should be sought from DfT Rail Group economists (contact address available in section 8).

4.5.2 DfT does not endorse the use of freight user benefits for transport appraisal other than those delivered through operating cost savings. This treatment is consistent across modes.

5. Impacts on Government (Present Value Costs)

5.1 This section discusses the Departments methodology for calculating the present value cost of a scheme to government. This PVC represents the denominator in the BCR.

5.2 Indirect Costs to Government

5.2.1 As discussed in Transport User Benefit Calculation (TAG Unit 3.5.3) the impact of a scheme on indirect taxation revenues forms part of the public accounts analysis, and therefore of the Present Value Cost (PVC) of the scheme.

5.2.2 This section provides a methodology for estimating this exchequer impact when a multi-modal model which provides outputs to calculate the impact is not available. This will be the case in the same circumstances as those detailed in Guidance on Rail Appraisal: External Costs of Car Use (TAG Unit 3.13.2) in paragraph 1.1.3.

5.2.3 When a proposal generates additional rail patronage, this shifts consumer consumption from alternative goods and services to railways. Some of these new passengers will be the result of modal shift, e.g. passengers switching from road to rail. The rest will be generative travel - new trips that were not undertaken before. Both these changes will affect indirect taxation revenues.

5.2.4 This indirect taxation element can be substantial for rail proposals as (a) diesel rail fuel duties are considerably lower than road fuel duties and many trains run on electricity, and (b) rail fares are zero rated for VAT.

5.2.5 Changes in indirect tax due to changes in car and public transport expenditure should be calculated using the following equations:

Work trips:
Non-work trips:

Where:

K_C = Change in car kilometres from the do-minimum to the do-something;
F_C = Average cost of road fuel per km as a final consumption good;
F'_C = Average cost of road fuel per km as an intermediate good;
M = Change in expenditure on public transport fares from the do-minimum to the do-something;
t_F = rate of indirect tax on fuel as a final consumption good (i.e. including duty and VAT);
t'_F = rate of indirect tax on fuel as an intermediate good (i.e. including duty only);
t_M = rate of indirect tax on fares as final consumption goods;
t'_M = rate of indirect tax on fares as intermediate goods;
t = Average rate of indirect tax;
Note that (1+t) gives the indirect tax correction factor (see TAG Unit 3.5.4, Section 3)

5.2.6 A further calculation for changes in diesel train use needs to be calculated:

Change in fuel duty received = (K_r * C_r * τ_r)(1+t)

Where:

K_r = Change in diesel train kilometres/train vehicle kilometres
C_r = Average rail fuel consumption rate (litres per train/vehicle km)
τ_r = Rail fuel duty (£ per litre)

Notes:
1. For Diesel Multiple Units (DMUs) fuel consumption rates are quoted as kg per powered DMU km. For High Speed Trains (HSTs) these are quoted as kg per train km.
2. HM Revenue and Customs (2004-2005) Hydrocarbon Oils Duty Rates. (See HMRC website).
3. Rail Emissions Model (AEA Technology, Nov 2001), study commissioned by the SRA.
4. Marked gas oil and ultra-low sulphur diesel not for road fuel use.

5.2.7 To calculate the average cost of road fuel using the guidance in Values of Time and Operating Costs (TAG Unit 3.5.6) requires information on the speed of traffic. Information on this is published in Guidance on Rail Appraisal: External Costs of Car Use (TAG Unit 3.13.2).

5.2.8 The user (work and non-work) and rail duty adjustments should be added together to calculate the indirect impact to the exchequer.

5.3 Financing Assumption

5.3.1 There is a common method of financing rail schemes known as the Regulatory Asset Base (RAB). This allows Network Rail to borrow the necessary funds and for the Government to make regular payments to NR to allow servicing of the debt. Unless there is good reason to assume alternative financing we would expect the central case in the appraisal to assume RAB financing according to ORR's determination. The stream of future payments would then be discounted, using the public sector discount rate in the usual way.

6. Benefit Cost Ratio and Value for Money

6.1 Benefit-Cost Ratio and Appraisal Tables

6.1.1 This section explains the DfT's definition of the BCR, a key indicator for appraisals (see Section 6 of TAG Unit 3.5.4). This version of the BCR would usually be presented if funds are sought from DfT. In some cases other indicators, such as the SRA measure of NPV/k may also be useful. The DfT BCR can be summarised as:

6.1.2 The DfT BCR departs from other definitions including that used by the SRA. The definition of the BCR used by DfT measures the ratio of PVB, the present value of net benefits to consumers and the private sector (wider society), and PVC, the present value of costs to the government. Within the PVB, any subsidy paid by the government is added to reflect the benefit received by the private sector. The PVC includes both the direct subsidy and grant and any indirect tax implications to the exchequer, as defined in section 5.2. A standard set of presentation tables (Transport Economic Efficiency (TEE), Public Accounts (PA) and Analysis of Monetised Costs and Benefits (AMCB) tables) should be used. Versions tailored to the special requirements of rail appraisal have been prepared and these tables correctly generate the BCR.

• Spreadsheet 1: Rail Appraisal Tables (MS Excel - 36kb)

6.1.3 See section 6.3 for a worked example of the use of the new set of tables required by DfT and the superseded SRA TEE table (this includes a comparison of the NPV/K and the new definition of BCR). In many appraisals the results shown in the tables may consist of several individual benefit calculations added together. In these circumstances a note or spreadsheet showing the individual components of the totals presented and how these were calculated will need to be submitted.

It is important that the DfT can clearly follow the calculation for the figure presented.

6.1.4 For additional information on how consumer user benefits should be calculated and disaggregated please refer to Transport User Benefit Calculation (TAG Unit 3.5.3).

6.2 Value for Money

6.2.1 Many projects will have impacts that cannot be monetised. Value for money includes both the benefits and costs that can be counted in monetary terms (these are included in the BCR) and other non-monetised impacts such as environmental effects. DfT has published Value for Money Guidance (DfT, December 2004), which explains how both elements can be assessed, especially where benefits are not readily monetised. This guidance makes explicit the basis on which the Department prioritises schemes. Information from the NATA Appraisal Summary Table (AST), see TAG Unit 2.7.2, is combined with the BCR in order to produce a headline measure for value for money (VfM) as shown in box 2 below.

6.2.2 Ministers make decisions on the basis of a series of considerations, including:

1. Value for money
2. Practicality/deliverability
3. Public acceptability
4. Distributional and equity impacts
5. Affordability and financial sustainability
6. Contribution to central government, local and regional objectives
7. The amelioration of identified problems

6.2.3 Official DfT guidance published in December 2004, suggests that, with respect to the considerations above, generally DfT should undertake:

1. No projects with poor VfM
2. Very few projects with low VfM
3. Some, but by no means all, projects with medium VfM
4. Most, if not all, project with high VfM

6.2.4 Affordability and feasibility remain key aspects of the projects and need to be examined from the start of the project. The VfM guidance takes as given the affordability and feasibility of the project.

6.2.5 For proposals that either reduce government costs, or which raise significant revenue for government relative to costs, the principle remains that we should identify proposals that maximise net benefits to society. However, such proposals can result in negative BCRs. To overcome this technical problem, the Department has recently issued additional VfM guidance for these types of proposals. In such circumstances it is useful to separate the cost to government and the net benefits of a proposal to society. The matrix below shows how proposals will be categorised in terms of VfM, depending on whether they have positive or negative net benefits to society, and whether they impose costs on government.

6.2.6 If a scheme falls into the lower right hand box i.e. raises revenue for government but has negative benefits to society, please contact DfT for advice.

6.3 Worked Example: Reinstatement of Double Track

6.3.1 The following example illustrates a hypothetical case of the appraisal of a project involving reinstatement of double track on a main line. Table 6 illustrates the old SRA TEE presentation, including the calculation of the new DfT BCR and NPV/k.

6.3.2 Tables 7, 8 and 9 show the set of tables required by the DfT. Table 7 is the Transport Economic Efficiency (TEE) table, which is more limited in scope than the SRA TEE table. It captures monetised impacts of a project for the private sector and consumer, including time-savings, fare changes etc. Its main output is the present value of transport efficiency benefits (PVB). Table 8 is the Public Accounts (PA) table. This calculated the net cost to the public sector (PVC) - which is equivalent to the SRA's K* measure. Table 9 is the Analysis of Monetised Benefits and Costs (AMCB) table. It summarises all of the information calculated in tables 7 and 8 and adds a number of other monetised benefits to the transport economic efficiency benefits derived in table 7. These include changes in performance, journey ambience and safety. The Benefit-Cost Ratio is generated at the bottom of the table.

Note: The SRA approach above does not take into account indirect tax losses. If there are no such losses then the DfT BCR is equal to (NPV/k)+1. If there are such losses then this will increase PVC and so impact on the NPV and BCR.

Note: Subtotals (1) and (5) flow into the AMCB table below, subtotal (6) does not.

* This figure assumes 50% revenue transfer to government during the franchise period and complete transfer following re-franchising.

* The public sector costs in these boxes should exclude developer contribution, as developer contribution is subtracted from these figures to give the net figures (7) and (8).

7. Further Information

The following documents provide information that follows on directly from the key topics covered in this Unit.

8. References

AEA Technology (November 2001) Rail Emission Model

DETR (July 1998) A New Deal for Trunk Roads in England: Understanding the New Approach to Appraisal

DETR (July 1998) A New Deal for Trunk Roads in England: Guidance on the New Approach to Appraisal

DfT (December 2004) Value for Money Guidance

DfT (July 2004) The Future of Rail White Paper

DfT (December 2005) Final Guidance on LTP1 delivery

DfT (March 2006) Network Rail Discretionary Fund schemes: Appraisal guidance

HM Revenue and Customs (2004-2005) Hydrocarbon Oils Duty Rates

Her Majesty's Treasury (HMT) (January 2003) Treasury Green Book

SRA (April 2003) Appraisal Criteria

SRA (June 2005) Demand Forecasting Manual

Steer Davies Gleave (August 2000) Rail Passenger Quality of Service Valuations

9. Document Provenance

This Transport Analysis Guidance (TAG) Unit updates the SRA Appraisal Criteria (2003). It is a revision of the consultation draft published in September 2006, taking account of comments received on that draft.

Technical queries and comments on this unit should be referred to:

Rail Appraisal Guidance
Rail Network Analysis and Modelling Division
Department for Transport
Zone 4/33 Great Minster House
76 Marsham Street
London, SW1P 4DR
E-mail: railtag@dft.gsi.gov.uk
Tel: 020 7944 6759
Fax: 020 7944 2160