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27May

Public Infrastructure Investment Assignment

This is a solution of Public Infrastructure Investment Assignment which discuss the financial effect on economy by investing public Infrastructure 

The Big Question

The Standard Class Rail fare which is cheapest for the route of Huddersfield to London king’s cross for the time period of 16th march to 28th may is 88.50 pounds. Various train operators of the United Kingdom are offering this fare.

The most expensive ticket for Standard Class Rail fare from Huddersfield to London king cross at the busiest hour of journey is 173 pounds. This fare is offered by various train services of the UK.

The cheapest fare for the route of Manchester Piccadilly to London Euston all stations for a standard class journey during 16th march to 28th may is priced at 8 pounds only. Virgin Trains is offering this fare.

The most expensive tickets for the route of Manchester Piccadilly to London Euston  in standard class at peak time between 16th march to 28th may without any reservation or advance booking is by East Midland Trains which is charging around 104 pounds for a one way ticket.

2. LATEST INFORMATION ON INVESTMENTS IN RAILWAYS IN UK

Recently the Government of United Kingdom has announced a decision where they have decided to invest as much as 8 billion pounds in the rail network of the country. The decision came on 25th of November, 2010. The objective of investing this hefty sum of money into the railway network is the improvement of the services and efficiency of railways in the UK. According to various news sources, following are the details of the decision:

  • Delivery of new rail carriages numbered more than 2,100 will be done by May 2019. This will shoot up the capacity of railway by 17%. This will translate into space for 185,000 extra passengers every day.
  • Manufacturers have said to the government that by 2014, only 650 of these carriages can be delivered. On the other hand the promise from previous Labour government was 1,300 new carriers by the year 2014.
  • Around 1,200 carriages will be dedicated for the long going dream project of UK railway network, Thameslink programme which spans from Bedford to Brighton through London. The programme though will take 2 years more than the scheduled time of completion.
  • 600 new carriages will be allocated for the Cross rail project which spans from east to west through the city of London.
  • Over the next six years, the project of electrification of the commuter services on the Great Western route between London and Didcot, Oxford and Newbury will be completed.
  • Though the electrification of the lines between Liverpool, Manchester, Preston and Blackpool will be done as soon as possible but electrification of the London-Swansea line has been delayed. This has given the opposition enough fuel to speak against the current government.

All the problems regarding the investment and finishing time is pointing to the factor that this investment and projects will be taking more than a decade to get completed. The passengers, on the other hand are worried regarding this investment. Their reason for concern is that these costs of delay and investments might be paid by them in form of highly increased rail fares. The fares are expected to grow at a steady rate of 3 % on year on year basis.

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INVESTMENT IN RAILWAYS IN ITALY

Italian Government has infused quite a bit of money in its railway network in past. It has again decided of investing some more money into the railway to increase the quality of service and efficiency of it. The amount they have decided to invest in railways for the time being is in the tune of sum of 9 billion Euros. The plan for investing is currently in an advanced developmental level. During last decade the number of new stations those were opened was 40 and length of newly laid railway track was approximately 50 kilometres.

These steps have cost the government around 3 billion Euros. The current works which are going on for expansion and enhancement of the railway needed an investment of 3 billion Euros. The recent opening of new sections and the oncoming entrance in the High Speed Rail market of a new private operator, competing with the national railways operator are some of the latest examples of investment made by Italy.

INVESTMENTS MADE BY FRANCE IN RAILWAYS

The French government has made plans for investing more than 20 billion euro in an automatic ring line which will be linking the outer suburbs of Paris. There has been 1 billion Euro grant for 57 other light rail projects in different cities across the country. The Super metro network which is 130 km long will have 60 stations and comprises two phases, with the first due to open in 2017.

(a) The case that has been put forward by different rail companies for increasing the ticket prices are

  1. The rise in cost of crude oil and subsequently cost of fuels.
  2. The cost of investment in infrastructure which had to be done for expansion of the railway.
  3. Certain rural lines are not being profitable so that the operator can break even for those lines. Hence the losses made there have to be distributed over other lines fares.

(b) The case that has been put forward by passengers for cheap fares are for

  1. Less fares prevalent in other European countries for same distance
  2. Investments made by Governments from public finance in France and Italy are huge.
  3. The carbon foot prints are also very less in rail travel and it is very much convenient for elderly people, students and daily short distance commuters who cannot go for short distance airlines every time they want.

(c) According to the search results obtained from internet, the government of United Kingdom has remained confused between the necessities of bigger investments and ever increasing fares of railways. UK railways, though needs more investment, but the Government is constantly facing objections from the political peers. The political spat over it ‘ the delays and limited manufacturing capacity is not able to cope up with it and the ever increasing fare is causing rage among general passenger which is turning to other modes on travelling.

(d) In the countries like France and Italy, railway is the most important and mostly used way of commuting for the passengers. Even the number of people who uses railway daily has increased significantly in these countries in last few years. These factors have been able to make the railway network in these countries as profit making The scenario in UK is not same and the Government policies are also less favorable in UK than other mentioned countries. These are the reasons why France and Italy have been able to invest almost 4 times than UK in their respective railway networks.

(e) For several reasons the demand has not grown substantially since the time of privatization. Among these reasons are the increased fares which are being offered by the private rail operators. The private companies which are operating the railway networks these days are using demand as a mechanism for making prices higher in spite of the subsidies they are getting from the UK government.

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2. Road Tax Double to Curb gas guzzlers

 LATEST INFORMATION ON FUEL PRICES IN UK

UK Petrol Prices for Monday 28th Mar 2011
  Avg. Min. Max.
Unleaded: 132.91p 125.9p 146.9p
Diesel: 139.71p 130.9p 151.9p
LRP: 136.99p 131.9p 138.9p
Super: 139.93p 129.9p 154.9p
LPG: 76.51p 68.9p 86.9p

 

During last one month, the average prices of petrol and diesel in the United Kingdom have shot up by up to five pence a litre. The reason of this increase is mainly the rise in crude oil price. The price, at one point of time, had touched $144 a barrel primarily due to Socio Political problems in the Middle East. The cost of a 50-litre tank of diesel has gone up £2.50 in two thirds of the UK’s regions. After some time though the cost of a barrel of crude oil has came back to normalcy and touched $111. Unleaded prices have risen by 4.1 ppl from 128.8 ppl to 132.9 ppl.  On the other hand the price of Diesel has also increased by 5.0 ppl. The current price has increased from 134.0 ppl to 139. 0ppl.  The difference of price between two variants of fuel, those are unleaded and diesel has risen to 6.1 ppl. Northern Ireland saw highest price for unleaded which was at the level of 133.8 ppl.  Yorkshire and Humberside though, had recorded the lowest price for unleaded at 131.9 ppl.  Northern Ireland recorded the highest diesel price at 139.7 ppl.  Yorkshire and Humberside have the cheapest diesel at 138.2 ppl.  Supermarket prices for unleaded also rose over the month by 2.6 ppl to 130.0 ppl.  The gap between supermarket prices and the UK average for unleaded has risen to 2.9 ppl.    The UK has the eleventh highest unleaded petrol price and second highest diesel price in European Union.

For dealing with this situation of increased fuel prices, the government has presented a white paper in parliament in 2007. The paper deals with different energy policies and some strategies which will enable the Government for long term requirement of energy in the United Kingdom. The Government has also decided to take some steps keeping the adverse effects of green house emission and carbon footprints of their vehicles and industries in mind. The government still considers that the prices of fuel in UK are at a reasonable. They also think that the fuel prices in UK are below than prices in several other European countries. This is also true to a certain extent. The government is planning to add some taxes and other levis to reduce the carbon emission and making things more environmentally friendly.

(a) Cars and different other goods vehicles were taxed with respect to their price band before the year of 2007. They were not taxed according to their carbon emissions during that time period. Before 2007 transport proposal, the tax was decided as a fixed value which was in turn based on some percentage of the amount of price of that vehicle. The tax policy at that point of time did not used to consider the type of emission norms it is following or whether it is a gas guzzler or low emission vehicle. This type of tax regime had the tax of only 225 pounds for 225000 gas guzzlers bought between purchased by UK people since April 2006.

(b) The rationale behind the new tax proposal of 2007 which was based on the emission norms the vehicle is following and the fuel efficiency level of the vehicle was to make people purchase more units of fuel efficient cars and reduce the pollution level on roads and also reduce the carbon foot prints of United Kingdom and world as a whole.

The other rationale was to provide tax benefits for low emission cars to proliferate them in market. The electric cars which have a zero emission level have been given a special and entirely different tax break which makes them more affordable and beneficial for the purchaser. This way the government was trying to encourage the usage of latest fuel efficient low emission vehicles while discouraging the usage of 4 by 4 and sports vehicles which are more power hungry and high on emission levels.

(c) Vehicle Owners

Possible Costs: The prices of the vehicles which have high carbon emission level will definitely be more costly which will create some hardship for the owners of sporty vehicles or gas guzzlers.

Possible Benefits: The benefits for the vehicle owners will be the differential nature of tax benefits they would be getting from these policies. The cost and tax level of electric or hybrid vehicles which are eco friendly and have a lower carbon footprint will be less. So more people will be able to opt for these kinds of cars.

Economy

Possible Costs: The cost for the economy might be generation of less revenue through car taxes since the changed tax benefits and tax breaks provided to vehicles with lesser emission. This can impact the economy negatively on short term basis.

Possible Benefits: The benefits to economy will be of long term nature due to the reduced carbon emission. This will help the government in achieving in carbon credits which they can trade internationally and earn.

(d) The decision to tax more on the 4 by 4 vehicle is very much likely to be received well by economist of country because of following reasons:-

  1. Vehicles of this kind are considered as a waste of resources by economist.
  2. It also causes more disparity between the wealthy and poor and increases the gap of fiscal deficit.
  3. The overall economic benefit of reduced emission and reduced fuel import bills by lesser number of 4 by 4 on roads.

 (e) There are different evidences in article which makes the case for a greener transportation policy like

  1. Political spat over the new tax regime
  2. Difference between the demand of environmentalist and actual tax level.
  3. Taxation is considered as prohibiting measure by general population.

All these and various other incidences indicate that government need to make a firm and better transportation policy for a greener tomorrow.

(f) The arguments for reducing the taxation on fuels have a negative side also. A reduced tax means a cheaper fuel and because of cheaper fuel people can afford the gas guzzling vehicles causing more pollution and wastage of energy resources. So though in short term the reduction in fuel prices may seem beneficial for population but in longer term it has its harm full effects.

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