12 September 2008
London's £16bn Crossrail project seemed finally to have left its troubled past behind when Gordon Brown approved it last year. But as the economic crisis worsens, doubts are growing – and the scheme could still come off the rails.
Almost a year ago, with what was intended to be a pre-election flourish, Prime Minister Gordon Brown announced the definitive go-ahead for London's Crossrail scheme. It had been a long time in gestation, with various early versions of the project suggested even before the Second World War. But now, Brown said, the funding was in place and 'the project will at last definitely proceed'.
However, just as there was no election in the end, Crossrail, too, might not happen. In the intervening year, apart from the parliamentary process, little has happened to raise confidence that the government is firmly committed to the scheme. In particular, there is still a lack of clarity about the precise funding arrangements, and doubts about whether the Treasury is happy to allow the scheme to proceed.
Various 'events' have also put the project in doubt, notably the economic crisis, which will affect contributions from both the government and the private sector. The collapse of Metronet, responsible under the Tube public-private partnership for maintaining two-thirds of the Underground lines, put extra pressure on Transport for London's finances.
The fact that Boris Johnson, a Conservative, has taken over as London mayor from Ken Livingstone, adds further uncertainty. Johnson says he is supportive of the scheme and took part in a joint press call with Transport Secretary Ruth Kelly soon after the Crossrail Bill received its Royal Assent. However, that support might waver if Chancellor Alistair Darling tries to drive a bargain over the funding that places too much strain on TfL's finances.
There are also concerns about project inflation, given the large amount of construction activity in the capital in the run-up to the Olympics and the shortage of skilled labour, although this has been partly alleviated by the credit crunch. There are, too, little straws in the wind that the project is in trouble, creating an edginess among its supporters. For example, this month the City of London shelved a planned discussion on the benefits of Crossrail.
Nevertheless, on the face of it, the scheme is proceeding smoothly. The Bill completed its lengthy parliamentary process in the summer and, despite the number of objectors, went through largely unscathed. Crossrail involves the construction of a full size railway tunnel under London between Paddington and Liverpool Street, with trains then running on to Maidenhead in the West and Shenfield and Abbey Wood (after passing through Docklands) in the East.
The scheme is designed to relieve congestion on both the national rail network and the London Underground system by providing a huge amount of extra capacity, with up to 24 trains per hour at peak times. The cost, including the usual 30% contingency figure, is now reckoned to be £16bn.
But there are fears that the scheme's chequered history will repeat itself. In 1991, a previous version of the project fell during the parliamentary process because of doubts over its funding and the Treasury's opposition in the light of a recession. Gordon Brown tried to allay any such doubts when, in giving the go-ahead last October, he spoke about it in glowing terms, saying that the building of the line would be of 'enormous importance, not just for London but for the whole country'. Kelly has emphasised Crossrail's regeneration potential, saying: 'It will generate jobs and economic growth, help revitalise some of our most deprived areas and deliver major improvements to the travelling public.'
Moreover, this time, according to Irving Yass, transport policy adviser to the business organisation London First, the need for the scheme has been set out much more clearly: 'In the 1990s version, Crossrail was presented mainly as a way of relieving congestion on the Central Line, which is why it did not go through once there was the start of an economic downturn. Now, the whole rationale for the scheme is growth in London employment.'
It was, of course, the boom in the capital that prompted the revival of the scheme in 2000, broadly along the same route. Yass points out that of the 900,000 new jobs expected to be generated in London over the next 15 years, half will be in the central area covered by Crossrail, and the capital will simply not be able to cope without the extra capacity it would create.
However, in the year since the announcement, no further details of how the scheme will be funded have emerged and the figures remain vague. In a 'heads of agreement' document published in conjunction with Brown's statement last year, the Department for Transport confirmed its commitment to provide a grant of £5.1bn towards the cost and set out the other sources of funding.
The main ones are: £3.5bn through the raising of a special 2p in the pound supplementary business rate on all businesses in London with a rateable value above £50,000; £2.3bn to be securitised (borrowed against future income) from the access charges paid by the train operators; several bits and pieces such as land sales and section 106 money from developers (although it is admitted that these will not amount to much); and £2.7bn from Transport for London.
It is not surprising that there has been a delay in firming up the original announcement because obtaining much of this money is fraught with obstacles. Legislation will be required for the extra contribution from the business rate as the money has to be hypothecated, something the Treasury has always resisted.
Interestingly, in the heads of agreement, the department has promised to cover this contribution if the law is not passed. Indeed, there is a considerable amount of 'funny money' in this total, based on much securitisation of future income flows, and what sometimes looks like double counting. While the City of London has promised a contribution of £600m, partly from fundraising from major City businesses and partly from its own resources, the latter will be covered by extra grant from the department.
The biggest uncertain amount is the £2.7bn that is supposed to be raised by Transport for London by securitising the extra fares income. The economics of Crossrail is entirely dependent on the predictions of extra jobs being realised. Otherwise, it will merely provide relief to existing services, rather than generating new travel demand, and that will leave a huge financial black hole. Moreover, an original plan to impose a Crossrail supplement on people using its trains has now been ruled out as impractical and unworkable, since many people would then stay on the existing, albeit overcrowded, services.
Nevertheless, TfL is confident it will attract sufficient extra passengers to be able to pay its contribution. TfL says the annual income from Crossrail would be £500m, enough to securitise such a sum, but is unable to say how much of that is additional and how much would be displaced from other railways, both its own and suburban services. A spokesman said: 'The capacity freed up by Crossrail on the other lines would fill up quickly, according to our modelling.'
Of course, there is a risk that should passenger forecasts not be met, Londoners as a whole will have to make up the shortfall. Moreover, there appears to be another black hole as originally the fares were to be earmarked to pay for the upkeep of the new line, whose operation was supposed to be broadly revenue neutral. If they are securitised to pay for the capital investment, TfL will have to foot the extra maintenance bill. TfL will also be saddled with the project risk, which the department has carefully ensured does not remain with central government. Therefore cost overruns will give the mayor a major headache.
Politically, there are difficulties with some aspects of the funding, too. The supplementary business rate, for example, will be paid by businesses across London. As Stephen Glaister, until recently professor of transport economics at Imperial College, put it: 'If you own a large business in Barnet, you may not be too pleased to be paying an extra 2p in the pound for a scheme your employees are unlikely to use.'
Secondly, the same aspect applies to the potential fare rises across the board. Bus users in outer London will be equally infuriated by having to pay more for a line they will not use. Moreover, there is the wider problem for the government of supporting this scheme when so many light rail projects have bitten the dust in its Northern heartlands. A number of Labour MPs would quite happily see Crossrail go the same way.
Another source of criticism and doubt about the scheme has been the choice of route. In the west, the main route does not go to Reading, which seems an obvious terminus. It has been argued that it is already too crowded, although a new signalling system will be in operation by the time Crossrail is due to be completed in 2017. At the other end, the route goes to Shenfield, an Essex suburb whose service will actually deteriorate as a result of Crossrail, and Abbey Wood. The original extension to Ebbsfleet in Kent has been scrapped because of overcrowding.
It leaves a rather odd railway going nowhere much in particular. This is highlighted by the Superlink alternative proposed in 2004, an apparently more coherent scheme designed to make better use of the potential links afforded by the new tunnel by running trains to towns such as Milton Keynes, Cambridge, Basingstoke and Stansted, creating a subregional railway.
Michael Schabas, one of the promoters of Superlink, believes the issue is still live: 'They could easily build part of the railway, leaving [in place] the powers to build the rest, and adapt it to make use of our suggestions.'
A further oddity in terms of station choice is that while there is to be a station at Whitechapel, a relatively quiet bit of the East End not far from Liverpool Street, the original scheme left out a station at Woolwich, a busy suburban town centre. After a campaign by the local MP, Nick Raynsford, the Woolwich station has been reinstated with one of those strange fudges that leave the situation uncertain. A local developer, Berkeley Homes, together with the London Borough of Greenwich, will pay the extra £186m for the new station box to be created. The fitting out will be undertaken later, paid for largely by business contributions.
According to Berkeley Homes, this is 'a solution that will not add to the costs or impact on public finances' as the housebuilder plans to develop 2,500 new homes and 25,000 square metres of office space near the site. However, given the collapse in house prices and project inflation, there are doubts whether this part of the scheme will still stack up economically once work on Crossrail starts in 2010.
The lack of clarity about financial information is well illustrated by Public Finance's efforts to obtain details about the funding situation. A call to the Crossrail press office was responded to, a full 24 hours later, by the Department for Transport because, according to Crossrail, it is the promoters who are responsible for the project. The department then said that no civil servant could talk about it because of commercial confidentiality. This was supposedly because contracts for the project management are currently being let out but that should not preclude discussing Britain's largest postwar rail project. Only Transport for London was willing to provide any detail.
The truth, as Tony Travers, director of the Greater London Group at the London School of Economics, put it, is: 'If the government wanted to ensure the scheme is built, it could do so tomorrow, by simply saying it will provide or guarantee the funding.' Clearly, it has not done so. That is partly because of trying to extract the best deal out of the private sector, but some of the amounts it has extracted so far are derisory. For example, Canary Wharf's contribution is to build the station on the Isle of Dogs but at, say, £200m, that is peanuts given that it will allow the amount of office space there to double. An analysis of the value of the station by the City of London suggests it is worth at least five times that amount to the owners of Canary Wharf.
In fact, if the government were absolutely certain about its commitment to the scheme, some earth digging would have already started taking place. According to the heads of agreement, Transport for London has £1.25bn prudential borrowing allocated for Crossrail works this year, but so far has not touched the money. If a definite go-ahead had been given and the schedule of starting the scheme by 2010 was being followed, works would already be carried out on moving utilities, since this will take at least 18 months.
As each day passes, the possibility that Crossrail might remain on the drawing board for even longer grows. Politically, it would be impossible for the Treasury to kill off the project, but watch for delays beyond 2017, the current supposed completion date. However, according to one City supporter of the scheme, that could spell its death knell: 'If another delay is announced, the property owners will go berserk. You cannot continue to blight a chunk of the world's most expensive real estate. There will be a legal challenge that could kill off the project.'
Another alternative is that the scheme will be scaled down. The Crossrail team has, secretly, produced a cheaper alternative which would accommodate Tube-size trains instead of full overground gauge stock. This would be highly controversial, however, as they would not provide as much extra capacity, but it might be a fudge acceptable to the politicians, who would argue that the tunnels could be enlarged later. One aspect that favours some kind of approval is that both political parties are now involved, given that the newly elected Tory Mayor strongly supports the scheme. All is to play for over the next few weeks as further prevarication will only raise speculation that Crossrail is, again, to be kicked into touch.
Christian Wolmar is a writer and broadcaster specialising in transport. His latest book, Fire and steam, a new history of the railways in Britain, has just been published in paperback by Atlantic
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