Transcript Can we fund Crossrail?

Can we fund Crossrail?
Stephen Glaister
Professor of Transport and Infrastructure
Imperial College London
[email protected]
The Scheme now in Parliament
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Capital cost
£16 billion outturn, nominal, not discounted.
Excludes
rolling stock
maintenance and renewals
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Funding proposal
£ billion
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DfT (central government) grant
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GLA borrowing funded by business rate supp.
3.5
TfL borrowing funded by new fare revenue
2.7
Network Rail funded by track access charges
2.3
Land sales, developer contributions,
private sector contributions,
savings Metronet being managed in-house
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The Jubilee Line Story
1975 Jubilee Line to Charring Cross nearly completed
LT await final funding approval for “Fleet Line”
1985 Olympia & York start Canary Wharf
1987 O&Y offer to build own shuttle: Waterloo-CW
1989 Central London Rail Study:
Joint Gvt, BR, LT into solutions for rail congestion
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The Fleet Line
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1989 Government “GO AHEAD” for
Crossrail AND Chelsea Hackney Line
Crossrail cost £1 bn; benefit:cost = 1.3
Crossrail to be a large bore underground
to allow high speed access
to the centre from West and East
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No action
Later in 1989 Government “GO AHEAD” for
Jubilee Line Extension
JLE cost £1 bn - £400m contribution from O&Y
benefit:cost = 0.95
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Early 1990s London economy goes into recession
Gvt. “if it’s worthwhile then the private sector will fund it” (!)
1994 Crossrail Bill fails in Parliament for lack of funding
Nb. To date we have spent well over £500m planning
Crossrail.
At 5% pa, the interest on £500m is £70,000
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2000 Creation of Greater London Authority
Mayor Ken Livingstone
Chairs Transport for London, the delivery executive
Funding almost entirely in the gift of HMT
Government unable or unwilling to fund Crossrail
“Business must get out its cheque book”
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Montague Review 2003
Note that two new arms have sprouted!
A link to Richmond (this did not survive)
A link to serve Canary Wharf
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Why do we still need Crossrail?
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London population and employment
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Location of employment growth
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Location of population growth
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Crossrail is an essential part of the rail solution
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Wider Economic Benefits
Since 1989 Government has felt that there is a case for
Crossrail
But conventional economic appraisal could not
demonstrate sufficient benefits
Development of appraisal of “wider economic benefits”
Eddington Report (December 2006) recommends
routine adoption in appraisal
Dan Graham, “Agglomeration, Productivity and
Transport Investment”, J. Transport Economics &
Policy, September 2007
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Transport and agglomeration economies
Agglomeration economies – positive externalities that derive
from spatial concentration
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e.g. knowledge / technology sharing, specialization, labour
market pooling, increase in market scale, sharing markets for
inputs and outputs etc.
Transport / generalised costs of travel are crucial to
agglomeration:
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–
–
transport (costs) in part determines economic densities:
accessibility
transport constraints can inhibit agglomeration economies
new investment changes the density or concentration of
activity (including labour) accessible to firms
Agglomeration is an externality / market imperfection
it is not captured in a standard appraisal.
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Measurement and estimation of agglomeration
To evaluate agglomeration benefits we need estimates of
elasticities of productivity w.r.t agglomeration
i.
Construct a national database of information about the
productivity of firms across all economic sectors.
ii.
Locate firms geographically in a GIS.
iii.
Construct measures of the agglomeration ‘experienced’ by
each firm in each location - compatible with use in transport
appraisal.
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Measurement and estimation of agglomeration
iv.
The total effective density that is accessible to any firm
located in area i is
U j
EDi    

j  d ij
i j




where U is some measure of activity (i.e. employment or
population) and dij is the distance between areas i and j.
–
–
–
–
v.
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captures scale and proximity
highly flexible spatial framework
incorporates an implicit transport accessibility dimension
replace distance with travel times, generalized costs etc.
Estimation using the translog system – allows a flexible
comprehensive model of production.
Results – agglomeration elasticities
industry
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elasticity
Manufacturing
0.077
Construction
0.072
Distribution, hotels & catering
0.153
Trans, storage& communications
0.223
Real estate
0.192
IT
0.082
Banking, finance & insurance
0.237
Business services
0.224
Whole economy
0.119
Results - 1
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Positive and significant impact from urban density for
most but not all sectors of the economy
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The magnitude of the agglomeration elasticity varies
substantially across industries
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No agglomeration economies for primary industries
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Mixed evidence for manufacturing industries about the
effect and strength of agglomeration economies
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Average manufacturing elasticity of 0.077 – compares
reasonably well to previous estimates.
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Results - 2
• Positive and significant agglomeration elasticities for most
service industries.
• An increase of 20% in service sector productivity with a
doubling of city size
– 24% for Financial services
– 22% for Business services
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Applying the new appraisal to CrossRail (DfT calculations)
Benefits
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Welfare (£ million)
Business time savings
4,847
Commuting time savings
4,152
Leisure time savings
3,833
Total user benefits
(conventional)
12,832
Agglomeration benefits
2,440
Total benefits (inc agglom)
15,272
Most recent published estimates costs & benefits
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Funding proposal
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It can be funded… but…
£ billion
DfT (central government) grant
5
GLA borrowing funded by business rate supp.
3.5
TfL borrowing funded by new fare revenue
2.7
Network Rail funded by track access charges
2.3
Land sales, developer contributions,
private sector contributions,
savings Metronet being managed in-house
2.5
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The problems of delivery
Need primary legislation for Business Rate Supplement
TfL will have to increase its borrowing
Some items of income are vague
Some items of expenditure may be unspecified
rolling stock, operations, maintenance
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The problems of delivery
Project Governance – who’s project?
TfL, DfT, Network Rail…?
Cross London Links Ltd.
Who bears the financial risks?
How to procure?
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JLE what went wrong?
JLE estimated at £1 bn, outturn over £4 bn.
Gvt. insisted on unrealistic cost estimates
Omitted important items
Imposed absolute deadline for Millennium celebrations
Tunnelling costs WERE accurate.
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ARUP reporting as SoS’s Agent
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Managing the project
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2006
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2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
But what about contruction cost inflation?
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Interface Risks
London Underground
PPP
PFI contracts for ticketing, communications, power
Olympics
Network Rail
Thameslink
East London Line
Thames Tideway
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Interaction with London on the surface
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Implications for TfL’s capacity to do other things?
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