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BRIEFING PAPER

Number CBP 8481 , 23 January 2019

Crossrail 2 By Andrew Haylen

Contents: 1. Background 2. Safeguarding 3. The proposed scheme and

route 4. The business case for

Crossrail 2 5. Funding & financing 6. Recent political developments 7. Challenges for Crossrail 2

2 Crossrail 2

Contents Summary 3

1. Background 4 1.1 Who is responsible for delivering Crossrail 2? 5

2. Safeguarding 6

3. The proposed scheme and route 8

4. The business case for Crossrail 2 12 4.1 Benefits 13

Transport benefits 13 Wider Economic Benefits 14

4.2 Costs 15

5. Funding & financing 19

6. Recent political developments 24

7. Challenges for Crossrail 2 26 7.1 Funding 26 7.2 Political support 26

Cover page image copyright Transport for London

3 Commons Library Briefing, 23 January 2019

Summary Crossrail 2 is a long-trailed scheme to build a new rail line along the Chelsea-Hackney corridor. It is being jointly funded by the Mayor of London and the Secretary of State for Transport, and subsequently jointly advanced by Transport for London (TfL) and Network Rail, with support from the Department for Transport (DfT).

TfL has published three consultations on the design and development of Crossrail 2 and considered two detailed route options for the scheme:

1 Metro option - a stand-alone Underground line from Wimbledon to Alexandra Palace to provide a frequency of up to 40 trains per hour and a peak capacity of up to 38,500 passengers per hour per direction. The trains proposed in this option would be shorter than the regional option, with a tunnel diameter of 5.5 m, the same as for the DLR.

2 Regional option - would be similar in operation to Crossrail. The system is more extensive, both geographically than the Metro Option and in the length and capacity of the trains that would be used. The alignment of the central section would be similar but would be extended at both the northern and southern ends of the route onto the suburban rail lines.

The Regional Option had the greatest overall level of support in the public consultations and TfL carried it forward as its preferred scheme, though the exact design and scope of the project is still up for consideration.

Crossrail 2 will deliver several benefits to the London transport system, particularly in terms of easing congestion on other parts of the network and improving travel time and accessibility for those residents who will be connected by the new line. The scheme is also likely to deliver wider economic benefits through productivity improvements, economic growth and employment prospects along the supply chain of the project. The latest publicly available business case for the scheme estimates that it would produce £1.8 of benefit for every £1 of cost (a benefit-cost ratio, or BCR of 1.8). When wider economic benefits are included, this rises to a BCR of 2.0.

Capital costs for Crossrail 2 were estimated by TfL in 2016 at £32.6 billion. As announced by the Chancellor in the 2017 Autumn Budget, the DfT and TfL have commissioned an Independent Affordability Review to examine ways of making the scheme more affordable. There are reports that the capital costs may increase to more than £45 billion.

It is not clear at this stage whether the scheme will be delivered, and it rests, to a large extent, on whether costs can be contained and whether London can raise its share of the funding. In a best-case scenario, Crossrail 2 is unlikely to be delivered and operational until at least the early to mid-2030s.

Information on other rail projects and aspects of how the railways are run can be found on the Railways Topical Page of the Parliament website. For more detailed information about the Crossrail scheme, see the House of Commons Library Briefing Paper Crossrail (Elizabeth Line).

4 Crossrail 2

1. Background Crossrail 2 is a long-trailed scheme to build a new rail line along the ‘Chelsea-Hackney’ corridor (from Cheshunt and Alexandra Palace in the north via central London to Wimbledon in the south and possibly further to one or more of Chessington, Shepperton and/or Epsom).

A west to north-east line was first proposed in 1944, when the concept of cross-London tunnelled rail services was first introduced in the Greater London Plan. Following this, in 1974, the London Rail Study identified the Chelsea-Hackney Underground line as a possible scheme to serve future demand.1

The latest iteration of Crossrail 2 dates to the January 1989 Central London Rail Study, which was commissioned by the Thatcher Government to look at ways of addressing overcrowding on the London rail system. It suggested a number of new lines and extensions, including East-West Crossrail (Crossrail 1) and the Chelsea-Hackney line (Crossrail 2). The East-West Crossrail had an outline capital cost (including rolling stock) of £885 million, while the Chelsea-Hackney line had an outline capital cost of £1.33 billion.2

Safeguarding directions (i.e. legally protecting an area from conflicting development) for the Chelsea-Hackney line were issued by the Secretary of State for Transport under the Town and Country Planning General Development Order 1988. Initial directions were issued on 7 February 1991 and revised directions issued on 12 November 1991.3 At about the same time (in 1992), the cost of Crossrail 1 was estimated at £1.94 billion and the Chelsea-Hackney line at £2 billion (both in 1992 prices).4

In 1999 the Labour Government asked the Strategic Rail Authority (SRA) to study the requirements for extra passenger capacity to and through London.5 The London East West Study was published in late 2000. It recommended that both the East-West Crossrail and Hackney-Chelsea routes be resurrected, and schemes developed to construct them.6

A joint venture company, Cross London Rail Links Ltd (CLRLL), was formed by Transport for London (TfL) and the SRA in 2001 and consulted with stakeholders on possible routes for Crossrail 1 and a feasibility study for a possible Crossrail 2 scheme. In the end, only Crossrail 1 was taken forward.

Crossrail 2 was revived in 2008 when a route for the Chelsea-Hackney line was safeguarded. It linked the District line’s Wimbledon branch with the Central line’s Epping branch via Parsons Green, King’s Road, Sloane

1 Crossrail 2, History [accessed 4 January 2019] 2 DoT, British Rail and LRT, Central London Rail Study, January 1989, pp13-15 3 HC Deb 12 November 1992, c963W 4 HC Deb 3 March 1992, c87W 5 There are further details about the SRA in HC Library briefing paper SN1344 6 SRA, London East-West Study, November 2000

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Square, Victoria, Piccadilly Circus, Tottenham Court Road, King’s Cross St. Pancras, Angel, Essex Road, Dalston Junction, Hackney Central, Homerton and Leytonstone (more detail around safeguarding can be found in Section 2). As noted by Crossrail 2, “Detailed “optioneering” then considered many possible route variations to determine the one that best addressed transport and growth challenges.”7

Having been through three major consultations (Section 3), the project is now in the later stages of its initial design phase, ahead of a possible approvals process via a hybrid bill; though the prospects for the scheme remain uncertain in the current political climate and given developments with Crossrail 1. The more recent political developments and the prospects for the scheme are discussed in Section 6.

1.1 Who is responsible for delivering Crossrail 2?

Crossrail 2 is being jointly sponsored by the Mayor of London and the Secretary of State for Transport. Since April 2016, TfL’s Managing Director of Crossrail 2, Michèle Dix CBE, has led an integrated TfL and Network Rail project team in developing the scheme, with support from the DfT.

Crossrail 2 also has a Programme Board, which was established in July 2016, and whose job is to “make recommendations to the Mayor of London and Secretary of State for Transport on matters regarding the development of Crossrail 2”.8 The Programme Board Acts as an advisory forum for the Crossrail 2 team and their work supporting these reviews, not as a decision-making body. Organisations represented on the Programme Board include:

• Crossrail 2

• Department for Transport

• Transport for London

• Network Rail

• HM Treasury

• Department for Communities and Local Government

• Greater London Authority

• Infrastructure and Projects Authority

The Programme Board also includes several independent members with international experience in major project delivery. The Board is chaired by Lord Adonis, former chair of the National Infrastructure Commission and Labour Secretary of State for Transport.9

7 Crossrail 2, History [accessed 4 January 2019] 8 Crossrail 2, Programme Board [accessed 12 April 2017] 9 Appointed in 2016, see: DfT press notice, Lord Adonis proposed as new chair of

Crossrail 2, 24 May 2016

6 Crossrail 2

2. Safeguarding Safeguarding is an established part of the planning system, designed to protect land which has been earmarked for major infrastructure from conflicting developments which might otherwise occur.

Safeguarding Directions were first issued on 7 February 1991 under articles 14(1) and 18(3) of the Town and Country Planning General Development Order 1988. The Safeguarding Directions safeguarded the route corridor for the proposed Chelsea-Hackney Railway Line Project from Parsons Green to Leytonstone, Grosvenor Road to Ebury Bridge and at Wimbledon and Putney Bridge.10

The Safeguarding Directions issued on 7 February 1991 were replaced by new Directions issued by the Secretary of State for Transport on 12 November 1991 under article 14(1), 18(3) and 30 of the 1988 Order. These were replaced by new Directions issued by the Secretary of State for Transport on 18 June 2008 under articles 10(3), 14(1) and 27 of the Town and Country Planning (General Development Procedure) Order 1995 to safeguard the whole of the proposed route alignment of the Chelsea-Hackney line:

a. Between Parsons Green and Leytonstone;

b. Between Battersea Park and Ebury Bridge; and

c. At Wimbledon and Putney Bridge.11

In 2009 the Department for Transport (DfT) requested that Transport for London (TfL) bring forward proposals to review and amend the Safeguarding Directions for the Chelsea-Hackney line. The review took place in the context of the Mayor of London’s Transport Strategy published in May 2010. Following this review, new Safeguarding Directions (‘the Directions’) were issued under articles 16(4), 25(1) and 29(6) of the Town and Country Planning (Development Management Procedure) (England) Order 2010 to safeguard the central section of the proposed route alignment:

a. Between Wimbledon and New Southgate;

b. Between Stoke Newington and Tottenham Hale;

c. Between Shoreditch Park and Hackney Central.12

More recent developments have required changes and extensions to the safeguarded route. In October 2014 TfL and Network Rail lodged plans with the Government for safeguarding a preferred route for Crossrail 2. The Government published a consultation on safeguarding the route in November 2014.13 The main changes to be safeguarded were:

10 DfT, Guidance and explanatory notes for local planning authorities to accompany

safeguarding directions issues for the Crossrail 2 project, 24 March 2015 11 ibid. 12 ibid. 13 Mayor of London press notice, ‘‘Crossrail 2 vital to support London’s growth’, says

Mayor’, 28 October 2014

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• The route from Wimbledon to Victoria using the District line between Wimbledon and Fulham Broadway to be altered in favour of one via Tooting Broadway and either World’s End, Chelsea, or Kings Road, Chelsea;

• A deviation between Tottenham Court Road and Angel to an alignment north of the Euston Road;

• The approach to Dalston north of Angel changed to a north–south axis rather than the previous east–west one;

• The route from Dalston Junction to Leytonstone and connection with the Central line abandoned in favour of a route to Alexandra Palace and New Southgate;

• A possible branch to Hackney Central safeguarded between Angel and Dalston Junction;

• The routes to New Southgate and Tottenham Hale to diverge at a second junction at South Tottenham; and

• Connection into the Network Rail lines at Tottenham Hale.14

The response to the consultation document and new safeguarding directions were issued in March 2015.15 The 2015 safeguarded route is available to interactively view on the Crossrail 2 website and for more detail around safeguarding for Crossrail 2, see the Crossrail 2 website.

In February 2018, a TfL Programmes and Investment Committee paper acknowledged that there was a risk emerging related to land and property costs because the existing safeguarding directions do not reflect the strategic outline business case route alignment. It had previously been intended that a revision to the directions would be made following a route-wide consultation in early 2018. However, that consultation has been postponed pending the outcome of the funding, financing and affordability work.16

14 DfT, Crossrail 2 Safeguarding Direction Consultation Document, 20 November 2014,

pp12-13 15 DfT, Summary of responses and the government's response to the consultation on

updating the safeguarding for Crossrail 2, 24 March 2015; and Crossrail 2, Safeguarding [accessed 12 April 2017]

16 TfL, Programmes and Investment Committee – Crossrail 2, 21 February 2018

8 Crossrail 2

3. The proposed scheme and route

To date, TfL has published three consultations on the design and development of Crossrail 2. The initial consultation in May 2013 was conducted to provide stakeholders and the general public with information on the need for and background to the proposed new line and the development of possible future options. 17 It specifically proposed two detailed route options for Crossrail 2:18

1 Metro option - a stand-alone Underground line from Wimbledon to Alexandra Palace to provide a frequency of up to 40 trains per hour and a peak capacity of up to 38,500 passengers per hour per direction. The trains proposed in this option would be shorter than the regional option, with a tunnel diameter of 5.5 m, the same as for the DLR. This option shared most of its core route with the 2008 safeguarded alignment.19

Crossrail 2 metro option20

2 Regional option - would be similar in operation to Crossrail. The system is more extensive geographically than the Metro Option and in the length and capacity of the trains that would be used. The alignment of the central section would be similar, but would be extended at both the northern and southern ends of the route onto the suburban rail lines. The route could be built in stages and eventually serve the area shown in the figure below.21

17 TfL, Crossrail 2 Consultation, 14 May 2013 18 TfL, Crossrail 2: Summary of Option Development, May 2013 19 ibid. 20 TfL, Crossrail 2 metro option, May 2013 21 op. cit., Crossrail 2: Summary of Option Development

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Crossrail 2 region option22

There was an overwhelmingly positive response to the initial consultation. Of the more than 13,000 replies received, 96% of the public respondents supported the principle of Crossrail 2. Support was high for both route options, but the Regional Option had the greatest overall level of support.23 TfL said it would support as the preferred route for Crossrail 2 as it:

…has the potential to generate greater benefits in terms of accessibility, congestion relief and contribution towards supporting London’s growth than the Metro option. Although more expensive than the Metro option, it addresses more of London’s long-term transport needs.24

A second consultation was conducted in June 2014 on some potential minor changes to the regional route option, including:

• Two route alignment options north of Angel serving Hackney or Dalston Junction;

• An alternative option for a possible new station in Chelsea; and

• A short extension of the route from Alexandra Palace to New Southgate.25

22 TfL, Crossrail 2 regional option, May 2013 23 TfL, Crossrail 2 2013 Consultation – Response to issues raise, October 2013 24 TfL, Crossrail 2: Supplementary Consultation, 9 June 2014 25 For full detail, see: TfL, Crossrail 2 2014 Consultation – Non Technical Summary, June

2014

10 Crossrail 2

Crossrail 2 Route, as at Autumn 201526

TfL published a third consultation in October 2015. This was concerned with new information relating to the preferred location of station entrances and exits, tunnel portals, shafts, depots, and construction worksites for the tunnelled section of the scheme, as well as proposed service patterns.27 In July 2016 TfL published its response to the consultation. It stated that:

No final decisions have yet been made on the proposed route for Crossrail 2 and this work will help to continue to develop proposals and inform that decision. At several locations - Wimbledon, Balham, Tooting Broadway, King's Road Chelsea, and the decisions on which stations should be served on the New

26 Mayor of London, Mayor’s Transport Strategy, March 2018, p172 27 TfL, Crossrail 2 - third consultation, 27 October 2015; a consultation analysis was

published in March 2016, see: Steer Davies Gleave, Crossrail 2 Consultation Analysis, 17 March 2016

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Southgate Branch- more work needs to be done to work through the issues, which include complex engineering challenges.28

A further public consultation was expected in autumn 2016 but none was published.29 Crossrail 2 published an update for the project in May 2018, again reiterating that no final decisions had been made around the route. It has been exploring the feedback received from the 2015 consultation and has carried out further work to develop its approach, looking at ways to reduce the impact of the proposals across the whole of the route. Crossrail 2 intends to conduct a further route-wide public consultation on the latest proposals following the outcome of the Independent Affordability Review and decisions on the updated Strategic Outline Business Case.30

28 TfL press notice, Crossrail 2 developed further in response to community comments, 7

July 2016 29 TfL press notice, Crossrail 2 developed further in response to community comments, 7

July 2016 30 Crossrail 2, Crossrail 2 Project Update, May 2018

12 Crossrail 2

4. The business case for Crossrail 2 Various proposals, with accompanying business cases, for a new rail line connecting the Chelsea-Hackney corridor have been made over the last few decades. This section provides a snapshot of the findings from those business cases, as well as those from the most recently available estimates. It should be noted that the benefits, costs and ratios provided below are not necessarily directly comparable because of changes to scheme scope across the various appraisal and they are not in equivalent real term prices.

The latest iteration of Crossrail 2 dates to the January 1989 Central London Rail Study, which was commissioned by the Thatcher Government. The business case outlined in that study revealed that a Chelsea-Hackney scheme produce 90p of benefit for every £1 of cost (a benefit-cost ratio, or BCR of 0.9); by comparison the East-West Crossrail had a BCR of 1.6.31 An economic assessment published in the Strategic Rail Authority’s 2000 London East-West study found that a Crossrail line between Wimbledon-Hackney had a BCR of 2.1.32

A more recent February 2014 London First report gave the project a benefit-cost ratio of 1.8 (4.1 including Wider Economic Benefits), while PwC published a report commissioned by TfL in November 2014 estimating that, without wider economic benefits, the Regional Option had a BCR of 1.8 compared to 1.3 for the Metro Option. When wider economic benefits are included, it was estimated that the Regional Option offered better value for money with a BCR of 2.0, compared to 1.6 for the Metro Option. This is “driven by the benefits of enhancing accessibility to employment, especially from areas of London such as the Upper Lea Valley.”33

A detailed business case has been submitted to the Secretary of State by the integrated project team but it is not publicly available. The National Infrastructure Commission (NIC) had previously emphasised the need for the business case to maximise the benefits of the scheme, to ensure its deliverability and to improve its affordability.34 Specifically, it said that the business case should:

…include detailed options to reduce and phase the costs of the scheme. The most promising option identified to enhance affordability would be to delay the construction of the northwestern branch to New Southgate. This could reduce the costs of the initial scheme in the 2020s by around £4 billion.35

The Crossrail 2 Growth Commission, set up by former Mayor Boris Johnson in 2015, also commented that “further technical work on

31 DoT, British Rail and LRT, Central London Rail Study, January 1989, p19 32 SRA, London East-West Study, November 2000, p13 33 PwC, Crossrail 2 – Funding and financing study, 27 November 2014, p11 34 op cit., Transport for a world city, p58 35 op cit., Transport for a world city, p12

The latest publicly available business case for the scheme estimates that it would produce £1.8 of benefit for every £1 of cost (a benefit-cost ratio, or BCR of 1.8). When wider economic benefits are included, this rises to a BCR of 2.

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growth opportunities and on key policy and delivery requirements should be done as the business case is updated.”36

4.1 Benefits Crossrail 2 would deliver several benefits to the London transport system, particularly in terms of easing congestion on other parts of the network and improving travel time and accessibility for those residents who will be connected by the new line. The scheme is also likely to deliver wider economic benefits through productivity improvements, economic growth and a boost in employment prospects along the supply chain of the project. According to PwC, “the benefits will be widely spread both within and outside the London boundaries.”37

Transport benefits In March 2016 the NIC published its report on London transport infrastructure which set out several of the possible transport benefits that would likely be delivered by the Crossrail 2 scheme and included:38

• Provide vital relief for the congested southern end of the Northern Line and for the Victoria Line through north-east and central London. These are forecast to see much of the highest levels of crowding anywhere on the Underground, after the opening of Crossrail 1.

• Provide an alternative route, via its connection to Crossrail 1, from southwest London to the City and Canary Wharf, reducing passenger numbers on the overcrowded Waterloo and City line and the eastern part of the Jubilee Line.

• Relieve capacity constraints on the critically over-crowded south-west London commuter lines coming into the capital through Wimbledon, Clapham Junction and Waterloo by providing an alternative route for inner suburban services via a new tunnel from Wimbledon into Central London.

• Reduce terminal congestion at the UK’s busiest station, Waterloo, as well as cutting crowding levels at Clapham Junction, Vauxhall and Wimbledon, all of which are forecast to face insuperable operational difficulties due to the volume of passengers at peak hours.

• Release capacity on the existing south-west network for longer distance services from Basingstoke, Woking, Guildford, Southampton and beyond.

• Provide four tracks on the West Anglia Mainline to enable faster services on the London-Stansted-Cambridge Corridor.

• Link with Euston/St Pancras, to provide onwards dispersal for those arriving into London from the north on HS2, which is planned to be completed to Manchester and Leeds in 2033.

36 Crossrail 2 Growth Commission, Crossrail 2 - Delivering Growth in London and the South East, October 2016, p13 37 op cit., Crossrail 2 – Funding and financing study, p5 38 op cit., Transport for a world city, p9

14 Crossrail 2

• Establish a turn-up-and-go level of service at a range of underserved destinations allowing for regeneration around transport hubs in Hackney, Haringey, Enfield and Tottenham.

In identifying these benefits, the NIC concluded that “no alternative proposal or proposals have been found that effectively deal with the challenge of Underground capacity once all proposed Underground line upgrades are exhausted, or which can effectively mitigate the crowding and dispersal challenges at Waterloo, Euston, Victoria and Clapham Junction.”39

Wider Economic Benefits The conventional economic assessment of the Crossrail scheme is based primarily on benefits to existing transport users. A parallel strand of analysis was undertaken by KPMG, on behalf of TfL, to quantify the potential Gross Value Added (GVA) benefits from the Crossrail 2 scheme as a consequence of providing capacity that removes the transport constraints to delivering the full productivity/economic density potential of London’s Central Activity Zones. According to the NIC, “this work was work commissioned in response to concerns that traditional transport appraisal methodology did not capture all of the benefits of transport infrastructure investments of this scale.”40

The conclusion of the work was a range of UK net GVA impact of between £16bn and £102bn Present Value (PV) (at 2011 prices) depending on model assumptions and nature and scale of elasticity adopted, with a mid-point PV range of between £33bn and £47bn. The report also found that Crossrail 2 could deliver 200,000 new homes and support 200,000 jobs across London and the South East, with the supply chain supporting thousands more jobs around the country, adding over £1bn to the West Midlands economy, over £200m to the North East and up to £170m to the Scottish economy.41

How accurate are estimates of wider economic benefits?

It should be noted that the wider economic benefit estimated for Crossrail 2 are based on new and developing methodologies and, according to the NIC, “are highly uncertain in comparison to traditional value-for-money assessments.” Such methodologies have been applied to other major infrastructure projects, including Crossrail 1, HS2 and the Heathrow Third Runway scheme. The main reason for applying these methodologies is to improve the business cases of these schemes, highlighting the more transformational economic change that may be delivered by these ‘mega projects’, compared to other smaller schemes. These methodologies have not been spared from criticism. For example, a panel of experts told the Treasury select committee that a KMPG report into HS2's regional economic impacts published in

39 op cit., Transport for a world city, p10 40 op cit., Transport for a world city, p36 41 TfL press notice, Research confirms benefits of Crossrail 2, 28 September 2015

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September overstated the benefits by six to eight times. Criticism was also levelled at the way the wider economic benefits were estimated as part of the business case for the Heathrow Third Runway scheme. The Airports Commission’s expert economic advisers expressed concerns about the findings generated by the S-CGE model, cautioning the Airports Commission against “attaching significant weight either to the absolute or relative results of the S-CGE approach within the Economic Case.” In short, it is reasonable to conclude, in general terms, that the wider economic benefits of such schemes exist but it is difficult to precisely estimate the extent of those benefits. This is reflected in the range of estimated wider economic benefits for Crossrail 2.

The NIC recommended that “[…] TfL and DfT in conjunction with other government departments and relevant bodies, use the next stage of development to set out a clear, transformative plan to turn the proposed 200,000 homes into a reality.”42 It made two further recommendations on key elements of the scheme. In summary these were:

• Strong measures to maximise the new housing enabled by the scheme should be included in the ‘London deal for Crossrail 2’–this could include the establishment of one or more development corporations to lead the master planning and delivery of new housing and urban realm provision, and revised planning guidance for the whole route. These measures should be considered as a potential model for improving housing delivery more widely.

• For housing provision to be a success across the whole route, the London deal for Crossrail 2 will need to have buy-in from the GLA and London boroughs along the route as well as counties and boroughs outside of London which benefit from the new line. All parties will need to ensure the housing unlocked by Crossrail 2 is sustainable and meets the needs of Londoners and those in commuter regions around London.43

4.2 Costs The Chelsea-Hackney line had an outline capital cost of £1.33 billion when it was estimated as part of the 1989 Central London Rail Study.44 The costs for the project were later estimated at £2 billion (in 1992 prices) when safeguarding directions for the Chelsea-Hackney line were issued by the Secretary of State for Transport in 1992.45 The 2000 London East West Study estimated the cost of the scheme at £5.3 billion (in 2000 prices).46

42 op cit., Transport for a world city, p13 43 ibid., pp12-13 [recommendations 4 and 6] 44 DoT, British Rail and LRT, Central London Rail Study, January 1989 45 HC Deb 3 March 1992, c87W 46 SRA, London East-West Study, November 2000, p13

16 Crossrail 2

The February 2014 London First report, referred to earlier, put a cost estimate on the project of £12 billion in 2012 prices (plus £8 billion contingency). Mott MacDonald was commissioned by TfL to undertake a full engineering feasibility and capital cost study for each of the Metro and Regional Options, the latter of which is the option that has been taken forward. Mott McDonald estimated that the total capital cost of the Metro and Regional Options at £20.5 billion and £27.5 billion respectively. A cost-break down is provided in the table below. When appraising major projects at this stage of planning HMT guidance requires that 66% optimism bias is added to the capital cost estimates, which is factored into the cost breakdown below. This optimism bias is “applied to reflect the potential for cost estimates to increase during the development of a project, both for changes in scope and unit costs.”47

Capital expenditure for the Regional and Metro Options, £ million, (2014/15 prices)48

Cost category Regional Metro

Land & property 1,164 1,069

Tunnels 2,299 1,826

Stations 5,664 5,323

Systems 1,430 1,153

Surface works 2,617 490

Indirects 2,071 1,760

Rolling stock 1,352 712

Optimism bias at 66% 10,947 8,133

Total 27,544 20,466

Crossrail 2 was estimated by TfL in 2016 to be £32.6bn. With respect to scheme costs, the NIC commented:

It is important that Crossrail 2, learns from the experiences of Crossrail 1 and other major infrastructure projects. This includes keeping scope and costs under review, establishing clear governance structures and ensuring that phasing is considered in order to maximise affordability. In particular, there is strong potential for phasing the northern branches of Crossrail 2 to reduce the initial costs of the scheme and this should be given thorough consideration.49

As announced by the Chancellor in the 2017 Autumn Budget, the DfT and TfL have commissioned an Independent Affordability Review to examine ways of making the scheme more affordable. Mike Gerrard, the former managing director of Thames Tideway, has been appointed to chair the review.50 Reports in the Financial Times suggest that the

47 op cit., Crossrail 2 – Funding and financing study, p14 48 ibid. 49 op cit., Transport for a world city, p11 50 Crossrail 2 press notice, Major new review brings Crossrail 2 closer, 5 March 2018

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costs “may add up to more than £45bn — significantly more than the initial £31bn estimate, which is based on 2014 prices.”51 Managing Director Michèle Dix believes that the project remains in a “good place” and said it was exploring options of way it could reduce the costs of the scheme:

There are a number of things we have looked at in terms of making it more affordable. One is whether you can deliver it in phases so we could reduce pressure on us in terms of paying half up front. If you phased construction then you could at least collect fares and take advantage of oversite development opportunities.52

How does Crossrail 2 compare with Crossrail1?

Crossrail 1 is the plan to integrate the mainline railways to the east and west of London through the construction of two tunnels beneath central London from Paddington to Liverpool Street. Construction on the scheme started in 2009 when works got underway at Canary Wharf station. Crossrail services were originally intended to be introduced to open in December 2018 but have been delayed, possibly for another two years. In terms of value for money, the 2011 business case for Crossrail 1 estimated that the scheme would produce £1.97 of benefit for every £1 of cost (a benefit-cost ratio, or BCR of 1.97). Once wider economic benefits were included, this increased to a BCR of 3.09. The latest publicly available business case for Crossrail 2 estimated that it would produce a BCR of 1.8 and when wider economic benefits are included, this rises to a BCR of 2.0. When comparing the respective value for money estimates of the two schemes, it is important to note that neither of the stated BCRs above reflect the actual value for money of the scheme, as the costs have increased for Crossrail 1 since these estimates were produced and the business case is yet to be finalised for Crossrail 2. In terms of scheme capital costs, the original funding envelope agreed in the 2010 Spending Review for Crossrail 1 was £14.8 billion. In December 2018, the Government formally announced Crossrail’s third additional cash injection, bringing the overall funding envelope for the project to £17.6 billion. Crossrail 2 was estimated by TfL in 2016 to be £32.6bn. The Crossrail 2 business case is currently being reviewed and a revised business case is being developed, with reports suggesting that the scheme may add up to more than £45bn. It should be noted that it is difficult to make direct comparisons between the capital costs of the two schemes, mainly because the projects have been costed and will be delivered many years apart from one another. The cost estimates above reflect the total amount of money spent or expected to be spent, in nominal terms, over the construction period for each scheme. If a comparison was to be made, the expenditure for both schemes would have to be converted into equivalent prices. The spending profile of the schemes is not publicly available and as such this comparison cannot be made in this paper. In terms of the construction timelines, Crossrail 1 will have taken over 10 years to complete from when construction started in 2009. Similar timescales are projected for Crossrail 2, with a hybrid bill hoped to be approved by 2021/22 and the project finished in the early 2030s.

51 ‘Transport for London warns Crossrail 2 could be delayed by decade’, Financial Times,

3 October 2017 52 The Crossrail 2 conundrum: How will the £30bn scheme be paid for?, Infrastructure

Intelligence, 7 December 2018

18 Crossrail 2

For more detailed information about the Crossrail scheme, see the House of Commons Library Briefing Paper Crossrail (Elizabeth Line).

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5. Funding & financing Funding and financing are terms which are often used interchangeably. It is important to clarify the distinction between the two terms:

• Funding comprises the sources of income to be used to meet the capital and revenue costs of a project over time; and

• Financing comprises the set of financial arrangements put in place to provide committed capital to meet the costs of a project as they are incurred, to be repaid from funding sources.53

In November 2014 TfL published a study by PwC, which provides the most-comprehensive analysis to date as to how the Crossrail 2 could be funded and financed. The report revealed that up to 50% of the project could be funded by a combination of local funding sources, with the remainder of the funding provided by central government either through direct grants or via Network Rail, as was the case with Crossrail 1. Of the funding envelope that was initially agreed for Crossrail 1, over 60% of the project’s funding has been provided by Londoners and London businesses and many of the same mechanisms will be applied to Crossrail 2.54 The PwC study estimated that the mechanisms listed below would account for the bulk of the London contributions for the scheme:55

• Farebox and ancillary revenues - analysis showed that the project is relatively strong in terms of projected generated revenue when compared with many other public transport projects. This will provide about 20% of the funding requirement.

• Business Rate Supplement (BRS)56 – the BRS will continue to be applied once the Crossrail 1 debt has been repaid. It was expected that BRS revenues would only be available to Crossrail 2 from 2033 as those revenues are still being directed to paying off Crossrail 1. That is, some 3 years after opening. Whereas, the BRS that helped finance Crossrail 1 was introduced some 8 years in advance of the opening of Crossrail 1.

• Mayoral Community Infrastructure Levy (CIL) – the CIL is a compulsory per metre squared charge that local authorities in England can choose to levy upon new development as a condition of granting planning consent. In London, the Mayor has powers (under the Planning Act 2008) to introduce a London-wide Mayoral CIL for the purpose of delivering local and sub-regional large-scale transport infrastructure. These revenues will be a source of funding once the Crossrail 1 contributions from Mayoral CIL and the Section 106 scheme of £600 million have been made.

53 op cit., Crossrail 2 – Funding and financing study, p19 54 Crossrail, Funding [accessed 10 January 2019] 55 More a comprehensive discussion of each of these mechanisms, see: PwC, Crossrail 2

– Funding and financing study, 27 November 2014 56 For more detailed information, see: London Assembly, Paying for Crossrail: business

rate supplement [accessed 3 January 2019]

20 Crossrail 2

The BRS and CIL are estimated to contribute an amount equivalent to 21% of the funding requirement of the Crossrail 2 project. It was intended that MCIL2 will be levied from April 2019 but it is uncertain now because of the project and cost overruns with Crossrail 1.57

• Sale of construction sites or development opportunities– there is the potential for the sale of development opportunities and sites required for the construction of Crossrail 2, after they are no longer needed for the scheme.

• Council Tax Precept – The BRS being used to fund Crossrail 1 is a property levy that is paid only by businesses. The Mayor could obtain revenue from all types of properties by exercising his power to levy a Council Tax Precept on homes. This is an established mechanism used in the UK to provide funding for entities (‘precepting authorities’) that carry out activities separately from the local council that levies and collects Council Tax. PwC believe that “the introduction of such a precept could be challenging [and] could be subject to opposition from Council Tax payers, which was the case for the Olympics Levy, where there were certain cases of principled non-payment that received press coverage.”58

Funding mechanisms59

% of funding target Cumulative total

Project generated revenue 20.0% 20.0%

BRS 15.2% 35.2%

Enhanced Mayoral CIL 5.8% 41.0%

Resale of land and property 1.9% 42.9%

Doubling of Mayoral CIL 5.8% 48.7%

Council tax precept 1.9% 50.2%

The PwC paper identified the possibility of contribution from property and landowners by using other land value capture mechanisms. Land value capture refers “to a set of mechanisms used to monetise the increase in land values that arise in the catchment area of public infrastructure projects.”60 For example, PwC explored the possibility of capturing the uplift in business rates and Borough CIL that would be expected to arise from the enhanced investment activity and property values in the areas around Crossrail 2 stations. This is a form of ‘Tax Increment Financing’, which draws on the experience of developing the funding package for the Northern Line Extension. But the scope of this contribution is limited because of the administrative complexity of

57 Mayor of London, MD2123 Mayoral Community Infrastructure Levy 2 (MCIL2), 12

June 2017 58 op cit., Crossrail 2 – Funding and financing study, p39 59 ibid., p7 60 TfL, Land value capture – Final Report, February 2017

21 Commons Library Briefing, 23 January 2019

implementing these value capture mechanisms. Also, there are fewer large landowners who are likely to contribute directly to the scheme, in the same way that for example Canary Wharf Group and BAA made direct contributions to Crossrail 1. PwC concluded that the total funding that could be raised through this approach “is relatively small in proportion to the scheme costs, and that there would be significant risks attached to it.”61 PwC estimated that value capture around Crossrail 2’s stations would only raise an estimated 1% of the project’s funding requirement.

The PwC report also explored the possibility of private financing, at least in part, contributing toward the capital costs of Crossrail. It concluded that the scope for private financing was likely to be small:

… while there are opportunities to introduce private finance into elements of the Crossrail 2 project, the proportion of the project that could be privately financed is relatively small, as privately financing the core infrastructure project is unlikely to be feasible or to provide value for money. The scale of Crossrail 2 makes it too big for the financing market to handle as a single privately-financed project. It may be possible to fund smaller components of the works but these would have to be carefully selected, as it is difficult to break down a rail network into component assets without introducing interface risks that could increase costs. In addition, changes to accounting and classification rules make it less likely that structures will be considered “off balance sheet” in circumstances where the public sector is effectively the only customer for track access. The prime candidate for private financing would be the rolling stock and depot, as there are viable PFI/PPP options for such projects. Until recently, this was being considered for Crossrail 1 rolling stock, and it may be a viable option for Crossrail 2.62

These conclusions on the use of private finance are consistent with the findings of the Montague report ahead of Crossrail 1 and the experience on Crossrail 1.63 It also looked at the likely willingness of Sovereign Wealth Funds, Infrastructure Funds, Pension funds and other similar investors to invest in Crossrail 2 and concluded:

While there is no doubt that these investors are keen to invest in infrastructure, Crossrail 2 is unlikely to meet many of their investment requirements. The size of the project, the construction risk, the demand risk and the likely reliance on non-patronage revenues to pay the bulk of the project means that, without direct government guarantees, such investors are unlikely to invest in Crossrail 2. If such guarantees were to be put in place it is possible that the project’s borrowing costs could be treated as public debt, but would have a higher private sector level cost of finance.64

The March 2016 NIC report made several recommendations on finding appropriate funding for the scheme. In particular, it emphasised the

61 For a comprehensive discussion of land value capture mechanisms and they may apply

in London, see: TfL, Land value capture – Final Report, February 2017 62 op. cit., Crossrail 2 Funding and financing Study, 27 November 2014, p6 63 Montague, A., Crossrail Review, 2004 64 ibid., p7

22 Crossrail 2

need for a funding agreement, in which London contributes more than half the costs of the scheme, to be agreed ahead of any hybrid bill submission. It also stated that the:65

[…] government should work with TfL and GLA to explore new funding options, which could include consideration of further devolution. However, even without such devolution, HM Treasury should be in a position to recoup significant receipts from the added Gross Value Added (GVA) benefits and the rising value of property in London.

The NIC also recommended that private sector involvement in the development and funding of stations be maximised.66 The Crossrail 2 Growth Commission report also emphasised the need to maximise the “gain share” from any uplift in land values.”67 A report by property companies, published in April 2017, suggested that London could pay for half the cost of Crossrail 2 through further commercial development in the West End:

Private sector funding could come from the creation of great, much-needed new places in the country’s most economically productive district – the West End. With Crossrail 2, the West End could viably support more enterprise. And the commercial development of new employment space to host that enterprise could in turn help pay for Crossrail 2 through development taxes or local retention.68

London First, which is a business campaigning group, published an updated report in July 2018 outlining how Crossrail 2 could be funded. As part of this, it established a working group of its members to explore potential options. In addition to the funding package identified by PwC above, the working group identified three ‘tried and tested’ funding options, listed below, and encouraged maximising land value capture options identified in the PwC report:69

• A one-off London-wide fares rise of 1% on Tube and TfL rail in the early 2020s would generate around £30m per annum. A similar rise on South Western Railway and West Anglia Main Line services could generate an additional £5–10m p.a.

• Crossrail 2 precept of £40 for a band D London property could generate around £150m p.a. A similar precept for districts in Hertfordshire and Surrey with a Crossrail 2 station could raise around £8.5m p.a.

• A higher BRS in the 2020s to help provide upfront funding for the scheme. The existing BRS is forecast to bring in £270m p.a. in the 2020s – so an extra 0.5p increase would be worth around £68m p.a.

65 op cit., Transport for a world city, p11 66 ibid., pp12-13 67 op cit., Transport for a world city, p4 68 ‘We should build Crossrail 2 and the private sector is going to pay for it’, City A.M., 3

April 2017 69 London First, Paying for Crossrail 2, July 2018, p3

23 Commons Library Briefing, 23 January 2019

As mentioned, an updated affordability review into Crossrail 2 is ongoing and is exploring other options for funding and financing.

24 Crossrail 2

6. Recent political developments Crossrail 2, London’s next major transport project, was supposed to follow on from Crossrail 1 – The Elizabeth Line. There had been widespread support for Crossrail 2, particularly from London politicians. Consecutive Conservative and Labour mayors of London have backed the scheme. Former Mayor of London Boris Johnson illustrated his support of the scheme through the creation of a ‘Growth Commission’ for Crossrail 2 in July 2015.70 Sadiq Khan has also been a strong advocate for the scheme since assuming the Mayoralty.71

Recent UK Government in-principle support for the scheme was catalysed by the March 2016 National Infrastructure Commission report that recommended Crossrail 2 be taken forward “as a priority”.72 The Treasury’s response to the report was published in April 2016. It agreed with the Commission’s recommendations and stated that “the government agrees that Crossrail 2 should be taken forward as a priority”.73 In response, the Chancellor committed £80m to support the drafting of a Hybrid Bill, necessary to secure powers to construct the scheme, with the Mayor providing a further £80m of match-funding.74

The Chancellor’s decision was predicated on the Secretary of State for Transport affirming his commitment to the Hybrid Bill preparation by endorsing an updated Strategic Outline Business Case (SOBC). Mayor Sadiq Khan had already confirmed his commitment75 and, under the assumption that a Government decision would be made by May 2017, TfL believed that “a Hybrid Bill could be submitted in 2019 which could enable construction starting in the early 2020s, with the first Crossrail 2 service running in 2033”.76

The updated SOBC was submitted to the Government in March 2017 but the general election that year delayed the Government’s response to it. Following an external review by the Infrastructure and Projects Authority,77 the Mayor of London and the Secretary of State for Transport issued a joint statement on 24 July 2017 supporting the scheme and agreeing to examine ways to improve affordability while

70 Mayor of London press notice, Mayor announces creation of Crossrail 2 Growth

Commission, 17 July 2015; other members of the Commission were announced in September 2015, see: TfL press notice, Crossrail 2 Growth Commission Announced, 16 September 2015

71 Crossrail 2, 10 reasons why the UK needs Crossrail 2 now, 1 November 2016 72 NIC press notice, 'Crossrail 2 will keep London moving, we should get on with it right

away' – Adonis, 10 March 2016 73 HM Treasury, Transport for a world city: government response to the National

Infrastructure Commission's report, 13 April 2016 74 TfL, Programme and Investment Committee – Crossrail 2, 21 February 2018 75 op. cit., 10 reasons why the UK needs Crossrail 2 now 76 TfL press notice, Crossrail 2 developed further in response to community comments, 7

July 2016 77 National Infrastructure Commission, Annual Monitoring Report 2018, February 2018

25 Commons Library Briefing, 23 January 2019

maximising the key benefits of the scheme, with a view to London meeting half the costs of the project during construction.78

In his Budget Statement published on 22 November 2017, the Chancellor said that the Government would continue to work with TfL to develop plans for Crossrail 2.79 DfT and TfL subsequently commissioned an Independent Affordability Review to examine ways of making the scheme more affordable. It was intended that at the end of the review, Crossrail 2 would update the business case “reflecting the affordability work, before supporting the Government’s assessment process, formalising design changes and updating the route wide and safeguarding consultation materials.”80

The NIC published its annual monitoring report in February 2018 and called “on Government to ensure the independent review of the funding and financing of Crossrail 2 is completed as soon as possible, with a view to setting out a firm timetable and funding proposal by the end of 2018.” It added that the aim should be to open Crossrail 2 in the early to mid-2030s.81

The Mayor published his Transport Strategy in March 2018, with it stating that “Crossrail 2 is essential to London’s future” and that the “Mayor aims to open Crossrail 2 by the early 2030s.”82 In a November 2018 letter to London Assembly Transport Committee Chair Caroline Pidgeon, Sadiq Khan that Tfl was still working with the DfT and Network Rail to reach agreement on Crossrail 2’s shape and scope.83

78 DfT press notice, Crossrail 2: a way forward, 24 July 2017 79 HC Deb 22 November 2017, c1051 80 Crossrail 2, Crossrail 2 Project Update, May 2018 81 op. cit., Annual Monitoring Report 2018 82 Mayor of London, Mayor’s Transport Strategy, March 2018, p25 83 Mayor of London, Letter to Caroline Pidgeon MBE AM Chair of the Transport

Committee, 6 November 2018

26 Crossrail 2

7. Challenges for Crossrail 2

7.1 Funding Funding Crossrail 2 was always going to be a difficult task and rests to a large degree on London raising half of the funds required to cover the capital costs of the scheme.84 Crossrail 2 believes that London can meet its share of the funding requirements, but so far their case rests on the assumptions laid out in the PwC report of 2014.85

The PwC report expressed concerns over the political feasibility of some of these funding proposals, particularly the ability to double the Mayoral CIL and implement a council tax precept.86 Even if these mechanisms were feasible, only part of the funding laid out by TfL is available in the 2020s when construction will be at its peak.87

London’s ability to meet its end of the funding arrangements has been made more difficult by the delays and cost overruns to Elizabeth Line. TfL finances were contingent on the scheme being operational by the end of 2018. TfL had predicted in its business plan that Crossrail would bring £829m of operating income — tickets and commercial revenue — in 2020-21, the first year the line would make a direct surplus.88 Credit rating agency Moody’s predicted in November 2018 that TfL will lose at least £600 million from the delayed opening. The longer the Elizabeth Line is delayed, the more it will cost TfL.89

There are reports that the Elizabeth line may not open in-full for another two years and costs may rise by over £1 billion.90 Crossrail 2 relies upon funding sources that are still being used to fund Crossrail 1, including the Business Rate Supplement. Until Crossrail 1 is paid-off, these funding mechanisms remain inaccessible to Crossrail 2.

7.2 Political support Central government funding support for the project is not guaranteed yet and rests upon Crossrail 2 delivering a viable business case to the Secretary of State. Even then, there are wider political uncertainties surrounding Brexit and HS2. It is not clear what such eventualities might mean for the central government funding envelope and the contribution to Crossrail 2.

84 Mayor and Transport Secretary agreed that London would attempt to fund half of the

scheme during construction. 85 Crossrail, Funding [accessed 14 January 2019] 86 op. cit., Crossrail 2 Funding and financing Study, p39-41 87 London First, Paying for Crossrail 2, July 2018, p3 88 TfL, Business Plan 2019/20 to 2023/24, December 2018 89 ‘Crossrail delay to put ‘significant financial strain’ on TfL’, Financial Times, 28

November 2018 90 ‘Crossrail scheme given £1bn bailout - paid for by London businesses’, London

Evening Standard, 10 December 2018

Crossrail 2 will undoubtedly deliver benefits for London and the wider economy but with an increasingly uncertain funding landscape, it is not clear if or when the project will get the go-ahead.

27 Commons Library Briefing, 23 January 2019

HS2 is due to submit its revised costings to feed into the upcoming spending review. There are reports that the costs of the scheme may rise from the £56 billion currently estimated in the latest business case.91 Liz Truss, Chief Secretary to the Treasury, recently suggested that the Government “must be prepared to 'junk white elephant' projects”.92, Were the projected costs of HS2 to increase significantly, there may be less appetite and funding left for another major transport project such as Crossrail 2.

While the scheme still retains strong political support,93 it is not universal. Several MPs and wider campaign groups have argued that expenditure on Crossrail 2 is a continuation of a trend of higher infrastructure spending in the South-East,94 to the detriment of other regions.95

When will Crossrail 2 be delivered?

It is impossible to know with certainty when Crossrail 2 will be delivered. If Crossrail 2 were eventually approved, a hybrid bill would be required in the same way as Crossrail 1. TfL had previously anticipated submitting a hybrid bill in 2019, but this is looking increasingly unlikely. Crossrail 2 subsequently expected “to seek permission to build the new line between 2021 and 2022.”96 Parallels can be drawn with the Crossrail 1 project to understand possible timescale for Crossrail 2. In terms of Parliamentary approval, the hybrid bill for Crossrail 1 took over three years to receive Royal Assent, having been presented to Parliament in February 2005. In terms of the construction timelines, Crossrail’s construction would have taken over 10 years to complete from its commencement in 2009. If a hybrid bill were submitted for the Crossrail 2 scheme in 2020, and assuming similar timescales for the Crossrail 1 hybrid bill, the scheme may anticipate receiving parliamentary approval by 2023. In terms of construction timelines, Crossrail 2 are anticipating a construction timeline of around a decade. Crossrail 2, in a best-case scenario, is therefore unlikely to be delivered and operational until at least the early to mid-2030s.

91 ‘HS2 budget ‘will balloon to £80bn’, says secret report’, The Times, 22 July 2018 92 ‘Liz Truss hints controversial HS2 link could be scrapped amid spiralling costs as she

says the Government must be prepared to 'junk white elephant' infrastructure projects’, Daily Mail, 6 January 2019

93 'Crucial stage' reached for Crossrail 2 project, London Evening Standard, 21 April 2017

94 For more detailed briefing on infrastructure spending, including a regional breakdown of spending, see: Infrastructure policies and investment, Commons Library Briefing Paper 6594, 10 July 2018

95 IPPR press notice, Anger growing as campaigners issue fresh demand for ‘Crossrail for the North’, 25 July 2017

96 Crossrail 2, What are the next steps for Crossrail 2? [accessed 11 January 2018]

BRIEFING PAPER Number CBP 8481 23 January 2019

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