The Gravy Train

It is blindingly obvious to anyone who lives or works in London that its rail and Tube services are overcrowded. On some lines you have to let several trains go by before you can squeeze into one. So there is no question that more capacity is needed.

But Crossrail is not just the solution to a transport problem: it is about supporting London’s success and future growth as a world city. The financial and business services sector is the most successful part of the UK economy.  Recent research shows that 40 per cent of the UK’s export growth from 2000 to 2004 has come from London — the majority of this from the financial sector. London is not competing with Birmingham or Manchester, but with New York and Tokyo and emerging new financial centres such as Dubai. So investment in London benefits the whole of the UK, which depends on the capital’s continued success.

London’s population is set to grow by about a million by 2025, with around 900,000 more jobs.  Whereas the extra population will be spread widely around London — especially in the east — the majority of the new jobs will be concentrated in the finance and business services sector in the centre. The overstretched transport system clearly cannot support this growth. 

Crossrail is the only genuine solution to this problem.  Crossrail will provide 40 per cent of the extra transport capacity needed in the next decade, allowing 72,000 more passengers per hour to travel through central London. Importantly, it will link Heathrow to all of the key financial districts from the West End through the Square Mile to Canary Wharf — with the journey time from Liverpool Street to Heathrow, for example, reduced to 36 minutes. 

Development of the Thames Gateway relies upon access to the centre of London, allowing the growing population there to access the new jobs in the central business areas.  It is a must if London is to sustain and build on its position as the leading global financial centre.

Workers in inner London are 50 per cent higher more productive than the national average. So enabling more people to work there provides a huge boost to national productivity. In addition, there are what economists now term ‘agglomeration benefits’: bringing together more people with a wide range of activities enables all of them to become more productive. If we do get those extra jobs in London,  the economy not only benefits from the increased output of the additional people working there, but those already working also increase their output as a result of being in a bigger pool of labour.

The economic case is overwhelming. Crossrail is estimated to add between £37bn and £68bn to GDP over 60 years, increasing tax receipts to the Exchequer by at least £14.8bn. to £27.2bn.

So why has it taken so long?

Crossrail was first officially proposed in the Central London Rail Study in 1989.  After many years of decline, travel into central London had suddenly boomed following ‘Big Bang’ — the deregulation of financial services in 1986. London Transport promoted a Private Bill to promote the project.

However, by the time the Bill reached select committee in the commons, it was in trouble.  London Transport had no commitment from the government to fund construction and the economy was in recession.

Following Big Bang, numbers entering central London by public transport in the morning peak had jumped to a record 980,000 in 1988. By 1993, when the Bill was in Committee, the number had fallen back to 806,000.

The spike in employment in central London was seen in Whitehall as a temporary blip. There was no recognition by government of the need to invest in London and the select committee threw out the Bill. In the absence of a strategic London authority, it was left to the City Corporation and London First, which had just been formed, to continue beating the drum for Crossrail.

Work on the project was revived in 2000 and Cross London Rail Links Ltd (CLRL) was set up with government funding of £154m to carry out feasibility work and acquire parliamentary powers.  CLRL presented a business case for Crossrail to the Department for Transport in July 2003.  Whitehall was still not convinced.  Transport Secretary, Alistair Darling, asked (now Sir) Adrian Montague, then deputy chairman of Network Rail, to carry out a review, which was completed in February 2004. Alistair Darling announced in July 2004 that the government would go ahead with the project and the current hybrid Crossrail Bill was deposited the following year.

During this process, the route and, to some extent, the rationale for Crossrail had changed. The original route did not include either Heathrow or Canary Wharf, which had been developed since the project was first proposed.  Crossrail was now seen in the context of London’s future development and its role as a world city.

The Mayor’s London Plan predicates continuing employment growth concentrated in the central business areas, with the new homes needed to house the increasing population spread much more widely, especially in the Thames Gateway. The Plan simply could not work without Crossrail.

Why is there a funding problem?

Crossrail is a huge project, with a final price tag of around £16bn in cash terms. To put this in perspective, the total available in DfT’s Transport Innovation Fund for new projects up to 2014 is £12bn (prior to the recently announced spending review). Unusually for any public transport project, Crossrail will more than cover its operating costs and will make a healthy contribution to its capital cost, but not enough to repay it in full. So it needs a subsidy.

It has also presented a problem to the government in terms of public sector borrowing.  One of the fundamental fiscal rules introduced by Gordon Brown requires public sector borrowing to be kept below 40 per cent of GDP.  Borrowing is currently well above 38 per cent of GDP and rising while the cost of Crossrail alone amounts to about one per cent of GDP.

The CLRL team, led by Chairman Douglas Oakervee, has made a huge effort to reduce costs, bringing down estimated costs (in 2002 prices) from £10.3bn at the time of the Montague Report  to some £8.37bn.  However, as the start of work date has slipped, construction costs have increased and estimated out-turn cost remains at around £16bn in cash terms.  We have been running to stand still.

Following receipt of the Montague Report, Alistair Darling called for a ‘very substantial contribution’ from the business community towards the cost. As is so often the case, the make or break negotiations over funding Crossrail have gone to the wire.  On top of a London-wide supplementary business rate, direct beneficiaries of the scheme, such as BAA, Canary Wharf and the City of London Corporation, have agreed to additional individual contributions. 

We now have a scheme and a funding package which the government has been prepared to back.  When the first trainful of passengers enters the tunnel at Victoria Dock in East London, in 2017,  we will be celebrating over quarter of a century of work to deliver this vital new transport infrastructure.

Irving Yass is Director of Policy, London First.