Crossrail – Late and Over Budget As Forecast

Crossrail, that mega-project to link east and west London, is running late and needs more funding to cover the cost. It was supposed to open as the “Elizabeth Line” this week, but it was announced in October that it would be delayed until at least Autumn 2019 and according to a report in the Financial Times: “a number of people close to the project now believe it may not be ready until late 2020”.

After an extra £590m in July and a further £350m was granted to the project in October the cost of the scheme is now expected to be £15.8 billion. But it looks like even more money is probably going to be required.

It’s interesting to look back at what I wrote about this project in October 2004 – yes I have been writing on London transport issues for that long. This is some of what I published then when the forecast cost was only £10 billion, give or take a few billion: “The project review document [from the DfT] actually suggests the real “Net Present Value Cost” may be somewhat less at £8 billion after taking account of contributions from the business community of over £2 billion and other adjustments but that is still an enormous cost. In other words, instead of showing a positive return on the investment, it will show a gigantic loss. To give you some idea of the scale, assuming Londoners are primarily going to pay for it one way or another (through higher public transport fares, as is one suggestion, or through taxes), that means that it will cost London households as much as £3,000 each after taking into account the benefits they gain – so the real cash cost is even higher.

Of course it also ignores the risk that such large projects typically overrun on costs, and that fare revenue is often less than forecast, so the chance of the budget being adhered to is also fairly remote.

One reason why it loses money apparently is because only about a third of trips on the new line would represent new public transport trips – the rest are simply diversions from other rail or bus journeys so there is little financial advantage. But the costs above take into account the time saved by passengers on more convenient trips.

Only Ken Livingstone could have sold this financially disastrous project to the government. Anyone who is familiar with basic economics and capital project evaluation would immediately see that it is fundamentally financially unsound. Any project with a negative Net Present Value like this one would never even be looked at in a commercial environment. One can understand exactly why previous governments over the last 30 years have consistently shelved such a project).”

Well at least I forecast the likely failure to meet even the enormous budget then planned. But it just shows what typically happens with rail projects where construction is very expensive and complex when compared with building roads.

Note that Members of the London Assembly have accused Sadiq Khan of misleading them and the public over the delays to Crossrail and that the delays are due to his mismanagement. He only announced it at the end of August when it is alleged that he knew about it earlier. I wonder when a new opening date will be announced. He’s probably hoping it will before his re-election campaign commences in 2020.

Postscript: A KPMG report has suggested that as much as an extra £2 billion will be required to complete the project. When the Mayor was asked on television if he could give assurances as to when it would be complete and for how much, he said “no”.

Roger Lawson


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