Crossrail – Should we be cross? Part 1
The Final Bill
The Elizabeth Line is a new railway that runs East to West across London, the project delivery organisation was called Crossrail Ltd. There is no questioning the quality of the final result or the transformative effect it has had on some journeys across London. However, the project was four years late and the construction budget rose by around £4bn (four thousand million pounds, $4.8bn).
The £4bn figure often quoted is the ‘overnight construction cost’, which ignores broader financial implications. A more holistic assessment of the cost arising from the delay would include at least the following:
Lost economic benefits – Crossrail values the economic benefits to London at £2bn per year (national and regional benefits are declared also). This is almost certainly an overestimate, especially considering the reduction in travel from the pandemic. Taking the Crossrail business case at face value (there are good reasons not to), a four year delay means around £8bn lost economic opportunity.
Financing costs – In the UK interest on debt accounts for 5% of Government spending. My simplistic analysis is that an additional four years of financing costs for Crossrail comes in at around £2.4bn, (I look forward to being corrected by an economist).
Idle operational costs - The contract to operate the railway was placed in 2014 with an annual value of £1.4bn. I don’t have a figure for how much the operator was paid for not operating the railway for four years, but it is unlikely to be zero.
Asset deterioration – many of the components such as cables have a finite lifetime regardless of usage. For instance, batteries in back up power supplies in signalling systems have a life of four years; potentially having to be replaced before the railway was commissioned (I don’t know if this is the case for Crossrail but I have seen it on other projects). There are environmental as well as financial considerations.
Adding up the above suggests a better estimate of overall impact of the cost and time overrun would be more than triple the impact of the construction cost. For the sake of comparison let us assume conservatively that the wider consequential costs are double the £4bn increase in overnight construction cost. It can be hard to get our head around such large numbers, so it can be useful to see with other issues funding challenges. Taking the average cost to build a new secondary/high school in London is £30million the overspend on Crossrail would pay for 260 new schools. There are around 600 state secondary schools in London; in other words the stock could have been increased by around 50% for the cost of the overrun of Crossrail (not the entire scheme costs – just the overrun).
Think of an issue you care about that would benefit from funding. Compare that number with £8 - £12bn. How do you feel?
[I don’t report on client projects and write about Crossrail / The Elizabeth Line as an external observer only]
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Benefits to London Boroughs of Crossrail:
The 2009 Crossrail business case estimated this as £1.24bn per annum. Inflation between then and 2020, the mid point of the delay period, increases the value to around £2bn. Source (ONS/www.in2013dollars.com).
Simple Financing Cost Analysis:
Assuming that the Crossrail investment was used to pay down the National Debt instead.
A. National Debt - £2,436bn (ONS, 2022)
B. Annual Interest Charge - £83bn (OBR, 2022)83bn
C. Interest Charge per annum per billion = £34m (B divided by A)
D. Interest charge to finance £18bn for 4 years = £2.45bn (C x 18bn x 4 years)