The long-planned Crossrail 2 line, linking South-West London to North-East London has taken a tentative step forward, if funding can be secured.
Last week the Transport Secretary Chris Grayling and Mayor of London Sadiq Khan met to discuss the railway options, and while both agreed it is needed, there is still a debate about how it is to be funded.
With a tight deadline looming to deliver the line ahead of HS2, the omission of the £31 billion project from the Queen’s speech raised concerns about the government’s commitment to Crossrail 2. The big concern is that without Crossrail 2, Euston station will be unable to cope with the numbers of passengers alighting from HS2 when it is fully delivered by 2033.
They agreed on a way forward in the coming months to examine ways to improve the affordability of Crossrail 2, learning lessons from Crossrail 1, ahead of this autumn’s Budget. If approved, then Crossrail 2 expects to seek the legal powers to build the new line in 2020 and the process would last about two years. Construction is expected to start around 2023, with the new line opening from the early 2030’s.
The main sticking point now remains the funding of the railway.
TfL, directly, and through local business contributions, was expected to pick up around half the cost, but had aimed to defer the repayment until after the line was operational, as is the case with Crossrail 1.
The government is thought to favour a model where TfL pays its side of the construction costs as they are accrued, and the government was worried that TfL lacked the financial capacity to absorb the up-front costs in some cases many years before it can start recovering revenues from ticket fares.
The model used for Crossrail 1 staggered the funding over time, with around a third coming from private businesses, a third from the government and a third from Londoners. However, the funding is not all at once, and some of it wont be delivered until the 2030s, when commercial developments are able to deliver on their commitments.
The intention for Crossrail 2 was that businesses would pick up around half the cost, but payments would be deferred until their commercial developments were completed, as was the case with Crossrail 1.
A component was the Business Rates Supplement (BRS), which was set up explicitly to fund Crossrail 1, but a replacement to fund Crossrail 2 would be unlikely to be able to come into effect until 2033, when the Crossrail 1 debt to the Public Works Loan Board is expected to be repaid.
With Crossrail 2 construction expected to start in around 2022, that leaves a decade wide gap that needs to be filled with debt.
From TfL’s side, the funding models for Crossrail 2 are likely to be debt-funded, and the TfL preferred option would see government debt rise, then be paid back over time, while the government’s option would likely see TfL’s debt rise and paid down over the same timeframe.
Although TfL’s debt is rated as if it is backed by the government, and ultimately, it’s more an argument about who’s accounts the debt falls on, if the government can ensure it falls on TfL’s accounts then it won’t affect the sovereign debt level.
The difficulty is that TfL is already nearing the maximum it can borrow, as it already has £9.7 billion of debt.
Increases in debt are agreed in settlements with the Department for Transport (DfT), based on the Prudential Code. Between 2016-17 and 2020-21, TfL can currently borrow £3.2 billion, most of which is already earmarked for network upgrades.
TfL also faces a declining central government grant, and the current Mayor’s fares freeze, both of which add uncertainty to how TfL would fund the construction costs for Crossrail 2.
For TfL to absorb the upfront cost of its share of Crossrail 2, it would need an agreement from Chris Grayling at the DfT to increase its debt borrowing limits. This uncertainly about the funding model to be used is why there are delays in getting final sign-off on pushing ahead with Crossrail 2.
Although the cost to benefit ratio for Crossrail 2 is proven, and undeniably it will return a profit on its investment for UK PLC, it’s the squabbling over who picks up the cost, and more importantly when they pick up the cost that is likely to dominate the discussions for the next few months.
Regardless of the funding model chosen, London taxpayers and businesses will be stumping up more than half the cost of the railway, when it is built.
And we are now at a stage of when it is built, not if. That at least is progress.