Select Committee on Public Accounts Eleventh Report

3 The cost of light rail

9. Cost is one of the biggest barriers to the further expansion of light rail. Figure 2 shows that the construction costs of a sample of existing light rail systems have ranged from £5.4 million per kilometre to £21.2 million per kilometre. Expected construction costs for proposed systems range from £11.8 million to £15.8 million per kilometre. Lack of standardisation in the design of vehicles and systems has driven up costs. A new group known as UK Tram, consisting of Transport for London, Passenger Transport Executives, the Federation for Passenger Transport and private sector suppliers, has come together to produce best practice and standards on light rail design by the end of 2005. The Department will require promoters to adopt these standards as a condition of grant for future schemes.[9] Figure 2: Construction costs per kilometre of a sample of existing and proposed light rail systems in England
Existing systems and date opened Actual construction cost
(£ millions)
Construction cost at 2003/04 prices
(£ millions)
Length of track (kilometres) Construction cost per km at 2003/04 prices
(£ millions)
Manchester Metrolink Phase 1 1992 145 19131 6.2
Sheffield Supertram 1994-95 241 30429 10.5
Midland Metro 1999 145 16021 7.6
Croydon Tramlink 2000 200 21828 7.8
Manchester Metrolink Phase 2 2000 160 1748.2 21.2
Sunderland extension to Tyne & wear Metro 2002 98 10118.5 5.4
Nottingham Express Transit 2004 1801 180 14.312.6
Average 167 19021.4 10.2
Proposed systems and planned year of opening Expected construction cost at 2003/04 prices
(£ millions)
Proposed length of track (Kilometres) Expected construction cost per km at 2003/04 prices
(£ millions)
Merseytram - 2007 225 19 11.8
Leeds Supertram- 2007-08 442 28 15.8
South Hampshire Rapid Transit -2007-08 171 14.3 12.0
Average 279 20.4 13.2

Source: National Audit Office summary of Department for Transport data

10. Digging up and diverting utilities such as water and gas mains has also added to the cost of building light rail systems. Utilities are usually dug up and the new infrastructure resited in order to facilitate easy access in future. Legislation[10] requires promoters to pay 92.5% of these costs, increasing the costs of constructing light rail and hence the taxpayers' contribution required. The Department considered that the costs of diversions had been far too high, and that promoters had been too ready to agree to the diversions. The Department accepted, however, that it should have questioned promoters more closely on whether utilities needed to be diverted, how the costs could be minimised and which organisations should pay for the work. Promoters or their sub-contractors might carry out the work for example, rather than the utility companies, to reduce costs.[11]

11. The form of the contracts procuring light rail systems has also had a bearing on costs. Although different types of contract have been used, most have been design, build, operate and maintain type contracts, or derivations of such contracts. Under these types of contracts operators have been left to bear all of the revenue risks. Escalating costs on proposed schemes suggested that operators were building premia into their bids to cover risks over which they had no control. These risks included, for example, fares policy, local parking provision, traffic priorities, planning consents along the light rail route and competing public and road transport provision. The Department has recognised that the price of light rail might have been inflated as a result. It planned to issue guidance for promoters by the summer of 2005 on models of procuring light rail systems, including advice on sharing revenue risks between the public and private sectors.[12]

12. New light rail technologies might offer scope for reducing costs, but there have been barriers to their development and take up. The promoters of ultra light rail, for example, claim it offers low cost alternatives to the more traditional types of systems. But these smaller, less expensive systems do not qualify for departmental grants, which are for schemes costing £5 million or more. The Department plans to lower this threshold for new local transport schemes from April 2006. It will also invite local authorities to come forward with pilot schemes to demonstrate to other promoters that ultra light rail schemes work.[13]

13. The Department expects the operation of light rail systems to be self-financing and not to require any operating subsidy from the government. The private sector operators of the Midland Metro and Manchester Metrolink, however, both made significant financial losses in 2001 and 2002, while the operators of the Croydon Tramlink made significant losses in 2001-02 and 2002-03. The Department did not believe that any operator was contemplating withdrawing from a contract as a result of such losses. If an operator were unable to continue and an alternative operator could not be found, contract arrangements would allow operations to be handed back to the relevant local authority which promoted the scheme. Clawback arrangements in grant terms allow the Department to reclaim monies if a system runs into financial difficulties and the local authority decides to dispose of it. The private sector would bear the losses and the Department might receive some of its investment back.[14]

14. Risks to the taxpayer may nevertheless arise if an operator fails. A system costing several hundred million pounds to build might not be closed down if it reverted to the local authority, and operating costs would therefore be incurred. The local authority might have to subsidise another private sector operator to take over the running of the system. If the local authority disposes of the system, it is unlikely to recover the full costs of construction and so repay the Department's grants. Thus there is a residual risk to the taxpayer, warranting greater concern on the part of the Department than it has currently shown about the financial viability of light rail systems.

9   Qq 12, 49-52  Back

10   The New Roads and Streetworks Act 1991 was aimed at improving the standard of repair of roads and reducing disruption to road users caused by diverting utilities and was intended to establish fair contribution rates to be paid by developers for diverting utilities.  Back

11   Qq 12, 67, 73 Back

12   Qq 12, 36-37, 40 Back

13   Q 123 Back

14   Qq 10-11, 104, 106 Back

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