2 Appraisal of transport projects
7. The Department's rationale for investing
in Crossrail was closely linked to the benefits the programme
is expected to deliver, with the need to provide public transport
for London's growing population aligning with the main benefits
of passenger travel time savings and congestion relief.[13]
The benefit-cost ratio was 1.97:1, which the Department regards
as medium value for money.[14]
8. In line with HM Treasury guidance
transport projects also include a second benefit-cost ratio, taking
account of wider economic benefits in addition to the direct transport
benefits, which is calculated but is not used as the basis of
investment decisions. The Department estimated in 2011 that the
benefit-cost ratio increased to 3.1:1 when these wider economic
benefits were included.[15]
9. The Department admitted that it needs
to do more work on understanding wider economic benefits, such
as changing land use, since these could not currently be quantified
in the benefit-cost ratio.[16]
It also said it had plans to carry out sensitivity testing of
its benefit-cost ratios to understand the impact of changes to
its assumptions.[17]
Transport for London said that other European countries were looking
to the Crossrail methodology to understand how to improve their
own appraisal of transport projects.[18]
10. The Department assesses more than
just the benefit-cost ratio when deciding which projects to invest
in, although this is not always clear. In the case of Crossrail,
the Department said that it had considered how failure to invest
in projects like Crossrail would prevent growth in London's economy,
and how land to the east and west of London could be regenerated.[19]
The Department noted that large scale projects, such as Crossrail,
are necessary to deliver significant impacts on the long term
growth of the economy and improvements to people's quality of
life, though smaller projects such as road improvement schemes
might have higher benefit-cost ratios.[20]
The Department said it believed its appraisal of transport projects
to be world class.[21]
11. We asked whether the fact that large
schemes have better access to funds and expertise to support a
case for investment means that smaller schemes may be overlooked
because they find it more challenging to form a business case.[22]
The Department noted that it had a portfolio of projects across
the country, with considerable investment outside of London.[23]
It added that it aimed to make proportionate demands for business
cases to reflect the level of investment, and that it provided
guidance on its website to assist local authorities with appraising
transport schemes.[24]
The Department also noted that understanding the impact of a decision
to invest in a project in one location rather than another elsewhere
was an integral part of how it compiles its portfolio.[25]
12. Negotiations to secure funding from
the beneficiaries of Crossrail were more successful where benefits
were better understood and articulated. Transport for London emphasised
how London businesses were contributing substantial funding to
the programme, and told us that businesses had largely accepted
the supplementary rate and levy placed upon them in anticipation
of the benefits Crossrail would bring.[26]
Transport for London also expected that Berkeley Homes would contribute
towards a station in Woolwich, because of the economic development
and housing potential in the surrounding area that would result
from a Crossrail station.[27]
13. However, there have been difficulties
in securing funding from some beneficiaries where commercial benefits
have not been well understood by the Department; most notably
Heathrow Airport Limited, which will now contribute £160
million less than agreed.[28]
The Department stated that the Civil Aviation Authority had taken
economic analysis into account in its decision that £70 million
was a justifiable contribution from Heathrow Airport Limited.[29]
The Department said that its lessons learned exercise had highlighted
the need to better understand the motivation of each beneficiary,
and how its objectives aligned with those of the Department, in
order to secure funding more successfully on future projects.[30]
13 C&AG's report paras 1.10 & 1.11 Back
14
C&AG's report para 1.12, Q1 Back
15
C&AG's report para 1.13 Back
16
Q13 Back
17
Qq 12-13 Back
18
Q 15 Back
19
Q 4 Back
20
Q 3 Back
21
Q 6 Back
22
Qq 19, 25 Back
23
Q 8 Back
24
Q 27 Back
25
Q 6 Back
26
Q 22 Back
27
Q 38 Back
28
Q 39 Back
29
Q 23 Back
30
Q 40 Back
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