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  • You are here:HS2

Contingency risks leave public short-changed on infrastructure

Excessive contingency budgets for UK infrastructure projects are enticing inflated bids and wasting money, according to former Labour transport minister Andrew Adonis.

Lord Adonis hit out after a report from lobby group London First this week claimed the Treasury would require a contingency budget of almost £8bn for its proposals for a Crossrail 2 scheme, on top of its expected £12bn cost.

Lord Adonis, who was a member of the report’s working group, said the large contingency requirements “encourage bidding up of projects because budgets are so large”.

He said High Speed 2’s contingency budget of £14.4bn on the overall £42.6bn cost, was “ridiculously large”.

He told Construction News: “I am not sure [Crossrail 2] needs to have so large a contingency. My view is the contingencies are far too large, which is why our infrastructure costs so much more than other European projects.”

Among the working group’s members were former Lend Lease EMEA chief executive Simon Hipperson and HS1 chairman Rob Holden.

Supporters of Crossrail 2 include Crossrail chief executive Andrew Wolstenholme, who has called the scheme, which would connect north-east and south-west London, an “obvious extension” to London’s transport system.

Transport secretary Patrick McLoughlin told Construction News last year the government would not write an “open cheque” for London, though it has since committed to a feasability study, which will report back later this year.

The London First report on funding options for Crossrail 2, launched on Wednesday, said more than £3bn could be raised from developers to pay for the line.

The sum includes £990m of borrowing supported by section 106 and community infrastructure levy contributions and £2.4bn from large-scale housing developments at each end of the route, plus high-density building around stations.

The group said continuing the Olympics levy on London council tax and business rates supplement for Crossrail could contribute more than £2.6bn to the scheme.

It said London tube and rail fares could be increased by 5 per cent above inflation phased over several years to support £3.12bn of borrowing and that Network Rail and the government should contribute a combined £6bn.

These measures would raise a total of £18.19bn – enough to cover the £12bn estimated cost of the scheme but not the estimated total of £20bn including contingency, which would be required by the Treasury.

London First said the contingency could be funded by giving London property tax-raising powers and the ability to borrow against them. This would raise an extra £5.21bn. The grant from central government could then be correspondingly lowered.

London mayoral candidate Christian Wolmar told Construction News the scheme could benefit from a tax on rising property values around stations.

He said: “The Jubilee line extension brought millions to property values around Bermondsey, Southwark and Canada Water and none of that was really tapped into.”

The report did briefly mention this possibility – for example, devolving council tax-setting power to London’s mayor so they could alter rates for high-value homes or focus rises on properties within a one-mile radius of Crossrail stations – but it did not cost or develop these ideas further.

Chair of London First’s working group Francis Salway, former chief executive of developer Land Securities, said: “Failure to invest would make life intolerable for Londoners, hamper London’s economic growth and hit government tax receipts.

“We may be halfway through Crossrail 1, but its success – and the pressing need for extra capacity in London – means now is the time to be pushing forward with plans for Crossrail 2.”

London First proposed Crossrail 2 in February 2013, although variations on the route had been suggested before. London First’s proposed Crossrail 2 route would run from Cheshunt in Hertfordshire, though London to Epsom in Surrey and Twickenham in Middlesex.

Funding for Crossrail 2

Transport for London and the Department for Transport are looking for a company to conduct a study into the funding of Crossrail 2.

The government announced in the 2013 Spending Review that it would pay £2m for the research.

The paper, which is expected to be completed by the end of the year, will examine how the scheme could be financed, what lessons should be learned from other major projects and evidence for the scope and timing of construction.

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