3.31 At the time of this deal, the Department did not have explicit guidance for the appraisal of new heavy rail schemes to complement the guidance it had issued for light rail schemes (such as trams). As a result, some of the assumptions made by the Department are questionable. Guidance for new heavy rail schemes such as the Link did not exist because the vast majority of public support for heavy rail was for maintenance and improvement of existing services through the Public Service Obligation prior to the privatisation of British Rail and, following privatisation, through franchise payments. However, the assessments undertaken by British Rail and the Department of the few new heavy rail projects had, in practice, included benefits to passengers, such as time savings and improvements in capacity. These projects were not expected to be able to capture all the passenger benefits through fares.
3.32 Following consultations10, the Franchising Director issued guidance on appraising passenger rail services in May 199911. This describes the appraisal criteria applied to the assessment of changes to passenger rail services supported by the Franchising Director. The guidance states that fares alone should be the most commonly used indicator of user (passenger) benefits. However, where fares are regulated or capacity constrained, there are likely to be some benefits that are not wholly captured in revenue. These can then be included as part of the scheme's justification. In the Department's view the Franchising Director's guidance was not applicable to the Link, other than for considering the support to be given to domestic services which would use the track, and did not constrain the decision criteria applied by Ministers. The Department issued revised guidance on "Multi-Modal Appraisal" in March 2000, which states that estimates of passenger benefits can be included in appraisals of all road and rail projects. This guidance does not replace the Franchising Director's guidance as it applies largely to transport schemes outside the Director's remit.
3.33 The Department included an estimate of the benefits to international passengers resident in the UK in the value for money assessment. These consist of capacity benefits and time saving benefits (explained in Appendix 7), above those that can be captured through fares. This implies that the operator cannot set fares at levels which will capture user benefits in full as enough passengers are not willing to pay for the time saving benefits they are expected to derive from using the Link.
3.34 If Eurostar UK fares were increased to reflect the time savings, it is likely that many passengers would use alternative means of travelling or choose not to travel at all. Eurostar UK competes with airlines operating between London, Paris and Brussels and other destinations, and to a lesser extent, with ferries travelling the cross-Channel route. These other transport modes operate without government subsidy, and indeed, airline passengers must pay a departure tax. The Department decided that it was worth supporting the project in order to provide the international and domestic passenger benefits, as only by doing this could the wider benefits be provided to those not using the service. Without public sector support, either the Link would not be built or the fare levels would be so high that fewer passengers would use the service. The Department believes that this would mean that the estimated regeneration, and other benefits to non-users would not arise.
_____________________________________________________________________________________
10 Appraisal of Support for Passenger Rail Services - A Consultation Paper (November 1996)
11 Planning Criteria: A Guide to the Appraisal of Support for Passenger Rail Services, May 1999 (Interim Guidance was issued in November 1997)