3.35 There are a number of aspects of the value for money assessment which are questionable (Appendix 8 describes our concerns at (a) to (c) below in more detail):
a) the Department used out of date economic growth assumptions to estimate time saving benefits. The rate used was 2.4 per cent12 a year, which is higher than the rates recommended in the Department's own guidance, 2.17 per cent until 2016 and 2.21 per cent thereafter13. This means that the time saving benefits were overestimated. In the value for money assessment of March 1998, the Department noted that the impact on the appraisal of small changes in value of time growth is quite marked;
b) the assessment made incorrect assumptions of the amount of time savings by assuming that all Eurostar services would benefit from average time savings of around 30 minutes following the opening of the Link. However, following the opening of the Link, about one third of services are expected to continue to use Waterloo terminal so will only benefit from time savings from Section 1 of around 20 minutes, as these journeys will use the existing track between the end of Section 1 and Waterloo. Adjusting these figures to more accurately represent the split between Waterloo and St. Pancras reduces the overall estimate of time saving benefits;
c) in the May 1998 assessment, the Department removed costs of £130 million for the King's Cross Northern ticket hall London Underground works and road works on the A2 and M2, which depend on the Link and had been included in earlier value for money assessments. These costs should have been retained in the final assessment. Indeed, following discussions with the Department these cost estimates have been increased to £170 million;
d) the calculations are not consistent with LCR's assumptions. If Eurostar UK attracts the number of passengers forecast in later years , there will not be sufficient rolling stock to carry them. For example, forecasts show that 25.8 million passengers are expected in 2030, requiring around 59 trains. The forecast Eurostar UK fleet is only 46 trains. The Department accepts there is an inconsistency in that some provision for the purchase of additional rolling stock should have been made.
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12 This rate was recommended by Highways Economics Note No 2 issued in September 1996
13 These rates were included in guidance issued in November 1997