3.39 The Government Downside Case in the March 1998 value for money assessment was marginally positive, with international benefits estimated at around 70 per cent of the Government Central Case. Though no downside case assessment was presented in May 1998, we have estimated a downside case by reducing the international benefits to 70 per cent of those in the Central Case and replacing the Government Central Case access charge loan estimate of £140 million with the £360 million estimated for the Downside case. The revised net present value is -£450 million, excluding regeneration benefits. If the non-user transport benefits are excluded, this falls further to -£570 million.
20 |
| National Audit Office reworking of May 1998 Government Central Case | ||||
|
| The figure shows that the economic justification for the Link is marginal, at some £220 million, with a benefit-cost ratio of just 1.1:1, if corrected assumptions are used and regeneration benefits are excluded in line with current guidance. This compares with the government's assessment of £1,000 million and a benefit-cost ratio of 1.5:1. If the figures for road decongestion and environmental freight benefits are removed, the net present value falls to £100 million, a benefit to cost ratio of just over 1:1. | ||||
|
|
| Government Central Case (£ millions rounded, present value) | NAO assessment (£ millions rounded, present value), excluding regeneration benefits | ||
|
| Benefits |
|
| ||
|
| International non-financial benefits | 1800 |
| 1450 |
|
|
| 1 Domestic non-financial benefits | 1000 |
| 800 |
|
|
| 2 Road decongestion | 30 |
| 30 |
|
|
| 2 Environmental freight benefits | 90 |
| 90 |
|
|
| Regeneration benefits | 500 |
| 0 |
|
|
| Reduced Thameslink 2000 benefits | 0 |
| (100) |
|
|
| Total benefits | "around £3000" |
| 2270 |
|
|
| Costs |
|
|
|
|
|
| London Underground Ltd and A2/M2 | 0 |
| (170) |
|
|
| Government direct grants (less land rentals) | (1800) |
| (1800) |
|
|
| Access charge loan facility | (100) |
| (140) |
|
|
| Office of Passenger Rail Franchising subsidy | (400) |
| (250) |
|
|
| Net Eurostar UK revenue foregone | (440) |
| (440) |
|
|
| Repayments of Eurostar UK debt | 400 |
| 400 |
|
|
| Additional costs of Thameslink 2000 | 240 |
| 240 |
|
|
| Project wind up costs | 110 |
| 110 |
|
|
| Total net Government contribution | (1,990) |
| (2,050) |
|
|
| NPV | 1,010 |
| 220 |
|
|
| Benefit cost ratio | 1.5:1 |
| 1.1:1 |
|
Notes: | 1. | The Department told us that recent estimates of this figure suggest it may be an overestimate, but the results are not yet final. The figure used is the one available to the Department in May 1998. |
| 2. | The Department could not provide the detailed calculations of non-user transport benefits, so we are unable to confirm these figures. |
If the Department's estimate of regeneration benefits is included, the net present value increases to £720 million, some £300 million lower than the Department's estimate. These figures are explained in detail in Appendices 7 and 8. | ||
Source: The Department, National Audit Office | ||
3.40 We also estimated the Government Downside Case, including regeneration benefits of £350 million, 70 per cent of the £500 million included in the Government Central Case14. This increases the net present value to -£100 million (or -£220 million if road decongestion and environmental freight benefits are excluded). We consider that the Link would not be economically justified in the Government Downside Case, even if the Department's estimate of regeneration benefits is included. In April 2000, Booze-Allen & Hamilton revised their forecasts, based on the actual performance of Eurostar UK. This work showed that patronage is currently below the forecasts in the March 1998 Government Downside Case. Booze-Allen & Hamilton also stated that the Government Downside Case should now be seen as an achievable target for an Upside Case. If Eurostar UK continues to perform at or below the Government Downside Case estimates, then the economic justification for the Link collapses. This means that the justification for the Link is heavily dependent on the wider and unquantified policy benefits that the project is thought to bring.
_____________________________________________________________________________________
14 In the absence of figures from the Department, this implies there is a direct link between patronage and the level of regeneration benefits. The Department considers that some regeneration benefits will occur as a result of the Link's construction, irrespective of the number of passengers, but were unable to provide estimates.