Q31 Greg Clark: No, but as a rate of inflation your forecast was based, by implication, on a certain rate of inflation, and it has been greater than that.
Mr Holden: It has doubled from 3% to over 6%.
Q32 Greg Clark: So the rate of inflation is 6% rather than 3%.
Mr Holden: It is in excess of 6%.
Q33 Greg Clark: Why was that not anticipated when the original assessment was made?
Mr Holden: It is very difficult to anticipate inflation a great many years into the future. On section 1 of the Channel Tunnel Rail Link, we actually over-estimated the effects of inflation, and unfortunately in section 2 we have under-estimated the rate of inflation. To forecast specific events, as was the case which happened with Hatfield and the Railtrack administration, is, I guess, impossible.
Q34 Greg Clark: What are you assuming for the next five years the rate of railway inflation will be?
Mr Holden: We are assuming basically a continuing level like we have seen in the last three or five years of between 5% or 6%.
Q35 Greg Clark: Why should that continue when Hatfield is receding into distant memory?
Mr Holden: I think we are being very prudent at this point in time so that we do not have a recurrence of the problem we are now talking about.
Q36 Greg Clark: Is that the reason for inflation being higher? Can you explain why Hatfield has put inflation up; rather than requiring more things to be done? Why should the cost of doing those things be higher?
Mr Holden: There was a greater demand for a limited amount of resource, and suppliers in the industry took great advantage of that inequality of supply and demand, as you would expect and ordinarily see in many aspects of business.
Q37 Greg Clark: So there are more public funds chasing a limited number of people who can carry it out?
Mr Holden: This was both private and public funds at the same time. We were, by the schedule of CTRL, required to do certain works at a certain time, and therefore we were of course at a very great disadvantage.
Q38 Greg Clark: Were the contractors making more in profit? Presumably people were paying the same rates of pay to the engineers and the people working on this; or were they just taking more profit?
Mr Holden: I think the rate of profit is the same generally, because profit is generally calculated on what we call a de-escalated basis, ie, without the impact of inflation.
Q39 Greg Clark: So where is all this extra money going? In whose pockets is it ending up?
Mr Holden: In terms of additional costs and in terms of additional wages for people and in terms of additional cost of materials.
Q40 Greg Clark: Going forward, do you expect to see that, presumably as capacity comes on-stream, some of these cost pressures to reduce-yet you are assuming a continued higher rate of inflation?
Mr Holden: As I say, we are being very prudent now in terms of our costs for completion of the project. Many aspects of the project are now complete, so we are talking in a much more limited range of costs which we need to estimate.