3.9 The Department estimates that the benefits of the Tunnel will exceed the costs, although both are uncertain. Cost-benefit analysis was not critical to which option was selected, but provides important information on whether the overall benefits justify the costs. The Department estimates that the benefits of the project will be between 1.8 and 3.1 times greater than the costs. The benefits estimate was based on responses from a 2006 survey which asked 875 respondents in England how much they would be willing to pay per year for the package of aesthetic, ecological and health benefits the Tunnel was predicted to deliver.16,17 These willingness-to-pay valuations have been extrapolated to cover all English households over 120 years based on their demographic characteristics and distance from the Tideway. Approximately 60% of the estimated annual benefits accrue to households outside of Thames Water's service area, although only Thames Water customers will pay towards the Tunnel's costs.
3.10 Uncertainty about eventual costs and benefits is expected in major projects, and estimates of both costs and benefits have changed significantly since the Tunnel was first considered as a potential solution (Figure 13 overleaf). Estimated benefits have increased over time based on assumptions (for example updated demographic data) which extrapolate future willingness to pay from the 2006 survey. The latest cost-benefit analysis has been peer-reviewed and found to be broadly in line with best practice. The project's estimated benefits are, however, highly sensitive to assumptions used to extrapolate from the 2006 survey (Figure 14 overleaf). The Department's estimate does not reflect some important but uncertain benefits, such as averted fines payable for non-compliance with the Directive.
Figure 13 Economic appraisals for the Tunnel, 2005-2015 The benefit-cost ratio for the preferred option has changed over time due to changes in assumptions and scope | ||||
| 2005 | 2006 | 2011 | 2015 |
Option name | A (low) | 1c | 1d | 1d |
Option description | 35km, 5.8m diameter tunnel | 32.2km, 7.2m diameter tunnel | 25km, 5.6-7.2m diameter tunnel | 25km, 5.6-7.2m diameter tunnel |
Benefits jurisdiction | Thames Water customers | English households | UK households | English households |
Appraisal time frame | 60 years | 60 years | 100 years | 120 years |
Costs (£bn) | 1.2 | 2.0 | 4.1 | 4.1 |
Benefits (£bn) | 5.7 | 4.0 | 3.0 to 5.1 | 7.4 to 12.7 |
Benefit-cost ratio | 4.8 | 2.0 | 0.7-1.2 | 1.8-3.1 |
Note 1 Costs and benefits have been expressed in prices and values of the base appraisal year and so are not directly comparable. Source: TTSS, Cost-benefit Working Group Report, February 2005; Nera, Thames Tideway Cost Benefit Analysis, December 2006; Department for Environment & Rural Affairs, Costs and Benefits of the Thames Tunnel, November 2011; Department for Environment & Rural Affairs, Costs and Benefits of the Thames Tideway Tunnel, 2015 | ||||
Figure 14 Sensitivity analysis of the Tunnel's estimated benefit-cost ratio and economic indicators The economic case for the Tunnel is sensitive to assumptions made about the beneficiary population | ||||
| Benefit-cost ratio | |||
Scenario | Considering benefits to Thames Water households alone |
|
| Considering benefits to all English households |
Scenario A: 2014 income and population levels fixed for appraisal period | 0.7 |
|
| 1.8 |
Scenario B: Benefits uprated with forecast population growth | 0.8 |
|
| 2.2 |
Scenario C: Benefits uprated with forecast household income | 0.9 |
|
| 2.5 |
Scenario D: Benefits uprated with forecast population and household income growth | 1.1 |
|
| 3.1 |
Source: Eftec, Update of the Economic Valuation of Thames Tideway Tunnel Environmental Benefits, 2015; National Audit Office analysis | ||||
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16 Eftec, Thames Tideway - Stated Preference Survey, 2006.
17 For instance, reducing the number of times in a year when oxygen levels in the water fall low enough to either kill some fish or prevent migration.