The Department's value for money assessment
35. The Department justified public grants for the
project by comparing the estimated costs with the benefits it
expected from the Link. The key benefits consisted mainly of time
savings for passengers, increased rail capacity and economic regeneration
in the areas through which the Link would run. As the original
passenger forecasts had been based on a relatively short experience
of actual Eurostar operation, the Department had to revise its
assessment several times.
36. The Department explained that the value for money
assessments had shown that the benefits of the Link outweighed
the costs and that this had continued to be the case whenever
forecasts of passenger demand had been revised downwards. At the
time the restructured deal was signed in 1998, the Department's
most likely estimate of passenger demand had shown that the project
would yield a net benefit of some £1,000 million, even though
the existing rail network would have provided sufficient capacity
to meet forecast passenger demand until around 2025. The Department
had since revised its passenger forecasts downwards as more information
had become available about actual patronage, so our predecessor
Committee asked why construction of the Link had not been delayed
until a more accurate assessment of demand for the Eurostar service
and the net benefits expected from the project could have been
37. The Department believed that the Link would lead
to increases in passenger market share to Brussels and Paris and
was convinced that increased passenger numbers would deliver the
Furthermore, it considered that the Link had wider policy benefits,
which had not been included in the value for money assessment.
The Government had seen the project as one of national prestige
as it would provide a high-speed rail service to Europe. France
and Belgium already had such links to the Channel Tunnel.
The Department said that it had not sought to quantify these wider
policy benefits, nor would it have attempted to do so when appraising
other transport projects. It did, however, believe that they were
38. The C&AG's Report noted that the Department's
1998 value for money assessment had contained a number of inconsistencies.
For example, forecasts of the rate of economic growth had not
been revised, leading to the overestimation of time saving benefits.
Our predecessors asked why up to date figures had not been used.
The Department agreed that the use of up to date economic growth
assumptions would have provided the most accurate assessment.
It had considered, however, that a change to these assumptions
would have introduced further complications into what was an already
highly complicated assessment.
39. In the course of its evidence, the Department
stated that it disagreed with parts of the C&AG's Report.
During the evidence session, the Department also provided our
predecessor Committee with a copy of a letter to the National
Audit Office that was said to detail the areas of disagreement.
The supposed disagreements related to the treatment of costs for
the proposed Thameslink 2000 project if the Link did go ahead,
the time savings for passengers once the Link was open and updated
information on the costs of associated works at King's Cross and
on the A2/M2. Our predecessors asked the Accounting Officer for
a fuller explanation of the reasons for these differences in a
- The Department said that it had not accepted
the National Audit Office's view that £240 million of estimated
costs for the Thameslink 2000 project should be excluded from
the value for money assessment. Such costs had been taken into
account in the Link and would have had to be funded from another
public source if the Link had not gone ahead. But it was apparent
from the C&AG's Report that the National Audit Office had
accepted the Department's view and had included a figure of £240
million for work avoided on Thameslink 2000;
- Estimates of time savings for passengers had
been calculated by the Department on the basis of timetable information
produced in 1996, whereas the National Audit Office had used updated
assumptions made by London & Continental in June 1998. In
its supplementary note, the Department accepted that the National
Audit Office had recorded these differences in the C&AG's
Report and had also noted that the latest timetables for the Link
now showed time savings which were closer to the 1996 figures;
- During the evidence session, the Department stated
that the estimate of £170 million included in the C&AG's
Report for associated works on London Underground ticket halls
at King's Cross and road works on the A2/M2, both of which depended
on the Link going ahead, had been reduced to £100 million.
40. The Department's supplementary note concluded
that the differences with the National Audit Office centred on
the inclusion of a monetary estimate of regeneration benefits
and the calculation of time savings for passengers, both of which
had been noted as differences in the C&AG's Report. Following
further reconsideration of the 1998 assessment, which now included
revised economic growth assumptions, the Department considered
that the value for money assessment should have shown a lower
benefit-cost ratio of 1.4:1, as opposed to the ratio of 1.5:1
included in the C&AG's Report as the Department's estimate.
Regional Eurostar services
41. Section 40 of the Channel Tunnel Act 1987 required
British Rail to prepare plans for providing or improving international
rail services to areas other than the south east of England. In
December 1989 British Rail announced plans to introduce such services
and orders were placed for suitable trains at a total cost of
nearly £300 million.
As no services to the regions were currently operating, our predecessors
asked the Department whether it expected Eurostar to provide such
services in the near future.
42. The Department said that the Strategic Rail Authority
had not yet made a final decision on regional services. However,
the Department did not expect services to be introduced in the
near future. Consultants
had been employed to consider whether such services would represent
value for money. These studies had shown that passenger volumes
were likely to be too small to justify the further use of trains
beyond London, though this might be possible after 2008.
However, the Department doubted that the services would be economic
even if non-financial benefits, such as regeneration, were taken
into account. Some
12 per cent of existing Eurostar passengers were from regions
outside the south east of England, though this percentage was
expected to increase once the St Pancras terminal opened, as passengers
would be able to transfer more easily from other rail services.
43. Asked whether the trains purchased for regional
services were being used for other purposes, the Department and
London & Continental explained that some of the trains had
been used for testing, but not in service as the fleet was greater
than currently needed. London & Continental had leased three
of the sets to GNER, and was negotiating with other train operating
companies on leasing the remaining sets.
44. The principal justification for the Link was
that it would lead to significant regeneration benefits in the
Thames Gateway area and in east London. Such benefits from the
Link had been quantified in money terms, although guidance issued
by the Department to others still advised against the inclusion
of such estimates, which were considered too vague.
45. In putting together value for money assessments
for long-term projects such as the Link, the Department should
use up-to-date assumptions, including the expected rate of future
46. At our predecessors' evidence session, the Accounting
Officer disagreed with factual material in the Comptroller and
Auditor General's Report which was either not disagreed by the
Department at the time or had not been noted as a point of difference
between the National Audit Office and the Department. The Accounting
Officer also presented the Committee with a revised cost estimate
which had not been shared with the National Audit Office in advance
of the session. This situation is unsatisfactory. We therefore
reiterate that it is not acceptable for the Committee's inquiries
to be frustrated by conflicts of evidence which were or which
could have been resolved in advance.
47. Regional Eurostar services have not yet been
implemented, on the grounds that they are considered to be uneconomic.
We note that the new Eurostar terminal at St. Pancras will allow
passengers from some regions to connect more easily than at present
with the international train service. It is disappointing that
large sums of public money have been wasted on buying expensive
trains in advance of need or evidence of need.