Category: Business Case

Dear Mr Gallagher

I am writing to you instead of Simon Blanchflower as I understand that he is retiring from his position at EWR Co.

Can you confirm that work on the central section (CS) of the East West Railway has now been suspended?

I ask because there are many people living on or near the preferred route that are now in a state of limbo, which they fear will drag on for years as dates in the planning process seem to be slipping and slipping. We need to be able to get on with our lives. Cambridgeshire County Council asked the Department for Transport a similar question after the Autumn Spending Review and as of this month have received no reply.

As you know the estimated cost of the preferred route in your words “matured” during 2019 as a result of more accurate work from Faithful and Gould. This resulted in a 3x cost increase for the preferred route area from January 2019 to January 2020. The benefit to cost ratio of the central section published in January 2020 was low and the following things have happened since:

• Commitment to the EWR CS was conspicuous by its absence from the 2021 autumn spending review (SR21) which covers the next few years. In contrast, the work on the A428 was explicitly mentioned. This was flagged as a problem by the EWR ML partnership and the EEH both before and after SR21.
• Significant additional work was identified in 4-tracking into Cambridge on the southern approach, together with 6-tracking and housing demolition in Bedford in the 2021 consultation document and no revised costing was published.
• Considerable local opposition to the emerging preferred route has been expressed all along the route from Bedford through St. Neots to Cambridge – the petition for a proper consultation on a northern approach to Cambridge stands at over 12,000.
• The wider benefits of the land value increase around new EWR CS stations due to the OxCam Arc look like they will not occur due to the shift in focus of the government to levelling up outside of London and the South East. This was confirmed by Mr. Gove on the Radio 4 Today Programme on the 10^th January 2022. When asked about the much-delayed levelling up white paper, he said that the decision had been made at the time of the spending review and that the aim was to “get every part of the UK operating at the level that London and the South East currently do”. He also mentioned a preference for housing on brown field sites – hardly consistent with some of the new EWR station locations. Where does that leave the OxCam Arc upon which the yet-to-be-published EWR CS business case apparently depends? I note that the leader of the OxCam Arc team in Whitehall, Kris Krasnowski was redeployed to the Scottish Office in July 2021. 
• Local housing plans such as the one in Greater Cambridge have taken no account of the EWR CS station locations.
• Passenger rail numbers continue to be depressed and there are continued signs of a permanent shift in behaviour after the pandemic to more home working. There are press reports of plans to lay off rail staff in their thousands.
• No one has demonstrated that freight traffic on the central section will move the needle on the business case for the CS. However, freight, especially on elevated track continues to cause great anxiety for people living near the emerging preferred route, both near the proposed great embankments and viaducts and in the city and town centres. The emerging preferred route is really not great for freight.
• Perhaps at the insistence of past members of central government, EWR Co. continue to emphasize the importance of rapid transit from Oxford to Cambridge even though common sense and I believe your own forecasts say that most of the passenger traffic will be local.  As a result, the business case for a more local railway may be more favourable.

These considerations fuel my concern that you will not find a good business case for the central section. I look forward to your answer to my question in bold at the start of this letter.

Yours faithfully

Dr. William Harrold

Co-founder Cambridge Approaches.

You may have noticed the press coverage on 23^rd January 2021 about the East West Main Line (“EWML”) based on this press release from the Department for Transport (DfT). It’s about funding to complete the renovation of the old line from Bicester to Bletchley in the Western Section of the East West Main Line. You can hear Grant Shapps’ short You Tube video about it here. It clearly does not relate to the substantially new Central Section between Bedford and Cambridge.

The funding commitment for Bicester to Bletchley was announced in the Chancellor’s Autumn 2020 Spending Review (see page 38). The new information on the 23^rd January 2021 is just the actual amount to be spent.

So why is the DfT recycling old news?

The announcement comes at the end this week’s Spotlight East West Main Line 2021 conference which also was set up to promote EWML. The presentations are still available online. So, the DfT press release is clearly part of the choreography.

There were conference presentations on Monday from England’s Economic Heartland and Transport East. When the conference moderator asked them what they saw as the main hurdle for the EWML, they both replied that it was securing funding from HM Treasury. In fact, it emerged that this was one of the main reasons for the conference’s promotion of the EWML scheme this week.

Later in the week, the Rail Minister Chris Heaton-Harris very honestly explained some of the hurdles that he faced in getting more funding from HM Treasury. He said that “49% of DfT funding went toward 2% of the journeys – and that’s rail”. He also said that currently “the Treasury has many calls on its shallow pockets”.

Readers of this blog will know that we are also concerned that the taxpayer really gets value for money from the EWML. This is not unconditional opposition to the scheme, but just a demand that EWR Co. really demonstrates the business case for it and shows that they have optimised the route around the constraints produced by that business case. For example, if it supports freight, then we need to consider the impact on communities, if it’s about commuting to the nearest city, make sure this is maximized, if it’s about the fastest end-to-end transit, draw a straight line from Oxford to Cambridge.

If you divide the total cost of the Central Section by the population between Bedford and Cambridge in 2019 prices it comes out at around £9,000 per household. We are all big stakeholders in this. So, how is the business case looking for the Central Section?

It emerged in the conference that the EWR Consortium do not have a published business case for the EWML. Perhaps EWR Co. / DfT have one?

CA have to report that we have not seen any of the following from EWR Co.:

• a housing plan associated with the route
• an environmental impact assessment across route options
• a plan to co-ordinate with other transport schemes around Cambridge
• credible explanations of Benefit to Cost Ratio calculations across options
• proper analysis of a Northern Approach to Cambridge
• honest impact assessment of the forecast long term 30% drop in passenger numbers post-Covid announced at the conference.

The Rail Freight Group did present interesting information at the conference to show how the freight traffic demand has already bounced back since the start of the pandemic. See Figure 1.

Of course, while this is good news for the freight industry, those poor people to trying to make a passenger rail business case are not in such a strong position.

One thing we did think was settled was that the Central Section would be freight capable. This was because of the “substantive answer” to an earlier question from CA to EWR Co.. However, it became clear that Maggie Simpson from the Rail Freight Group speaking at this week’s conference was working under that assumption that the Central Section would not support freight. Also Kerry Allen, a planner from Suffolk County Council said that freight plans were at an early stage.

Chris Heaton-Harris then “clarified” the situation by saying that it was “up for grabs” whether the Central Section would be freight capable.

As regards passenger usage, Maria Cliff, EWR Co. Head of Operations explained that they had developed “personas” for the types of rail passenger that they would serve. 

Really good to see that EWR Co. are starting to get to grips with who will actually use the railway, this should have been published years ago. Notice the lack of the “Rapid Roy” persona who really needs a regular 90-minute transit from Oxford to Cambridge or indeed “Freight Operator Freddie”. It does make sense that the everyday users are commuters and schoolchildren, going to their nearest city. We strongly agree about school children so many 6^thformers from around the county go to school in Cambridge. We believe that with the addition of a Northstowe station,  the northern approach to Cambridge is likely to serve commuters better than Option E as clearly explained by CBRR’s Sebastian Kindersley here.

There are definitely benefits from building the Central Section but, given the amounts of money involved and the uncertainties around the business case, is EWR Co.’s plan imminently to launch a consultation on detailed route alignments in the option E area really sensible? If you are not sure please sign this petition.

EWR Co. have given us two snapshots of their cost estimates for the East West Railway Central Section (i.e. Bedford to Cambridge). Firstly, at the time of the last public consultation in January 2019 in Table 3 of the Technical Report^[1] and then again in January 2020 when they announced the Option E decision in their Route Option Report^[2]. Note that all figures are in 2010 prices so we have to add around 15.6% to get to 2019 prices.

Both reports give the total costs for each route option and then break them down into upfront capital costs and recurring costs over 60 years according to the Department for Transport methodology. The recurring^[3] costs are the “infrastructure and renewal costs” (called “whole life costs” in the 2020 report, we assume that these are the same thing), operational costs and fare revenues. 

This analysis is done from the taxpayer’s point of view so fare revenue is treated as a cost, because the taxpayer has to pay the fares to use the trains.

The Option Report also gives figures using a more optimistic (we think very optimistic) NIC high growth assumption and the costs are higher. The cost figures we give here are the lower “Department for Transport (DfT) Business as Usual” (BAU) figures.

The three tables below show the total, capital and recurring costs. The total is just the sum of the capital and recurring costs. The figures in the table are the costs in the Technical Report, the costs in the Option Report and the percentage increase from one to the other. 

First impressions looking at the data:

1. all the total costs went up hugely and, since EWR Co. did not present a comparison, they made no comments about why this has happened. 
2. the recurring costs went up by so much it gives one very little confidence that they are right. If they are right now, then they were very misleading at the consultation.
3. the capital cost for Option E rose by much less than the other options and no explanation is given. However, it is certainly a useful result for EWR Co. as it allows them to justify the choice of Option E since it was otherwise the most expensive of the 5 options.
4. The total cost figures for 4 of the options are identical – this may be an unlikely coincidence or possibly that the cost estimates have not been produced with the expected amount of rigour.

Note 33 on p.100 of the Option Report states that for the DfT BAU table 15.4 (the data we presented above), the Bassingbourn station is removed in Options A, C and D, while for the NIC high growth table 15.5 the station is left in. It then says that the capital costs therefore differ between the growth scenarios for these route options.

However, we find that while the capital costs of A and D do go up by £0.3 and £0.2 billion respectively, to allow for the additional station, the capital cost of Option C is unchanged at £3.5 billion. Option C is therefore anomalous.

Looking again at table 15.4 the revenues for Options A, C and D are not significantly lower than Options B and E even though they have one less station. How can that be?  

Questions for East West Rail

1. Please can you explain the huge increase in capital cost between the figures in table 3 of the Technical Report and Table 15.4 of the Options Report?
2. Why did the recurring costs (the difference between the total costs and the capital costs) go up by up to 1100% between the same two reports?
3. In the light of the order of magnitude increase in recurring costs, does that mean that the recurring costs implied at the time of the public consultation were misleading? If not, why not?
4. In the light of the order of magnitude increase in recurring costs, how can we have confidence that the figures currently presented are anything like correct? 
5. Why did the capital cost of the chosen Option E uniquely rise by so much less than the other options? This is the main reason why the most expensive option in January 2019, became the one with the highest BCR in January 2020. Without an explanation of this cost increase, this BCR justification of Option E is meaningless. So please give a detailed explanation.
6. What was the cost given by the MoD to remove their Bassingbourn site and what alternatives were looked at?
7. Given that Options A, C and D did not have a station at Bassingbourn in Table 15.4 why was there no visible impact on the revenues, whole life costs or operating costs?
8. Given that you state in note 33 on p.100 of the 2020 Options Report that the removal of Bassingbourn Station reduces the capital cost, why is the capital cost identical for Route C in Tables 15.4 and 15.5 of the same report?

^[1] East West Rail Bedford to Cambridge Route Option Consultation Technical Report January 2019 Table 3, p.40

^[2] East West Rail Bedford to Cambridge Preferred Route Option Report January 2020 Table 15.4, p.100

^[3] EWR Co. do not give these a name, but we refer to them here as recurring costs.

Whatever you think of the Nobel prize winning economist Milton Friedman, he did make some really interesting points. For example, he proposed that spending should be categorized according to a 2 by 2 box as follows^[1]:

He then goes on to give many examples of how category 1 spending is often performed much more efficiently than the other categories especially category 4. Category 4 spending can often result in a Boondoggle. This is defined by Wikipedia as “a project that is considered a waste of both time and money, yet is often continued due to extraneous policy or political motivations.”

The East West Railway Central Section (EWR CS) is definitely category 4 spending. Let’s see what we might think of it, if it were category 1.

The estimated total cost of the EWR CS rose from £1.9Bn^[2] for option A in the January 2019 consultation to £5.6Bn^[3] for the chosen option E in January 2020. That’s an increase of 295%. Little or no explanation of this increase is given in the EWR Preferred Option Report and shame on me for not questioning it. But hey, it’s someone else’s money, right?

Well, the government either pays for it out of taxation in which case we all pay for it now, or adds to the peacetime record £2 trillion public debt and our children or grandchildren pay for it. Another option is that we have a period of high inflation in which case, well we all pay for it. There is no escape from the cost and, since south Cambridgeshire is quite a wealthy area, we can expect to pay more than pro-rata of the UK population.

How much do we pay each? Well, there are public works going on all over the UK, so let’s generously attribute this to the to the population of the Oxford Cambridge Arc which is currently 3.7 million people. Let’s further assume that only half of these live in the Bedford to Cambridge section. Taking an average of 2.5 people per household then we are looking at a bill of 2 x 2.5 x 5.6e9 / 3.7e6 = £7,568 per household. Ouch! If you had the choice, would your household spend this on the railway?

The railway is being optimised for long distance trips rather than lots of stations to support commuting. I have been in the Cambridge area since the 1980s and I have been to beautiful Oxford 3 times, once by bus, once on the way back from a holiday in Wales and once by car. Milton Keynes, well, I’ve been to Ikea, but I needed to take the car to bring back the furniture. Bedford, Bicester, St. Neots, Aylesbury etc, sorry never been there.

I have worked in the Cambridge Tech sector for decades, travelled all around the world, but latterly found that much of the collaboration was by digital means. Am I typical? Well let’s look at the 2014 Atkins report which was one of the early studies underlying the East West Railway. Under the section “evidence-based conclusions” we find: 

“Poor east-west orbital connectivity in is apparent in long journey times by both rail and car and is also reflected in the very low demand at present between locations on this arc;”

This is a curious statement. They found evidence for poor demand and assumed that if they built an expressway and an east west railway then demand would grow. Probably true, but would it grow enough to pay for the costs? Atkins are a large consulting company are they at all conflicted in making an assessment for the case for the East West Railway? Anyway, it looks like a high-risk assumption to me. But hey, it’s not my money, right?

Even a back of fag packet calculation shows there’s a problem.

From https://cambridgeshireinsight.org.uk/economy/ there are very roughly 250,000 people in Cambridgeshire and Peterborough in classes of occupation who may be considered to do a lot of business travel (managers, directors and senior officials, professional occupations, assoc. prof. and tech occupations, sales and customer services from Occupation Type table).

Very generously, guess that 10% of these people would travel to Oxford or Milton Keynes etc once a month on average. This equates to a total of 25,000 trips per month (each way). 

Number of trains per month at say 4 trains an hour for 8 hours each way = 4x8x30 = 960, say 1,000 trains per month

Number of business people per train = 25.

OK there are some people travelling for leisure and other reasons as well and it doesn’t allow for potential growth over 100 years, but given that an 8-car train can take about 400 people and even if the demand calculations are out by a factor of 2, there is still a problem for such a line. 

At the very least the EWR CS should be delayed until the demand is properly estimated and publicised in a more stable economic climate (post pandemic and post Brexit).

Another piece of evidence can be found in this diagram in the National Infrastructure Commission report on the Oxford Cambridge Arc.

This diagram shows the strong demand for commuting around all the cities in the Arc. It does not demonstrate demand for travel from end to end. Meeting commuter demand is linked to supporting housing growth which is an objective of the NIC report for the development of the Arc. 

There are cheaper ways to meet commuter demand than a heavy railway such as the EWR CS. What about busways, trams and a local light railway such as the proposed Cambridge Metro?

So that you can see the disconnect in thinking here, let’s have a look at what the EWR Co.’s route option report says about the business case for the Option E decision.

“1.19  EWR Co’s analysis has concluded that when looking across these five key criteria Route E is most likely to deliver against the strategic objectives for EWR and provide the best overall value for money from government’s investment in the railway.”

There is an imagination failure. Where is the comparison with the counterfactual, do nothing assumption? Where is the comparison with other solutions to meet the need to support commuters/housing development?

Given the current (lack of) evidence presented for the EWR CS by government, it looks like a Boondoggle to me and I’d rather my £7,568 was spent on something else.

^[1] Milton Friedman “Free to Choose” 1980, p.146

^[2] EWR Bedford to Cambridge Route Option Consultation Technical Report January 2019 §9.1, Table 3, p.40

^[3] EWR Bedford to Cambridge Preferred Route Option Report January 2020  §15.13, Table 15.4, p.100

The EWR Co. assessment is based on these 4 principles taken from page 7 of their document Connecting Communities: The Preferred Route Option between Bedford and Cambridge Executive Summary:

“• Creating connections: not just laying down steel and concrete, we are focused on designing a railway that is most likely to create connections between local communities that will support the economic growth and prosperity in the area 

• Rooted in community: at a very early stage in the design of the route between Bedford and Cambridge, we consulted local communities, asking for comments and points of view on the new route. The responses were central to the way we made our decision, and means the Preferred Route Option is fundamentally grounded in feedback from the community, stakeholders and local authorities.

• Environment at the forefront: we developed route options with environmental considerations at the forefront. Rather than being an after-thought, we used environmental data as a fundamental part of our decision-making process. Our communities can have confidence that the Preferred Route Option has been selected to support ambitions for East West Rail to increase biodiversity and acting in a way which respects important environmental and heritage sites in the local area 

• Cutting-edge techniques to develop cost estimates: taxpayers must have confidence in our ability to manage the financial side of the project and deliver value for money. To reduce the risk of cost over-runs later in the project, we used cutting edge techniques and new digital technology to produce our indicative cost estimates. Whilst there remains significant uncertainty in these cost estimates, these innovative techniques will help us to continue refining and improving our estimates, supporting better decision making now, and pointing to opportunities for potential cost savings in the future”

Three  of the five options assessed by EWR Co. went through Bassingbourn and were challenged by CBRR (Cambridge Bedford Rail Road) and Cambourne was chosen as an intermediate stop instead of Bassingbourn. We now wish to analyse that decision using the same 4 principles and the Treasury target for SCBA (Social Cost Benefit Analysis).   

We now wish to analysis the Option E based on these 5 principles :-

• Creating Connections:
  • Passengers 
    • The volume of traffic between Cambridge and Bedford has not been proven
    • The local movements are no doubt demonstrable given local traffic issues in Cambridge and local stops (with or without passing points) are not in the initial build. So we need an analysis of a phase 2 – the inclusion of local stops. But in that case a light rail solution such as the Cambridge Autonomous Metro will be more cost effective.
    • Cambridge East (Cambridge Airport and Fulbourn) is not included.
  • Freight
    • The existing line from Cambridge onwards to Felixstowe is old, single track and has many level crossings.
    • Freight levels have not been identified in the reports to date despite planned increases to Felixstowe docks
    • Freight would have to pass through Cambridge to Ely under current published plans, probably at night.
  • Technologies
    • The proposed route passes through rural countryside – not past science parks 
    • The railway line does not connect with the expansion of Cambridge University in North West Cambridge where it has built both academic facilities and accommodation facilities 
    • The trains are planning to be diesel – hardly the latest technology.

The result is that the connections have been attempted but they are not the most efficient and neither maximise connectivity nor do they maximise or support local prosperity growth.

• Rooted in the Community:
  • The local plan for the 3 boroughs of South Cambridgeshire, Cambridge City and East Cambridgeshire have not been followed despite an explicit plea to do so in the South Cambs consultation response and as evidenced by EWRCo.’s proposal for a station near Caxton to serve Cambourne.
  • The weightings of the various stakeholders have not been revealed
  • We have been told that certain villages would be in favour of a Northern Route into Cambridge – these villages/communities in North Cambridge were not, as far as we are aware, consulted. 
  • It is inevitable that rural communities in Cambridgeshire will be divided by the railway line –  this is unnecessary in a county that is planning to develop new villages and towns; these new communities could be developed around stopping points on the new line and be less divisive 

The result is that the decision has not been rooted in the Community and will create more disruption than is necessary.

• Environment at the Forefront:
  • The area of Option E has been left as a green area between Cambridge and the gradual expansion of London northwards. This area that has been carefully preserved, will now be divided by putting the proposed line in the area currently identified.
  • The environment of the rural villages will be changed forever whatever the mitigation.
  • The animal life will be disturbed more than is necessary
  • A railway line that follows transport corridors would minimise the impact – this has not been attempted
  • Freight trains will go through the middle of Cambridge and possibly all night

The result is a route designed to create maximum environmental impact to rural and town communities.

• Cutting Edge Techniques:
  • The new railway line will last 150 years; planning should work on this basis. 
  • There is no assessment of the impact of local stations that we assume would come in phase 2 with local stops at intermediate stations, nor an assessment of its impact on light rail solutions such as CAM.
  • The plan should allow for the most direct route for freight along planned transport corridors – that has been achieved in part.  But where is the assessment of completing the A428/A14 transport corridor?
  • Modern techniques will allow us to follow the corridor and hence minimise community, environmental and commercial dislocations 

To date cutting edge techniques have not been used to predict the cost benefits ratios; wider community consultation should be undertaken now.

• Social Cost Benefit Analysis (SCBA):

Because quantitative assessment of land use changes is not included in the justification of the current decision between route options A to E or indeed routes to the north of Cambridge, the EWR Co. decision  is not soundly made based on the data presented in their Option Report.

We believe that the current justification under SCBA depends on increase in property values; however, as the basis is unknown, it is not possible to compare the decision route with the alternatives. 

We strongly believe that alignment with the Local Plan(s) will create greater value in a shorter time frame. We are not alone in thinking this, a key stakeholder, South Cambridgeshire district council said the following in their consultation response:

“Uncertainty regarding growth implications of consultation.
Further to the above however, we note in the strategic objectives that the most significant relates to supporting growth, and that the business case for the railway is predicated upon such growth. We note from the consultation and other evidence that there is very significant uncertainty as to the scale of growth envisaged around potential station locations. Evidence sources and modelling assumptions referenced vary greatly, and the only certainty seems to be that the implied growth above and beyond current Local Plan commitments would be substantial.”

In addition, over a 150 year period, that should be used for analysis of a project of this sort, the impact of ongoing benefits will outweigh any additional cost of putting the proposed new railway line in the right place to minimise operating costs over its whole life and optimise benefits to the community.  

Summary

We call for a much closer co-ordination between EWR Co, the district and county councils to come up with a more complete business case. This will either prove the existing case or it may reach very different conclusions about the best route. Perhaps there is a role for a senior politician to co-ordinate the views of the parties and reach a considered opinion based on all the facts and report publicly as part of the consultation.