The release of the draft TfL Business Plan always results in a flurry of activity within LR Towers as it gives a good insight into the thinking and direction that transport policy in the Capital will take. Eyebrows were raised when one project currently on TfL’s books failed to get a named mention in this year’s plan – the Metropolitan line extension to Watford (also known as the “Croxley Rail Link”).
Extending the Metropolitan
The full details of the Croxley Rail Link can be found on the project’s website. Diamond Geezer also has an excellent (and thorough) look at the route. Broadly speaking though, the scheme seeks to connect the Metropolitan line to Watford town centre. It will do this by using the alignment of the old Croxley Green Branch line. The current Watford Metropolitan line station will close and be replaced by three new stations before finally terminating at Watford Junction.
The scheme was originally promoted by Hertfordshire County Council, who saw (and still see) it as both a way of boosting the local economy in Watford, and of supporting the Watford Health Campus development.
Croxley (as it is known colloquially) is a project we have long followed here on LR. Indeed it was one of the first things we ever wrote about when we launched the site over nine years ago. That in itself perhaps gives an indication that development of the scheme has not progressed as smoothly as planned. Despite a Transport Works Act Order for the project being issued in 2013, it has hardly progressed since.
As is often the case with infrastructure projects one of the primary reasons for this has been escalating project costs. Herts originally forecast the cost of the project at about £170m in 2008 (including contingency), reduced to £115m through tighter scoping by 2011. If that seems cheap then that was deliberate. The goal was to put in place the minimum necessary infrastructure to run a functioning railway (something we described in some detail at the time).
This low cost estimate was sufficient to get Herts the backing of the DfT, who provided a funding commitment for about £76m. Developer contributions were to make up about £7m with Herts themselves committing to pay the remainder of the balance up front. They planned to do so via a loan, secured against future council tax receipts. The loan itself is to be paid through profits generated via the extension (e.g. extra fares), which London Underground agreed to remit back to the council until the loan was repaid.
TfL take over
Unfortunately, since 2013 the project’s price tag has continued to climb. Herts admitted in 2014 that they now forecast the cost at £230m, based on a Network Rail assessment of the project. This remained the expected cost at the end of 2014 when, with the council clearly struggling to manage both contractors and costs, they were forced to return to the DfT and renegotiate terms again.
The result of that negotiation saw the project survive but on condition that TfL (or, more specifically, London Underground) took over management of the project by the end of 2015.
It is perhaps fair to say that TfL were far from enthused about taking over responsibility for Croxley, something that was clear from the words of David Hughes, London Underground’s Director of Major Programme Sponsorship at the time:
Late last year, faced with significant project slippage and cost escalation, the government asked us to consider stepping in and taking over responsibility for delivery of the scheme. We were clear that a suitable funding package needed to be in place before we would be prepared to take this on.
This isn’t to say that there wasn’t a belief within the organisation that it wouldn’t bring benefits to passengers. Simply that technically speaking many of those passengers weren’t within TfL’s specific remit – Hertfordshire, of course, being a home county rather than a London borough. Internally there was also a suspicion that even Network Rail’s forecast cost was likely too low and (as David Hughes intimated) that meant there was almost certainly a funding gap lurking on the horizon.
Nonetheless, coming at a time when austerity was the new buzzword in the Treasury, TfL were hardly in a place to refuse the government’s request. Perhaps there were quid-pro-quo arrangements and assurances made behind the scenes. The net result though was the transfer of the project to London Underground control in 2015, with TfL also agreeing to commit £16m (claimed to be the costs related to procuring and running the rolling stock) from their Growth Fund to the project.
Unfortunately, it wasn’t long before TfL discovered that their suspicions were correct. Soon they announced that their own initial estimate of project cost was closer to £280m. More money was required. Once again, the funding package was renegotiated – the DfT would provide an extra £34m on top of TfL’s £16m and Herts would commit to finding the rest – and, now under London Underground’s supervision, contractor Taylor Woodrow finally commenced enabling works. A provisional opening date was announced with a certain amount of fanfare – including within last year’s Business Plan – for 2020.
Clouds on the horizon
Which brings us almost to where we are today. In recent months there have been increasing hints that Croxley still might not be progressing according to plan. This seemed to come to a head in Autumn this year when Taylor Woodrow, who held the original contract for both design and construction from Herts, were removed by TfL from the project. No replacement contractor has yet been appointed.
In light of this, the apparent removal of the project completely from the TfL Business Plan naturally set alarm bells ringing among backers of the scheme, seemingly implying that the project has quietly been dropped completely.
TfL’s Growth Fund and Croxley
As is often the case, the reality is more complex. In response to our questions on its removal TfL have indicated that, from their perspective, it is in fact still in the Business Plan – it just didn’t receive a named mention. This is because TfL’s own funding commitment is coming from the TfL Growth fund, they explained, and Croxley is one of the projects that has been committed to as part of that. They pointed out that with 15 projects covered by the Growth Fund, there was just no space to mention them all.
This is factually correct and so Croxley’s supporters can draw some confidence from TfL’s statement. The extension definitively hasn’t been cancelled. At the same time though, it would be a mistake to assume this automatically means it is guaranteed to still go ahead.
To understand why this is true first requires a brief explanation of what the TfL Growth Fund is and how it works.
The Growth Fund is TfL’s slush fund for transport projects that it wants to take forward but can’t justify doing on the basis of a regular benefit / cost ratio analysis (BCR). It’s a clever and innovative answer to the problem caused by the fact that forecasting future transport needs ahead of housing or economic change in an area is sometimes very hard to do. Occasionally, you just have to ignoring the raw numbers and just doing something that all parties involved (TfL, borough and developer) intrinsically feel will be a solution to a transport problem that doesn’t exist right now, but will do within ten years.
First established in 2012 with a budget of £360m to run until 2017, the fund has been topped up a couple of times since and currently has 15 projects on its books. 14 of those can be found in a London Assembly report commissioned to look at the Growth Fund at the end of last year (Croxley is among them), which is reproduced below. Since then Old Oak Common Overground station has been added.
We will not go into heavy detail about how the fund functions here, but as the London Assembly’s independent report highlights, the Growth Fund is broadly felt to be a success by TfL, the boroughs and by the Assembly itself. The report did, however, raise one major concern.
Who watches the watchmen?
That concern was that, perhaps understandably with a fund set up essentially to finance projects which were tricky to prove the benefit of, overall governance as to what gets funded and by how much was somewhat fuzzy.
This wasn’t to say that the objectives of the fund were unclear. TfL had actually provided very clear guidelines as to what projects would be considered eligible – they should be future transport projects that support housing or regeneration in one of the 38 designated Opportunity Areas (OAs) outlined in the most recent London Plan (see below).
What the Assembly were concerned about was the fact that the actual decision-making process on what projects were felt to meet those objectives, how the funding would be allocated and (ultimately) who precisely was responsible for doing both of the former were not clearly defined.
This, the Assembly said, left the Growth Fund potentially open to abuse. It meant that whether by choice or, under pressure, TfL might place a project in the Growth Fund that had no real right to be there. Indeed they even cited what they felt was a specific example of this happening already.
And, worryingly for those wishing to see the Metropolitan line extended to Watford, that example was Croxley.
Failing to meet the grade
By any metric, the Assembly’s report (correctly) pointed out, the Croxley Rail Link could not be said to meet the objectives of the Growth Fund. This wasn’t (and isn’t) to say that it doesn’t yield benefits to passengers, local regeneration or local housing. Simply that, as we pointed out earlier, it doesn’t do any of those things in London let alone in one of the 38 designated OAs the Growth Fund is meant to support. There are some potential outward-facing benefits to Londoners, certainly, but when directly compared to other projects potentially eligible for the Growth Fund it would be tricky to argue that Croxley is the worthiest candidate for financing.
TfL’s lack of a vigorous counter-argument to this in their response to the report likely suggested that – internally at least – there was a feeling there too that the Assembly had a point. Again, the unspoken truth (which the Assembly recognised) was simply that TfL had agreed to take the development of Croxley on and to provide £16m of additional funding – and the Growth Fund was simply the only bucket available from which to draw that at the time.
Indeed sources suggest that since the report the major focus on the Growth Fund has been on not just preserving it but boosting it, with another £200m now added. Alongside this, TfL’s current goal is to provide a more formalised decision making structure.
Sources suggest that previously decision making on what got funded (and how much) was largely made through informal consultation with the Deputy Mayor for Transport. Criteria considered were scale of the development in the area, impact on local housing and employment, viability, and the level of support from local developers. Funding was also dependent on all other options for financing having been exhausted.
Those criteria are likely to be formalised in the near future and, taking on board the points raised by the Assembly, responsibility for making funding decisions will officially shift to a combination of the TfL board (Chaired by the Mayor of London) and GLA Growth Board.
As long as nothing changed though, then all of this should have had no impact on Croxley. Its presence within the Growth Fund had already been established and agreement for the required £16m contribution from there already signed off.
The trouble is, it looks like Croxley needs more money again.
There may be trouble ahead
The removal of Taylor Woodrow from the project was the first public indication that Croxley may be facing funding issues. Such a drastic change to project is nearly always a sign of increasing costs to come. Indeed sources suggest that this is the case on Croxley and that whilst the public estimate is still £280m, current thinking within TfL is that this may perhaps rise to as much as £350m once a full post-contractor-change cost review is completed.
This leaves a sizeable funding gap that will need to be bridged before anything beyond the current enabling works can be completed.
Finding that additional funding may well prove a significant stumbling block. Not least because Andrew Jones from the DfT, seemingly in an effort to get the agency out in front of the game, finally answered a Parliamentary question on the status of Croxley this week. His answer not only confirms that there is a funding gap, but also that the DfT have no intention of bridging it themselves (bolding ours).
Since taking over management of the Croxley Rail Link in November 2015, Transport for London (TfL) has been reviewing the main work contracts. From discussions between officials in the Department and in TfL, we are aware that, as a result of prices received from the supply chain, the costs of the scheme are currently higher than the agreed budget. We understand TfL is considering how best to deal with this.
At a meeting with the Mayor on 5 December the Secretary of State for Transport re-confirmed the importance that the Government attaches to the scheme which will deliver significant transport benefits and significantly boost economic growth in Watford and the wider north west London area. Indeed, the Government, together with local councils and the Local Enterprise Partnership, has already committed substantial funding to this scheme and nearly 85% of the total budgeted cost.
Under the terms of the funding agreement in place for the scheme, TfL committed to the agreed budget of £284.4m and so agreed to meet any costs incurred over that budget. Conversely, they would retain the full amount of any cost savings. The Department will not be providing any additional funding for the scheme and expects TfL to complete it as agreed.
The residents of LR Towers would have liked to be in the room when the above answer was first seen by TfL.
Luke, many truths in life…
Jones’ answer is in fact very cleverly worded – read the bolded sentence carefully and you’ll see that despite the way it is presented, the first part of the sentence does not actually automatically mean the second part is true.
Certainly David Hughes’ comments at the time of takeover suggested that TfL had no illusions about Croxley’s funding envelope being accurate. It would be highly surprising, therefore, if they officially agreed to meet any and all extra costs the scheme might accrue. Blank cheques are not something a smart transport authority writes lightly – especially when it is not the primary beneficiary of the scheme for which it would be paying.
Whilst the exact details of the deal between TfL and the DfT over Croxley’s funding remain private, therefore, it seems safe to say that when it comes to interpreting it, a classic Star Wars quote is rather appropriate:
Luke, you’re going to find that many of the truths we cling to depend greatly on our own point of view.
We certainly suspect that TfL’s interpretation of their obligations will likely differ greatly from that stated by the DfT.
A question of politics
What this all ultimately means for Croxley is that whilst it is not dead, it is certainly on the urgent transplant list. There is a clearly funding gap – potentially of about £60m – which the DfT have made it clear they have no intention of filling.
That currently leaves the TfL Growth Fund as the only likely source of additional funding from TfL. But Croxley was already the black sheep of the Growth Fund family at a £16m commitment. With TfL already looking to tighten up the governance there it will only become more so.
More importantly perhaps, just whether it would get funding from that Fund will likely soon be a decision that stops officially just being TfL’s to make. The new governance arrangements will likely see primary decision-making authority lie with the Mayor (as board Chairman) and potentially the Greater London Assembly.
To describe the relationship that the Mayor, Sadiq Khan, has with Transport Secretary Chris Grayling as ‘rocky’ would be understatement of the year – their near-daily public clashes over Southern now a regular media feature. Indeed theirs is a rivalry that predates their current positions as the two most influential transport-focused politicians in the country. It actually dates back to the time when they were Shadow Justice and Justice ministers, respectively.
Even Andrew Jones’ Parliamentary answer provides a clue as to why Khan may not look favourably on a non-London scheme right now. As it points out, The Mayor met the Minister on the 5th of December to talk Croxley and – amongst other things – rail devolution.
Given Khan’s political acumen, it seems unlikely he left that meeting with the impression that TfL’s takeover of various London franchises was suddenly in doubt. If so then he would have swiftly gone on the attack. Yet Grayling gave an interview to the Standard that ran the next day in which he indicated there would be no further franchise devolution. It is tempting to wonder just how carefully Grayling had to juggle his Outlook calendar to avoid an unfortunate meeting of Mayor and Murphy on the 5th.
All this means that unless Herts can find a way to bridge the funding gap themselves, they are currently dependent on the largesse of a Mayor and GLA now looking inward to the needs of London, rather than outward to areas they have been publicly forbidden by the Transport Secretary from entering.
Were a decision to be made on additional funding for Croxley today, it is unlikely that TfL would champion meeting that need via the Growth Fund. This would make it a purely political decision on the part of GLA and Mayor – would the political impact of cancelling a Metropolitan line extension few Londoners have heard of outweigh the very real (and visible) benefits that could be delivered by using that money elsewhere?
If that decision needed to be made right now, then the betting money in LR Towers would be on the extension getting cancelled. Luckily for Croxley’s backers, however, there is still time to ensure the balance is tipped in the extension’s favour.
Based on previously published timescales for the project, it seems likely that if the most recently stated 2020 opening date is to be met, then a decision on continuing works beyond stage 1 will need to be made by 2018. That still leaves some time for additional sources of funding to be identified (once the total cost overrun is known) or for Croxley’s backers to persuade the Mayor that it is still in London’s interests to push ahead with it.
Whether either of those outcomes will come to pass though, remains to be seen.
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