Crossrail- How Much Really?

Yesterday, Gordon Brown gave a pre-election go ahead for Crossrail, Britain's biggest civil engineering project since Hadrian's Wall. It's supposedly going to cost £16bn, but if you believe that, you obviously haven't been paying attention.

The cross-London tunnelled rail project has been around since the days of purple velvet flares, and during its many decades enmeshed in Whitehall bureaucracy its costs have spiralled wildly.

Back in 1991, the Crossrail Bill reckoned it would cost £1.4bn. Which means that in just 16 years, costs are up by well over 1000%! Over the same period, the general price level (the GDP deflator) has increased by just 50%.

Even 4 years ago, costs were "only" £10bn. Now they're £16bn, 60% higher. And the project still hasn't got going yet.

You'd almost think they were plucking figures out of the air.

Or somewhere.

Now, let's set on one side the fact that this ancient much delayed project probably no longer meets London's current needs (see this critique by the excellent John Kay). As taxpayers, let's just focus on how much it's likely to cost us really.

Virtually all public sector projects over-run their budgets: as regular readers of BOM will know, international research shows 90% over-run (eg see this blog). They do so for a number of reasons, including incompetence, wishful thinking, and deliberate manipulation by politicians and public officials (aka Salami Slicing). The only real question is how much?

The TaxPayers' Alliance's own analysis of over 300 public sector projects completed since the start of 2005, or still ongoing, revealed that the average over-run is about one-third (see here). On that basis, the final cost of Crossrail might be around £21bn.

But that overall average does not necessarily capture the risks associated with mega civil engineering projects like this.

According to the Treasury's own estimates (see table posted in this blog) the prospective over-run on "standard" civil engineering projects in the public sector is up to 44%, and on "non-standard" projects it's up to 66%. There are no prizes for guessing which category boring two massive 20 ft diameter tunnels under the geologically challenged and crowded basement of London falls into. So that suggests a final price tag of £25bn plus.

But in truth, even that sounds light compared to other heroic tunneling projects. The Chunnel overran by about 80% (and that was quasi private sector), and Boston's notorious Big Dig, originally budgeted at $2.6bn, eventually came in at $15bn- an overrun of nearly 500%.

So £25bn? £30bn?

Whatever the eventual guargantuan bill, remember it's us taxpayers on the hook. True, the government has got a £500m contribution from Canary Wharf (private cash), plus a £200m contribution from Grupo Ferrovial SA's BAA unit (also private cash). But the rest comes in one way or another from taxpayers. Including the full cost of all overruns (as Ken Livingstone confirmed yesterday).

Taxpayers need to be afraid.

Very, very afraid.