Economic Case

Value for money

The scheme delivers high value to local communities as well as to the UK. It does this in part because it has been designed on the principle of ‘everyone wins’. That is, the benefit to one group must not be at the expense of others. Schemes that break this rule (e.g. the original Airtrack proposals or WRAtH) tend to fail at later stages as the compromises are found out. The WLR, by contrast, gets people from around the UK to Heathrow much more quickly and expands its customer base. However, it does not do this at the expense of local people but simultaneously enhances their local transport and quality of life too. This double win is reflected in both the BCR calculation below and it’s profitability.

The WLR is forecast to make a net profit. This is unusual for a rail scheme so needs some explanation: it is based on (a) the multiple large markets that it addresses and (b) its low cost – the actual new rail infrastructure is very small (amounting to just 300 metres net of new track in phase 1) but this allows for much better use of existing infrastructure and rolling stock and rationalisation of other overheads, producing disproportionate returns.

As per the DfT’s guidance on value for money assessment, a benefit to cost ratio (BCR) is calculated to allow a quantitative comparison of the options considered.


Principal options appraised

The Windsor Link Railway is divided into two initial phases: the first is to connect Slough to Staines via Windsor; the second is to connect Heathrow to the west, both to the north via Slough and the south via Staines.

Both phases are independent of the other. This means that both has an independent business case and can be built with or without affecting the viability of the other and either can be built first or not at all, greatly reducing project risk. They are, however, mutually supportive.

The following two options were considered for each phase 1, which can be considered as a basic and an enhanced version:

Option 1A: Basic, linking Slough to Staines via a tunnel in Windsor, including new platforms south of the existing Slough station.

Option 1B: Enhanced, as Option 1A but with the addition of a transport interchange at Chalvey (M4 Parkway) and Windsor parking.

For phase 2, three options were considered. Again, these can be considered as a basic option, satisfying the HLOS requirement) plus three enhanced ones:

Option 2A: Option 1A plus a western link to Heathrow via Poyle (satisfying the HLOS requirement) as per the drawing above.

Option 2B: Option 2A plus a new station at Slough Industrial Estate and Windsor parking

Option 2C: Option 2A plus a new station and parking and transport interchanges at Chalvey, Windsor and Poyle plus a bay platform at Ascot

Option 2D: Option 2C plus a transport interchange on the M3 and a link to the south coast line

In addition to these WLR-generated options, two other options have been compared:

AirTrack: BAA’s Scheme for connecting the airport to the south and

WRAtH: An alternative solution to western rail access to Heathrow, as promoted by Slough BC

Also considered has been a link to the south coast. The market for these, however, is likely to be similar to that for the WLR options. The Wandsworth option is likely to cost a similar amount to AirTrack and have a similar (or slightly less) market demand. The south coast option is likely to have a similar market to that for comparable WLR option. For these reasons, these options are not developed further in this report as we have sufficient options to develop initial conclusions.

Appraisal summary table

The options for WLR phases 1 and 2, as described above, are compared in the following table.

Capital costs (£m 2012) 1A 1B 2A 2B 2C 2D WRAtH AirTrack
Point estimate 120.7 164.8 302.3 337.3 417.3 483.3 342.5 409.0
Optimism bias 66% 66% 66% 66% 66% 66% 50% 21%
Capital cost inc. contingency 200.4 273.6 501.8 559.9 692.7 802.3 513.8 494.9
Financing cost 38.9 53.0 97.3 108.6 134.3 155.6 110.3 131.7
Total capital cost 239.2 326.6 599.1 668.5 827.0 957.9 624.0 626.5
Asset life (years) 30 30 30 30 30 30 30 30
Discount rate 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75% 4.75%
Operating costs
Rail 1.1 1.3 2.5 2.5 3.9 5.0 0.9 1.3
Parking 0.0 0.1 0.0 0.0 0.2 0.2
Total operating costs p.a. 1.1 1.4 2.5 2.5 4.1 5.2 0.9 1.3
PV operating costs 16.8 22.3 39.6 40.3 64.4 81.8 14.2 20.6
Total costs 256.0 348.9 638.7 708.8 891.4 1039.6 638.2 647.1
Revenues
GWML to Heathrow 20.0 20.0 20.0 20.0 22.2
South London to Heathrow 20.0 20.0 20.0 20.0 23.7
Slough to South London 6.3 6.3 6.3 6.3 6.3 6.3
Chalvey (M4 Parkway) 3.0 3.0 3.0
Tourism to Windsor + + + + + +
Poyle (M25 Parkway) +
M3 Parkway +
Slough Trading Estate +
South to north via HS2 at OOC + + + +
Total revenue per annum 6.3 14.1 46.3 48.7 58.7 58.7 22.2 23.7
PV revenue 99.0 222.3 731.8 769.7 928.9 928.9 352.0 375.0
Property
Windsor 332 332 332 332 332 332
Slough 30 30 30 30
Chalvey 56 56 56
Poyle 392 392
GDV, of which: 332 388 362 362 810 810 0 0
S106/CIL 16.6 19.4 18.1 18.1 40.5 40.5 0 0
NR property profit 10 10 10 10 10 10
Council tax receipts 13.28 15.52 14.48 14.48 32.4 32.4 0 0
Private profit 66.4 77.6 72.4 72.4 162 162 0 0
Stamp duty 24.9 29.1 27.15 27.15 60.75 60.75 0 0
Benefit from Heathrow link 920.5 920.5 920.5 920.5 512.0 545.5
Benefit from Windsor link 296.9 296.9 296.9 296.9 296.9 296.9
Total socio-economic benefits 296.9 296.9 1217.3 1217.3 1217.3 1217.3 512.0 545.5
Options 1A 1B 2A 2B 2C 2D WRAtH AirTrack
PVB 363.3 374.5 1289.7 1289.7 1379.3 1379.3 512.0 545.5
PVC 92.2 51.6 -162.8 -130.7 -181.1 -32.9 286.2 272.1
BCR 3.9 7.3 rev +ve rev +ve rev +ve rev +ve 1.8 2.0
Returns 527.0 671.8 2091.3 2129.2 2451.9 2451.9 864.0 920.5
Investment costs 256.0 348.9 638.7 708.8 891.4 1039.6 638.2 647.1
Social BCR 2.1 1.9 3.3 3.0 2.8 2.4 1.4 1.4
Cash out 256.0 348.9 638.7 708.8 891.4 1039.6 638.2 647.1
Cash in 230.1 374.9 873.9 911.9 1234.5 1234.5 352.0 375.0
Gross profit (for govt) -25.8 26.0 235.2 203.1 343.1 194.9 -286.2 -272.1

Notes

PVB is the present value of benefits.

PVC is the present value of all costs.

Decreases in indirect taxation (e.g. from less use of cars and therefore fuel duty) have not been included at this stage. Also the markets listed above as being yet to be assessed are also excluded from the PVB calculation as yet.

For the purposes of comparison all schemes have been assigned a 30-year life, although in practice this is expected to be much longer. Finance cost and social benefit for all schemes is calculated proportionately for all schemes relative to the WRAtH. Again this is done for comparison, even though the social benefit of the WLR scheme is likely to be much higher relative to fare revenue. CIL (Community Infrastructure Levy) is assumed to be 5% and the present value of council tax receipts is estimated at 4% of the gross development value. Stamp duty is estimated at an 8% blended rate.

Note that in this comparison, the WLR phase 2 options (2A, 2B, 2C and 2D) all include the costs and benefits for WLR phase 1. That is, to work out the incremental costs and benefits subtract those for phase 1. For example, if option 2C is being built after option 1B, then the incremental cash costs would be £543m and the incremental cash returns £860m.


Conclusions

Due to the asymptotic nature of the BCR calculation (which was originally developed for roads without tolls) schemes that come close to breaking even cause strange results, including a negative BCR (the latter are marked ‘rev +ve’ above for ‘revenue positive’). For the comparison of such schemes on a linear scale, The table above includes the ‘social BCR’. This compares total costs (private or public) with total benefits.

A further way of comparing the options is to ignore the social benefit, which is often difficult to quantify, and simply to look at the cash in and out, analogous to revenue and cost of sales respectively, with the difference being gross profit for HM Treasury.

Looking at cash costs and revenues, the net costs of AirTrack and WRAtH were £272m and £286m respectively, making a combined net cost to the taxpayer of £558m. WLR option 2C, by contrast, produces net revenue of £343m. The total saving from WLR compared with these schemes is, therefore, £901 million.