If London wants Crossrail 2, the Treasury will need to stump up a lot more cash

Image: TfL.

Is there no end to the gentrification of central London? Ageing bohemians still haven’t got over the demolition of several clubs to make way for Crossrail – not to mention the closure of Soho nightspot Madame Jojo’s last year.

They recently had another bout of hypertension, when Transport for London (TfL) released a map showing that they might want to knock down the Curzon, an arthouse cinema down the road, to make way for Crossrail 2. (There was much less clamour about the possible demolition of Electrowerkz in Angel; evidently, goths have poor lobbyists).

Both Crossrail, the new east-west railway tunnelling its way under London, and Crossrail 2, its southwest-northeast younger brother, have the effect of pushing up house prices wherever they go, and encouraging the owners of Madame Jojo’s and the like to put their assets to more profitable use.

Already, large and very bland looking slabs of shops and offices are being planned for the new Crossrail stations on Oxford Street; a shopping centre on top of the Canary Wharf station is to open this spring, three years before the first train arrives. So would Crossrail 2 see even more cultural vandalism, as critics would say, if it gets approved?

Perhaps not. Perhaps the railway won’t get built at all. Because at the moment, it’s facing a funding gap of several billion pounds.

Crossrail 2 would cost what infrastructure professionals would call “a lot of money”. The current estimate is around £25bn: that’s compared to £14.8bn for Crossrail, or as much as 30 per cent of a new “Boris Island”-type airport in the Thames Estuary. Phew. And nobody really knows where all that money will come from.

The reason why Crossrail has spurred the redevelopment of parts of London, for better or worse, is that a) there was land ripe for redevelopment and b) the route connects up places where high value earners want to travel to, like the City and Canary Wharf. Crossrail 2 will go to neither, and the amount of property development it’s expected to spark is consequently lower. What’s more, many of the most attractive sites for redevelopment, in places like Oxford Street, have already been snapped up due to, er, Crossrail.

That might be fine, if there were serious quantities of taxpayer cash on the table. There isn’t.

The proposed route. Click to expand.

TfL, the Greater London Authority and Network Rail are borrowing roughly two-thirds of the cost of Crossrail – debts they’ll repay through local funding sources, such as a supplement on business rates. That leaves roughly one-third of the project’s cost that’s been covered by a grant from central government.

When TfL commissioned financial advisers at PwC to look at how to pay for Crossrail 2, they found only half of the cost could be met by local funding sources – leaving the Treasury on the hook for a larger share of a larger project.

Far from paying a bigger chunk, however, City Hall seems to think Whitehall would be tighter when it came to Crossrail 2. Isabel Dedring, Boris’ deputy mayor for transport, has said that public funding will have to be “substantially smaller” this time round. With more austerity and the building of HS2 round the corner, this looks entirely plausible.

London could try to borrow money against the additional business rate revenues it expects to get from new property developments that get built as a result of Crossrail 2: that is exactly how TfL is paying for the Northern Line Tube extension to Battersea, which will see a new housing development built nearby.

But Crossrail 2 simply isn’t expected to trigger that much building. As PwC wrote:

“ [Incremental business rates income] is forecast to contribute a relatively small amount to the project’s funding requirement, in the region of 0.7 per cent... It is questionable whether it is worth separately identifying and gathering it, unless there is a significant increase in forecast commercial development around the Crossrail 2 stations.”

So not only is Crossrail 2 not likely to cause much demolition, it may not cause as much gentrification as its predecessor either. That’s if it ever gets off the ground at all.

René Lavanchy is a recovering infrastructure finance journalist and tweets at @InfraPunk.

 
 
 
 

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