Transparency data

East West Rail, Connection Stage 1: accounting officer assessment (April 2021)

Updated 27 November 2023

Background

The East West Rail (EWR) Connection Stage 1 (CS1) final business case was produced in July 2020. As this project is part of the Government Major Projects Portfolio, an Accounting Officer Assessment was undertaken alongside the business case by the Accounting Officer for the Department for Transport (DfT), Bernadette Kelly, and the East West Rail Company Chief Executive and Accounting Officer Simon Blanchflower.

The business case was approved by DfT’s Investment Committee and Major Projects Review Group (MPRG) review in July 2020 and by HM Treasury (HMT) in December 2020, following the Spending Review and an Infrastructure and Projects Authority (IPA) Action Assurance Plan (AAP) review in November 2020.

The AAP confirmed the robustness of the business case and funding approvals for the project were granted by HMT in December 2020.

Entry into service of CS1 is planned for December 2024 to September 2025.

Overview

CS1 is part of the wider East West Rail programme which will provide a direct rail link between Oxford and Cambridge and join up key towns and cities across the Oxford to Cambridge Arc. The upgrade between Oxford and Bicester has already been successfully delivered.

CS1 will reinstate and upgrade railway lines between Bicester and Bletchley to enable new train services to run between Oxford and Milton Keynes. Later Connection Stages 2 and 3 will connect Bedford and Cambridge.

Regularity

CS1 is affordable as DfT’s Spending Review 2020 settlement allocated full funding for this phase of work. The anticipated final costs of CS1 sum to £1,288.3 million of capital investment at P80 (including sunk costs).

Propriety

The final business case for CS1 is working to the HMT Green Book 2018 and European System of Accounts and within the standards set out in managing public money. The project is consistent with UK and EU law. The necessary consents and permissions are in place for CS1 to progress.

Value for money

The level 2 benefit cost ratio (BCR) shows that CS1 has a BCR range of 0.5 to 0.8 (poor value for money). Level 2 includes transport and wider economic impacts under fixed land use but does not take account of any contribution the railway makes to transforming the Oxford to Cambridge Arc.

The level 2 BCR range reflects assumptions made about economic and housing growth in the Oxford to Cambridge Arc.

CS1 is an enabler of the full EWR scheme which has a level 2 BCR range of 0.5 to 1.1 (poor value for money). However, the strategic case for the scheme is a very strong one. This project is a key element of the government’s plan to transform the economic geography of the Arc. The benefits associated with this transformation are subject to a degree of uncertainty which means they cannot be captured in the BCR using usual appraisal methodology.

However, it is highly unlikely that these benefits, including new housing and local business development, could be delivered without significant investment in new transport infrastructure, including EWR.

It is, therefore, reasonable to consider the wider benefits associated with the government’s objectives for the Arc in considering the strategic case for this project. To demonstrate the scale of these benefits; if 56,000 homes were unlocked by EWR this would add a further £4 billion (present value, 2010 prices) to current monetised benefits.

This would take the programme BCR to 1.5. The government has designated the Arc as a key economic priority, the Autumn Budget 2017 included the National Infrastructure Commission (NIC) ambition for up to 1 million new homes and over 1 million new jobs by 2050.

It will, however, be essential to ensure that delivery and governance arrangements are in place to ensure the government’s wider goals in relation to the Arc can be achieved.

The DfT is working with the Ministry of Housing, Communities and Local Government (MHCLG) and other parts of government to enable this.

Feasibility

CS1 is considered to be feasible and, at present, there is no evidence of significant coronavirus (COVID-19) induced delays on CS1 delivery. EWR Co is monitoring the situation for CS1, as well as programme-wide.

In May 2020, an IPA-led Gate 3 Project Assessment Review was conducted to address the following areas:

• the proposed solution: does the proposed solution meet the business need?
• business case and stakeholders
• risk management
• review of current phase
• readiness for next phase

In November 2020, a follow-up AAP review was conducted and assessed the project as amber.

Conclusion

As the Accounting Officers for EWR, we have prepared this summary to set out the key points that informed our decision. If any of these factors change materially during the lifetime of this project, we will prepare a revised summary, setting out our assessment of them.

We have considered the reasons for continuing to spend on CS1 and are content that it is appropriate, given that:

• it is affordable within the CP6 portfolio
• HMT has now approved proceeding with CS1 and entry into target price contract and ministers remain committed to delivering CS2 and CS3, which are important to unlock CS1 benefits
• cross-government ministers have emphasised the importance of the Arc and EWR’s part to aid UK recovery
• although the level 2 BCR for CS1 is below 1, we are satisfied that, on the basis of the strength of the strategic case for the overall programme and the wider benefits not captured by the cost-benefit analysis the expenditure is likely to represent satisfactory value for money. It will however be essential to ensure that delivery and governance arrangements are in place to ensure the government’s wider goals in relation to the Oxford to Cambridge Arc can be achieved.

Permanent Secretary, DfT

Chief Executive, EWR Co

21 April 2021