In December 2016 we wrote about the curious absence of the Metropolitan line extension to Watford (the Croxley Rail link) from the TfL Business Plan. Sources at the time suggested that the extension was facing a funding shortfall that TfL were unwilling to meet. TfL have now officially confirmed that this is the case.

Taking the Met to Watford

Originally proposed and managed by Herts County Council, 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.

Since its inception, the scheme has had a troubled history. Projected costs continued to climb and eventually the DfT, one of the main contributors of funding, indicated that they would only continue to back the project if management passed to London Underground. Then-Mayor Boris Johnson signed off on this plan and also agreed that TfL would contribute additional funding from their Growth Fund.

From the words of David Hughes, London Underground’s Director of Major Programme Sponsorship, at the time, it was clear that TfL themselves weren’t particularly enthused by the idea of taking it over:

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.

Nonetheless, work on enabling works for the project began.

Costs continue to climb

Hughes’ lack of enthusiasm was in no small part due to the suspicion that further costs were lurking on the horizon. After TfL’s initial, rough cost scoping exercise it was clear that what had been originally forecast by Herts as a £115m project was already likely to run closer to £280m.

By December 2016, when Herts’ initial contractors Taylor Woodrow were removed from the project, LR sources were suggesting that TfL’s final, full scoping of the project costs ran even higher than that:

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.

We suggested at the time that this meant a funding gap now existed. More critically, we pointed out that if this were the case it would be a gap that TfL themselves would likely not want to fill.

The clue as to why can be found in the fact that Croxley was originally put forward by Herts rather than TfL themselves. This is because, by TfL’s own metrics, the primary benefits of the scheme accrue to Hertfordshire (more specifically the citizens of Watford) rather than London. They weren’t alone in this thinking. Indeed a GLA report into the way in which TfL’s Growth fund (from which Croxley was drawing its TfL contribution) was governed highlighted that Croxley actually had the weakest case for funding from this particular financing pool (you can find more details on our previous post).

This left Croxley in a perilous position. In a new age of austerity, it’s financial future now depended on an organisation who had always been lukewarm about its benefits to the citizens to whom they were accountable. Worse, its transfer, as a project, to that organisation had been as much a political move as a logistical one. At the time, with an election looming, London was run by a Conservative Mayor sympathetic to the issues of a Conservative MP and local council, and to a Conservative DfT and Treasury. This is not the situation today.

The cost overrun becomes official

Despite these changing circumstances, back in December both the Mayor’s office and TfL refused to officially confirm that a further funding gap existed. They acknowledged that it was under review, but indicated that its absence from the Business Plan was simply due to space.

With the current general election now having passed, however, a discreet update on the TfL website finally, officially confirms both the new project cost and that they are unwilling to meet the funding gap (bolding ours):

Since taking over responsibility for designing and building the extension from Hertfordshire County Council in 2015, we’ve done detailed design work and reviewed the costs of the project. This work now shows that the project cannot be completed with the current funding package of £284.4m agreed at the time. Our current estimate is that more than £50m will be needed on top of that. We do not have the funding to cover these additional costs. The Mayor of London believes that the Department for Transport and the other funding partners need to agree how the additional costs will be met. This is now being discussed between the funding partners.

The critical sentence in the update is the one in bold, because it highlights what will likely decide the future of this Metropolitan line extension – politics.

The simple truth is that since costs began to escalate Croxley has largely been dependent on the continued support of the Mayor’s office. Whilst that office was held by a Conservative Mayor, that support seemed all but guaranteed. For Sadiq Khan, however, the mathematics are different. On one side of the equation stands a project that he can easily argue yields no direct benefit to the voters to whom he is accountable, although he would need to weigh up whether the optics of being the first Mayor to cancel a Tube extension would be negative in a broader sense. On the other stand the manifesto commitments (such as the fares freeze) he made and a need to reduce costs in order to meet them. When combined with the severe lack of love that exists between Khan and newly-returned Secretary of State for Transport Chris Grayling, the latter is likely looking a far more acceptable option to the current Mayor.

The final, potential, fly in the ointment

There is, however, one final hurdle that TfL will need to overcome if no further central government funding is forthcoming and they wish to cancel the project entirely. This is the wording of the letter written by Boris Johnson when he committed TfL to support the project.

In Parliament back in December Andrew Jones of the DfT made the department’s own position on Croxley clear (again, 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 commitment the DfT seem intent on holding TfL to was made by then-Mayor Boris Johnson in this letter. Reading it highlights just why the DfT feel safe in pushing any extra cost back onto TfL.

It also highlights, however, just how clearly the decision to pass the project over to TfL was as much political as logistical. It reveals that the original cost, which the Mayor accepted on TfL’s behalf, was based on a a P50 estimate – something that the Treasury’s own Green Book would suggest is not really appropriate.

Indeed the Green Book says that no one should form an agreement based on a project budget which contains a level of uncertainty when significant elements have yet to be reliably assessed. In other words, a P50 estimate isn’t really enough.

As one of our commentors pointed out back in December:

[W]hy on earth did the parties sign up to an agreement with such a poor level of certainty on the estimate (P50)… one therefore must ask why the former Mayor effectively forced TfL to accept a budget which was still based on relatively uncertain numbers *and* to carry the cost overrun risk. Did he understand what he was taking on on behalf of TfL?? The DfT, HCC, Watford Council and the local LEP must have thought Christmas had come when they were all relieved of any cost risks on their respective contributions.

The betting at LR Towers is that if Grayling and the DfT try to rely too heavily on the wording of the former Mayor’s letter, then the current Mayor may well start asking the same question very loudly, and publicly, indeed.