London can meet the government’s challenge to pay half the cost of Crossrail 2, and for funds to be raised during construction, through some combination of: a fare increase on TfL and national rail services that will benefit from the new line; a council tax supplement; the business rate supplement; and capturing land or property value uplifts – and then borrowing against those revenue streams to release funds before the line opens in the 2030s.
The government has backed plans for Crossrail 2, a new line connecting homes across the South East with jobs in central London – but challenged London to meet half the cost to allow government to also invest in transport schemes around the UK, like Northern Powerhouse Rail. With Crossrail 2 expected to cost £25-£30bn, that leaves London having to find up to £15bn as the line is built.
Transport for London estimates that replicating the Crossrail 1 funding package, which includes a Business Rate Supplement, contributions from development along the route and the expected net operating surplus once the service is up and running, could generate the money needed. But only some of this will be available during the construction period for Crossrail 2, as revenue streams such as future fares only come through once the line is open. Chris Grayling, the Transport Secretary, and Sadiq Khan, the Mayor of London, have set up an independent affordability review to examine the options for filling the funding and financing gap ahead of the autumn Budget.
London First, an influential business group that represents over 200 employers in the capital, has put forward a ‘Paying for Crossrail 2’ analysis following input from its members, including investors. It estimates that London needs to find around £200m a year during construction to support additional borrowing and help meet its share of the up-front costs. Its analysis shows that London can find this money through some combination of:
- A one-off fare increase on TfL and relevant national rail services in the early 2020s. A 1% rise on TfL services would generate around £30m p/a. This would be equivalent to an extra £1.50 a month for someone using a monthly travelcard for zones 1-3. A similar rise for South Western Railway and West Anglian Main Line passengers who would benefit from Crossrail 2 would generate around an extra £5-10m p/a. This would be equivalent to around an extra £2 – £2.50 a month for commuters from places such as Epsom and Broxbourne who would see their services transformed.
- A council tax supplement, as used for the London 2012 Olympic Games. A supplement of £40 for a Band D London property – less than a pound a week – could generate around £150m p/a. A similar precept for districts with a Crossrail 2 station in Hertfordshire and Surrey would generate around an extra £8.5m p/a.
- A Business Rate Supplement for larger businesses, as was used for Crossrail 1. TfL’s current proposed funding package for Crossrail 2 assumes the existing Crossrail Business Rate Supplement of 2p in the £ will continue. Further contributions would be difficult, but as an example an extra 0.5p increase as part of a wider package could be worth around £68m p/a.
- Retaining a proportion of stamp duty or business rate uplifts, as was used for the Northern Line Extension to Battersea. By transforming transport links in areas it serves, Crossrail 2 will generate significant increases in taxes such as business rates and stamp duty for the Exchequer. A proportion of this uplift could be ringfenced to help pay for the scheme.
- Land value capture. Crossrail 2 will generate significant windfall gains for land and property owners along the route. Further work is needed from the review to identify and agree new mechanisms for capturing these uplifts with a growth-promoting planning policy.