NAO issues warning to government over £7bn East West Rail project

The costs of the £7billion East West Rail project may outweigh the benefits, the National Audit Office (NAO) warns in a new report.

However, the project may still be justified because it will unlock wider economic growth in the Oxford to Cambridge area, the NAO says. But it stresses that the government must make clear how its growth plans for 250,000 homes in the Cambridge region fit with the proposals for East West Rail – and whether they can be delivered together.

The NAO assessed whether the two approaches to growth in the region are compatible, with the East West Rail business case dependent on development along the rail route.

The independent public spending watchdog’s report says it’s “not yet clear” how the two approaches to growth are aligned. It says, as a result, the government risks the planning for both projects being at cross purposes.

The report also reveals that full electrification of the line could cost up to £1billion, stating that diesel-powered trains will run as an interim measure when the first section of the route opens.

That is sure to prove controversial, with the line due to run through the constituency of Anthony Browne, the Conservative MP for South Cambridgeshire, who was recently appointed as the minister with responsibility for the decarbonisation of transport.

The NAO also explains that the Department for Transport (DfT) cost-benefit analysis suggests that the costs of the project may outweigh the benefits.

In 2021, DfT assessed that every £1 spent on the project would result in between 50p and £1.10 in benefits.

The calculated benefits have reduced further since, with DfT now estimating that there would be between 30p and 60p of benefits for every £1 spent on connection stages 2 and 3.

However, the DfT’s most recent conclusion – in May 2023 – was that there is a strong strategic case for the project.

“As with many transport projects, the rationale for East West Rail does not rest on the strength of the benefit-cost ratio for the project alone – which is poor – but on its wider strategic aim of overcoming constraints to economic growth in the Oxford-Cambridge region,” the newly-published report states.

Gareth Davies, head of the NAO, said: “The rationale for East West Rail rests on its wider strategic aims of increasing economic growth in the Oxford to Cambridge region.

“To maximise the economic benefits from its investment in East West Rail, government must ensure stronger strategic alignment between departments and with wider local growth initiatives, so that there is a shared, coherent vision for the future of the region, and the contribution that the East West Rail project will make to it is clear.”

East West Rail will run from Oxford to Cambridge via new stations at Tempsford in Bedfordshire and in Cambourne. It is due to then to take a southern route through communities west of Cambridge to link up with the new Cambridge South station.

The NAO report gives a glimpse into the results of East West Railway Company’s 2019 consultation, which have yet to be published, revealing that more than 7,000 responses were received.

It says that respondents identified ‘environmental impacts and opportunities’ and ‘benefits to transport users’ as the two most important factors that should inform decisions on route options.

In decreasing importance were ‘supporting economic growth’, ‘cost and overall affordability’ and ‘supporting delivery of new housing’.

The independent public spending watchdog’s report examines the evolving context for East West Rail, the Department for Transport’s assessment of its benefits and costs, and the arrangements in place to deliver it.

The investigation was launched in response to correspondence from a MP raising concerns about the East West Rail business case and the strategic need for the project, which may have been affected by the announcement of Cambridge 2040.

The Cambridge 2040 project could see 250,000 homes built in Cambridge over two decades to support investment in the sciences and technology sectors.

The government announced plans to support economic growth in the region between Oxford and Cambridge in the 2017 Autumn Budget. The plans included a new road project, ambitions to build up to one million homes, and investment for East West Rail, which the Department for Transport expects will cost around £6bn-£7bn.

The improved connectivity is intended to make the region more attractive to businesses and new housing development, supporting growth and jobs.

However, in March 2021, the DfT cancelled the road project due to value for money concerns, and in July 2021, the government confirmed its approach was to support locally-led planning for housing.

Separately, in July this year, the Department for Levelling Up Housing and Communities (DLUHC) announced a new long-term plan for locally led housing development, including plans to expand Cambridge.

DLUHC intends this to enable significant housing and business development in a new section of the city, while the business case for EWR depends on development along the rail route.

The two departments are now working together to align plans ahead of East West Railway Company’s statutory consultation on the rail route, planned for 2024.

The DfT and railway company are considering options for how trains will be powered, including partial electrification or alternative approaches to full electrification of the line, which could be delivered at a lower cost.

The Treasury has recently established a cross-government board to support the development of a shared vision for growth associated with the rail line.

To improve the chances of unlocking the economic benefits from its investment, the NAO recommends that government departments and the board should establish effective cross-department governance that complements and bolsters the local stakeholder partnerships being created in the region, to focus on achieving the benefits of the railway line.

A spokesperson for East West Railway Company said: “The NAO report confirms what we set out when we announced the route – that the case for EWR rests on the economic benefits that a new railway brings in terms of new businesses, jobs and investment, rather than just improved connectivity alone.

“As we’ve said, and as the NAO makes clear, not all of these benefits are captured in the conventional benefit-cost ratio (BCR), and therefore it is essential that we work closely with partners in government and locally to make sure these benefits are delivered for the communities that we serve.

“The report acknowledges that we are already doing so, but also makes clear that more needs to be done. We welcome that – and are committed to working with government to take forward the NAO’s recommendations.”