Tuesday 15 March 2016 11:32 am

George Osborne is right to back Crossrail 2 – but London should pay for it

Crossrail hasn’t even opened but already attention is turning to its £32bn successor. The second stage would relieve congestion on the Northern and Victoria lines, and connect Surrey and Hertfordshire with central London. The capital’s business leaders are already warning that any repeat of the wrangling that so delayed the first line would be disastrous. After all, the new Elizabeth Line was first proposed in the 1940s. Crossrail 2 has won the endorsement of George Osborne’s newly-formed National Infrastructure Commission. Last week its chair, Lord Adonis, cautioned that “the capital will grind to a halt unless significant further improvements are made”. Osborne today gave it the green light.

But big infrastructure comes with a big bill. The Infrastructure Commission estimates that the Treasury would need to stump up just under half of the current £32bn price tag for Crossrail 2. With the outlook for the public finances deteriorating and the chancellor expected to announce further serious spending cuts tomorrow, this is a big ask. Is it really fair for taxpayers from across the whole of the UK to be asked to pick up such a large bill for yet another shiny London prestige project?

London’s success undoubtedly benefits other parts of Britain and few would argue with the fact the capital faces chronic pressures on its transport system. But this time the chancellor should say no to opening the national cheque book to pay for London’s latest infrastructure boost. To do so would be to prolong the “Whitehall knows best” era of decision-making that the optimistic among us thought was, at last, coming to an end.

If Osborne does decide to stump up for Crossrail 2, the cries of anguish from elsewhere in England would be acute and not without justification. The £14.5bn already spent on Crossrail 1 amounts to a massive nine times the amount earmarked for all the rail projects in the so-called Northern Powerhouse, according to analysis of the government’s infrastructure pipeline. In a bid to save a few pennies, ministers had already temporarily shelved the planned electrification of the Transpennine and Midland Mainline railways. This meant that, although they have subsequently pressed the restart button, these vital projects are set to be delivered at least four years late. No wonder people are sceptical of today’s other announcement from Osborne of a new high speed 3 railway line for the north.

There is an even more dramatic reason for the chancellor not to prioritise spending scarce national cash in the capital. In the Productivity Plan that Osborne published last June, he proclaimed productivity was “the challenge of our time”. Yet new research from the Centre for Progressive Capitalism shows that, far from his policies helping to close the productivity gap between London and the other big cities, it has in fact been getting wider. The story is the same wherever you look, be it Leeds, Manchester or Birmingham. It is most dramatic in Liverpool, where the productivity gap with the rest of the UK has doubled from 5 per cent in 2009 to 10 per cent in 2014. London sits 30 per cent ahead of the UK average.

That doesn’t mean that I think the chancellor should say no to Crossrail 2. Those calling for a speedy decision are right. London needs Crossrail 2, but London needs to pay for it.

So when he stands up at the despatch box, Osborne should give London the means to meet the huge bill itself without relying on the rest of the country.

That mechanism is the decidedly unglamorous, but decidedly useful, tool of business rates. It is already mooted that a fifth of the funding for Crossrail 2 would come from a supplement on the rates charged on shops, offices and factories. A similar mechanism helped fund Crossrail 1. The chancellor has said that, by 2020, local councils can keep all the revenues from business rates. But he needs to let business rates do more if big infrastructure projects are to be financed locally.

London has been booming and there is a simple way to capitalise on the capital’s growth. If there were an annual revaluation of how much in business rates a property should pay, it would create a virtuous circle – as the public money spent on new infrastructure makes the properties served worth more, so the amount raised in rates increases. In short, those businesses that benefit get to pay more of the bill.

Our modelling shows that, over the next 25 years, London could raise an extra £70bn in business rates above current trends – more than twice the cost of Crossrail 2. The Greater London Authority could then borrow against these future revenues to provide the upfront investment needed to fund the project. What’s more, Manchester and Leeds could both raise £5bn, while Birmingham could add almost £7bn.

Thus, if he wants to be like a modern day man from Del Monte and be remembered as the chancellor who likes to say yes – in this case to infrastructure the country so desperately needs – Osborne must loosen the iron Treasury grip and give London the means to finish the Crossrail job.

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