Below are my current views, thoughts and concerns on the plan to complete the tramline to Newhaven – the “Newhaven Proposal”. I am not expecting everyone to agree with me, but I hope people will respect the fact that I have thought about it before reaching a view.
We apparently live in a binary world. People are Yes or No. They are Leave or Remain. In Edinburgh, they are either for or against completing the tramline to Newhaven.
The reality is different, however. Just like on many other binary arguments, most people are stuck in the middle between hardcore “extremists” on the tram debate. On one side we have people that want to extend the line at any cost, and on the other we have those that oppose it ideologically no matter what the benefits. For those groups, it’s an easy decision and those that oppose them just don’t get it. I actually envy their certainty.
That’s why it’s worth looking at the Final Business Case (FBC) prepared by the Council on extending the tram. It makes the case for the project, but it does so in a way that acknowledges the uncertainties and risks. It makes clear that what is needed is a considered judgment, not a knee-jerk decision.
The headline cost is £207.3m – this includes the Capital costs to completion (£156.7m), Support for business (£1.9m), Development costs (£5.5m), Risk (£31.9m) and Optimism Bias (£11.9m). It is acknowledged, however, that there is a 20% chance that the project costs will exceed £207.3m. Indeed, a more conservative approach to assessing the potential for the project to go over budget suggests there is 20% chance of the project costs exceeding £257.3m(!), and a 5% chance of it exceeding £334.8m(!!).
The Council Officers should be congratulated for presenting the costs in this way. They have chosen not to simply put a price ticket on it, but instead have sought to communicate the uncertainty in a responsible manner. The clear aim is to deliver the project for £207.3m, but their approach is clear that there is a 1 in 5 chance of a cost overrun.
Nonetheless, even if the project does hit £257.3m it is still estimated to deliver £1.25 of benefit for every £1 spent – i.e. a Benefit-Cost Ratio (BCR) of 1.25 . If the final cost is £207.3m, the BCR is 1.4. Whilst this is positive, a BCR of 1.25-1.4 is technically “low value for money“.
Although it is hard to compare the proposal with other projects as a lot of work had already been undertaken on the extension route (2007-14), it is in line with other light rail/tram projects such as Nottingham Express Transit Extension (BCR = 2), Leeds Supertram (BCR = 2.0), Sydney Light Rail (BCR = 0.8), Newcastle (Australia, BCR = 0.5), Forrestfield Airport Link (BCR = 1.4 ) and ACT Capital Metro (BCR = 0.5).
With all the focus on costs, it is important to remember that this project will deliver significant benefits. Leith is one of the most densely populated and deprived areas in Scotland and it is already congested. Making it easier to move people around is key to developing brownfield sites in northern Edinburgh. The tram will link these key development sites with key employment areas (City Centre, Edinburgh Park and the Airport). Let me be clear, developing these brownfield sites in north Edinburgh will take pressure off the greenbelt in my Ward (Colinton-Oxgangs-Fairmilehead).
Since 2016 the city has been planning for an additional 47,000 people by 2024, and an additional 102,000 by 2039, taking the total population from 492,610 to 594,712 over the 25-year period from 2014 to 2039.
This is a breath-taking pace, and such a pace cannot help but create new ills as it dispels old, new ignorance, new problems and new dangers. So it is not surprising that some would have us stay where we are a little longer to rest, to wait. But our city was not built by those who waited and rested and wished to look behind them.
The question is how we accommodate this growth, and it can’t be done by expecting everyone to drive around our capital. We have one of the UK’s best bus services, but is needs to improve. In parallel, we need to improve safety for those that are able to travel by foot and bike – particularly for children going to school. We can and must do all these things, but the FBC makes the case for the tram being the best way to add capacity for the congested route to Newhaven. Without it, the FBC is clear that congestion and pollution will constrain economic development.
Whilst these arguments hold water, the Edinburgh Tram has a troubled history. We once had an excellent network (many buses cover the same routes today), but the most recent incarnation has been a national embarrassment. A mixture of schoolboy errors and poor governance structures led to Edinburgh getting a fraction of the expected line at a much higher cost (from £375 million to the final £776m) than was ever feared. As a result, in 2014 the SNP Government set up the Hardie Inquiry in to the shambles, with Alex Salmond claiming with his customary bravado it would be “swift and thorough” and would cost an estimated £1m. Almost 5 years later it has still to report, and the costs look likely to exceed the £10.2m the Chilcot Inquiry into the Iraq War cost. All this may well be legitimate, but it feels like insult is being added to injury.
The monumental disaster we witnessed on our streets between July 2007 and May 2014 has three direct impacts on the proposal to complete the line to Newhaven:
- The public lost trust in the Council. This means that the Newhaven Proposal has come under significant scrutiny by a sceptical public and a new intake of Councillors. Whilst the Tram Team has welcomed the feedback, it is notable that other larger items of expenditure are subject to a far lower level of scrutiny (e.g. I have seen no questions about the £874.112m planned spend on Council Housing in Edinburgh over the next 5 years, or the £200m the Council plans to invest in schools).
- Lesson were learned by the Council. Unlike the 2007 project, the Newhaven Proposal will use standard contracts, the project team will have light rail experience, roads will only be closed once, robust quantitative risk analysis has been undertaken and there has been significant community engagement. It is important to note that Turner & Townsend was appointed by Edinburgh City Council to manage the project after Transport Initiatives Edinburgh was disbanded in August 2011, and after the 2012 Council elections a Labour led Council replaced the SNP/LibDem Coalition – this meant political control of the project fell to Councillor Lesley Hinds (not a passive character). Not only did she demand that the Scottish Government allow concessionary tram travel for Edinburgh’s older citizens, she had oversight of the project whilst it continued mostly on schedule and budget. Although Lesley Hinds has retired, the core Tram Team she worked with 2012-14 is behind the Newhaven Proposal and the FBC.
- Safety issues for pedestrians and cyclists are now better understood. There has been a great deal of focus on improving safety along the existing line, and those lessons have been reflected in the Newhaven Proposal. It is notable that there has been significant constructive engagement with Community Councils, Ward Councillors, Living Streets Edinburgh and SPOKES about the detailed design of the public areas around the route. Whilst I don’t expect any of these groups are absolutely happy, I think all will agree there have been significant improvements over the original proposals (I was clear that I could not support these).
Although the case for backing the Newhaven Proposal does, on balance, have some merit I do still have concerns, and these are detailed below.
- Optimism Bias – Although the people behind big projects are highly rational and logical, it is recognised that the human brain is sometimes too optimistic for its own good – something we all suffer from at times! To counter this, a 6% “Optimism Bias” has been added to the project. Although this equates to £11.9m, it is at the very bottom of the 6%-66% range recommended for “Non-standard Civil Engineering” projects. It is argued that this is because the project is at an advanced stage and many lessons have been learned from the 2007-14 debacle. However, there are two significant unknowns that could have real impact on the project: the “swift and thorough” Hardie Inquiry recommendations; and, the ongoing Brexit shambles.
Although the Hardie Inquiry are recommendations considered in the FBC as an unknown cost, there is no mention of Brexit. An earlier version of the FBC (AKA the Outline Business Case) made this comment: “…there is a risk that uncontrollable economic and market factors adversely affect the type, structure and overall cost of borrowing the Council is able to gain access to. Two significant events that are likely to be a factor in this are the impact of Brexit and the announcement and timing of any potential second Scottish Independence Referendum.” In a review of the FBC for the Council, Scott-Moncreiff say the Tram Team “has excluded uncertainty surrounding Brexit from its Quantitative Risk Analysis over the construction costs and the potential impact of Brexit has not specifically been referred to within the FBC or financial model.”.
- Sensitivity Analysis – The FBC considers the “sensitivity” of the project finances, by varying key parameters (such as travel time and economic development) and assessing the impact on the BCR. The analysis, as presented, only varies these parameters one at a time in simple “what if” scenarios and does not consider outcomes where two or more parameters vary. Scott-Moncreiff made this comment: “We note that the FBC analyses the sensitivity of each of these components individually, and does not consider the cumulative impact of more than one of these components.”
- Environmental Impact Statement – This apparently has not been updated since 2003 and the FBC makes the point that earlier work “implicitly suggests” that there were no “unacceptable” environmental impacts. This is hardly reassuring.
- Strategic Support – The project is of strategic importance to Scotland’s capital and the wider region, yet the Council is expected to fund it with no support from the Scottish Government. Additionally, Transport Scotland have made no comment on the FBC (nor has comment been sought). I find this highly questionable, particularly when this is seen within the context of the £125m the Scottish Government gave the Council (without it even asking) in the City Deal to upgrade Sheriffhall Roundabout.
- Lothian Buses – The £207.3m for the project will be funded by ticket income from the new/existing line and a £20m (£2m per year for 10 years) exceptional dividend from Lothian Buses. There is concern that the impact of paying the exceptional dividend combined with losing passenger income along the Newhaven line will place undue pressure on Lothian Buses.
- Alternative Projects – Although it should be noted that the Newhaven Proposal should put no demand on existing council budgets, it is true that the ticket income and exceptional dividend could be spent in other ways with the aim of delivering similar benefits, perhaps on a wider scale. The aim of this project appears to have been focused on extending the line, rather than delivering the benefits associated with it.
In summation, I hope I have shown the project does have significant benefits and a degree of uncertainty associated with it, but how those are balanced is tainted by the 2007-11 segment of the 2007-14 project. What is clear, however, is that there is a need to cut congestion and stimulate development in the north of Edinburgh, and right now completing the tramline to Newhaven appears to be the best way of doing that. I say that accepting that the £207.3m target price (BCR = 1.4) has a 1 in 5 chance of being exceeded, but in the knowledge that the Council has a £50m contingency in place if needed (BCR = 1.25).
The full set of CEC papers on the Newhaven Proposal are here.