Written evidence submitted by Heathrow Southern Railway (MTP0013)

Introduction

Heathrow Southern Railway (HSR) is a privately financed company formed in April 2016 to take forward construction and management of a new rail connection from Heathrow Airport to the existing national rail network at Staines and Virginia Water. The project comprises eight miles of new electric railway, mostly in tunnel, at a cost of c£1.5bn, with minimal environmental impact.

HSR would enable operation of two new profitable rail routes:

 Basingstoke/ – Woking – Heathrow – Old Oak Common – Paddington  Waterloo – Clapham Junction – Richmond/Hounslow – Staines – Heathrow

The project is fully aligned with the need for infrastructure investment to be consistent with a sustainable, net zero-carbon future, while at the same time supporting economic recovery following the coronavirus pandemic and the need to “Build Back Better”.

Transport Infrastructure strategy and priorities

The project would provide major, environmentally sustainable improvements to access to Heathrow from South West and South , and , areas which are overwhelmingly dependent on road access to the airport at present. It is clearly aligned with the key government priorities of global competitiveness, net zero carbon and “levelling up”:

 Post BREXIT, major investment to improve Britain’s competitiveness is vital. While we judge it is unlikely that Heathrow Airport will be expanded by building a third runway, it is clear that the airport will remain Britain’s principal international gateway for travel across the world, and improved, sustainable access to Heathrow will be vital for delivery of economic growth. Easy access to the areas served is also critically important for inward investment.  HSR will significantly increase rail’s modal share of total journeys to and from the airport, directly reducing congestion on the road network around Heathrow, particularly on the South Western section of the M25, one of the most congested sections of motorway in Europe. HSR Ltd’s scheme is forecast to remove around 3 million car journeys from the road network each year, around half of which are taken from the M3/M25/M4. We estimate this will avoid the release of 2 tons of NOx and 8,600 tons of CO2 into the atmosphere. Furthermore, rail access to Heathrow will be quicker and more reliable than travelling by road, and cheaper than car park charges or taxi fares.  HSR will also directly benefit London Boroughs such as Hounslow, Wandsworth and Lambeth which contain areas of long term structural deprivation as well as cities further afield such as and , both of which have similar challenges. Fast, convenient links to and from Heathrow are potentially transformational for these communities. It is increasingly recognised that “levelling- up” is not just about the differences between regions but the disparities in opportunities within them.

While the coronavirus pandemic is likely to significantly impact transport demand in the short and medium term, the number of passengers using Heathrow will almost certainly recover strongly up to the capacity of the two runway airport, given the history of suppressed demand at Heathrow and the likelihood that, in particular, British Airways and Virgin Atlantic will concentrate their London operations there.

HSR is not in any way dependent on expansion at Heathrow and southern rail access to the airport has previously been identified by the Committee as essential even for a two runway Heathrow.

Appraisal and funding of transport infrastructure

HSR first submitted a Strategic Outline Business Case (SOBC) to the Department for Transport (DfT) in September 2016. The SOBC showed that the project could be entirely privately financed, with the additional net revenues fully covering the capital costs of the project. HSR represents exceptional value for money and is potentially a pathfinder for private sector investment in rail infrastructure.

Despite initial promising discussions, then a DfT “Market Testing” exercise in 2018, there has been little or no substantive progress in developing southern rail access to Heathrow. Progress has inevitably been delayed by BREXIT, issues around Heathrow expansion, and more recently the coronavirus pandemic. The project was discussed in the House of Commons on 22 July 2020 as part of an Adjournment Debate on the economic benefits of a southern rail link to Heathrow secured by Guildford MP Angela Richardson.

HSR believe that the Thames Tideway project is potentially a successful precedent as a delivery model for the project. From when HSR was first established as a project, Tideway has been an important reference point, not least because of its success in structuring a competitive funding solution that achieved an unprecedentedly low cost of private capital (having a bid Weighted Average Cost of Capital of less than 2.5%). Indeed, we believe that our robust business plan means that HSR would not need as significant a package of Government support as that needed for Tideway. The project would not need any Government subsidy, provided that an appropriate usage undertaking was available to provide some assurance of long term revenues. This is analogous to the contractual structure for the HS1 concession, and can be taken forward within the well-tested regulatory framework of a regulated asset base, overseen by the Office of Rail and Road.

The overall cost of the project is manageable at c£1.5bn, while of sufficient size to generate strong investor appetite. Furthermore, HSR already has a considerable body of design work completed by its co-investor AECOM, so the technical challenges are therefore much less than for Tideway. However, the regulatory settings exhibit striking similarities, as do the likely sources of funding for the capital and operational cost of HSR, although the farebox revenues, unlike waste-water tariffs, are forecast, based on modelling which shows strong modal shift. Given that these revenues are expected but not mandated, HSR has already clarified with the Civil Aviation Authority that any tail-risk of a revenue shortfall might reasonably fall to Heathrow Airport Ltd in proportion to the benefit they derive. In this case there would be no financial liability arising to the public purse.

Richard Morse, Deputy Chair of Bazalgette Tunnel Limited, the company responsible for the delivery of the Tideway project, has been a non-executive director of HSR Ltd since 2017, and our approach has been informed by his Tideway experience.

With the nation’s finances under pressure in the wake of the pandemic, and the Government prioritising rebalancing the country through public investment in infrastructure for the Midlands and the North, our strong business case means we can access private finance, enabling this key project to become the pathfinder for schemes funded in this way.

Oversight, accountability and governance of transport infrastructure projects

Unless transport projects have strong Ministerial backing at the highest level, for example, High Speed 2, our experience suggests that DfT does not have the experience, skills or determination to take forward rail infrastructure projects on a timely basis. In 2018, the Transport Secretary invited the promoters of ideas for privately financed railway infrastructure to come forward with their ideas, identifying southern access to Heathrow as the pathfinder scheme. We are still waiting for a clear timescale and process for turning this concept into reality. It is essential that major initiatives of this kind are sustained beyond what can often be the relatively short tenures of individual transport Ministers if investors are to be confident that the time, money and effort they risk in developing proposals are to be worthwhile.

Factors influencing the cost of transport infrastructure in the UK

Until recently, there has been little internal challenge to project costs within Network Rail, which has effectively been a monopoly supplier. In addition, its project development has been long drawn out, bureaucratic and expensive. Whilst we recognise that Network Rail’s Chief Executive is urgently driving reform to the company’s culture and processes, this is still a major challenge.

Private sector construction of HSR would provide a clear comparator, accelerating vital change within Network Rail, with a strong likelihood of achieving faster delivery at a lower capital cost.

Summary

The economic, environmental and financial case for HSR is very strong, and the project is clearly aligned with key government policies. Applying DfT’s standard criteria, the project delivers very high value for money. HSR will deliver significant modal shift, faster, cheaper and more convenient journeys and contribute towards the net zero carbon emission target.

We believe it would now be timely to take this proposal forward with urgency. Further information

We would be delighted to give oral evidence to the Committee, and/or provide further information.

January 2021