The decision is due to be made next week when ministers, led by Lord Wakeham, leader of the House of Lords, meet bankers, who have lent over pounds 600m to Canary Wharf, in an attempt to save the pounds 1.8bn project to extend the Jubilee underground line to the Isle of Dogs.
Indications from the Conservative Party conference are that the Jubilee line extension may be scrapped. John MacGregor, the Secretary of State for Transport, was angered over reports that the project to build the link to Canary Wharf had become the first victim of the public expenditure cuts, and will fight for the project at a meeting of the Cabinet committee on public expenditure chaired by the Chancellor, Norman Lamont.
The banks have been told that conditions placed on their offer to put the equivalent of pounds 180m into the Jubilee line project - namely that the Government locates the civil servants at Canary Wharf - may be too onerous. Bankers have estimated that without the Jubilee line, Canary Wharf would be worth pounds 200m less than with it.
Steven Norris, the Minister for Transport in London, was negotiating with the banks behind the scenes at the Tory party conference. It is understood that the banks have said that moving the civil servants to Canary Wharf is worth pounds 60m to the project, and if they are not going the banks' contribution to the Jubilee line will be reduced accordingly.
The DoE will have to relocate because its triple-towered building must be demolished. But despite Michael Howard, the Secretary of State for the Environment, saying he was keen for his department to move to one of four locations in Docklands, including Canary Wharf, he has refused to commit the DoE to take a lease for a new building.
Mr Howard believes that, with property values falling in Docklands, he may be able to get a better deal in other vacant office blocks. One ministerial source said: 'The National Audit Office will crawl all over it, and we will have to show that we have got the best deal possible; otherwise, we could be in trouble.'
The Government has hired Knight Frank & Rutley, the chartered surveyors, to assess potential locations for the DoE. It is understood that Knight Frank has said that the best value in the open market is in the Docklands but that the Government would gain better value by using spare space in Whitehall thrown up by cuts at other departments.
A recent memorandum to property managers at government departments said that, where possible, departments should 'co-locate or relocate' within existing space rented or owned by the Government.
However, although there may be enough spare space to relocate the DoE, the Government has other office problems because it may have to relocate the Department of Trade and Industry from its Victoria Street offices, which are are becoming unsafe.
The prospect of the Jubilee line extension being cancelled brought howls of indignation from all parties involved.
London Underground said it had already spent pounds 150m on the project, bringing together a 500-strong team which may have to be dismissed. 'If the extension was cancelled this would be a disaster for London and give the world a signal that the British capital is going nowhere,' Wilfrid Newton, chairman of London Underground, said.
Ernst & Young, the administrators of Canary Wharf, are angry that the Government may reject an offer from the banks that is almost identical to the deal the Government struck with the developers of Canary Wharf, Olympia & York. It is understood that Ernst & Young believe that the infrastructure without the Jubilee line would be good enough to handle the letting of all 5.5 million square feet of office space built at Canary Wharf, but not enough if the project is completed as originally conceived, creating 13 million sq ft of space.
Wimpey Group, one of the contractors likely to work on the extension, was livid. Frank Kennedy, an executive director of Wimpey, said: 'This would be a senseless and savage decison for London and the South-east economy, and to scrap the project when the construction industry is on its knees would not just be brutal but extremely ill-judged.'Reuse content