CrossRail finance plan runs into opposition

THE Department of the Environment is threatening to block a radical proposal from the Corporation of London to provide up to pounds 800m towards the building of the long-delayed CrossRail project.

The Corporation, the local council for the City of London, has proposed earmarking up to pounds 50m a year of its income from business rates to back loans to CrossRail.

The pounds 2bn project is to link British Rail lines coming from the east of London to the west, via a tunnel from Liverpool Street station to Paddington. It was meant to be one of the jewels in the crown of joint funding between private business and the public purse, but it has been held up for two years while the Department of Transport has delayed giving the scheme the green light.

The latest development - the appointment of consultants to analyse the project - is now threatening to put CrossRail back 10 years.

To ensure the link is built, the Corporation has devised a scheme in which it would provide a large part, if not all, of the private finance needed.

The Corporation currently raises pounds 700m in rates. It spends just pounds 70m on its services, and the rest is distributed to councils that are less well off. A review of the rateable value of the City is expected to bring a dramatic reduction in the rates from 1 April 1995, to around half the present value.

Following an approach from London First, the business lobby group, the Corporation has proposed to raise around pounds 50m a year via a levy on top of the rates. This money would be used to secure borrowings from international banks that would then go to CrossRail. At current interest rates, more than pounds 800m could be borrowed in this way.

Michael Cassidy, the chairman of the Corporation's policy and resources committee, said many of the leading ratepayers in the City had been sounded out, and they were prepared to see a smaller reduction in their rates if the money was spent on transport projects such as CrossRail.

However, the Department of the Environment is cool about the scheme. A spokesman said the Corporation would need primary legislation to go through Parliament if it was to raise the levy, and this would need the support of the Environment Secretary, John Gummer. Indications are that he would not support the move, because it would amount to a local authority raising its own extra revenue.

The Treasury is concerned that such a scheme would upset its public spending targets. However, a Treasury official said the Corporation could easily fudge the matter. 'It is all a case of presentation,' he said. 'If a local authority wants to raise money, that is within its powers, why should we stop it?'

The CrossRail project has already cost British Rail pounds 100m in design and pre-construction work. A group of consultants - including Bovis, Alexander Gibb & Partners, Schroders, the MVA Consultancy, Geoconsult and P&O Developments - have been asked to produce a cost-effectiveness study on the project by the end of this month.

If it recommends significant changes to existing plans, the Department of Transport privately admits the new specifications would not be ready until well into January. That could seriously delay the implementation of the project, even if the financing arrangements were approved.