Annex F - Lambeth Residents concerns on NLE funding and financing This dossier sets out the ongoing concerns

which residents feel about the proposals as set out in the current TWAO application and the accompanying estimate of costs and funding statement. In particular, we are concerned that the financial costs of the project may be understated, and that any cost overrun could lead to pressure on budgets for environmental mitigation measures which are so needed in order to protect Lambeth residents. Estimate of costs The Estimate of costs in the TWAO application currently suggests that the overall scheme will cost 868.3m, expressed in 2012/3 prices. Roughly a third of this budget would be used for tunnelling, and another third would be spent on stations and depots. It is worth noting, for reference, the history of cost escalation in the development of this project, as set out in the following table Date Feb 2008 Dec 2008 Dec 2009 Aug 2010 Oct 2010 Sep 2011 Consultant Mott McDonald1 Parsons Brinckerhoff 2 SKM3 Steer Davies Gleave4 Corderoy5 Corderoy6 Projected cost 282m 459m 730m (including optimism bias and bus provision) 506m 564m (not including 66% optimism bias) 739m including optimism bias 915m outturn prices 750m-950m 850m-900m including optimism bias 806m Q1 2010 prices Base date for prices ? Q1 2008 prices ? Q1 2008 prices Q1 2010 prices Q1 2010 prices Outturn prices Nov 2011 Jan 2012 Sep 2012 Press report 7 TfL evidence to GLA 8 Corderoy 9 ? ? Q1 2010 prices

1 Quoted in SDG Feasibility Report accessed in 2011 at

http://northernlineextension.com/media/5536/sdg_feasibility_report_feb_08.pdf 2 http://northernlineextension.com/media/5531/pb_feasibility_report_final_081208.pdf accessed in 2011 3 http://www.tfl.gov.uk/assets/downloads/corporate/oapf-nine-elms-transport-study.pdf 4 http://www.steerdaviesgleave.com/sites/default/files/NATA%20Assessment%20%20PDT%20100315.pdf 5 http://www.lambeth.gov.uk/NR/rdonlyres/5787A725-8827-4818-8C4D278FB7699CFA/0/VauxhallNineElmsBatterseaDevelopmentInfrastructureFundingStudyFin alReportOctober2010.pdf 6 Quoted in KPMG paper for VNEB Strategy Board on 15 Sep 2011 7http://www.thisislondon.co.uk/standard/article-24015162-green-signal-for-northern-lineextension-and-25000-new-jobs.do 8 http://www.london.gov.uk/moderngov/mgConvert2PDF.aspx?ID=7859 9 Quoted in KPMG paper for VNEB Strategy Board on 4 Sep 2012

933m outturn prices

Outturn prices

When compared against the current cost estimate in the TWAO application, it is clear that costs have risen further above the previous cost estimates. When adjusted to nominal outturn prices, the TWAO itself believes that the overall cost would be only fractionally under 1bn almost a doubling of the construction cost estimate from late 2008. Costs of environmental mitigation measures TfL's TWAO application does not provide any comfort that the costs of environmental mitigation measures are assured principal of which would be full noise mitigation measures along the whole track (including, but not limited to, resilient rail support and floating track beds) and compensation grouting to prevent subsidence. There is no guidance in the TWAO Estimate of Costs as to the provisions which have been set aside for mitigation measures of any kind. A public inquiry should be held, in order to allow proper scrutiny of TfL's planned budget. Financing strategy TfL is proposing a financing solution under which around three quarters of the money for the NLE will come from incremental business rates, for which a deal has been agreed between the Councils, the GLA and HM Treasury on the creation of an Enterprise Zone. The key principle underlying this is that the GLA would be entitled to retain, for 25 years, any incremental business rates generated in the VNEB region which otherwise would be returned to the Exchequer. This money as well as any dedicated GLA budget - would be retained by the GLA for the explicit purpose of repaying Government-guaranteed loans that the GLA will take out to finance construction of the NLE. The remaining quarter will be funded from s.106/CIL payments. Serious concerns about lack of transparency on funding and financing Details about the robustness of the funding and financing plan for the Northern Line Extension are almost entirely lacking, either in the TWAO application or any other public source. In particular, there is no information about the forecast levels of incremental business rate revenues which are assumed from the Enterprise Zone and which will be crucial in allowing for repayment of any financing loans taken out in order to pay for the construction. Moreover, incremental business rate revenues provide one of the mainstays for the entire business case for the NLE ie that it is necessary in order to encourage additional economic activity in the VNEB area that otherwise would not come about. A public inquiry should test the evidence supporting any financial model relied on by the developer in order to justify its funding statement. Discussion may also be justified at a public inquiry as to the timing of assumed incremental business rate revenues, which according to the KPMG report to the VNEB Strategy Board in September 2012 are heavily weighted towards the end of the loan period envisaged in the Enterprise Zone agreement. There is therefore a significant risk that the GLA will not receive sufficient revenues in earlier years in order to service the Government-guaranteed debt.

The effect of any shortfall will be a reduction in GLA budgets and potentially a call for assistance from the London Boroughs of Lambeth and Southwark. In either of these circumstances, it is local amenities which would suffer, and in particular the capital budgets for other consequential infrastructure improvements made necessary by the rapid urbanisation of the VNEB area as set out in the 2010 Development Infrastructure Funding Study . Existing residents along the line would suffer most of all, if sufficient budget for infrastructure improvements was reduced in order to service NLE debt.