The Lower Thames Crossing - Kent County Council

The Lower 

Thames Crossing 

Kent County Council 

KPMG Regeneration and Funding Report 

Final Version 

August 2010

Important notice 

The information in this report is based upon information provided by or on behalf of Kent County Council and reflects 

prevailing conditions and our views as of this date, all of which are accordingly subject to change. In preparing this 

report, we have relied upon and assumed, without independent verification, the accuracy and completeness of all 

information provided to us. 

The quantitative economic analysis contained in this report is related to three alternative Lower Thames crossing options: 

from east of Gravesham to Stanford-le-Hope; from east of Gravesham to Chadwell and close to or at the existing 

Dartford crossing. Analysis of funding and procurement approaches relates to the proposed Gravesham to Stanford-le- 

Hope crossing. Although we endeavour to provide accurate and timely information, there can be no guarantee that such 

information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act 

upon such information without appropriate professional advice after a thorough examination of the particular situation. 

This report was prepared for Kent County Council and can only be circulated within the terms of the engagement 

contract signed between the Council and KPMG LLP. Any party who obtains access to and chooses to rely on this report 

(or any part of it) will do so at its own risk. Whilst the information presented and views expressed in this report and 

related discussions have been prepared in good faith, Kent County Council and KPMG LLP accept no responsibility or 

liability to any party in connection with such information or views. 

The Lower Thames Crossing Kent County Council 

@ 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG 

network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Contents 

1 Executive Summary ___________________________________________________________ 1 

1.1 Likely regeneration impacts 1 

1.2 Funding 2 

1.3 Financing and procurement approaches 5 

1.4 Conclusions 5 

2 Introduction __________________________________________________________________ 7 

2.1 Background 7 

2.2 Purpose of this report 7 

3 Economic assessment framework ________________________________________________ 9 

3.1 Introduction 9 

3.2 Overview of methodology 9 

3.3 Measuring connectivity 10 

3.4 Data sources 13 

3.5 Assessing business location choice 18 

3.6 Considering relative connectivity and business mobility 19 

3.7 Assessing agglomeration and productivity 20 

3.8 Testing scenarios 21 

4 Strategic economic and regeneration impacts ______________________________________ 22 

4.1 The scenarios tested 22 

4.2 Changes in business location 23 

4.3 Changes in productivity 23 

4.4 Implications for economic output 24 

5 Costs _____________________________________________________________________ 25 

5.1 Capital costs 25 

5.2 Maintenance costs 25 

5.3 Unitary charge under a PPP 26 

6 Toll revenues _______________________________________________________________ 27 

6.1 Toll revenues from a Stanford-le-Hope to Gravesham crossing 27 

6.2 Relationship with the existing Dartford crossing 28 

7 Funding ____________________________________________________________________ 30 

7.1 Distinguishing funding from finance 30 

7.2 Funding from Department for Transport 30 

7.3 European support 30 

7.4 Lorry road user charging 31 

7.5 Capturing economic benefits 31 

8 Procurement and financing options ______________________________________________ 33 




8.1 Introduction 33 

8.2 Review of the project from a procurement perspective 34 

8.3 Conventional procurement and delivery partner approaches 36 

8.4 Public Private Partnership 36 




1 Executive Summary 

KPMG has been commissioned by Kent County Council to undertake a high level assessment of the wider 

economic and regeneration impacts of a new Lower Thames crossing and potential funding, financing and 

procurement options for delivering this. The analysis of wider economic and regeneration impacts on local areas 

in North Kent and South Essex has considered three crossing options: new capacity at or near to the existing 

crossing location; a new crossing between Chadwell and Gravesham and a new crossing from Eastern 

Gravesham to Stanford-le-Hope. Assessments of how a new river crossing could be funded and financed as well 

as high level procurement options are based on a proposed crossing from Eastern Gravesham to Stanford-le- 

Hope. 

1.1 Likely regeneration impacts 

The proposed new crossing sits within the wider context of the Thames Gateway Growth Area, the UK’s largest 

regeneration project. The Thames Gateway growth area stretches from East London to North Kent and South 

Essex. The Thames Gateway delivery plan outlines an expected growth in jobs of 225,000, and 110,000 new 

homes by 2016 1 although these projections however were produced before the recession of the recent years, 

and may not now be achievable. 

Improving connections between the north and south of the river in the Thames Gateway would make travel 

between them easier, expanding the size and depth of local labour markets on both sides of the river and 

enabling easier trade and business to business communication across the river. The economic evidence 

suggests that improvements in connectivity could lead to improvements in productivity and in attracting increased 

economic activity to the area. 

Three scenarios have been considered in the quantitative analysis of regeneration impacts: 

■ A scenario where capacity is increased at or close to the existing crossing; 

■ A new crossing from Stanford-le-Hope to Eastern Gravesham; and 

■ A new crossing from Chadwell to Gravesham. 

See Figure 8 on page 22 for a map of crossing options considered. Relieving congestion at the existing Dartford 

crossing would improve the experience of users of the existing crossing. However, this would not offer new 

journey opportunities or connections between businesses in local areas on different sides of the Thames estuary. 

The new crossing options that we have examined downstream of the existing bridge would provide decongestion 

benefits on the existing crossing and a new range of journey opportunities offering larger journey time savings for 

some trips. For example, both the Stanford-le-Hope to Eastern Gravesham and the Chadwell to Gravesham 

options would improve connections from the Medway towns to the North and from Southend and Chelmsford to 

areas in Kent and to Dover. 

Analysis suggests that the productivity benefits through agglomeration of economic activity could be around: 

■ £2m 2 per annum from reducing congestion on the existing crossing; 

■ £15m per annum from a new crossing from Chadwell to Gravesham; and 

■ £11m per annum from a new crossing from Stanford-le-Hope to Eastern Gravesham. 

1 The Thames Gateway Delivery Plan, HM Government, 2007 

2 Expressed as an annual benefit in 2021 in 2002 prices 

The Lower Thames Crossing Kent County Council ⏐ 1 



Note that these are annual figures and do not represent a discounted flow of benefits as is common in transport 

appraisal. These results assume no changes in land use and have been estimated using parameters drawn from 

the DfT’s WebTAG appraisal guidance. 

There is evidence that the connectivity offered to businesses by the road network is related to business location 

choice, although the economic evidence to quantify such relationships is unclear in the data that has been 

available to us. While there is some uncertainty over the appropriate parameters for forecasting local employment 

outcomes, assumptions consistent with the best fit statistical equations suggest that the increase in employment 

in the areas of North Kent and South Essex could be around: 

■ 1,000 from reducing congestion at the existing crossing; 

■ 4,000 from a new crossing from Stanford-le-Hope to Eastern Gravesham; and 

■ 6,000 from a new crossing from Chadwell to Gravesham. 

Within this local geography, such employment impacts would have a larger influence on local economic output 

than changes in business productivity. The overall GVA impacts of the Chadwell to Gravesham crossing could be 

around £334m per annum in 2021 at 2002 prices. This implies that the discounted value of additional growth in 

economic activity in the study area as a result of this scheme could be £12.7bn, although this should be treated 

with caution as future changes in additional employment and productivity have been treated as constant over 

time. Changes in these benefits over time will therefore affect this analysis. 

The changes in connectivity brought about by the different crossing options indicates that a crossing to the east 

of the existing Dartford crossing would have a significantly larger impact on the connectivity of the areas in North 

Kent and South Essex where aspirations for future economic growth are high. If access to potential employees 

and access to other businesses does affect the attractiveness of locations as places to do business, then the 

impacts on employment in North Kent and South Essex could be up to eight times larger if new crossing capacity 

is provided to the east of the existing crossing rather than simply relieving capacity at the current crossing 

location. 

The local economic growth implications of a proposed new crossing fit in well with the context of the new 

government’s spending review and focus on economic outcomes for funding infrastructure schemes. 

The modelling has not taken into account resilience and reliability impacts of a new Thames crossing. 

Reassignment of traffic from the Dartford Crossing will enable bifurcation of traffic on an already very congested 

part of the road network. This in turn will generate congestion relief benefits, and reduce variability in journey 

times. The benefits of network resilience will not only be captured by local traffic, but also at a regional and 

national level, and is in line with the recent London to Dover DaSTS study. 

1.2 Funding 

The total capital costs of the Lower Thames crossing have been estimated by MVA Gifford and Capita as being 

in the region of £1.0bn in 2008 prices, including an allowance for risk and optimism bias of £0.4bn. These costs 

have been used throughout the report but KPMG makes no comment as to their accuracy. 

Our analysis of funding options has considered: 

■ The role of toll revenues; 

■ Alternative central government funding sources such as national networks capital budgets, the Regional 

Funding Allocation or PFI credits; and 

■ Alternative sources of funding such as lorry road user charging and mechanisms for capturing the economic 

benefits that could be brought to the local area. 




The new crossing would work in tandem with the existing Queen Elizabeth II Bridge and Dartford tunnel, offering 

a substitute route and relieving capacity constraints on the current crossings. The Thurrock-Dartford crossing is 

currently tolled so we have assumed that the new crossing would also be tolled in order to avoid creating 

incentives for people to make longer journeys. Tolling strategy for the two crossings must therefore be 

considered together. 

Toll income could contribute different amounts to the capital costs of the project depending on tolling policy and 

which tolls are available to support the scheme costs. 

The interrelationship with tolls on the existing crossing creates some complexity in determining the funding and 

financing approach. If considered together, the combined crossing revenue could represent the single most 

important potential source of funding for the scheme. The existing crossing currently generates a net operating 

surplus of over £40m from its operations now that the capital costs of the crossing have been paid off. 

Tolls on the existing crossing act as a tax on movement across the river which make these journeys less 

attractive and could restrict the regeneration potential of the study area. Economic modelling of a scenario 

without tolls on the existing bridge indicated a potential increase in local employment by around 2,000, and 

additional annual economic output of over £115m if these tolls were taken away. As the capital cost of the bridge 

has been paid for, an argument could be made that the net operating surplus of the existing bridge should accrue 

to the local economic area that currently feels the impact of the toll and which could be used to fund additional 

local economic development, for example to fund a new Lower Thames Crossing. In this case, the revenues from 

the existing crossing could support around half of the debt required to pay for the capital costs of a new bridge. 

However, the existing toll revenues accrue to the DfT and can be deployed for other uses. Hence, a case for the 

crossing needs to be prepared that demonstrates both value for money and meets wider DfT objectives. More 

broadly, the case must demonstrate that the proposed crossing is of national importance and warrants 

redeployment of the revenue from the Dartford crossing or other sources to enable it. 

If net revenues from the existing crossing are not made available to fund the new crossing, revenues on the new 

crossing represent no more than perhaps 20% of the overall scheme costs, subject to the rate of growth of traffic 

after completion. This figure assumes that current toll levels are maintained, and is based on current traffic and 

revenue estimates provided to us. It is net of operating costs. Information about long term changes in toll incomes 

associated with demand growth has not been available to us. The new crossing would provide relief for the 

existing crossing which is effectively full, so demand growth for cross river traffic is likely to be accommodated by 

the new crossing. This may imply faster than usual demand growth which could result in relatively high traffic 

growth on the new crossing. This growth could increase the share of capital costs that could be supported by toll 

income from the new bridge. If tolls on the new bridge are considered net of abstraction from the existing 

crossing, then the ability of this funding stream to support the capital expenditure becomes very limited. 

Potential revenue generation from tolling of the New Lower Thames crossing is limited by the current low tolls on 

the existing Dartford crossing and the high level of substitutability of the crossings. A commercial toll on both 

bridges could generate substantial additional income to support the cost of the new crossing. Demand for travel 

across the crossing is thought to be relatively inelastic, so changes in tolls are likely to have only a small adverse 

impact on traffic levels, although this could be significant for some user groups. Further work on tolling levels and 

their impact on demand and the affordability of the new crossing is recommended. 

Other central government funding is likely to be limited over the coming years. The existing indicative 10 year 

RFA budget is already subscribed and is likely to come under pressure in the spending review in the autumn, 

with expected cutbacks, the abolition of the regional tier and new prioritisation techniques. National networks 

capital budgets are likely to come under similar pressure. Indeed, transport is not one of the departments that has 

been protected from expenditure cuts and transport projects have already been targets of emergency cuts. In the 

short term, it cannot be assumed that either direct capital grants or PPP credits will be available, although over a 

longer timeframe, the growing capacity constraint and national significance of the crossing may make it a priority 

for central government investment. 




Our indicative analysis suggests that other sources of possible funding towards meeting the costs of the New 

Lower Thames crossing are not likely to be material to the scheme’s overall affordability unless the funding gap is 

already narrowed by a material change to tolls or a substantial other funding source. One exception to this is lorry 

road user charging. The new government’s coalition agreement 3 commits it to introduce this if elected. If 

implemented, it could provide additional income for central government and, if improvements to key freight routes 

were part of a combined investment initiative, then a case could be made for some of this income to support the 

Lower Thames crossing as a strategic national priority. If taken forward, a national initiative would overtake other 

options to implement a local scheme. To deliver transport investment, innovative forms of local funding are 

therefore likely to play a larger role. Transport for London, for example, is investigating tax increment financing 

approaches from expected development to fund the Northern Line Extension. 

Recent work by the Department for Transport indicates that the Lower Thames crossing is a strategic national 

priority and that central government is actively considering options for it. In April 2009 the DfT published a study 

outlining possible proposals to improve traffic flow at the Dartford crossing, and assessing possible options for a 

new crossing in the longer-term. Following the Budget in March 2010, the Dartford crossing has been identified 

as one of a number of assets within the Operational Efficiency Programme for which government is considering 

ways of changing the ownership or management through the sale of a concession to operate for example, in 

order to extract maximum value. This has given additional impetus to consideration of new crossing options and 

how they could be accommodated within a revised framework for the existing crossing. 

Other sources of possible funds could capture some of the local economic benefits that the scheme may deliver. 

Using assumptions on employment densities set out in the English Partnerships guide to employment densities, 

the additional employment numbers would require up to 170,000 sqm of new development to be built implying 

developer contributions could be between £1.7 and £5m. This is insignificant compared to the capital cost of the 

new bridge. 

Overall impacts on economic output will also have implications for tax revenues. A tentative assumption would be 

that 35% of the GVA impacts are captured in taxation and could thus contribute up to £117m per annum (35% of 

£334m) in new tax income from local businesses within the study area implying additional business rate income 

of around £6m per annum. This could represent a more significant funding stream if it can be captured. Tax 

increment financing or supplementary business rate approaches could both be used to appropriate some of these 

benefits. However, imposing any general business levy is likely to be seen as unacceptable because of its 

negative impact on the local and regional economy. These will need to be explored more fully once the scheme 

reaches a full business case development stage. 

The Medway towns are expected to be some of the most significant beneficiaries of the enhanced connectivity 

provided by the two new crossing options, with areas local to the new crossings also benefitting. Dispersion of 

the potential regeneration benefits over a wider area suggests that potential financial mechanisms to capture 

benefits (such as for example, Section 106 or Community Infrastructure Levy contributions, tax increment 

financing approaches or local supplementary business rates) must target a wider area rather than the immediate 

vicinity of new bridge infrastructure. 

In parallel, Kent County Council should enter into dialogue with the EU to ascertain whether a case could be built 

for TEN-T funding. EU grant support, equal to up to 10% (or exceptionally 20%) of total eligible costs, represents 

a substantial building block to the affordability package. EIB funding of up to 50% of eligible borrowing, while it is 

a loan and not a grant, could assist in the scheme’s affordability by helping to minimise cost of finance. 

3 The Coalition: our programme for government, Cabinet Office, May 2010, Page 31 




1.3 Financing and procurement approaches 

Two broad approaches towards procurement were considered, with different implications for the management of 

risk and approach to whole life cost. These are: 

1. conventional procurement (which, for the purposes of this review, means that Kent County Council and its 

delivery partners take the majority of the asset specific risks); and 

2. an approach which includes a greater involvement by the private sector in the whole life risks and project 

costs through a Public Private Partnership (PPP) structure. 

We are aware that the new government has made some adverse comments about the Private Finance Initiative 

but they are understood to wish to encourage the use of third party revenues in infrastructure development. In 

general, the features of undertaking a PPP are that the private sector will take the majority of the cost based risks 

and will use more complex financing tools to fund the project than are available to the public sector. By 

comparison, a conventional procurement approach involves a more selective approach to risk sharing and enjoys 

lower costs of borrowing but with a less sophisticated range of financing arrangements. 

There is a prima facie case for the formation of a PPP. The promoter could also consider the payment of 

substantial milestone capital contributions, funded through PWLB borrowing, to further improve affordability. This 

procurement approach should be reinvestigated once government transport policy and the project revenues and 

costs are better understood. However, the cost of PPP borrowing remains high and any procurement analysis 

should be undertaken under a twin-track of PPP and a conventional (possibly delivery partner based) approach 

up to the point of development which allows and informed value for money choice to be made. 

Although the requirement to manage considerable finance and construction risks suggest that PPP may be a 

preferred option, any formal appraisal should however actively consider both approaches in tandem, focused on 

the objective of securing best value for money. 

1.4 Conclusions 

The proposed New Lower Thames crossing project is a significant piece of infrastructure to reduce congestion at 

one of the busiest parts of the national transport system. It is expected to provide alterative routes for long 

distance traffic of national importance as well as offering enhanced local connectivity to support the economic 

and social development of the region. The proposed crossing could also contribute to improved public transport 

links between Kent Thameside and South Essex Growth Areas. It is the aspiration of both Kent and Essex 

County Councils to connect the Fastrack and South Essex Rapid Transit (SERT) BRT schemes via the Dartford 

and Lower Thames Crossings to provide a public transport link between the Kent Thameside and South Essex 

Growth Areas. 

Initial quantitative assessment of regeneration impacts suggest that a new crossing from Chadwell to Gravesham 

could support up to an additional 6,000 jobs within the study area of North Kent and South Essex and productivity 

benefits from agglomeration of around £15m per annum in 2021. Within this local geography, such employment 

impacts would have a far larger influence on local economic output than changes in business productivity. The 

overall GVA impacts of the Chadwell to Gravesham crossing could be around £334m in 2021 at 2002 prices, if 

accounting for the GVA impacts of additional employment moving into the study area. Note that this is an annual 

number and not a discounted value as is common in transport appraisal. 

Given the traffic forecasts we have had access to and under current tolling arrangements, toll income is unlikely 

to cover the capital cost of the project. If toll revenues on the existing crossing form part of the funding package, 

then these could support around half of the debt required. However, new toll income generated by the crossing is 

unlikely to meet a significant proportion of the capital costs of a new crossing. The Department for Transport is 

likely to consider toll income, net of abstraction from the existing crossing and net of operating costs in the 

business case for the project. A strong economic case is therefore required to demonstrate the case for use of 




existing tolls or other public funds. The strategic nature of the crossing, potential links to lorry road user charging 

and potentially significant forecast growth from future suppressed demand indicate that there may be a case for 

allocating national investment funds. In order to progress this, we recommend that a cost benefit analysis and 

business case is developed. 

The funding contribution from tolls could rise significantly if long term traffic growth projections net of changes in 

the existing crossing on the new crossing are high. However, even in this case there is likely to be a significant 

funding gap. It therefore seems likely that the majority of the shortfall would have to be met through changes to 

tolling arrangement, cross subsidy from the existing crossing or from other central government sources. 

The substitutability between the existing and new crossings argues for an integrated approach to tolling. The 

extent of the funding shortfall will be driven by the user charging regime (if any) that is put in place. It is our view 

that the option that may derive the largest income, and therefore make the largest contribution to the project cost, 

is the development of a joint “Lower Thames crossing corridor” approach with user charges linked to the concept 

of providing a high standard motorway route between Kent and the Channel ports, and the rest of the UK. Tolls 

on both routes would need to be similar to avoid potentially biasing traffic towards longer and less efficient routes. 

Differential tolls could also undermine the aspiration to introduce a system of bifurcation for traffic heading from 

the North and East of London to the Channel Ports (via the LTC/M2/A2 and QEII/M20/A20 corridors 

respectively). Under a joint crossing concept, tolling of the Lower Thames crossing could be enhanced by a share 

of income from the existing crossing, potentially including some extra-inflationary toll increases to assist 

affordability. 

The resulting change in local economic activity and development may also provide opportunities for alternative 

funding sources to contribute to the construction of a new crossing provided suitable mechanisms for capturing 

them can be implemented. 




2 Introduction 

2.1 Background 

The proposed Lower Thames crossing is a strategically critical scheme, to meet current and future demand and 

to reduce the high level of congestion currently affecting the Dartford crossing. 

The current Dartford crossing is a highly congested arterial route, providing access between the main channel 

crossings and areas north of the Thames, and for regional traffic between Essex and Kent. In response to the 

high level of congestion on the route, The Department for Transport commissioned a report from Parsons 

Brinckerhoff Ltd to identify options for adding capacity and outlining the technical issues relating to them. This 

study, issued in January 2009, drew up a series of options ranging from operational improvements to the existing 

Dartford crossing, to the development of an additional crossing. In 2009, the government also published the 

Operational Efficiency Programme Asset Portfolio which highlighted the Dartford crossing as one of a number of 

strategic national assets for which new delivery arrangements are being considered. This presented options for 

alternative asset options taking into account the need for future capacity increases. Together, these documents 

imply that the government considers the Dartford crossing to be of national significance and demonstrate their 

active consideration of policy options for a new Lower Thames crossing. 

Separately to the DfT commissioned report, in 2008, Kent and Essex County Councils jointly commissioned a 

study from Gifford, MVA Consultancy and Capita (henceforth referred to in this report as the MVA study) to 

evaluate similar options. This report builds on that study, and in particular takes the cost and traffic forecasts set 

out in the MVA study as being correct. 

Kent County Council has concluded that the so-called ‘Option C’ (a crossing between Stanford-le-Hope and East 

of Gravesham) is the preferred crossing location. The funding and finance analysis in this report focuses on that 

option and assumes that the crossing will be a bridge and not a tunnel. 

The scheme is a major capital project. No dedicated budget for the New Lower Thames crossing Project has 

been identified by local or Central Government, although we are aware that the Department for Transport is 

considering the potential development of a new crossing as part of its assessment of the Dartford crossing. We 

understand that current revenue budgets going forward are fully accounted for, and that the current capital 

programme exceeds budgets. Therefore it is essential to determine from which sources the project might 

ultimately be funded if it is to proceed to the procurement stages. 

The project will have to compete against other projects for the allocation of public resources. As such, the 

business case for funding will need to be compelling, demonstrating that: 

■ There is a robust value for money case for government funding; 

■ The crossing is of strategic national importance and importance in securing local development objectives; and 

■ All of the viable options to secure external income have been fully explored. 

This report considers the strategic economic benefits of supporting development in the Thames Gateway and 

possible sources of revenue, such as toll charges, and considers the extent to which such sources might meet 

the estimated costs of the project. As a part of the development of this paper we have considered recent revenue 

generating schemes and funding alternatives from UK and worldwide experience. 

2.2 Purpose of this report 

Kent County Council has commissioned KPMG to appraise the scheme’s potential to support local economic 

development and to provide an initial high level review of options for funding, financing and procurement. 




This report provides a high level assessment of: 

■ Likely regeneration outcomes using a model of regeneration potential developed by KPMG; and 

■ Options for funding, financing and procuring a new crossing based on indicative cost and revenue estimates 

from early studies of engineering feasibility and traffic impacts. 

Applying information currently available to Kent County Council, the funding, financing and procurement 

evaluation is developed as follows: 

a) Review of the estimated costs and revenues attributable to the New Lower Thames crossing Project; 

b) Consideration of the potential funding sources may be available to fund the scheme; and 

c) Consideration of the merits of conventional procurement against a PPP scheme are and what the issues that 

will affect that decision will bring. 

At the date of this report, the future availability of government funding for transport is uncertain. For the purpose 

of this report however, it is assumed that the environment is considered to be similar to that currently in 

existence, excepting that it is highly unlikely that significant new sources of grant funding will be available from 

UK Central Government for the foreseeable future. However, once the estimated costs of the New Lower 

Thames crossing project are fully understood and the political landscape clarified, options for funding may be reexamined 

as a part of the Project Business Case. It is important that funding choices reflect a degree of realism 

with regard to their potential future availability. 

This study has been undertaken as a desk review, with additional information sourced from recent transactions in 

the sector that have been advised on by KPMG. It is recommended that this report is updated once transport 

policy has been confirmed by the new government, and that KPMG should commence a dialogue with each of 

the parties named to extend our mutual understanding of the project and to clarify the opportunities that each 

option may offer. As a precursor to formal discussions, however, Kent County Council should develop its 

understanding of the costs and revenues associated with the project, leading ultimately the formation of a 

Business Case. 




3 Economic assessment framework 

3.1 Introduction 

This section describes the methodology employed to assess the potential economic impact of crossing options 

and data sources used for the economic assessment, including the South Essex Transport and Land use Model 

(SETLUM) and the Kent Thameside model (KTS). Data from the SETLUM model has been kindly provided by 

Essex County Council. 

3.2 Overview of methodology 

Transport is one of a number of factors that can affect business location decisions and the competitiveness of 

places. The transport network makes possible journeys to different kinds of economic opportunities and 

determines the ease or difficulty of accessing these opportunities. 

To better understand the impacts that the construction of a second Thames crossing could have on local 

communities and development, Kent County Council and its advisors have developed a methodology for 

assessing the impacts of transport interventions on economic output as measured by Gross Value Added (GVA). 

This methodology is based on how changes in connectivity to businesses and labour are related to productivity 

and business location decisions. 

The economic approach is based on the identity: 

■ GVA (Gross Value Added) = employment * labour productivity 

The analysis is therefore based on separately modelling impacts of changes in connectivity on employment and 

on productivity. 

The hypothesis that underlies the economic modelling work is that transport connectivity can affect the 

attractiveness of different locations as places to do business. This hypothesis has been investigated using data 

on transport supply and observed patterns of economic activity. Figure 1 on the next page shows some of the 

links between transport change and economic outcomes within an area when transport can affect land use. 




Figure 1: Flow chart of impacts of transport change on GVA 

Change in journey 

times 

Change in 

connectivity 

Agglomeration 

Move to more (or 

less) productive 

business locations 

within study area 

Jobs and workers 

attracted from 

outside study area 

Change in 

productivity 

Change in workplace 

employment 

Change in GVA 

The modelling approach deduces changes in business location decisions and agglomeration based on changes 

in measures of connectivity. Figure 1 above shows that changes in productivity can come about from changes in 

business location decisions as businesses move between areas which support different levels of productivity. 

The key relationships used for forecasting have been derived from a cross-sectional statistical analysis of the 

links between measures of connectivity and the economic outcomes found in different local areas across the 

study area. 

3.3 Measuring connectivity 

Much of the approach to linking transport supply and economic performance is based on measures of 

connectivity. For a particular area, a measure of connectivity captures how many economic opportunities there 

are within a reasonable journey time of that area. This presents a number of challenges: 

■ What represents an ‘opportunity’? 

■ How should journey time and different journey opportunities (for example by different modes) be captured? 

■ What represents a reasonable journey time? For example, how important is it for a business to be able to 

access employees with 20 minutes of commuting time, or 40 minutes, or an hour? 




3.3.1 Opportunities and transport modes 

The model has been developed to assess how different levels of connectivity affect businesses. Opportunities 

have therefore been divided into two groups: access to labour and access to other businesses. The segmentation 

enables the analysis to separately appraise connectivity to labour and to other businesses. 

Socio-economic data has been used to provide the measures of ‘opportunities’ as follows: 

■ Labour markets: measured by working age population in origin zone; and 

■ Business to business markets: measured by workplace jobs in origin zone 

3.3.2 Measuring the difficulty of travel 

To capture the combined barriers of journey time and fare/cost, the difficulty of making a journey is captured 

using a generalised cost including both of these elements. Generalised times are measured in minutes and 

include financial costs by converting them into minutes using values of time taken from WebTAG. 

Generalised time (including financial costs) has been sourced from the KTS and SETLUM models. Commuting 

journeys are represented as journeys in the AM peak (7am – 10am). Business to business journeys are assumed 

to take place during the inter-peak hours of 10am and 4pm. 

3.3.3 Assessing reasonable journey times 

Market sizes reflect the number of people willing to make a journey to a particular place for a particular purpose. 

As the difficulty of a journey increases, the number of people willing to make the journey declines. 

There are a number of options available for representing this relationship: a simple boundary (e.g. how many 

people within one hour?); a simple linear decay function; a mathematically defined decay function such as an 

exponential decay function; or a relationship based on observed travel behaviour. In this analysis a relationship 

has been developed for each market segment which reflects the behaviour embodied in the demand data held 

within the transport models which is based on observed travel patterns. 

Demand and generalised cost data in the model has been used to generate generalised time decay curves or 

deterrence functions. For car commuting for example, this represents the share of people that currently accept a 

commute of different levels of generalised cost (e.g. Y% of people currently accept a commute of less than or 

equal to X minutes). A similar decay curve has been calculated for the business to business market segment for 

all journeys destinating within the core study area. 

Demand data for Public Transport was insufficient in both SETLUM and KTS to provide a smooth function 

describing how travel demand changes with generalised cost of travel. Therefore a simple linear function was 

developed to assess Public Transport labour and business market catchments. 

Higher demand for car traffic enabled decay curves to be created based on car travel behaviour. The KTS model 

has a more finely grained zoning system and data that is more disaggregate than the SETLUM model, which 

means demand for different lengths of trips is well represented. Car decay curves were therefore produced using 

KTS generalised cost and demand data. The KTS and linear deterrence functions for car and Public Transport 

are outlined in Figure 2 overleaf. 




Figure 2: Willingness to travel by mode and journey purpose 

Percentage willing to travel 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

0 

50 

100 

150 

200 

250 

300 

350 

The deterrence functions represent the pattern of behaviour of car commuters and car business travellers, using 

KTS for car travel and a linear function for public transport travel. It was assumed that willingness to travel of 

public transport users gradually falls as generalised travel time increases, to reach 0% for 1,000 minutes of 

generalised time. For car commute the decay curve shows that approximately 60% of car commuters accept a 

total daily commute of up to 150 generalised minutes. This reduces to just 10% for a daily commute of 350 

generalised minutes. For car business to business trips willingness to travel drops off at around 200 minutes to 

reach 0% at around 450 generalised minutes of travel. 

It has been assumed that the deterrence functions remain constant over time. If fuel, vehicle operating costs and 

fares rise in line with average income, this would be consistent with people spending the same share of their time 

and money on travel in future years. 

3.3.4 Calculating overall market sizes 

400 

Generalised cost (minutes) 

450 

500 

550 

600 

650 

700 

750 

800 

850 

900 

950 

1,000 

Car commute Car b2b PT commute and B2B 

The effective labour market for any of core study areas zone is calculated as the sum of people of working age in 

all origin zones willing to travel to that destination for work. The effective business to business markets are 

similarly calculated as the sum of all workplace jobs that can be reached from an origin using a deterrence 

function and value of time derived from observed business travel pattern. 




Figure 3: Illustrative example of contribution of origin zone to effective labour market in destination zone 

B 

A 

y% willing 

to travel 

z working 

age 

residents 

x mins 

y * z people in effective 

labour market for zone A 

from zone B 

From the generalised cost of a journey to a particular zone it was then possible to use the corresponding decay 

curve to assess the share of people willing to travel to that location from every other zone. Summing the share of 

all people willing to travel from all other zones to the destination provides the measure of connectivity for that 

market segment. 

More formally: 

j 

MarketSize 

= 

∑ 

i 

Π 

ij 

Ο 

i 

Where i represents the origin and j the destination and where: 

∏ij = 

Oi = 

Share of people willing to accept generalised cost based on the journey time between i and j; and 

Opportunities in the origin zone i 

3.4 Data sources 

The economic analysis requires a detailed examination of the levels of connectivity offered to local areas in North 

Kent and South Essex. This requires geographically disaggregate representations of journey options and the 

difficulty of travel for journeys north of the river, south of the river and across the river. There are various 

transport models covering the areas to the north and the south of the existing Dartford crossing and potential new 

crossing points nearby. However none of them adequately capture local travel options on both sides of the river. 

This is mainly because the river currently represents a significant barrier to movement and the transport models 

developed have focussed on one side and only captured a limited representation of the other side. 

The analysis undertaken for this project has therefore been based on combining datasets from different transport 

models with different characteristics and should therefore be treated with caution. 




3.4.1 Generalised cost 

Generalised costs have been sourced from the South Essex Transport and Land Use Model (SETLUM) and from 

the Kent Thameside Model (KTS). Data and assistance on transport models was provided by Essex and Kent 

County Councils. 

SETLUM contains 163 model zones. 110 of these are in Basildon, Thurrock, Castle Point, Rochford and 

Southend-on-Sea in Essex, 6 of these are in Kent and the remaining 47 are further afield. Matrices of generalised 

cost have been sourced from SETLUM for the 2001 base year for car and public transport trips for AM peak 

commute trips and interpeak business to business trips. The generalised costs include time costs, perceived 

inconvenience (for example public transport interchanges) and financial elements of costs such as vehicle 

operating costs, tolls and public transport fares. Where more than one public transport mode offers a viable 

alternative, the lowest generalised cost or ‘best path’ option has been selected. 

Figure 4: SETLUM model zone centroids in Thames Gateway area 

Romford 

Essex 

London 

Woolwich 

Grays 

Dartford 

Gravesend 

Kent 

Gllingham 

KTS contains 590 model zones. The vast majority of these zones represent areas in Kent Thameside with only a 

few model zones representing local areas in Essex. This is shown in Figure 5 overleaf. 




Figure 5: KTS model zone centroids in Thames Gateway area 

Romford 

Essex 

London 

Woolwich 

Grays 

Dartford 

Gravesend 


Gllingham 

Cost data from these two models has been merged to create a representation of a disaggregate matrix of 

journeys with origins and destinations represented at ward level on both sides of the Thames in the districts of 

Basildon, Brentwood, Castle Point, Dartford, Gravesham, Medway, Rochford, Southend-on-Sea, Swale and 

Thurrock. Further afield, zones are represented using larger administrative areas such as districts/unitary 

authorities (e.g. London boroughs), counties (e.g. Suffolk) and regions (e.g. the South West). The zoning system 

is therefore consistent with UK administrative geography. This zoning system is shown in Figure 6 overleaf. 




Figure 6: Centroids of geographical zoning system used for analysis 

Romford 

Essex 

London 

Woolwich 

Grays 

Dartford 

Gravesend 


Gllingham 

The core model areas consist of the districts of Medway, Dartford, Gravesham and Swale within Kent and of the 

districts of Southend-on-Sea, Thurrock, Basildon, Brentwood, Castle Point and Rochford in Essex. This area is 

covered at ward level in the modelling. A hinterland of zones has also been defined to enable the different labour 

markets and business to business trip catchments of these core zones to be estimated. 

To create the generalised journey time dataset for this model zoning, the following process was applied: 

1. Calculate the closest zone centroid in KTS to each model zone centroid used in the analysis; 

2. Create model zone to zone generalised cost matrices based on the closest KTS zone centroid to the model 

origin centroid and the closest KTS zone centroid to the model destination centroid; 

3. Repeat for SETLUM data to create the model zone matrices derived from the SETLUM model; 

4. Identify flows which use the existing bridge; 

5. For flows that are south of the river and do not use the bridge, use the KTS data as the best proxy for 

generalised cost; 

6. For flows that are north of the river and do not use the bridge, use the SETLUM data as the best proxy for 

generalised cost; 

7. For flows that travel south across the bridge, use the SETLUM cost from origin to the bridge plus the KTS 

cost from the bridge to the destination, plus a representation of bridge tolls; and 

8. For flows that travel north across the bridge, use the KTS cost from origin to the bridge plus the SETLUM cost 

from the bridge to the destination, plus a representation of bridge tolls. 

This approach provides a matrix of costs for travel on the north side of the river, the south side of the river and for 

cross river trips. However, for cross river trips the cost data is a hybrid from different sources and data for trips on 

the south side of the river is from a different source from trips in the north. The key similarities and differences 

between the models are as follows: 




■ Both models share definitions of time periods, so for example, peak journeys represent the average hour 

between 7AM and 10AM. 

■ The SETLUM data represents 2001 while the KTS data represents 2005 

■ All times and costs have been expressed in 2001 prices and values 

Using this hybrid approach is unavoidable given the study timescales and budgets. The time and cost 

components of generalised cost have been made consistent as far as possible but nevertheless represent 

different underlying model assumptions. Figure 7 below shows the relationships between the car commuting 

generalised costs in KTS and SETLUM for comparable origins and destinations. 

Figure 7: Comparison of KTS and SETLUM car generalised costs, 2001 prices 

Generalised cost (pence) 

2,000 

1,800 

y = 1.7679x 

KTS 

1,600 

1,400 

1,200 

1,000 

800 

600 

400 

200 

Source: SETLUM and KTS models 

0 

0 200 400 600 800 1,000 1,200 

The comparable origins and destinations selected are based on cross river origin to destination trips where the 

centroids of both zones lie within 1km of each other. For these trips KTS shows consistently higher generalised 

costs than SETLUM. The best fit line shows that the KTS generalised costs is some 1.8 times higher than the 

SETLUM cost, although the two are closely related. More detailed analysis of differences between the models is 

presented in Appendix A. We recommend that a suitable transport model with suitable geographical 

representation to the north and south of the Thames is developed if the analysis of Lower Thames crossing 

options is to be progressed further. 

Journey times and costs have all been measured in pence using values of time from WebTAG to represent 

commuting and business to business travellers. The costs are taken to be the best available representation of 

generalised costs consistent with the most recent socioeconomic data available given the journey time and cost 

data available. 

3.4.2 Socioeconomic data 

SETLUM 

Population data has been sourced for each model zone from the Office for National Statistics experimental local 

area population statistics by quinary group. To represent labour markets, working age population data has been 

constructed using the quinary groups between 20-24 and 60-64 years old plus four fifths of the quinary age group 

15-19. The latest available data from the Office for National Statistics is for 2007. 

Workplace employment data by business sector has been collected from the Annual Business Inquiry. The latest 

available data is for 2008. 




Data for 2010 has been constructed by applying the growth rates for the appropriate local authority sourced from 

the DfT’s National Trip End Model (NTEM) version 5.4 which provides forecast data for transport planning 

purposes. Data for the 2026 forecast year has been similarly constructed based on the NTEM datasets extracted 

using the TEMPRO software. 

3.4.3 Demand 

Demand data has been sourced from both the Kent Thameside Model and the SETLUM model. These data sets 

have been collected for commuting in the AM peak and business travel in the interpeak. For both models, this 

data was split by mode and by journey purpose. SETLUM data was collected for 2001 (the model base year) and 

for 2021, and KTS data for 2005 (again, the model base year) and 2025. 

The demand data has only been used to determine the relationship between demand and the generalised cost of 

travel for the different model segments and for assessing the generalised cost deterrence functions used in the 

modelling (see for example Figure 2). 

3.5 Assessing business location choice 

The relationship between employment density and connectivity was assessed using econometric techniques and 

other evidence for business location decision making. 

The relationships between connectivity and employment density have been investigated using linear regression 

formulations. This analysis has taken the form: 

Log(employment density) = f (ln(connectivity measures), ln(other variables)) 

Where zones both north and south of the river have been considered in the same equation, a flag has been 

introduced in the regression analysis to distinguish between these. This allows the differences in connectivity due 

to model differences to be mitigated to some extent. However, given that the data has been drawn from two 

separate models, we have also considered equations that look separately at zones to the north of the river and 

zones to the south of the river. 

Two connectivity measures were tested: access to labour by road, and access to other business by road. Access 

to labour by public transport and access to other businesses by public transport were excluded from the analysis 

due to the dominance of car travel which makes understanding the importance of public transport connectivity 

more complex. The complexity of integrating public transport data from the KTS and SETLUM models also 

makes the analysis of public transport catchments less reliable. 

The only other variable considered as a driver of business location choice was proximity to the Thames ports 

(and historic Thames ports). This reflects the current and historic importance of the Thames in providing 

connectivity to markets by river and sea. 

Cross sectional analysis alone cannot determine causation. To determine the extent to which any links are causal 

requires analysis of time series data and analysis of lead and lag relationships. Such data is not available. 

Without a time series analysis causation must be judged based on the underlying theory. There are reasons why 

one would expect causation to run in both directions. Businesses are likely to move to places where they have 

locational advantages which could come from better transport connectivity. However, high levels of employment 

are also likely to lead to higher levels of transport connectivity as infrastructure provision follows demand. In this 

analysis we present the results of what would occur if the statistical relationships did represent a causal 

relationship between changes in transport connectivity and changes in employment density. This is the same as 

the approach taken to measuring agglomeration by the Department for Transport. 

The relationships between car connectivity to businesses and labour and employment density were assessed. 

The model draws data from both the KTS and SETLUM models to estimate hybrid journey times. However, as 

there are differences between these models, we have separately conducted statistical analysis for zones north of 




the river, zones south of the river and for all of the hybrid model zones taken together. These different model 

formulations and datasets provide different findings for the strength of relationships between business location 

and car connectivity. 

Initial statistical tests found that business to business connectivity dominated the relationship, therefore labour 

market/commute connectivity was taken out of subsequent regressions tests. The results of the statistical 

analysis showed a coefficient of 0.76 for zones north of the river and 0.65 when assessing all zones together 

using the hybrid model . However, no statistically significant results were obtained for zones to the south of the 

river. 

In order to take into account variations in generalised time between KTS and SETLUM, an alternative model 

formulation was designed to treat connectivity levels on different sides of the river in a different way. The 

alternative formulation returns an analogous coefficient of 0.46. It therefore does appear that some positive 

relationships exist between car connectivity and employment density, although a range of values have been used 

for forecasting. Further information on the regression analysis is provided in Appendix B. 

Different scenarios have been considered, according to the regression results explained above. The fixed land 

use estimate reflects the fact that in some model formulations, car connectivity does not show a statistically 

significant relationship with employment density. For this scenario it is assumed the distribution and quantum of 

employment remains unchanged. GVA impacts will therefore only be attributable to changes in productivity levels 

arising from agglomeration economies. The parameters used in modelling are shown in Table 1 below. 

Table 1: Model parameters 

Car connectivity to labour 

Car business to business connectivity 

markets 

Fixed land-use formulation 0.00 0.00 

Hybrid model formulation 0.65 0.00 

Alternative model formulation 0.46 0.00 

Note: 

In all model formulations, access to labour markets has been assumed to have a parameter of zero and hence not to play a role. This is because the statistical 

analysis has been unable to detect such a relationship. This may be partly because the business to business connectivity measures and the labour market 

connectivity measures are closely related and the statistical analysis has been unable to separate their impact. 

3.6 Considering relative connectivity and business mobility 

The cross sectional quantitative analysis provides evidence of the correlation between business location and 

connectivity. However, it is not true to say that a change in connectivity will simply result in a change in the 

number of workplace jobs or employment density. 

The analysis shows how connectivity affects the relative attractiveness of the different sites studied. Hence, 

changes in connectivity could either lead to redistribution of existing businesses or could result in businesses 

being attracted to the study area or discouraged from moving there. Hence applying the equation described 

above to forecast employment will tend to produce unconstrained employment forecasts that assume all change 

is due to change into or out of the study area and do not allow for this redistribution. The challenge then is to 

estimate the extent to which change in connectivity could lead to internal redistribution within the study area or to 

changes in employment to or from outside the core study area. 

To estimate the change in employment within the core study area, the degree of business mobility between city 

regions was assessed. Unfortunately, suitable dynamic studies of business mobility and relocation decisions do 

not exist. Instead, mobility was assessed by looking at the geographical distribution of businesses, and the 

proportion of footloose businesses – hypothesized as those that could take advantage of changes in the 

connectivity offered by different locations. Footloose businesses were deemed to be those that were not tied to 

serving a local market, but that served an inter-regional or international market and could relocate to take 




advantage of changes in locational factors. Businesses serving local markets (such as grocery shops, hair 

dressers etc.) tend to be geographically tied to local markets. 

The analysis of business mobility was based on businesses in the main UK conurbations. To understand which 

businesses could be considered footloose, the number of jobs by business sectors per head of population was 

assessed. The area with the minimum ratio of employment per head of population in a certain sector was 

deemed to employ the minimum necessary to serve local markets and perform local functions. Regions which 

host a greater level of employment than the minimum in this business sector were deemed to host some 

employment which need not be located there and that is deemed to be footloose. Hence London has a high ratio 

of jobs in the financial services sector per head of population mainly because it has a developed financial 

services sector which exports nationally and internationally. The North East of England, by contrast, has a low 

number of jobs per resident in this sector reflecting the fact that most financial service sector activity is in retail 

banking. Any employment over this minimum required to serve the local population was deemed to be footloose 

and capable of moving between city regions to take advantage of changes in the business conditions that they 

offer. The socio-economic data on employment was sourced from the Office for National Statistics and split into 

thirteen business sectors and by city region. From this the share of employment that could be considered to be 

mobile between cities and hence which could be attracted to the study area was estimated. 

This analysis indicates that some 28% of jobs could be considered to be mobile at this level of geography. This 

percentage was applied to estimate the net change in total employment within the study area. However, this 

method suggests that as the geographic scope of the analysis increases, the number of jobs estimated to move 

in or out of the study area reduces. When comparing the north of the country with the Midlands and the South, a 

much more homogeneous pattern of economic activity was found. This indicates that many businesses are 

regionally clustered but that there is not very much difference in the industrial structure of these broad areas of 

the country. If applied at this higher level of geography only around 14% of jobs were found to be mobile at the 

level of the South (the area comprising the South East, London, the East of England and the South West). 

Consequently, as the geographic area considered increases a smaller share of the employment benefits are net 

at this level of geography and more are likely to be redistributed within this area. At a national level, the net 

impacts on employment from adopting this approach would be zero and all change would be due to redistribution 

around the country. 

Together, the parameters derived from the statistical analysis and the parameters in the mobility analysis form 

the basis of the forecasts of business relocation. 

3.7 Assessing agglomeration and productivity 

The changes in connectivity have been used to estimate changes in business productivity through agglomeration 

economies. Agglomeration refers to the process whereby businesses can gain a productivity benefit from being in 

an area of high economic density, for example from sharing a larger and more specialised pool of labour. 

The analysis is based on the approach defined by DfT’s in WEBtag unit 3.5.14 except that the demand weighted 

connectivity measures described in section 3.3 have been used as the measure of effective economic density. 

Demand weighted connectivity was estimated using the following assumptions: 

■ 90% of all trips are undertaken by car within the study area; 

■ 30% of car trips are made for business travel purposes. 

DfT agglomeration elasticities were applied to changes in weighted connectivity measures to obtain changes in 

productivity by zone. Table 2 below sets out the DfT agglomeration elasticities used for the analysis. It shows that 

for manufacturing industries for example, a 10% increase in effective density will increase productivity of 

manufacturing industries by 0.21%. 




Table 2: DfT agglomeration elasticities 

Sector Manufacturing Construction 

Consumer 

services 

Producer services 

Agglomeration Elasticity 0.021 0.034 0.024 0.083 

Source: 

DfT webtag unit 3.5.14C – wider impacts economic dataset 

3.8 Testing scenarios 

A DoMinimum scenario has been created based on existing opportunities to travel and connectivity. Connectivity 

measures for each market segment and for the 183 core model zones have been calculated for this scenario. 

Connectivity measures are similarly calculated for three test scenarios. By comparing the connectivity results of 

the DoMinimum to the scenarios, the impacts upon connectivity and effective market sizes can be assessed. The 

model then proceeds by: 

■ Applying elasticities derived from the statistical analysis to convert changes in connectivity into unconstrained 

changes in employment density by model zone; 

■ Converting these into estimates of unconstrained employment change within the model zones. Unconstrained 

employment change was obtained by applying the percentage change in employment density to base 

employment in each zone to obtain new employment results for the DoSomething scenario. The new 

employment figures were then subtracted from base employment to obtain the change in employment by 

zone; 

■ Constraining the total change in employment to reflect only firms which are deemed footloose at the level of 

the study area. Business mobility factors were then applied to take into account the variations in sectoral mix 

and business mobility by zone; 

■ Redistributing the constrained employment total according to the new patterns of connectivity within the core 

study area; 

■ Calculating the change in productivity per head based on agglomeration impacts; and 

■ Calculating overall changes in economic output likely within the zones within the study area based on 

changes in employment and productivity. 

The net GVA impact across the study area can also be affected by changes in the pattern of employment 

location. Businesses in different locations will have different productivity levels so businesses that relocate may 

see a change in productivity. This has been incorporated into the analysis. Changes in the pattern of business 

activity could also either intensify agglomeration impacts by concentrating business activity or dissipate 

agglomeration benefits as business locations become more dispersed. This second round impact on 

agglomeration through changes in land use has not been captured in the analysis. 




4 Strategic economic and regeneration 

impacts 

4.1 The scenarios tested 

Data on the likely changes in journey times due to an additional river crossing was supplied by MVA. This 

captured potential changes in journey times between 26 zones representing areas on both sides of the river and 

further afield. We have been informed by MVA that this data is the result of indicative modelling and should be 

treated with caution. 

Drawing on this data from MVA, we have constructed three scenarios: 

■ A new crossing close to the existing crossing assuming that the only journey time benefits come from 

reductions in congestion at the existing crossing point; 

■ A new bridge crossing from Chadwell to Gravesham; and 

■ A new bridge crossing from Stanford-le-Hope to Eastern Gravesham. 

The location of the existing bridge and the two proposed crossing options are shown in Figure 8 below. 

Figure 8: indicative location of new crossing options 

Source: Assessment of Lower Thames Crossing Capacity, Gifford, MVA and Capita, November 2008 

The first of these options has been constructed based on the reductions in journey time modelled by MVA for 

travel across the existing crossing when new bridges are constructed downstream. The journey time saving in the 

data from MVA suggested the journey time savings shown in Table 3 below. 




Table 3: Journey time change from decongesting existing crossing (represented by savings between zones 7 and 13 in MVA 

model), 2021 

Journey time saving for travel across existing crossing when new crossing is 

constructed 

Chadwell to Gravesham 

Stanford-le-Hope to Gravesham 

Southbound (1.18) (0.52) 

Northbound (1.09) (0.37) 

This suggests that journey time reductions of up to around one or one and a half minutes are possible on 

average across the existing crossing from reducing traffic flow. Based on this, the impact of saving an average of 

1 minute on all journeys across the existing bridge has been tested as a proxy for expanding capacity at the 

existing crossing point. The new crossings will also impact on speed and distance for certain car trips, which will 

have an impact on vehicle operating costs and total generalised time. These have not been taken into account 

within the hybrid model calculations. 

4.2 Changes in business location 

Changes in the number of jobs within the study area have been calculated using the modelling framework. These 

are presented in Table 4 for the three options tested. 

Table 4: Modelled changes in employment in the study area due to changes in connectivity provided by new Lower Thames 

crossing options, 2021 

1 minute saving on existing 

crossing 

Modelled change in employment 

Fixed land use Hybrid model Alternative approach 

789 706 

Chadwell to Gravesham 6,265 5,294 

Stanford-le-Hope to Gravesham 4,471 3,884 

The changes in employment reflect modelled changes in employment in the study area. Employment impacts 

could range from 700 to 6,000 additional jobs within the area, depending on the elasticity assumptions and 

options assessed. These do not necessarily reflect net changes in employment at a national level and may 

include significant elements of redistribution from areas outside of the core study area. 

4.3 Changes in productivity 

Analysis of agglomeration impacts suggests that changes in connectivity associated with the three options could 

be valued in 2021 as shown in Table 5. 

Table 5: Value of agglomeration benefits from Lower Thames crossing options, 2021, £m, 2002 prices 

Annual impact on GVA per job in study area, 

Option 

£m, 2002 prices 


£4 (+0.01%) 

crossing 

Chadwell to Gravesham £30 (+0.05%) 

Stanford-le-Hope to Gravesham £22 (+0.04%) 




4.4 Implications for economic output 

The implications for economic output of the potential changes in employment and productivity are shown in Table 

6 below. 

Table 6: Value of GVA impact from Lower Thames crossing options on study area, 2021, £m, 2002 prices 


crossing 


£2m 

(+0.01%) 

Chadwell to Gravesham £15 

(+0.01%) 

Stanford-le-Hope to Gravesham £11 

(+0.04%) 

£45 

(+0.2%) 

£334 

(+1.1%) 

£250 

(+0.8%) 

£42 

(+0.1%) 

£296 

(+1.01%) 

£227 

(+0.8%) 

The marginal benefit of a new crossing which is further downstream could be up to around £300m per annum in 

additional economic output within the study area. Annual GVA impacts have been converted into net present 

values over the life of the asset, using DfT appraisal guidance. It was assumed: 

■ Annual benefits remain constant; 

■ An appraisal period of 60 years; 

■ A discount factor of 3.5% over the first thirty years, and 3% for subsequent years. 

No information was available to us on the future growth of toll income or journey time changes and this analysis 

assumes that these remain constant from 2021 onwards. Assumptions regarding changes in journey time 

savings will affect this analysis and it must therefore be treated with caution. The NPV values are presented in 

Table 7 below. Total discounted benefits range from £80m with a 1 minute journey time saving at the existing 

crossing, to £12.7bn for the proposed Chadwell to Gravesham Crossing. 

Table 7: Net Present Value of GVA impact from Lower Thames crossing options on study area over a 60 year period (£m, 2002 

prices) 



£80 £1,700 £1,600 

crossing 

Chadwell to Gravesham £600 £12,700 £11,250 

Stanford-le-Hope to Gravesham £400 £9,500 £8,600 

Existing practice in wider transport appraisal captures some of the scheme impacts that affect the real economy, 

such as improving business connectivity for existing businesses and reducing business transport costs. For 

example, a single new job moving into an area may support an additional GVA of some £40,000 per annum. 

Assuming a value of business time of £20 per hour, this is equivalent to 24,000 business trip time savings of five 

minutes each. 

At the same time, other aspects that affect economic outcomes via changes in land use or change in the sectoral 

mix of businesses are usually not included. Targeting economic growth means adopting an approach that takes 

an alternative view from current practice. The methodology applied for this report aims to capture these different 

outcomes. 




5 Costs 

This Section considers the estimated costs of the New Lower Thames crossing Project from a conventional 

Design and Build perspective and then indicates how those estimated costs may translate into a Unitary Charge 

under a PPP arrangement. All costs are quoted exclusive of VAT. 

5.1 Capital costs 

5.1.1 Scheme Definition 

The analysis assumes that the Lower Thames crossing is specified as being located East of Gravesham to the 

South, and around Stanford-le-Hope to the North. The route will be approximately 12km long, and will connect 

the A13 and A2. The scheme will also include a link to the M25. It is further assumed that the crossing is a 

bridge, as described in the MVA study, 2008, and that it will be tolled. 

5.1.2 Capital Costs 

The estimated capital costs of the Lower Thames crossing (known as Option C) have been taken from the 

previous MVA study as follows: 

Table 8: MVA study’s estimate of capital costs, 2008 prices 

Description 

Cost (£’bn, 

2008 prices) 

Construction 0.6 

Allowance for Optimism Bias at 

0.4 

60% 

Total Capital Cost per MVA 

1.0 

study 

Source: MVA Capita Gifford, 2008 

The construction cost includes an allowance for linking the bridge to the M25, but it is unclear whether the 

scheme costs include for environmental and land related costs. 

The cost estimates presented above are shown in 2008 prices. The level of optimism bias stated, 60%, is 

consistent with advice given by the Department for Transport (DfT) in respect of non-standard civil engineering 

projects 4 . 

As with all forecast costs in the MVA report, we have not seen any underlying analysis and therefore are unable 

to comment on their appropriateness. In particular, we are unsighted on any land related costs, which may be 

material. 

5.2 Maintenance costs 

Maintenance costs have been considered by the MVA study. A provisional assessment estimates these at 

approximately 0.75% of the capital cost, which is equivalent to £8m per annum in 2008 prices. In reality, 

maintenance costs will fluctuate, with a mixture of routine maintenance and irregular life cycle improvements. We 

have not made any attempt to verify the accuracy of these estimates. 

4 Procedures for Dealing with Optimism Bias in Transport Planning (Bent Flyvbjerg, 2004) see paragraph 3.5.5 of DfT’s 

transport appraisal guidance (http://www.dft.gov.uk/webtag/documents/expert/unit3.5.9.php) 




5.3 Unitary charge under a PPP 

The exact form of the scheme, if it were to be procured as a Public Private Partnership, is subject to further 

discussion. The principal issues affecting the level of the Unitary Charge relate to: 

1. Concession duration; 

2. Exact construction cost; 

3. Risk allocation; and 

4. Cost of finance. 

If the New Lower Thames crossing were to be delivered as an availability-based PPP transaction (that is, without 

full transfer to the private sector of demand risk), the annual cost could be in the range of 10 – 15% of the capital 

cost 5 (i.e. £100 - £150m p.a.), net of any capital contributions made. This Unitary Charge would be subject to 

annual indexation, assumed at 1% for a 30 year operating period from the opening of the new road (i.e. a 34 year 

total concession period). For the purposes of PPP financial analysis it is assumed that all land and compensation 

costs are outside of the PPP concession, since the factors primarily affecting the land availability are likely to be 

controlled by Kent and Essex County Council. Also, typically, land purchase through a PPP does not offer value 

for money. 

One way in which the level of the Unitary Charge from the PPP concession company could be significantly 

reduced would be for capital injections to be made into the concession during the construction period, thereby 

reducing the extent of the borrowing requirement of the concession company. These capital injections could be 

funded through the Prudential Borrowing regime or third party grants. 

5 This reflects our experience of the normal ratio of capital to annual cost under a PPP and does not reflect financial modelling 

undertaken for this project. 




6 Toll revenues 

6.1 Toll revenues from a Stanford-le-Hope to Gravesham crossing 

The proposed crossing is assumed to be tolled, with fares aligned to those on the Dartford crossing. The MVA 

report produced traffic forecasts for this scheme for the year 2021, assumed to be shortly after the completion of 

the scheme. These assumptions are repeated below for illustrative purposes only. 

Table 9: Traffic and revenue forecasts for 2021 quoted in the MVA study 

Indicator traffic assumptions 

Annual traffic flow, 2021 

13.8m crossings p.a. 

Average toll £2.00 

Indicative income statement for 2021 

GBPm 

Income 27.6 

Provision for optimism bias and risk (5.9) 

Operations costs (4.1) 

Maintenance costs (7.6) 

Amount available for debt service, 

conventional procurement 

10.0 

Source: MVA Capita Gifford, 2008 

Key features of this projection are that: 

a) The above revenue forecast is an estimate at a point in time, and makes no comment about traffic flows at 

other times. This means that whilst the amount available for debt service under a conventional procurement is 

forecast at £10m per annum in 2021, the amount available in 2031 in real terms could be substantially 

different. 2021 is likely to represent traffic flows in the first years of operations. Traffic flows in subsequent 

years will be influenced by the scale and timing of economic growth expected in the Thames Gateway area, 

and the attraction of new developments into the area. 

b) It appears that some 35 to 40% of the traffic forecast on the new bridge is diverted from the existing Dartford 

crossing 6 . Understanding this dynamic will be critical to understanding the overall revenue potential of the 

crossings in a combined context and to understanding the DfT perspective on the value for money of 

investment. In particular, looking further out in time, demand growth may be further constrained on the 

existing crossing implying a larger share of traffic on the new crossing and more induced traffic and toll 

income. 

c) The tolls assumed are an extrapolation of current levels for Dartford, so exclude rises in excess of inflation. 

Relative to other major bridges, tolls are low: depending on the time of the crossing and the payment method, 

car tolls on the Dartford crossing range from nil to £1.50. It may be argued that it is currently priced as a 

public service rather than on a commercial basis. Commercialising tolls is likely to have a major impact on 

revenue generation. 

d) A PPP operator will typically Design, Build, Finance, Operate and maintain the crossing, for which the 

operator will be compensated by a Unitary Charge. As this Payment will include the costs of operations and 

maintenance, the relevant income to apply to the PPP as a contribution towards the unitary charge is the risk 

adjusted revenue amount, £21.7m sourced from MVA’s work. 

6 Parson Brinckerhoff show that AM peak hour two way demand flows excluding HGVs fall from 13,500 to 12,100 on the 

existing crossings compared to 3,800 on the new bridge. 




Based on these initial projections, tolling of the new crossing at currently assumed levels will only make a modest 

contribution to the costs of the scheme, whether delivered conventionally or as a PPP. 

6.2 Relationship with the existing Dartford crossing 

In order to maximise the benefits of the Lower Thames Crossing notably on congestion relief and network 

resilience, the existing and proposed new crossings should be considered together as part of the same traffic 

corridor. It is therefore essential to take into account the existing Dartford crossing within the tolling regime, in 

order to avoid traffic diversion, and undermine the aspiration of a bifurcation for traffic heading from the North and 

East of London to the Channel Ports. 

This section considers the impact of tolling to support the Lower Thames crossing and the impact of the Dartford 

crossing to the scheme. The Dartford crossing represents an impediment to maximising toll revenues on the 

crossing but also a potential source of revenue support. The way in which the scheme is developed to interact 

with Dartford will be critical to securing success, not least because of the impact that a new crossing could have 

on a stable source of government revenue. 

6.2.1 Financial support from the Dartford crossing 

Tolls on the Existing Dartford crossing 

The Dartford - Thurrock River crossing is one of Europe's most heavily used estuarial crossings and complex 

traffic management systems. Traversing the Thames between Dartford and Thurrock, the crossing forms a vital 

link in the M25 London orbital. The crossing is currently owned by the Secretary of State for Transport. ‘Connect 

Plus’ are responsible for the day to day operations of the crossing on behalf of the Highways Agency, as part of a 

contract for the Design, Build, Finance and Operation of the upgrade of the whole of the M25. 

The Dartford crossing carries well over 50 million vehicles per year. Charges for use of the crossing are currently 

levied under the Transport Act 2000. There are currently discounts for local users, and those using more efficient 

payment methods (DART-Tag). The crossing generated net proceeds for the Government of £42.9m in 2008/9. 

DfT has recently undertaken studies aimed at evaluating options to sell the crossing (primarily the revenue 

stream attached to it) to a third party, either outright or for a pre-determined duration in exchange for a capital 

receipt. This follows the inclusion of the Dartford crossing on the Operational Efficiency Programme asset list. 

Such a sale would affect DfT’s ability to deliver future capacity, as a purchaser is likely to require protection 

against the impact of such future capacity on the Dartford revenue stream. There remains a risk that the crossing 

may still be sold, but for the purposes of this report it is assumed that such a sale will not occur in the immediate 

future. 

The economic analysis has shown that the tolls act in a certain way as a local tax which restricts the regeneration 

potential of the study area: a scenario without tolls on the existing bridge was run, which indicated a potential 

increase in local employment by around 2,000, and additional annual economic output of over £115m when tolls 

were taken away. As the capital cost of the bridge has been paid for, an argument could be made that the net 

operating surplus of the existing bridge should accrue to local authorities who currently feel the impact of the toll, 

and who could use the receipts of the existing bridge to fund a new crossing along the Thames. 

If this option was to be considered, the existing crossing revenue could contribute to around half of the 

construction costs, and significantly improve the funding case for the proposed new crossing. 

The existing tolls pass to the Department for Transport, so it cannot be assumed that these revenues will be 

made available to the Lower Thames crossing. It is understood, for instance, that both the Conservative and 

Liberal Democrat manifestos allude to the revenue being made available for other purposes, such as ‘seeding’ a 

‘Green Investment Bank’. It is possible, moreover, that DfT may seek to protect the aggregate level of revenue 

and therefore seek compensation for any traffic shift to the new crossing. However, it is also possible that if a 




compelling economic case is made for the Lower Thames crossing and it is deemed to be of strategic national 

importance, then DfT may agree to allocate some or all of the revenues from the Dartford crossing or other 

equivalent capital grants to the new scheme and/or agree to raise tolls significantly beyond the current levels. 

Impact of raising tolls 

The impact of raising tolls will be to potentially significantly increase the affordability of a new scheme. The 

assumption made thus far is that the level of tolls will rise in line with RPI, meaning that by 2021, average tolls will 

be £2.00. If the toll was to rise to a level comparable to the Severn River crossing (effectively currently £5.50 for a 

return for a car, meaning £2.75 each way), and assuming no material loss of patronage, then the additional 

revenues in 2021 for Lower Thames crossing and Dartford crossing could be in the order of £8m and £36m, 

respectively 7 . 

At an aggregate level, such income from Lower Thames crossing and Dartford crossing would be likely to 

materially assist in the funding of the proposed development. 

We recommend that Kent County Council considers developing this option in further detail to allow an informed 

decision to be made regarding its potential benefits and practicality. We consider this to be the main opportunity 

available to generate significant additional revenue to support the new Lower Thames crossing project. 

A higher level of tolls than is currently the case may have an impact on the communities of North Kent and South 

Essex. Kent County Council could therefore consider a local community discount arrangement that minimises 

such an impact. This may preserve many of the local regeneration benefits of the scheme although would reduce 

the toll income available to fund the scheme. 

6.2.2 Toll revenues from the Lower Thames crossing 

Less than 20% of the scheme costs can be serviced from the revenue forecasts provided to us based on tolls on 

the new crossing equal to current tolls at Dartford. Based on preliminary traffic modelling and tolling based on 

current levels, estimated net toll revenue has been forecast by MVA to be in the region of £10m per annum, rising 

in real terms in line with growth in traffic flows. This amount includes a provision of 25% for optimism bias on the 

forecasting. Depending on the procurement approach taken, concession length and market sentiment, £10m of 

risk-adjusted revenue will support around £0.1bn of debt for a 30 year loan. 

A separate challenge is that revenue growth is a function of inflation, extra-inflationary price rises and traffic 

growth driven by wider economic conditions. The information prepared thus far is therefore insufficient for us to 

comment on these factors. 

The capability of the project to raise tolls materially beyond those charged on the Dartford crossing is unlikely as 

the crossings are sufficiently close as to represent substitutes for each other (notwithstanding the impact of 

constrained capacity). It furthermore follows that the crossings may benefit from being operated under some form 

of cooperation agreement, ensuring that both tolling and maintenance are synchronised. 

7 This assumes that tolls are increased by a percentage reflecting the difference between a standard car trip toll on the Dartford 

crossing and the Severn River crossing and assumes that no traffic is priced off. These assumptions are applied for illustrative 

purposes and we recommend that further work is undertaken to determine likely impacts of changes to tolls. 




7 Funding 

7.1 Distinguishing funding from finance 

A distinction should be drawn between funding and finan.0ce. At its simplest, a funder ultimately pays for the 

costs of a scheme while finance is a mechanism for moving funding around in time. Finance must be paid back. 

Either conventional procurement or a PPP approach can be part of a combined funding package. Other capital 

contributions, for example from the Regional Funding Allocation, local contributions or third parties could be used 

to reduce the PPP availability payment or reduce the level of borrowing required for construction. High levels of 

capital grant can reduce the ability to transfer risk from the public sector and would require careful consideration 

as part of a PPP arrangement. 

Revenue income streams, for example those that could be captured from increases in the local tax base (such as 

from supplementary business rates or additional council tax income) could be used to repay borrowing or 

contribute to availability payments under a PPP arrangement. 

7.2 Funding from Department for Transport 

Central government funding for regional transport schemes is primarily provided through the Regional Funding 

Allocation. These funds are to be allocated across a range of initiatives. The relative size of the scheme suggests 

that RFA provision will be insufficient for the challenge of financing the Lower Thames crossing. 

Alternatively, the DfT may choose to provide direct capital funding, either in the form of committed capital 

payments, or PPP (PFI) credits. An example of the former is the 10 year capital commitment made to Transport 

for London and in particular the funding promised in respect of Crossrail. An example of the latter is the Street 

lighting PPPs. 

Such funding will be predicated on a persuasive business case being prepared that demonstrates that the Lower 

Thames crossing meets wider government social, economic and regeneration objectives, and the availability of 

public funds. 

The 10 year indicative Regional Funding Allocation for transport for the South East is subscribed until 2019. The 

current indicative funding line is likely to come under pressure as government expenditure is reduced over 

coming years. 

The Department could alternatively choose to fund the scheme from national budgets reflecting its strategic 

national role. 

7.3 European support 

TEN-T Funding 

The European Union is able to provide support to schemes that aim to promote interconnectivity under the Trans- 

European Transport Network (TEN-T) scheme. Funding is in the form of a grant and would therefore aid 

affordability, and is typically available up to 10% of eligible costs (exceptionally, more). €8 billion has been 

attributed by the EU to the TEN-T programme for 2007-2013. 

It is possible that the proposed crossing will be eligible for TEN-T funding. The existing Dartford-Thurrock 

crossing is currently part of the TEN-T network, therefore it is likely that the proposed new crossing could also be 

designated a TEN-T. 




ERDF funding 

The European Regional Development Fund is a scheme promoting regional competiveness, growth and 

employment, and is allocated through the Regional Development Agencies. The focus of funding is currently 

towards areas of urban deprivation and the impact of this may be seen by the relative levels of support: The 

South-East England Development Agency has £22m allocated in respect of ERDF up to 2013, whereas 

Yorkshire First will receive €584m for the same period. 

The quantum of funding available from ERDF suggests that it is unlikely to make a material difference to the 

affordability of the project. 

7.4 Lorry road user charging 

Lorry Road User Charging (LRUC) has been contemplated by the Government, but was subsequently 

abandoned in 2005. Nevertheless the scheme has several theoretical benefits that mean that it may be 

readopted 8 and so an outline of the scheme is provided here. 

The purpose of the scheme was to, “ensure that lorry operators from overseas pay their fair share towards the 

cost of using UK roads 

9 .” In 2003, HM Customs and Excise reported that approximately £300m in tax revenues 

were lost, arising from untaxed diesel fuel shipped into the UK from foreign commercial vehicles 10 . 

Options have been explored for how the tax would be charged, including mileage, congestion impact, type of 

road used or time of day, and the scheme’s intention was that all commercial vehicles over a pre-determined 

weight would be taxed under this scheme. However, since UK based commercial road users currently also pay 

road tax and fuel duty, the tax incurred on fuel duty would be credited against the tax paid under the LRUC 

scheme. 

The proposed Lower Thames crossing, an arterial route between the channel ports and the UK hinterland, would 

be a route used by a significant number of foreign vehicles. If this scheme is readopted, promoters of the Lower 

Thames crossing would need to make a case to government to use a share of this income to fund the project. 

The introduction of lorry road user charging is likely to be unpopular with the freight industry and improving key 

freight routes may need to be part of the combined offer to the freight industry. In this case, the eastern side of 

the M25, as one of the most congested motorway routes in the country, would have a good claim to be prioritised 

for investment. This would further boost the strategic national case for investment in a Lower Thames crossing to 

relieve capacity constraints. 

7.5 Capturing economic benefits 

Other sources of possible funds towards meeting the costs of the New Lower Thames crossing project are based 

on obtaining external contributions from key third party beneficiaries of the new bridge. This could include those 

involved in land development in the crossing area or existing businesses within a catchment that benefits from 

the new infrastructure. 

Assuming transport can lead to changes in land use, providing a new crossing over the Thames will have a 

positive impact on employment within the local area, which could be between 700 and 6,000 new jobs depending 

on the scheme and the model assumptions. The employment and productivity growth could raise economic 

output of the study area by over £300m per year in 2021. Additional economic growth could be linked to funding 

8 Such as: www.roadtransport.com/.../Tories-confirm-backing-for-lorry-road-user-charging.htm 

9 Budget 2002, Economic and Fiscal Strategy Report, HM Treasury. 

10 http://hm-treasury.gov.uk/d/lorryria240305.pdf 




mechanisms such as tax increment financing and raising finance through developer contributions and Community 

Infrastructure Levy tools. 

Section 106 of the 1990 Town and Country Planning Act enables local authorities to require new developments to 

contribute to the infrastructure demands that they create. In practice, this legislation has been very flexible and 

has been applied to transport infrastructure. Around 40 per cent of major developments in the South East include 

a negotiated Section 106 contribution compared to around 7.5 per cent in the North East. The coincidence of 

major development and transport expenditure is important with Section 106 contributions paid at the time of 

development and ring fenced for particular purposes set out in the negotiated agreement. The Community 

Infrastructure Levy (CIL) regulations come into force in Spring 2009 and allow local authorities to levy a standard 

charge on developments if they choose. The new government has said that it would replace CIL, although the 

alternative is not yet clear. CIL would work in conjunction with Section 106. Section 106 demands are expected to 

be scaled back if CIL is also introduced. CIL is limited to infrastructure expenditure and “should be used to fund 

the infrastructure needs of development contemplated by the development plan for the area, not to remedy 

existing deficiencies.” 11 Also, when agreeing the now defunct Planning Gain Supplement, the government agreed 

in principle that developer contributions should be limited to direct impacts and mitigation (along with affordable 

housing provisions). This may limit the scope for securing developer funding from developers over a wider area. 

Using assumptions on employment densities set out in the English Partnerships guide to employment densities 

this would be the additional employment numbers would require up to 170,000 sqm of new development to be 

built 13 . No standard rates are available for calculating CIL contributions per square metre of floor space. In the 

absence of this, it has been assumed that an average charge of between £10 and £30 per square metre of 

commercial development could be achieved, implying total CIL or similar contributions of between £1.7m and 

£5m based on an additional 6,000 jobs. This is insignificant compared to the capital cost of the new bridge. 

Combined with issues of geographic scope, developer contributions are likely to be an insignificant part of the 

funding package for a new bridge. 

Overall GVA impacts of the crossing options will also have implications for tax revenues. A tentative assumption 

would be that 35% of the GVA impacts are captured in taxation and could thus contribute up to £117m per 

annum (35% of £334m) on new tax income from local businesses within the study area. Business rate income 

makes up around 5% of national tax income 

14 

implying additional business rate income of around £6m per 

annum within the study area. This could represent a more significant funding stream if it can be captured. 

However, again issues of geographic scope limit the potential for securing this increased tax income. 

These impacts may not be net at a national level as new employment could be attracted from outside of the study 

area, although the smaller agglomeration benefits set out in the fixed land use scenario can be considered as net 

national, as these benefits are new and not redistributed from other parts of the country. 

Tax increment financing or supplementary business rate approaches could both be used to appropriate some of 

these benefits. However, imposing any general business levy is likely to be seen as unacceptable because of its 

negative impact on the local and regional economy. These will need to be explored more fully once the scheme 

reaches a full business case development stage. 

12 , 

11 The Community Infrastructure Levy, Department for Communities and Local Government, August 2008 

12 Arup Economics and Planning, “Employment Densities: A Full Guide”- Final Report, English Partnerships and the Regional 

Development Agencies, July 2001 

13 Assuming 26.5 square metres of floorspace per employee based on an average of 34 for general industrial buildings and 19 

for general offices based on English Partnerships guidance 

14 Source: HMT Public finances databank, 27th May 2010 (http://www.hm-treasury.gov.uk/psf_databank.htm) 




8 Procurement and financing options 

8.1 Introduction 

This section considers two of the most common methods of procurement for a major capital scheme of the scale 

of the Lower Thames crossing. It is not an exhaustive evaluation and should be treated as a starting point for 

further discussion. 

The decision on how the crossing is procured will have a significant impact on the scheme, particularly in respect 

of costs, risks and future flexibility. The decision should therefore be aligned to the strategic intent of Kent County 

Council and its delivery partners, and driven by value for money considerations and the delivery team’s attitude 

towards the potential risks of the project. 

Finance can be provided from a number of sources. If procured through a local authority, borrowing is most likely 

to come from the PWLB. This is typically relatively cheap because it requires sovereign backing, but also has 

some limitations. In particular, it cannot be arranged at pre-booked rate of interest, although borrowing in 

advance of need can reduce this risk to some extent. 

An alternative is borrowing from the European Investment Bank (EIB). This is an autonomous body set up to 

finance capital investment furthering European integration by promoting EU policies. Projects considered for EIB 

financing within the European Union must contribute to one or more of a number of objectives, one of which is 

the TEN-T Network. The main attraction of using the EIB is its ability to offer substantial amounts of capital 

(generally up to 50% of the debt funding requirement) at a cost of finance significantly lower than that of 

commercial lenders. However, the EIB is not generally a risk-taking lender and usually requires a bank guarantee 

(or similar security) on all project lending at least until periods of significant risk have passed, i.e. at least until the 

end of the construction period. It also has the advantage that interest rates can be agreed in advance. This 

source of financing should be considered as part of developing the overall financing package and could be used 

to manage risks and reduce financing costs. 

Under a PPP arrangement, finance can come from a range of sources including commercial banks. However, 

this would be arranged by the PPP concessionaire. 

If promoted by a local authority, the capital costs of the Lower Thames crossing of around £1bn would be beyond 

the capability of both Kent and Essex County Council’s to fund out of their revenue account. It follows that the 

scheme would need to be funded either by the Highways Agency from national funding sources or by increasing 

the level of debt held by a local authority promoter. 

Local authorities are permitted to source loans under the Prudential Borrowing rules. This would make a 

significant addition to existing borrowings. For example, Kent County Council’s current borrowings lie around 

£1bn, and so if financed by Kent County Council through Prudential Borrowing the scheme would approximately 

double its debt and create a material risk for the council and its council tax payers. 

The rules for Local Authority borrowing were primarily set out under The Local Government Act 2003, and which 

permit local authorities to borrow for capital investment purposes. Crucially, it allows authorities to determine their 

own programmes for capital investment, without formal central government direction. Instead, the authority sets 

out a capital investment plan that is affordable, prudent and sustainable in line with the Chartered Institute of 

Public Finance and Accountancy (CIPFA) Prudential Code. 

The cost of funds borrowed is very low, typically 0.3% more than the cost of government gilts (for fixed rate 

borrowing sourced through the Public Works Loan Board, an executive body of the UK Government), or 0.3% 

more than the cost of Inter-Bank lending rates (‘LIBOR’) for commercial loans. This is because Local Authorities 

have the statutory obligation to prepare a balanced budget, and must therefore modify their taxation and/or 




expenditure to ensure that this is the case. The term of lending (‘tenor’) can be considerable, and thirty to fifty 

years is often seen. 

Prudential Borrowing is therefore a potential source of financing for the scheme, to be paid back from toll 

revenues or other council receipts. The funding remains a loan, however, and this means that the limit of 

borrowing available is defined by the Prudential Code’s Affordability criteria. Kent County Council will need to 

agree with the District Auditor as to its affordability limit, and almost certainly also with HM Treasury, given the 

scale of the borrowing envisaged. 

Interest rate risk 

A secondary issue is that of interest rate risk: interest rates fluctuate and there is a risk that the rates available at 

the time of borrowing will be greater than the rate forecast in the decision business case. This risk can be partmitigated 

by part pre-funding (that is, borrowing the funds in advance of their need). This practice has been 

adopted for example by Transport for London and the Greater Manchester Integrated Transport Authority. The 

funds could be reinvested into government gilts. Such an approach would require agreement in advance from the 

Council’s auditor. 

PPP and funding 

A major advantage of private sector funding is the level of scrutiny that banks and rating agencies offer to the 

scheme. Such bodies combine commercial expertise and a privileged insight with an objective interest in 

protecting their loans. Such self-interest means that lenders will flag issues and will deploy specialists to rectify 

them at a very early stage. 

In the context of a PPP, this means that the risk of failure of delivering the crossing is diminished. 

The public sector could stimulate this benefit without the use of PPP by obtaining a credit rating for Kent County 

Council. This approach has been used by Transport for London, rated AA by Standard and Poor’s and Aa2 by 

Moody’s in connection with their Medium Term Notes issued 2004. These bonds were issued at a commercial 

rate. The challenge for Kent is that the strategy adopted by TfL is very mature, is part of a multi billion pound 

programme and represents substantial ongoing costs. TfL is the only local authority that has taken this path on 

account of these challenges. 

Conclusion 

The Council in theory has access to low cost financing for the scheme, but the size of the project, potential 

difficulty in demonstrating that the borrowing would fall under prudential borrowing rules and interest rate risk 

make its availability somewhat difficult, and again acts as an indicator for preferring a PPP based solution. 

8.2 Review of the project from a procurement perspective 

8.2.1 Understanding of the scope of the project 

The proposed Lower Thames crossing project is for a permanent structure crossing the River Thames, together 

with access to the M25 and connectivity to regional trunk roads. The project will require maintenance, and it is 

assumed that these costs will not be supported by the Highways Agency. It is further assumed that the crossing 

will be tolled, in line with the levels charged on the Dartford crossing. There is therefore no inherent reason why 

an output-based specification could not be defined. 

8.2.2 Asset ownership and the scheme promoter 

There are no major road structures in the UK that are permanently owned by the private sector (the M6 toll 

motorway, for instance is to be handed back to the public sector in 2054), therefore the option for the bridge to be 

a permanently owned private sector enterprise is discounted for now. If the option of permanent private sector 




ownership is to be explored, its economics are likely to be closely aligned to a long term concession where the 

private sector bears demand risk. 

The public sector ownership of the asset could lie with the Highways Agency or with one of the local County 

Councils or a combination of these through a joint arrangement. We have not made any assumptions about who 

the ultimate owner would be and have considered situations in which either the Highways Agency or a local 

authority acted as scheme promoter, concentrating on a situation in which Kent County Council acted as scheme 

promoter. 

8.2.3 Scale 

The proposed scheme is very substantial, considerably more expensive than either the proposed Mersey 

Gateway or second Severn River crossing. MVA’s estimates suggest costs somewhat greater than £1bn (before 

consideration of inflation between 2008 and actual construction). The cost therefore of detailed contract 

development or forming a programme office will be dwarfed by those of the capital programme. Procurement 

approaches such as PPP may therefore be appropriate in an environment where public funding is becoming ever 

more scarce. 

8.2.4 Separability of the project components 

The project is likely to contain several components, including, inter alia: 

■ Construction of the bridge, including access roads and enabling works; 

■ Restoration of the Environment, for instance in respect of the SSSI to the South; 

■ Maintenance of the infrastructure following completion; and 

■ Policy and operations of tolling. 

With the possible exception of the environmental and enabling works, these components do not appear to require 

one form of procurement over another. 

8.2.5 Risk 

This financial review pre-assumes that all specification and governance issues are agreed at the point of delivery 

of the Outline Business Case and therefore that the risks contemplated are those related to construction and 

operations. 

The general response to risks are that they should be transferred to the party with the best ability to manage the 

risk at the lowest cost, shared, insured or managed internally. The procurement approach adopted will guide 

which of these is most relevant for the scheme. Based on the initial information made available to KPMG, notably 

the studies performed for DfT and the MVA study, the project bears several project specific risks, of which the 

two of the most significance are as follows: 

■ Design and Construction risk. This is the risk that the crossing is delivered behind schedule and/or over 

budget, or that it fails to meet its design objectives. The scheme is large and unique relative to other schemes 

procured in the UK. It follows that this risk will be material, so it is suggested that this risk should be managed 

either through full risk transfer (such as through a PPP) or through a sharing mechanism (such as found with 

a delivery partner approach). 

■ Demand risk. This is the risk that the traffic volume out-turn and associated revenue is not in line with the 

traffic projections. Green-field projects are particularly susceptible to this risk, as are schemes conceived for 

political or strategic 15 objectives. The scheme complements an existing (congested) crossing, and so demand 

15 Flyvbjerg, B (2005): How inaccurate are Demand Forecasts in Public Works Projects. Journal of the American Planning 

Association. 




is neither established nor green-field, but current negative private sector sentiment towards demand risk 

means that even prudent traffic forecasts are treated with caution. 

Consideration of the preferred approach to demand risk will be one of the key issues in selection of procurement 

route and structure. 

8.3 Conventional procurement and delivery partner approaches 

Conventional procurement refers to a range of approaches, with the common feature of the authority exerting 

direct influence over the design and build of the infrastructure and treating asset delivery and the subsequent 

operational performance as distinct activities. 

The delivery partner approach is where a private sector partner has responsibility for project development (taking 

significant project risk) but has a less direct role in service provision. The delivery partner is rewarded according 

to meeting performance and cost efficiency milestones. 

Such options may offer some degree of flexibility for specifying the infrastructure, setting tolls and operating the 

assets. If taken forward by local authorities, it also offers a straightforward approach to financing the project since 

the promoter would typically borrow funds from the Public Works Loan Board (PWLB), and if Central Government 

later chose to adopt the crossing, transfer of ownership would be straightforward. The approach is also 

compatible with the awarding of a service contract to a toll operator for the crossing. 

The major risk feature of this approach is the lower level of construction risk that will be transferred to the private 

sector compared to a PPP scheme, which means that the impact of cost over-runs to the promoter would be 

serious. The project’s budget matches Kent County Council’s annual budget and it follows that if costs overrun, 

the impact to the county council, who is obliged to approve a balanced budget, would be severe. Financing the 

scheme will also be a challenge since the costs of debt service will not be matched by a mature income stream. 

A local authority promoter will need to present a mature financial case to its auditors, demonstrating that future 

rather than current toll revenues will finance the scheme. This is a complex process, but the case has been 

successfully made by Transport for London and is being made by Greater Manchester PTE in relation to other 

schemes. 

In summary, this option offers high flexibility, and potentially a low cost of borrowing, but it requires the immediate 

development of world-class technical capabilities, possibly in concert with a specialist partner. It however 

exposes the promoter to substantial levels of construction risk that may be unacceptable. 

8.4 Public Private Partnership 

PPPs are joint working arrangements between the public and private sectors and in theory represent a continuum 

of procurement strategies. In the context of this report, however, PPP means the delivery and operation of the 

bridge infrastructure through a concession arrangement, with a negotiated risk sharing arrangement with the 

public sector and private sector financing. It is furthermore assumed that the arrangement is long term, and in the 

context of this scheme, the duration could be from 30 to 50 years in length. 

The main features of such a PPP are that the crossing is built and operated by a stand-alone company, owned by 

private sector ‘sponsors’. Changes require pre-embedding in a long-term service contract or are subject to 

negotiation, meaning that the arrangement can be somewhat inflexible. The counter of the inflexibility is that the 

private sector operator has considerable clarity over how the scheme will look over a long period of time and that 

clarity should lead to a focus on long-term efficiency: a so-called whole life perspective. The commercial 

contracts also require considerable detail and this detail often leads to high procurement costs: the matching 

benefit is that a high level of detail about construction and operations tends to reduce risk. Finally, financing is 

primarily from specialist project finance banks, and these banks will undertake very significant due diligence on 




the proposals, and will either employ or are specialists in asset management, and will intervene if the project 

appears to be off schedule. 

The benefits and issues of PPP are summarised in the table 10 below: 

Table 10: Key advantages of a PPP, compared to conventional procurement 

Benefits 

Ability to spread cost over lifetime of asset 

Risk transfer 

Detailed specification ensures that assets deliver 

desired output 

Predictability of payments assists long-term 

planning 

Focus on value for money over lifetime of asset 

Strong performance incentives ensure asset 

delivery 

Bank/bond funding provides high level of project 

governance. 

Challenges 

Cost of procuring the asset can be higher than is 

procured directly 

Risk transfer needs to be carefully evaluated to 

ensure value for money 

Cost of bid process is high and procurement process is 

longer than for conventional procurement 

PPP requires a stable environment where there are 

limited public sector uncertainties post contract 

signing (Financial Close) 

Inflexibility 

Requirement to carefully calibrate performance 

mechanism 

Bank/bond debt sourced through PPP is high cost. 

The decision as to how to procure the Lower Thames crossing is a complex one and will affect the costs of the 

scheme and its likelihood of commercial success. We recommend that a twin-track approach is maintained up to 

the point of approval of the Outline Business Case (a point that is some way away), with continuous re-evaluation 

of how risks are shared and external finance is sourced. In accordance with HM Treasury guidance the final 

decision should be predicated on the perceived value for money delivered by the options and will need to pass 

quantitative and qualitative tests for value for money 




Appendix A – Comparison of SETLUM and 

KTS costs 

The following graphs illustrate the differences in KTS and SETLUM model outputs. The comparisons use KTS 

and SETLUM zones that are geographically close to each other, the centroids of the zones used in the 

comparison being within 1km of each other. This enabled us to compare a trip from an origin to a destination in 

KTS that is very similar to an origin to destination trip in SETLUM. KTS consistently provides journey time and 

cost elements that are higher than SETLUM. 

Figure 9 below shows that operating cost assumptions are very different, KTS vehicle operating costs being on 

average 2.3 times higher than SETLUM costs. 

Figure 9: Comparison of KTS and SETLUM car vehicle operating costs, AM peak, 2001 prices 

Vehicle operating costs (pence) 

1,000 

900 

y = 2.316x 

800 

700 

KTS 

600 

500 

400 

300 

200 

100 

0 

0 50 100 150 200 250 300 350 400 450 

SETLUM 

Source: 

KTS and SETLUM models 

Figure 10 and Figure 11 (overleaf) show that car in vehicle time and generalised costs are more closely related, 

although KTS produces journey times and generalised costs that are still on average 1.4 and 1.7 times higher 

than SETLUM respectively. 




Figure 10: Comparison of KTS (2005) and SETLUM (2001) car in-vehicle time, AM peak 

Travel time (minutes 

120 

100 

y = 1.470x 

80 

KTS 

60 

40 

20 

0 

0 10 20 30 40 50 60 70 80 

SETLUM 

Source: 


Figure 11: Comparison of KTS (2005) and SETLUM (2001) car generalised costs, AM peak 


2,000 

1,800 

y = 1.7679x 

1,600 

1,400 

1,200 

KTS 

1,000 

800 

600 

400 

200 

0 

0 200 400 600 800 1,000 1,200 

SETLUM 

Source: 


The Figure 12 and Figure 13 below indicate that KTS and SETLUM AM peak PT travel time and generalised 

costs are more closely related than the modelled car journey times, KTS producing journey times for PT that are 

1.2 times higher than SETLUM, and generalised cost outputs that are broadly in line with SETLUM. 




Figure 12: Comparison of KTS (2005) and SETLUM (2001) public transport travel time, AM peak 

Travel time (minutes) 

300 

250 

y = 1.1638x 

200 

KTS 

150 

100 

50 

0 

0 50 100 150 200 250 

SETLUM 

Source: 


Figure 13: Comparison of KTS (2005) and SETLUM (2001) public transport generalised cost, AM peak, 2001 prices 


4,000 

3,500 

y = 1.0153x 

3,000 

2,500 

KTS 

2,000 

1,500 

1,000 

500 

0 

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 

SETLUM 

Source: 





Appendix B – Statistical analysis 

Table 11 sets out the results of the initial regression analysis using the hybrid model. It shows a negative 

relationship between employment density and car connectivity to labour markets and a positive relationship to car 

connectivity to business to business markets. This is counterintuitive and reflects the fact that car connectivity to 

labour is related to car connectivity to other businesses. The natural log of car connectivity to labour markets and 

the natural log of car connectivity to other businesses have a correlation coefficient of 55%. 

The other findings from this regression are that the distance from a Thames port (reflecting the influence of river 

transport and maritime trade) is a statistically significant predictor of economic density. The negative sign 

indicates that as distance from a Thames port increases, employment density tends to reduce. Finally the ‘South’ 

and the ‘North’ parameters in this equation reflect the equation intercepts, to take into account the differences in 

the calculation of connectivity between the Northern and Southern zones. 

Table 11: Relationship between car connectivity and employment density, 2008, all zones 

Regression statistics 

Multiple R 98% 

R Square 96% 

Adjusted R Square 96% 

Standard Error 1 

Observations 183 

Coefficients 

t Stat 

connectivity measure (Employment: car) - 0.68 - 2.90 

connectivity measure (B2B: car) 0.70 5.05 

Distance from, Thames port, km - 0.44 -3.14 

North 10.19 3.24 

South 7.01 2.26 

As connectivity to labour has a counter intuitive sign and is related to car connectivity to other businesses, it was 

then removed from the regression equation. For the southern zones, northern zones and all model zones 

considered together, this yielded the following three equations. 

Table 12: Relationship between car connectivity to other business and employment density, 2008, all zones 



R Square 96% 







Coefficients t Stat P-value 

connectivity measure (B2B: car) 0.65 4.67 0% 

Distance from, Thames port, km - 0.27 - 2.09 4% 

North 1.74 1.43 15% 

South - 0.66 - 0.40 69% 

Table 12 above shows the results for all model zones taken together. This shows that there is a positive and 

statistically significant relationship between car connectivity to other businesses and employment density. The 

regression results presented below show the difference in findings when considering the northern and southern 

zones separately 

Table 13: Relationship between car connectivity to other business and employment density, 2008, southern zones 



R Square 95% 




Coefficients 

t Stat 


Distance from, Thames port, km - 0.65 - 2.70 

South 6.97 1.52 

Table 13 shows the regression results for the southern model zones (where journey times have mainly been 

sourced from KTS data). This shows that business to business connectivity is not a significant driver of 

employment density. 

Table 14: Relationship between car connectivity to other business and employment density, 2008, northern zones 



R Square 97% 




Coefficients 

t Stat 


Distance from, Thames port, km - 0.09 - 0.48 

South 0.54 0.45 




Table 14 shows that in the Northern zones, car connectivity to businesses is a significant driver of employment 

density with a T-Statistic of 5.54. This indicates that, if no other uncaptured variables are also correlated with car 

business to business connectivity, we can be more than 99% certain that the statistical relationship between 

these two variables is positive. In this equation, the distance from a Thames port is negatively correlated, 

although insignificant. 

In order to take into account the variation in connectivity between the northern and southern zones more 

consistently, an alternative formulation was developed which considered whether connectivity in zones north of 

the river is better expressed as a multiple of connectivity in southern zones rather than having a different 

intercept. The formulation of this equation was therefore: 

■ Employment density = A+B*C*ln(car B2B connectivity)+D*ln(distance from Thames ports) 

■ Where C = 1 for southern zones but solved for northern zones to minimise the model error 

The other parameter assumed to have an impact on employment density was distance from Thames Ports. The 

equation was optimised by providing the equation parameters that minimised the sum of the squared errors. This 

formulation generated the parameters outlined in Table 15 below. This equation produces a slightly better 

statistical fit than the hybrid model equation set out above. 

Table 15: relationship between car connectivity to other businesses and employment density – alternative formulation 

Parameter 

Coefficient 

A – Intercept 1.50 

B – Car B2B 0.46 

C – North multiplier 1.51 

D – Distance from, Thames ports, km -0.32 




@ 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP 

and a member firm of the KPMG network of independent member firms affiliated with 

KPMG International Cooperative, a Swiss entity. All rights reserved. 

The information contained herein is of a general nature and is not intended to address the 

circumstances of any particular individual or entity. Although we endeavour to provide 

accurate and timely information, there can be no guarantee that such information is 

accurate as of the date it is received or that it will continue to be accurate in the future. No 

one should act on such information without appropriate professional advice after a thorough 

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The Lower Thames Crossing - Kent County Council

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