A report by the National Audit Office (NAO) of the £4.2 billion project to construct the 25km Thames Tideway Tunnel, a ‘super sewer’ to reduce sewage overflows into the Thames in London, says it could have been smaller and better planned.

The NAO is keeping tabs on the project’s budget, but says it is too early to form a value-for-money conclusion. The 7.2 metre-diameter sewer isn’t scheduled to be fully operational until 2024.

The report found some stages of the planning to be less rigorous, possibly due to the likelihood of fines for non-compliance with the 1991 EU Urban Waste Water Directive if the project met delays. In 2012 the Court of Justice of the European Union found the UK in breach of this Directive, meaning that the UK was, and still is, at risk of fines if the problem was not addressed. In 2014 the Department for the Environment, Agriculture and Rural Affairs (Defra) made the decision that pausing the Tunnel to research alternatives would probably increase the risk of fines for breaching the Directive.

The report highlighted the fact that it took Defra and the Environment Agency (EA) ten years, from 2000-2010, to agree measurable standards and the specifications of the Tunnel. As part of this, Thames Water and the EA agreed a conservative maximum of four spills events per typical year to achieve its environmental, health and aesthetic objectives, as well as to secure compliance with the Directive and future-proof the project against climate change and population growth, when some EU countries have thought ten spill events to suffice.

The report pointed out that Defra endorsed the Tunnel as the preferred option in 2007 based on Thames Water’s assessment that it was the lowest-cost option capable of achieving its objectives by 2020. However Defra and the EA did not fully explore uncertainty in the modelling before endorsing the full tunnel option. The NAO report says that correcting for inaccurate predictions could have resulted in a smaller, lower cost tunnel. However Defra considers that the Tunnel chosen offers greater certainty that it will be future-proof.

Cost risk

The current cost estimate of the project is £4.2 billion. The report said that it is still unclear how much Thames Water customers will pay for the construction of the tunnel. Tunnel costs added £13 a year to the average household bill for Thames Water customers in 2016-17. The company forecasts the bill impact will peak at between £20 and £25 by the early 2020s.

According to the NAO report, Defra forecasts that the benefits of the project will be between 1.8 and 3.1 times its costs, however it says these estimates are uncertain. Approximately 60 per cent of the estimated annual benefits accrue to households outside of Thames Water's service area, although only Thames Water customers will pay towards the Tunnel's costs.

The government has provided a contingent support package which seeks to mitigate some risks, transferring liability to the taxpayer if those risks materialise. However the NAO report states that Defra believes a call on the support package to be highly unlikely, although it estimates that the impact could be very large (£6.6 billion in its 'reasonable worst case' scenario) if several risks materialise. In certain circumstances, such as cost overruns exceeding 30 per cent, or economic or political events making it unable to access debt capital markets, the government would provide financial support to Bazalgette (the company in charge of the Tunnel project).

The NAO expects to provide updates on the Tunnel project every few years. Its last report, in 2014, found six areas that were considered critical for achieving value for money.