Page 144 (b) although the Channel Tunnel Committee, appointed by the Government in 1929, believed that the project offered a net economic advantage, it was unable to quote convincing evidence to that effect and the economic Ministries, who afterwards commented on the report, were sceptical.
13. Engineering knowledge is presumably more advanced to-day, and it should therefore be possible to gauge the technical chances of success with greater accuracy and less expense than in 1930. Some of the economic arguments then used may also be no longer applicable; others may need to be revised. The balance of long-term economic advantage may not be the same as it was in 1930. At that time the whole cost of the project was to be borne, in the first place, at least, by private British interests; to-day we should be able to count on substantial contributions from France and perhaps from other European countries. On the other hand it must be appreciated that the decision now required of the Govern- ment is a far more serious one than it was in 1930. Then it was only a question of allowing private investors to risk their own money; to-day the Government has the responsibility of deciding whether the British taxpayers' money is to be used for the project-a project to which, incidentally, many a British taxpayer may be most emphatically averse, particularly as at least seven years must elapse before he can hope to see any return on his money.
14. According to the 1947 estimate of the Channel Tunnel Study Group, the pilot tunnel would take about five years to build and would cost about £121 million. The main tunnels would take a further three years and cost about £53 million. Other capital expenditure would be about £3 million. The annual net profit would be somewhere between £300,000 and £1 million, after allowing for interest.
15. These cost figures must certainly be revised upwards; a safe minimum figure would probably be not less than £75 million. The cost is therefore high and the profit moderate, especially since the Study Group ignores possible losses (e.g., to British Railways) due to disuse of other cross-channel facilities. But if other countries can be persuaded to bear some of the risk the picture is changed. Yet another possibility is that the United States might make a special contribution within the European Recovery Programme without detriment to other allocations; this, however, seems highly improbable.
Foreign Office, S.W. 1,
10th June, 1949.
APPENDIX C
MEMORANDUM BY THE BOARD OF TRADE
1. Introduction
In 1872 the Board of Trade welcomed the idea of a link between the British and Continental railway systems, provided that the cost was met from private funds and that there was no monopoly. The Board did not suggest active encouragement. Since then there have been five enquiries into the merits of the project-in 1906, 1914, 1920, 1924 and 1929-and on three occasions—in 1906, 1914 and 1929-the Board of Trade has submitted a full memorandum on the economic aspects of a tunnel. On no occasion has the Board shown much enthusiasm for the project and several times the conclusions reached have been unfavourable. In 1914, for example, the Board agreed that a tunnel-
re
would probably have but little effect on the foreign trade of this country. Indeed, the question of passenger traffic is alone important, and by it the Tunnel scheme as a commercial enterprise must stand or fall.... route thus provided would afford only an expensive mode of travel, and . . . the saving of time involved would be small."
The Board added that
The
fina Really 1 there fi6 serious reason to doubt whethePage scheme would be successful.
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In 1920 phe President of the Board of Trade (SirpAuckland Geddes) took the view that it was unnecessary to review the economic considerations bearing on the proposals for a tunnel, since the encouragement of such an undertaking during the financial stringency which must continue for some years to come would be entirely unjustifiable. Four years later the then President (Mr. Sidney Webb) said that he did not think that there were-
CC.
any new reasons which I should urge, in the interests of the country's trade, why obstacles to the construction of the Tunnel should be over- ridden.'
*
When the project was last reviewed, in 1929, the Board of Trade did not submit a separate memorandum, and the joint memorandum to which they con- tributed made no specific recommendation. The general outcome of the estimates in the memorandum was that the main source of revenue would be from passenger traffic and that the gross return on the capital cost (before allowing anything for costs of operation, upkeep and depreciation) would be unlikely to exceed 6 per
cent.
2. Economic Aspects
(A) The commercial success of a Channel Tunnel must rest upon :-
(a) A reduction in the cost of providing existing services.
8
(b) The development of new traffic.
(a) Reduction in Cost of Existing Services
The less existing services cost, the less the saving from discontinuing them, the weaker is the case for a tunnel. There is no sense in spending a fortune to save a bagatelle. So far as can be judged, comparatively little would be saved by the abandonment of existing services (such as ships, ports, rolling stock, &c.) displaced by the construction of the Tunnel. Nothing at all would be saved on account of the fixed installations (e.g., at ports) for which no other use could be found. The total shipping involved is not more than about 8,000 net tons. More, not less, rolling stock would be required.
Against this must be set the costs of upkeep of the Tunnel and the high 'capital charges that would require to be incurred because of the construction of about 35 miles of tunnel and marshalling sidings, interchange stations, &c., at each end of the Tunnel.
(b) Development of New Traffic
If the transfer of existing cross-Channel traffic to a tunnel would involve higher and not lower current charges, the economic case for a Channel Tunnel must rest on the additional traffic that would be developed. (This additional traffic could not be simply the traffic passing by other cross-Channel routes, since this should be taken into account under (a).)
The expectation of additional traffic must now be weaker than in 1929. It has always been recognised that the major source of revenue would be from passenger traffic and that goods traffic would bring in only a small proportion of the total revenue. But passenger traffic is being carried increasingly by air; and there is no longer the same case for building a tunnel in order to allow the journey to Paris to be made faster, or by night in order to save time, and the argument against the air is mainly one of dependability.
In
The calculations made in 1929 suggested that the traffic likely to be diverted to the Tunnel might amount to 230,000 tons of imports plus 30,000 tons of exports and re-exports. The increase in trade likely to result from the construction of the Tunnel, together with the probable growth during the period of construction, was put, very speculatively, at a third. It was emphasised that the induced increase would be mainly in perishable agricultural produce and valuable luxury goods, and that "the direct stimulus to British exports would be very limited.' present circumstances it is most unlikely that a large increase in imports of perishable food-stuffs and luxuries would occur and doubtful whether it would be permitted. Moreover, the experience of the past twenty years does not point to any Ready 114grefs662 goods traffic through the Palgene 5poft6.62In 1927 the weight of imports through Dover and Folkestone was 184,000 tons; in 1938 it was 152,000 tons; in 1947 it was 139,000 tons.* These figures hardly support the expectation of a secular expansion of traffic. There is less traffic to be
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diverted to the twenty years ago, and it is noge kelf that this
66 traffic would be augmented either with the passage of time or because of the greater convenience of the tunnel as a means of transport.
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The 1929 estimate of passenger traffic was a maximum of 3 million single journeys. This estimate was obtained by aggregating the 1928 total for journeys between Dover or Folkestone and Calais or Boulogne, adding a further 200,000 for passengers diverted from other routes, 200,000 for Americans induced to come to Britain instead of going straight to the Continent, and an allowance for some further stimulation of travel. At the time when the estimate was made, the number of air passengers between Britain and Europe was 48,000 per annum. By 1938 it had risen to about 170,000; and in 1948 it was over 600,000. The number of cross-Channel passengers using Folkestone and Dover rose from 1.5 million in 1929 to 1.8 million in 1937, but by 1948 was down again to 1.1 million. The main effect of air services has probably been to reduce traffic via Tilbury and Southampton; but it is inconceivable that traffic via Dover and Folkestone has not also suffered. The rate at which air transport is expanding makes it extremely difficult to estimate passenger traffic via the Tunnel at a higher rate in ten years' time than would be likely if the Tunnel already existed; and the traffic would certainly be much less now (perhaps by nearly half) than the maximum of 3 million suggested in 1929. It is hard to justify heavy capital expenditure to meet a demand that has fallen below expectations and is tending to decline.
(B) Other objections arise from the present shortage of capital. The construction of a tunnel might cost about £100 million and take ten years to complete. Although the current rate of interest to the Government may be only a little over 3 per cent. the true cost of capital to the country is far greater. The provision of, say, £100 million of capital for ten years without any return requires the prospect of a very large return at a later date. No such return is likely.
Moreover, the project would represent a large outlay on transport at the very moment when the Investment Programmes Committee have just reported that it will be necessary to curtail capital expenditure on the transport system over the next few years. Many valuable schemes, which are undoubtedly necessary in the interests of economic development, are already held up and will be held up indefinitely. Would the Channel Tunnel take precedence over the Severn Tunnel for example? Or over improving communications between the Midlands and South Wales? Or over extensions to the London underground system?
The last occasion when the Channel Tunnel was reported upon was in 1930, when it seemed possible that it might be justified as a means of providing employ- ment. No such justification can now be offered. If the unemployment to be countered is of a cyclical kind, it would be preferable to treat schemes like the Channel Tunnel independently of employment considerations, since the period of their construction exceeds the normal length of a trade cycle. If, however, continuing large-scale unemployment has to be faced, the Channel Tunnel should be considered alongside other alternative projects on which the economic return to be expected is small.
3. Quasi-Military Aspects
The attitude of the Government to a Channel Tunnel has depended more on military than on economic considerations. On the military aspects of the scheme the Board of Trade is not called upon to express a view. It cannot disregard, however, that a vast amount may be spent on something that might have to be extensively damaged or completely destroyed in the event of a war. If military considerations are paramount, there must be many other holes in the ground that it would be more advantageous to dig. Or if money must be spent to make cross-Channel voyages faster with an eye to eventual military advantage, what more obvious source of strength than an expansion in air traffic?
* These figures may not be comparable as the two later figures come from the Ministry of Transport's enquiry into the turnround of shipping while the earlier figure is from the Board of Trade.
Board Pagal66 G ?
15th June, 1949.