Question to the Department for Environment, Food and Rural Affairs:

To ask the Secretary of State for Environment, Food and Rural Affairs, what her policy is on the protection of (a) consumers and (b) the public purse from financial risks in the event that construction of the Thames Tideway Tunnel is finished behind schedule.

The Government is providing Tideway, which has responsibility for financing and delivering the Tunnel, with a contingent financial support package for some low-probability but high-impact risks that might arise during construction. These are risks that the private sector is unable or unwilling to cover at an acceptable cost to customers.

If called upon, the Government Support Package (GSP) may provide support in five different scenarios. The statement made to the House by my right hon. Friend, the member for North Shropshire (Owen Paterson) on 5 June 2014 (Official Record, Col. 11WS) gives fuller details of these scenarios. It is important to note that if these risks do not materialise, there will be no cost to the taxpayer. As part of the project’s regulatory and commercial arrangements, Tideway is strongly incentivised to deliver the Tunnel on time and to budget.

The project has an agreed threshold (130% of the original budget) for cost overruns, whether from a delay or otherwise, which is financed by Tideway. The upper end of the current estimated customer bill impact range of £20-£25 per year during the construction phase reflects expenditure at that threshold (if that is reached). If the project is late, the incentives regime applies time-related regulatory adjustments that are borne by the investors.

If the cost threshold is reached then Tideway can apply to Ofwat for an increase in approved expenditure (and therefore customer charges), which Ofwat will determine (but may not necessarily agree) taking into account the estimated cost to complete the project, appropriate incentives, and the cost of the required additional capital based on market conditions at the time. Tideway may also make a call on the GSP for Government equity financing to enable the project to be completed, at which time the Government would become an investor in the project and would have increased rights of oversight until completion of the Tunnel. This would ensure that taxpayers’ interests continue to be protected.