The following evidence was submitted by Greengauge 21 to the Transport Select Committee on 19th November 2013
DfT’s Strategic Case published October 2013 answers its critics, showing the business case to be ‘high’ – indeed ‘very high’ if the likelihood of demand continuing to grow into the longer term is taken into account (see HS2: the critics answered);
the revised business case is ‘high’ in value for money terms. The argument that other approaches represent better value for money is not substantiated by the evidence;
the capacity case has now been articulated with evidence on the experience for passengers of crowding, congestion and punctuality on the West Coast Main Line;
the economic case continues to use cautious assumptions, which if replaced by more realistic assumptions on growth continuing into the longer term results in ‘very high’ value for money estimates;
there is now clear evidence that HS2 will strengthen northern and Midland economies more than those of the south and London.
There were several areas where consultants employed by campaign group 51M argued the previous analysis of HS2 was flawed or made use of out-dated assumptions (R1). These technical assumptions have now been updated or addressed in the table below, entitled “Fundamental Weaknesses” in the earlier HS2 economic appraisals (R2):
|Issue raised by Castles and Parish for 51M||Has the identified issue been addressed in the updated economic case?|
|Inappropriate do minimum||Yes – updated to take into account substantial commitments to enhance existing rail network|
|Inconsistent ‘base case’ used in HS2 and alternatives||Yes – the same base case used throughout|
|Alternatives not considered fully||Yes, multiple variants considered by Atkins and compared with HS2 using the same models and economic appraisal techniques|
|Out of date assumption on income elasticity of demand||Yes, updated|
|Use of over-long appraisal period||Judgment call. The appraisal period used is consistent with HM Treasury Green Book guidance but with demand growth cut off three years after project opening. How can this be over-long?|
|Over-statement of crowding benefits||Yes, train lengthening investments included in revised base case|
|Doubts over validity of reliability benefits||Yes. A lot of new evidence provided on the extent of train punctuality and its relationship with the intensity of network use|
|Incorrect value of time that does not reflect the productive use of time while travelling||Yes. Value of business time revised downwards sharply and shown to be consistent with preparedness to pay research that reflects the ability to work while travelling by train|
|Subsidy increase across the network unquantified||Yes and now evident that the operating cost of the network (and hence subsidy) is lower with HS2 than without it|
|Risk and uncertainty not taken into account||Yes, full probabilistic analysis of BCRs and in treatment of costs|
|High dependency on long term benefits||No. This is an inescapable feature of long term investments|
These corrections have not led to the substantial write-downs in project benefit:cost ratios that 51M’s consultants argued would inevitably follow. The honest media headline on the new material published by DfT and HS2 Ltd at the end of October would be: “HS2 business case unchanged”. But the media headlines have insisted the case is worse despite the fact that the BCRs for Phase 1 (both with and without ‘wider economic impacts’) are unchanged. So too is the BCR for the full HS2 (‘Y’ network) without wider economic impacts. Only the case with wider economic impacts taken into account is the BCR somewhat lower.
This final value – at 2.3 – is described by critic Professor Henry Overman as the best estimate yet developed for the project. (R3) His contention, however, is that there are better ways to spend the money and he cites two pieces of evidence:
(i) the BCR of the upgrade alternative to the full HSR network, which, as developed by Atkins for DfT showed a higher BCR of 3.1; and
(ii) the Eddington Report which found, he says, lots of schemes with a higher BCR than 2.3.
Greengauge 21 believes these comparisons and Professor Overman’s conclusions to be misleading. The Atkins work for the upgrade alternative fails to take into account the cost of future renewals of the upgraded network – a key cost component that is fully reflected in the appraisal of HS2 itself. If the effect on renewals costs had been taken into account, the BCR of the upgrade alternative would be much lower.
And if allowance is made for growth continuing past 2036 (an arbitrary and self-imposed cut off in the appraisal of HS2 and the alternatives to it), the BCR for HS2 rises to over 4 (moving from good to very good in DfT’s investment categorisation). The same uplift (which has not been estimated) would not arise with the upgrade alternatives, because, as Atkins point out in their report: “While the [upgrade] packages are likely to be relatively future proof in relation to downside risks (where lower demand can be accommodated through reduced crowding and de-scoping of some interventions), there is likely to be less scope to address higher demand growth, or continued growth beyond the ‘cap year’ (i.e. 2036). Given that, even on the basis of current demand forecasts, peak crowding levels are high, increases in demand would probably require additional capacity to be found.
There is scope within the existing packages, particularly for MML, ECML and Cross Country, to provide some extra capacity through train lengthening but there is more limited scope to increase capacity through frequency enhancements without further considerable infrastructure investments. Discussions in this study did not identify any obvious further infrastructure investments which were likely to boost capacity and offer value for money.(R4)
In other words, while with HS2 there is spare capacity to accommodate further demand growth after 2036, with the upgrade options it would be necessary to make further investments. The implication is that the BCR of the strategic alternative is unlikely to improve in the same way that it does for HS2. If the view is taken that demand is likely to continue to grow in the longer term, which we believe it should be, then HS2 (which adds more capacity than upgrades) will also offer a better BCR.
The Eddington Report
The second of Overman’s comparisons is with the Eddington Report findings on a range of BCRs for transport projects. The Eddington team, in 2006, could find few rail projects for which BCRs were available. So while it is true that there are small projects with high BCRs and some (but not many) road schemes with high BCRs, Sir Rod Eddington, when asked by the Transport Select Committee in 2007 after his report was published and having seen all this evidence, made very clear his own view on high-speed rail. It was that high-speed rail should be developed in Britain.
Comparison with other successful major transport schemes
The new appraisal presented by DfT and HS2 Ltd allows for the difficulty inherent in all long term forecasting by presenting a range of outcomes. It shows there is a very small likelihood (1%) that HS2 represents poor value for money and a reasonable chance that it offers high value for money (79% likelihood) (R5). This is a stronger position than existed at an equivalent stage for the M1 motorway, the M25, the Channel Tunnel Rail Link, the Victoria Line, the East London Line Extensions (nor London Overground) and the Jubilee Line Extension.
The Capacity Case
The evidence presented in the updated Strategic Case on the question of where and when the capacity will run out on the West Coast Main line – a key question in the National Audit Office report of May 2013 – has been answered fully. The new evidence in the Strategic Case shows that the WCML is very full, with evidence of train service punctuality suffering as a result, some services cut back because of network congestion and reluctance by the Office of Rail Regulation to accommodate new services.
In terms of passenger demand and capacity, it shows that today’s railways are congested during the true peaks, which arise at differing times for intercity travellers and commuters.
Most important, it shows that full train lengthening and the addition of additional services can only add 36% more seats in the peak hours. With a recent trend increase of roundly 5% per annum, it is clear this can only be an interim palliative. The analysis shows that for a range of growth rates that the additional seats that can be provided will be fully taken up between 2021 and 2029. The West Coast Main Line uses London’s fastest growing terminus and serves the country’s largest growth area (Milton Keynes/South Midlands).
North South imbalance
The new research commissioned by HS2 Ltd shows unequivocally that the north/midlands is likely to benefit more than the south/London from HS2. The analysis by KPMG that provides this conclusion is similar to work that Greengauge 21 commissioned in 2011 (R6). Then as now, it was fully acknowledged that this work was breaking new ground. It represents a “dynamic” approach in which land-use and employment and population are not fixed as in the “static” approach taken in conventional transport cost benefit appraisal. While the scale of the benefits produced is inevitably subject therefore to a wide margin of uncertainty, the fact that the incremental impact on Midland and Northern cities is greater than that on London is a robust conclusion. There is no other research specific to HS2 available that provides a counter-view, only selective reference to the experience of other countries with high-speed rail and speculation that the two-way street effect will only be to London’s benefit.
Benefits across the nation
The Strategic Case also shows that the benefits of HS2 are very widespread indeed (as illustrated in Figure 4.4/5) (R7). There is substantial scope, for example, to improve services to the ‘intermediate’ catchments in the West Coast corridor (as shown in Figure 4.6) (R8), and as earlier work for Greengauge 21 made clear these benefits extend to places in Buckinghamshire, Northamptonshire and Warwickshire through which the first phase of HS2 passes (R9).
In previous evidence to the Transport Select Committee, Greengauge 21 has shown how the costs of HS2 could be reduced and the project’s benefits enhanced (R10). These opportunities (R11) remain available, and Greengauge 21 believes that it would be timely, consistent both with progressing the first phase of HS2 via the planned Hybrid Bill and with the challenge set for the incoming Chairman of HS2 Ltd, for Government now to examine these opportunities fully.
(R1) See Peter Hall in Built Environment Volume 39 Number 3 High-Speed Rail: Shrinking Spaces, Shaping Places p343 for a useful summary of these objections. This recently published issue of the Built Environment raises a number of issues about HS2 but was written prior to the publication of the DfT’s recently updated Strategic Case
(R2) Castles, C and Parish, D Review of the Economic Case for HS2, for 51M, Aylesbury 2011
(R3) See Daily Telegraph 16th November 2013
(R4) See HS2 Strategic Alternatives Atkins Final Report, Department for Transport, 28 October 2013 emphasis added
(R5) The Strategic Case for HS2, DfT October 2013, Figure 5.9
(R6) KPMG for Greengauge 21 “consequences for employment and economic growth“
(R7) Strategic Case op cit
(R10) 2011 Greengauge 21 submission to the Transport Select Committee
(R11) They include providing a connection between Crossrail and the commuter lines of the West Coast Main Line so that (i) the rebuilding of Euston can take place with less disruption and at lower overall cost (ii) the economics of Crossrail can be improved (iii) better value can be obtained from the Old Oak Common interchange (iv) new possibilities for locating the Crossrail depot can be explored (v)the scope for regeneration at Old Oak Common can be increased.