HS2’s Revised Benefit Cost Ratio Fails Philip Hammond’s Test

Government failed to give the new BCR for HS2 on announcing the massive £10bn increase in cost. HS2AA can now reveal its sunk to £1.4 benefit for every £1 spent for the Y and worse for Phase 1 – just 1.0. This means it fails Philip Hammond’s value for money test. Back in 2011 he told the Select Committee not only that HS2 was rich mans toy but “if [the BCR] was to fall much below 1.5 then I would certainly put it under some very close scrutiny.” That time has arrived.

The effect of the new £42.6bn cost of HS2 plus the trains on the BCR is shown below. The DfT have not yet released these figures.

This shows:

1. The new BCRs have breached former Secretary of State for Transport Philip Hammond’s  of a BCR of 1.5 being the minimum figure for HS2 before it was no longer  value for money

2. The new public subsidy figure is now £33bn

3. BCR is less than half the figure it was in 2010

Without the Wider Economic Benefits (WEI) the figures are down to BCRs of 1.0 for phase 1 (£1 benefit for £1 spend) and 1.4 for the full Y.

With wider economic benefits it creeps up to 1.3 and 1.9.

All this is before any adjustments made for assuming people don’t work on trains, exaggerated demand and ignoring competition.

 

£Billion (NPV) PHASE 1 estim’d Full ‘Y’ estim’d
2011 prices           Mar-10   Feb-11  Jan-12 Apr-12 Aug-12 Jun-13  Mar-10  Feb-11  Jan-12 Apr-12 Aug-12
Jun-13
Benefits 32.7 18.9 19.0 NA 18.8 18.8 c76 42.7  44.15 NA 48.2 48.2
(with WEI) 36.8 23.6 23.1 NA 23.6 23.6 c83 50.1 53.25 NA 63.6 63.6
Costs
Capital 20.2 20.2 18.8 NA 18.8 23.4 c33 34.6 36.4 NA 36.4 44.0
Operating 8.6 7.0 8.6 NA 8.2 8.2 15.8 21.7 NA 22.3 22.3
Revenues 17.0 15.5 13.9 NA 13.2 13.2 31.0 32.9 NA 32.9 32.9
Subsidy 13.5 11.7 13.5 NA 13.8 18.4 c19.2 19.4 25.2 NA 25.7 33.4
Value for Money: benefits per £1 of subsidy
BCR
£2.4 £1.6 £1.4 £1.2 £1.4 £1.0 c£4.0 £2.2 £1.7 £1.4 £1.9 £1.4
BCR (with WEI) £2.7 £2.0 £1.7 £1.5 £1.7 £1.3 c£4.3 £2.6 £2.1 £1.8 £2.5 £1.9 

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