GIVE US THE TRUTH: 12 TESTS THAT FIFTH HS2 BUSINESS CASE MUST MEET TO BE CREDIBLE

HS2AA has today written to Patrick McLoughlin, Secretary of State for Transport, setting out 12 tests that HS2’s fifth business case (to be published shortly in support of the Hybrid Bill) must pass to be credible.

HS2AA’s letter follows the recent report by KPMG which claimed HS2 would generate £15 billion a year of wider economic benefits. Its conclusions were widely criticised by academics and commentators as lacking credibility – it was also pointed out that if the report’s figures were correct then it equated to a £1,000 worth of benefit to the economy for every extra journey created by HS2.

The next business case is particularly important.  It will be relied upon by Members of Parliament to decide whether or not to proceed with Phase 1 of HS2.

The 12 tests that HS2AA says the business case must deal with are:

1.     Is time spent travelling valued realistically?

The current assumption that all time spent on board trains is wasted, so a minute off journey time is a minute extra productive time accounts for around half the benefits of HS2. This assumption ignores the research evidence, takes no account of the use of mobile technology and is neither appropriate now nor when HS2 is up and running in 2026. The assumption must be revisited to ensure a more accurate valuation of time spent on trains by business travellers.

2.     Are up to date earnings figures used for business travelers?

 The current business case for HS2 uses 12 year old data to determine an average salary for rail business users, which the Department for Transport then uses to assess the cost of productive time saved on faster rail journeys. The DfT figure used equates to an average annual salary of £70,000. The Department for Transport has taken account of the downward impact on average salaries of the near fourfold increase in business travel assumed for HS2.

3.     Is there a realistic value for “crowding benefits”?

 The Department for Transport has ascribed unrealistically high levels of “crowding benefits” to overcome criticism of its valuation of business time. But this disregards the evidence that business travellers tend to book their seats in advance, or travel first class, meaning that crowding does not prevent work being done on trains.

4.     Have plans to improve the existing railways been taken into account?

 Previous business cases put forward by the Department for Transport have not taken into account the impact of improvements to the existing railways which have been confirmed for future periods, such as improvements to the Midland Main Line. These improvements will make journey times on existing routes faster and more reliable, making it less likely travellers will want to switch to HS2..

5.     Is the forecast of how many business passengers will use hs2 the most accurate?

 Previous iterations of the business case have overstated the percentage of business passengers forecast to use HS2. Given their higher earnings and the assumptions on time on trains described above, this has the effect of enhancing the scale of benefits modeled to arise from HS2.

6.     Is the most up to date rail forecast model and basis being used?

All previous business cases have persistently using used an outdated rail forecast model, which is no longer used by the rail industry for forcasting. Even DfT’s own rules say it no longer applies. The older model substantially overestimates long distance rail growth on the West Coast Main Line, artificially enhancing the case for HS2.

 7.     Has the bias in the demand forecast base year been removed?

Previous business cases overestimate the base demand on the particular routes that HS2 would serve, evidenced by inconsistencies between the forecast and the passenger counts for the base year. This bias inflates forecasts of future passenger demand figures for HS2 and must be investigated and removed.

8.     Are the cost savings attributed to cuts to the conventional network accurate?

 HS2’s business case relies on cuts to the existing rail network. Previous business cases have exaggerated the savings attributed to HS2 from cuts in services on the conventional railway by over £2bn. They treat the £5.5bn savings the same way as new costs- increasing them for optimism bias to a total of £7.7bn. It is not appropriate to apply optimism bias to increase savings of activities for which costs are known.

9.     Is price competition no longer being ignored?

 The revised business case must include price competition as a variable to ensure competition from existing lines is accurately modeled. These assumptions must also take into account the likely responses from operators of other services from London to the West Midlands when HS2 starts running services.

 10.  Are the wider economic impacts transparent?

 The value placed on the Wider Economic Impacts (that are less robustly grounded in evidence and not part of the core Benefit to Cost ratio) has grown significantly in the last business case, from £9bn to over £15bn for the full Y.

This has happened without transparency and despite out of town rather than city centre stations being chosen for several Phase 2 destinations, which might be expected to have reduced rather than increased such benefits. Wider Economic Impacts for Phase 1 might now reduce because of the lesser scheme for Euston.

11.  Is there transparency on the financing for HS2?

 The upcoming business plan should cost alternatives on the same basis as HS2. Furthermore credit should be given for improvements to existing lines being implemented in stages – only if and when demand requires it.

12.  Is a realistic comparator to HS2 used?

 Best practice in cost benefit analysis involves, after preliminary analysis, comparing the proposal with the next best alternative.  All previous versions of the business case have used a completely unrealistic ‘do minimum’ case as the comparator. The revised business case should compare HS2 with the best alternative – which is the proposal put forward by the 51M Group of local authorities to improve capacity on existing lines.

Commenting on the tests, Hilary Wharf, director, HS2AA said;

To date the business case has relied on assumptions and calculations which are, at best, highly questionable, and have given an unrealistically positive view of both the costs and benefits of the HS2 project.

Taken together these 12 tests represent nothing more than a request that generally accepted norms be used by the DfT and HS2 Ltd in coming up with their fifth revision to the business case.

 “We urge the Secretary of State, on behalf of those communities which stand to lose so much should HS2 proceed, and a country that will be saddled with debt from the construction of a white elephant, that he ensures his department produces an accurate and fair assessment of the costs and benefits of HS2.”

Ends

Notes to editors:

  1. HS2AA is a national organisation making the powerful case against HS2. It is a not for profit organisation working with over 90 local groups who believe HS2 does not represent an effective answer to the UK’s transport, economic or environmental needs.
  2. HS2AA have focused on an evidenced-based approach to challenging the business case, the environmental case and compensation arrangements.
  3. The Government have indicated they will publish a revised business case for HS2 in the autumn to support the Hybrid Bill, which will be one of the core documents for Members of Parliament to consider in assessing the case for Phase 1 (London-West Midlands) of HS2.

For more information please contact:

Richard Houghton

Tel: 07803 178 037

Email: richardwhoughton@gmail.com