March 2010 Business Case Doesn’t Stack Up

 

Government claim it’s value for money – over £2 benefit for £1 cost.  In fact to expect £1 benefit for every £1 of subsidy is optimistic, given the case is based on excessive demand, illusory benefits, with a flawed assessment of the alternatives to HS2.  It’s more likely to deepen than relieve the North/South divide.

Excessive demand: based on a single scenario that relies on unrealistic assumptions and out of date data:

  • A huge increase in rail demand, some 267% – over 3½  times more than now.  DfT both ignore the evidence of demand saturation for domestic travel generally and that the engine for rail growth is modal substitution. Projections are twice what other experts say (including Network Rail and DfT)
  • DfT’s underlying model assumes a relationship with GDP that no longer exists (and not just in the UK)
  • DfT use out of date data that inflates forecast demand, ignoring recent analysis that give lower growth factors
  • Projected demand takes no account of new technology or Government’s own initiative to reduce travel
  • Domestic air travel is overestimated given the trends, inflating air modal shift numbers (and carbon impacts)
  • Car occupancy assumptions are too low which overestimates potential gains from cars
  • Despite obvious uncertainty only a single case for demand is presented, instead of a range of scenarios
  • The effects of competition (from classic rail) are assumed away despite the devastating consequences of inadequately anticipated competition for HS1, and Channel Tunnel

Illusory benefits: key benefits overstated  – totalling more like £13bn not £32bn, (NBR of about 1, not 2.7):

  • Biggest benefit wrongly assumes businessmen don’t work on trains -so 30mins saved adds 30m productive time
  • Using 10 year old data assumes top draw earnings for rail business travellers (£70k/a in current money) unadjusted for a nearly fivefold increase in journeys by 2033.
  • The £5bn overcrowding benefits depend on implausible levels of crowding if HS2 does not happen

Flawed assessment: case is invalidated by using unrealistic comparator & rejecting legitimate alternatives:

  • HS2 is assessed against a ‘do minimum’ scenario that is an unrealistic alternative as it can not accommodate forecast demand (because it takes no account of overcrowding and its effect on choking demand growth)
  • DfT’s alternative (Rail Package 2) is ignored despite meeting demand with less crowding than HS2, is cheaper (£2bn), better VfM (NBR 3.63), and delivers benefits sooner & incrementally, unreliant on long term forecasts
  • DfT justify rejecting RP2 on the basis it does not provide the ‘surplus capacity’ that HS2 provides
  • 65% more capacity can be created on WCML with more rolling stock and hence without material disruption

Transformational benefits to redress North/South divide: recent government claims are without evidence:

  • Wider economic impacts are already assessed in the business case, at just £3.6bn – only 11% of HS2 benefits
  • Any additional economic growth from faster connectivity assessed by Imperial College is small (£8/10m/a)
  • The redistributive effects will benefit London, UK’s dominant city, not the regions. DfT assume trips to London grow at twice the rate as those from London, and with 70% leisure travellers the result is obvious
  • HS2 Ltd say biggest regeneration opportunity is Old Oak Common (not outside the M25, or even the N Circular)
  • Respected experts told recent Select Committee there is no evidence for such benefits (Prof. Overman, Tomaney)

 

All this ill befits a government overseeing spending cuts of unprecedented severity.

 

To solve rail capacity issues as they arise does not require a new £30bn+ railway. Instead of spending £0.75bn this parliament on planning for HS2 it could have a complete solution for £2bn, or avoid subsidy entirely and let new capacity be created only when there is a commercial case

Government first focused on HS2 as part of the low carbon economy (although even HS2 Ltd says it is ‘broadly carbon neutral’); then the spotlight moved to its business case (but found it holed below the water line); it appealed to catching up with EU partners (but little has changed since Eddington, we still have faster connections between our key centres); most recently it’s focused on its power to transform and breathe economic life north of the M25 (but has no evidence for it).

But moving the goalposts is a poor smokescreen to cover an ailing business case