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May news
11 May 2010
High Speed 2 – is the economic case sound?
The Chiltern Society, in collaboration with HS2 Action Alliance, is asking the key question: Is the economic case for HS2 sound?”
The Society's Technical Action Group is continuing its comprehensive examination of the HS2 business case and will issue detailed documentation later which will set out the Society's formal position. Meanwhile, some of the issues that need to be considered are described below in a commentary prepared by a Society member
The cost for the first phase to Birmingham is estimated to be around £25.5 billion with revenues of £13.5 billion – giving a net cost of £12 billion. Justifying this, benefits to travellers and the economy have been estimated to be £32 billion. However, these seem to rest on some surprising views about demand, benefits and alternatives.
HS2 Ltd’s estimates result from complex and detailed modelling, but the Department for Transport does not have an unblemished track record in forecasting. Their demand forecasts for HS1 (the Channel Tunnel Rail Link) were criticised for persistent overestimation by a Select Committee, and their projected benefits for the 3rd runway at Heathrow have not escaped criticism.
Demand growth: HS2’s report says “The assumptions made about growth in demand are critical to the appraisal of any transport project business case, which can be highly sensitive to even quite small changes in base assumptions.” It is natural therefore to expect well grounded demand estimates. However:
• A range of high growth estimates on passenger numbers can be found in the HS2 Ltd documents: the Command Paper estimates an underlying 133% increase by 2033 which is lifted to 267% by the additional demand created by HS2. This sits uncomfortably with long distance travel having grown at a far lower rate for well over a decade, and the fact that growth will be constrained by the weakness of the economy for some years into the future. On the face of it, demand forecasts are almost double what might be expected based on travel trends over the last 15 years.
• Rail fares are expected to increase by 1% more than inflation indefinitely by HS2 Ltd. But how can HS2 compete with coach, air or car journeys if it does this?
• No account has been taken of the impact of modern technology on the need for travel. Making forecasts of demand over 25 years cannot assume it is “business as in the past”. The worldwide web is less than 20 years old, video-conferencing is hardly a mature technology - but already home-working is increasing, web-based sales are replacing travelling representatives, and work teams are increasingly distributed rather than co-located.
Benefits: The core benefits for HS2 are claimed to be the value of travellers’ time saved and the income from fares:
• The benefit of shorter journey times is estimated to be nearly £18 billion for business travellers and a further £11 billion to other users. It is assumed that business travellers do not work on trains and therefore their time is wasted. This is not only incorrect but inconsistent with research findings that the government itself sponsored. IT developments that are obviating the need for travel are simultaneously making train travel as productive as the office and as entertaining as the home. Putting a large value on reduced journey times looks out of kilter with the facts.
• According to HS2, fares contribute £15 billion of revenue. But this is dependent on increases that seem inconsistent with rail maintaining, let alone increasing, its share of the long distance travel market.
Alternatives: On HS2’s own analysis, there are other ways of meeting demand and reducing crowding and road congestion, which are more economically attractive and faster acting than HS2. It is obvious that if adopted they would eliminate any economic case for HS2. But these and other alternatives are not adequately explored. This is a particular concern, as they are amenable to an incremental approach - adjustable in the light of emerging trends. In contrast, the HS2 plan is a huge gamble based upon demand levels which look implausibly high.
Costs are also an issue:
Environment: Rail travel is at least expected to be green. But high-speed trains emit about twice as much carbon dioxide per passenger mile as the existing 125-140 mph trains. The construction works also involve a serious energy requirement. It seems that shorter journey times are bought at the cost of green credentials.
Building costs: £18 billion – but how many large capital projects are completed on budget and on time?
Other costs – no costs have been included for the environmental impact on residents, businesses and visitors of driving the line through the English countryside including the Chilterns Area of Outstanding Natural Beauty.
A draft report from an independent analytical consulting firm examines the case in much more detail and is available at www.bluespacethinking.com. It points out, using HS2’s own analysis, that extra capacity could be provided much more cheaply and quickly, for example by extending the length of platforms and trains, and it also includes these main conclusions:
• “We do not consider that the HS2 project is economically viable.”
• “In carrying out this assessment we have been surprised at the extent to which the generally held view that HSR will reduce emissions, create economic benefit and reduce congestion is not supported by the data.”
There are serious questions about the economic case for HS2. The scale of the investment is so large that it should be a concern to everyone if its economic justification is not sound.
