High Speed Rail 2 business case ridiculed by National Audit Office
The National Audit Office, which monitors Government spending on behalf of MPs, has raised doubts over the viability of High Speed 2. This comes within months of the High Court ordering the DfT to re-run its consultation over its compensation arrangements for up to 300,000 households which have been blighted by the plans. The report ridicules many of the key economic arguments put forward by supporters of the scheme. Margaret Hodge said: “The Department has produced a business case that is clearly not up to scratch. Some of their assumptions are just ludicrous.” The NAO says the HS2 analysis does not estimate how many jobs are additional and how many would have been created without HS2 – and it does not provide good supporting evidence that HS2 would rebalance the economy by supporting regional growth. Another failing is in simplistic assumptions that time spent travelling by train is unproductive. “Research commissioned by the department suggests that business travellers do work on trains for at least part of their journeys, and a proportion of the time saved from faster journeys may be used for leisure purposes.”
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High Speed Rail 2 business case ridiculed by National Audit Office
A devastating report by Whitehall’s spending watchdog demolishing the business case for a high speed rail network has dealt a major blow the Government’s flagship project.
The National Audit Office, which monitors Government spending on behalf of MPs, has raised doubts over the viability of the £32.7 billion scheme to run 225 mph trains on a 351-mile route from London to Leeds and Manchester via Birmingham.
It is the latest blow to be suffered by the Government over the project and comes within months of the High Court ordering the Department for Transport to re-run its consultation over its compensation arrangements for up to 300,000 households which have been blighted by the plans.
Despite being backed by all three parties the project, which will see trains hurtling through the countryside, including the Chilterns, an Area of Outstanding Natural Beauty, has faced fierce opposition from environmentalists and many Tory MPs whose constituency lie on the route.
The report, ridiculing many of the key economic arguments put forward by supporters of the scheme, will be particularly unpalatable reading for Patrick McLoughlin, the Transport Secretary.
Sources close to Mr McLoughlin said the NAO’s analysis was out of date. One said: “We are not questioning the scrutiny but we don’t think it fairly reflects where we now.”
Successive Transport Secretaries have argued that the line will not only generate jobs but also “rebalance” the economy between north and south.
These assertions were dismissed by the NAO. “The analysis does not estimate how many of these jobs are additional and how many would have been created without investment in a high-speed line.
“The business case provides little supporting evidence to prove that a high-speed line will help to rebalance the economy by supporting regional growth.”
Another key plank in the case for HS2 – the business benefit of faster journeys – was also ridiculed by the NAO.
It said: “The Department’s methodology uses a simplifying assumption that time spent travelling is unproductive and business travellers will use all the time saved from faster journeys to work.
“Research commissioned by the department suggests that business travellers do work on trains for at least part of their journeys, and a proportion of the time saved from faster journeys may be used for leisure purposes.”
The DfT was also criticised for basing its arguments on data which was more than a decade old.
In its report the NAO also questioned whether the DfT, which was involved in a number of other major projects at a time when it had undergone “considerable organisational change” could even meet the timetable it had set itself.
Under the Government’s plans, the first trains, running from London to Birmingham, should enter service in 2032.
Not only was the timetable tight, but the report also questioned whether it was affordable with the huge financial commitment to HS2 in danger of restricting the Government’s ability to pay for other major capital projects.
The NAO report also questioned the “limited evidence” of demand for general growth in rail travel, which underlies the business case for the high speed rail link.
The timetable for planning phase one of the project – from London to Birmingham with work due to start in 2016/17 – was “challenging”, the NAO said.
This challenging timetable “makes delivering this work difficult and increases the risk that the programme will have a weak foundation for securing and demonstrating success in the future”, the report said.
Expressing “reservations” about the business case for HS2, the NAO said the Department for Transport’s methodology for appraising the project put a high emphasis on journey-time savings, from faster and more reliable journeys.
Amyas Morse, the head of the NAO, said: “It’s too early in the HS2 programme to conclude on the likelihood of its achieving value for money. Our concern at this point is the lack of clarity around the department’s objectives.”
Government sources said that NAO’s report was out of date and had failed to take into account a court room battle in January.
Transport Secretary Patrick McLoughlin said: “I do not accept the NAO’s core conclusion. This is because it depends too much on out-of-date analysis and does not give due weight to the good progress that has been made since last year.
“This includes the appointment of an expert management team and the announcement of detailed plans for the line north of Birmingham. The case for HS2 is clear. Without it the key rail routes connecting London, the Midlands and northern England will be overwhelmed.
“HS2 will provide the capacity needed in a way that will generate hundreds of thousands of jobs and billions of pounds worth of economic benefits.
“Economic modelling is just the start of the story. If we only relied on modelling we would not have built the M1, parts of the M25 or the (Tube’s) Jubilee line extension to Canary Wharf.
“We are not building HS2 simply because the computer says ‘yes’. We are building it because it is the right thing to do to make Britain a stronger and more prosperous place.”
Alison Munro, HS2’s chief executive, added: “Birmingham’s position at the heart of Britain’s new high speed rail network was set out in January with the publication of the preferred route for phase two.
“Along with significantly reduced journey times to Leeds, London, Manchester, Sheffield and the East Midlands, HS2 will free up much-needed capacity on existing lines.
“The region will also benefit from an expected 8,000 jobs created through the regeneration and development of the HS2 interchange at Birmingham Airport and Curzon Street stations, as well as opportunities from the 9,000 construction jobs on phase one.”
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The National Audit Office
The National Audit Office (NAO) scrutinises public spending on behalf of Parliament.
Our audit of central government has two main aims. By reporting the results of our audits to Parliament, we hold government departments and bodies to account for the way they use public money, thereby safeguarding the interests of taxpayers. In addition, our work aims to help public service managers improve performance and service delivery.
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High Speed 2: A review of early programme preparation
The strategic case for HS2, in terms of increasing rail capacity and generating regional growth, has still to be demonstrated clearly.
“It’s too early in the High Speed 2 programme to conclude on the likelihood of its achieving value for money. Our concern at this point is the lack of clarity around the Department’s objectives. The strategic case for the network should be better developed at this stage of the programme. It is intended to demonstrate the need for the line but so far presents limited evidence on forecast passenger demand and expected capacity shortages on existing lines. It is also unclear how High Speed 2 will transform regional economies by delivering jobs and growth. The Department is trying against a challenging timetable to strengthen its evidence and analysis, which at present provide a weak foundation for securing and demonstrating success in the programme in future.”
Amyas Morse, head of the National Audit Office,
16 May 2013
In an early examination of progress by the Department for Transport in planning for the High Speed 2 rail network, the National Audit Office has expressed reservations about the Department’s business case. In particular, in presenting its case for investment in the project, the Department is said to have poorly articulated the strategic need for a transformation in rail capacity and how High Speed 2 will help generate regional economic growth.
According to today’s report, the Department’s methodology for appraising the project puts a high emphasis on journey-time savings, from faster and more reliable journeys. However, the relationship between these savings and the strategic reasons for doing the project, such as rebalancing regional economies, is unclear.
It is also unclear to the NAO whether the business case covers just the route between London and the West Midlands (phase one, due to open in 2026) or the full Y-shaped network with lines from Birmingham to Manchester and Leeds respectively (phase two, due to open in 2032). The Y-network has a stronger economic case but this is much less certain as route designs are less well-developed.
The benefit-cost ratio calculated for phase one has twice contained errors and the Department has been slow to carry out its own assurance of the underlying analysis. The NAO’s opinion is that the Department and its advisers HS2 Limited should update the data underpinning some key assumptions in the ratio.
The most recent benefit-cost ratio (published in August 2012) is 1.4 to 1 but is likely to change. This to be expected as the ratio is sensitive to changes in data underpinning assumptions, such as GDP growth forecasts. It does not, however, reflect the Department’s current assumption on the relationship between passenger numbers and GDP growth. The Department now expects passenger numbers to grow more slowly when GDP increases. It should also carry out research into how business travellers use their time on trains. HS2 Limited has also not yet analysed the effect on passenger demand, revenues and the benefit-cost ratio of charging passengers premium prices.
The report notes that the estimated cost of phase one will change as costs become firmer. In some documents, the estimated cost is between £15.4 billion and £17.3 billion but a new estimate is being developed based on a clearer route and more information. The NAO estimates that there is a £3.3 billion funding gap over four years (2017-18 to 2020-21) which the government has yet to decide how to fill.
http://www.nao.org.uk/report/high-speed-2-a-review-of-early-programme-preparation/
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Business travellers’ time
2.20 In our view the Department has not done enough to understand and update the
value of business travellers’ time, which is a key assumption in the economic appraisal.
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The Department intends to carry out research in 2013 to understand these effects
better but does not know if results will be available in time for its next update to the
economic case.
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• In line with its guidance, the Department uses the most up-to-date data available.
However, to calculate benefits for business travellers, the Department is using
data which are over ten years old. The Department’s assessment is based on
income from business travellers in the 1999–2001 National Travel Survey, which
the Department has assumed have increased in line with subsequent GDP growth.
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• The Department’s methodology uses a simplifying assumption that time spent
travelling is unproductive and business travellers will use all the time saved from
faster journeys to work. While this approach is used in appraisals in other countries,
it has been challenged by opponents of the High Speed 2 programme on the basis
that it is unrealistic for rail travel.
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• Research commissioned by the Department suggests that business travellers
do work on trains for at least part of their journeys, and a proportion of the time
saved from faster journeys may be used for leisure purposes. Taken alone, these
findings would have the effect of reducing assessed time-saving benefits. On the
other hand, the Department argues that if business travellers work on trains then
reducing crowding would allow them to do more work – a benefit that is not
currently assessed – and, in the long run, business travellers will use time saved
from faster journeys to work.
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