A key report used by the Government to make the economic case for the HS2 high-speed rail line has been critically undermined by the Department for Transport’s own research, which suggests the study’s methods exaggerated the benefits of the project.
The report, by the accountants KPMG, has been repeatedly quoted by ministers — including the Chancellor, George Osborne — to defend their £43 billion scheme.
Patrick McLoughlin, the Transport Secretary, said he was “pleased to publish” the study, commissioned by HS2, saying it showed the new line would deliver a “£15 billion annual boost to the economy, with the North and Midlands gaining at least double the benefit of the South”.
Mr Osborne said the KPMG report “showed that HS2 will provide a boost to the economy of £15 billion a year”. The figure was said to be the value of higher employment, better productivity and “gross value added” (GVA), increased production of goods and services, caused by the new line.
However, even as the Department for Transport promoted these supposed benefits, it was sitting on a second study which showed them to be grossly exaggerated, The Sunday Telegraph has learnt. This report, by experts including Tom Worsley, the man who developed the DfT’s own transport modelling, criticised KPMG and its method directly and by name, saying it produced “implausibly high” estimates of the effect of high-speed rail projects on the economy.
“There is no evidence that the direction of causation claimed in the model —between an increase in rail connectivity and an increase in productivity, employment density and GVA — has been established,” the second report said. This had a “crucial” impact on the “robustness” of the figures, it added.
The experts said: “There is no explanation provided for the impact of the transport proposal on other geographical areas, i.e. winners and losers … no explanation is given of the original locations of those jobs that shift [as a result of high-speed rail].”
Their report, entitled Assessment of Methods for Modelling and Appraisal of the Sub-National, Regional and Local Economy Impacts of Transport, is dated September 2013 but was published on the DfT website at the end of October, seven weeks after the KPMG research. Unlike the KPMG report, it had no publicity.
The KPMG research has already been substantially discredited, with one former member of the Government’s HS2 advisory panel, Prof Henry Overman, saying it was “technically wrong” and “essentially made up”.
Another statistician, Prof Dan Graham, of Imperial College London, said the KPMG methodology was “not reliable”, while freedom of information requests by the BBC revealed that KPMG had found many parts of the UK stood to lose, not gain, from HS2, but this was never spelt out in its published research.
The disclosure that the Government was warned by its own experts even before publication will bolster concern that the benefits of the costly high-speed scheme have been significantly oversold.
Mr McLoughlin has also claimed that HS2 will be “one of the most potentially beneficial infrastructure projects on the planet” and that it will be “fully integrated into the existing rail network”.
In fact, according to Prof Overman, the economic benefits may be as little as an eighth of those claimed by KPMG, and HS2 will not even run to the main rail station in five of the seven major provincial cities it serves.
Mr McLoughlin claimed in October that HS2 could “reduce carbon emissions” by diverting passenger and freight traffic from road and air to rail. This is also untrue.
The same month, a previously unpublicised 63-page “assessment of carbon emissions” by the consultants Temple-ERM was slipped out on the HS2 website. The report makes clear that the massive CO2 emissions created by building the new line will outweigh any carbon savings from modal shifts in transport for at least six decades.
“Over the construction and the first 60 years of operation of HS2, it is likely that carbon savings … will be less than the carbon emissions, resulting largely from the construction phase,” the report says.
Even after the 60 years, significant CO2 savings depend on the UK closing almost all its coal and gas power stations, which appears increasingly unlikely. High-speed trains consume vast amounts of electricity, which is currently generated largely by burning CO2-producing fossil fuels.
There are around 1.5 million long-distance car journeys in Britain each day. The HS2 environmental statement says just 2,500 of them, less than 0.2 per cent, will transfer to HS2, bringing infinitesimal reductions in traffic congestion, pollution and CO2 emissions. A “small” CO2 saving “may” be delivered after 120 years, it says.
HS2 claims almost 700 air trips a day, four planeloads of people, will transfer to HS2, even though there are no flights between London and Birmingham and few between London and Leeds or Manchester.
It can also be revealed HS2’s former legal advisers have attacked the project, accusing it of using “scare tactics” to win public support.
In a blog post on the Bircham Dyson Bell website, one of the firm’s public affairs staff, Stuart Thomson, said there was a “real problem” with “failings in the statistics” used by HS2 to make its case, including a “fairly transparent scare tactic” of claiming that upgrading existing lines instead would cause 14 years of weekend closures.
Bircham Dyson Bell was legal adviser to HS2 until March 2013. Mr Thomson said: “Opponents have been allowed the space to make the running because of the perceived faults in the justifications and the way that the public consultation was undertaken.”
He said the problems with HS2 “go deeper” than the communications, and the Bill to build the line would have a “difficult journey” through Parliament as a result.
The DfT stood by the KPMG research on Saturday night, saying that its criticism related only to a previous study the firm had done on high-speed rail. However, the method used in both studies was substantially the same and economic benefit produced was similar.
A DfT spokesman said: “The 2013 KPMG study was peer-reviewed and highlights the real economic benefits regions across the country could see thanks to the creation of a new North-South rail line.
“HS2 has drawn support from employers, unions and the construction industry and will deliver essential new capacity to the national rail network freeing up space on the East, West and Midland mainlines, benefiting the thousands of commuters who currently stand travelling into London and Birmingham.”
Cheryl Gillan, Conservative MP for Chesham and Amersham, said the case for HS2 was “smoke and mirrors”.
“This is an example of how the project is being bulldozed through as opposed to being discussed in the open on the basis of its merits. But you cannot take the general public for being fools. Particularly given the difficulties of the rail network in the last few days, people do not understand why the money is being spent on a shiny new toy and not on the services they actually use.”
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The scathing HS2 report ministers want to hide
Ministers are fighting to stop full publication of report which raises “major concerns” about “risky” construction timetable for HS2
14 Dec 2013 (Telegraph)
Ministers are fighting to stop full publication of the report, seeking a rare emergency prime ministerial veto to prevent its disclosure under the Freedom of Information Act.
As of earlier this year, the veto — described as a “constitutional aberration” by the Lord Chief Justice — had only been used six times, including to block the release of the Attorney General’s legal advice on the Iraq war and to halt publication of the Prince of Wales’s private letters to ministers.
The disclosure of the report comes as new evidence about rail use further undermines the case for HS2. Ministers insist the high-speed line between London and the North is needed because the existing “classic” route, the West Coast Main Line, is “filling up”. But the new data show that, despite the economic recovery, peak-time use of the line is actually collapsing, with long-distance peak arrivals at Euston falling by nearly 10 per cent last year.
The suppressed November 2011 report, by the Cabinet Office’s Major Projects Authority, was one in a series of six-monthly “project assessment reviews” conducted into HS2 and 190 other major government spending projects.
In the previous report, in June 2011, HS2 was graded as “amber”. The November report raised the project’s alert status to “amber-red”, meaning that its success was assessed as “in doubt”. The assessors said they had low “delivery confidence” in HS2, according to sources familiar with the report, and identified four core weaknesses in it.
One of their concerns was the “risky” timetable, with shorter periods for planning, construction and passing the necessary legislation through Parliament than was given to much smaller rail projects.
HS1, the existing high-speed line from London to the Channel Tunnel, had 25 months to pass its necessary hybrid parliamentary Bill.
Crossrail, the new full-sized underground line beneath central London, was given 41 months for its parliamentary passage.
However, HS2’s phase 1, from London to Birmingham, only has 17 months for the same hybrid Bill process — even though the line would be twice as long as High Speed 1, 10 times longer than Crossrail and have more tunnelling than either.
HS2 is also far more controversial than HS1 and Crossrail and is likely to attract significant opposition in the parliamentary process.
The passage of a hybrid Bill is much more arduous than normal legislation, involving extensive oral cross-examination and allowing anyone affected to testify personally to Parliament. If parliamentary approval is secured, HS2 is also supposed to be built in the same time as Crossrail and HS1 — around eight to nine years — even though it is a substantially bigger and more complicated project.
Management and governance at both HS2 Limited, the state-owned company delivering the new line, and the Department for Transport, the project sponsor, were strongly criticised in the report. There was a lack of co-ordination between the two bodies, the assessment found, and confused responsibilities delayed the timetable for several key contracts.
The management tools for delivery were undeveloped and unsophisticated, without the use of even a “critical path” method — a standard technique for delivering projects that has been used since the Sixties to determine the order in which tasks should be completed.
There were “concerns over skills, capability and resources”, with not enough people working on the project and many of those that were not deemed capable or skilled enough. HS2 Limited’s own most recent annual report admitted: “It has been a challenge for the company to develop and enhance its governance, risk management and internal controls process to ensure that their maturity matches the underlying requirements of the organisation.”
HS2 also admitted that “one area where controls need strengthening and clarifying is the governance arrangements between the HS2 Limited board and the wider high-speed rail programme”.
The report also foreshadowed the project’s major difficulties in keeping control over its budget, saying not enough work had been done to bottom out the project’s true costs and affordability. Since the report was written, HS2’s overall budget has risen by about a third, from £32 billion to £43 billion at 2011 prices.
The document was cleared for release by the Information Commissioner in June, but the Government was due to lodge an appeal to the Information Tribunal last Thursday. That hearing was adjourned at the last minute after Patrick McLoughlin, the Transport Secretary, and Francis Maude, the Cabinet Office minister, wrote to Mr Cameron warning that the Government was “very likely to lose” and it would be “better to veto now than after an adverse tribunal decision”.
Justifying the “exceptional” use of the veto, the ministers said the publication of the report would create “political and presentational difficulties at a crucial point in the HS2 project’s development”.
In anticipation of the veto, the Government has now tried to withdraw its appeal, but the tribunal judge has said that there are outstanding legal issues and it needs his permission to do so, according to one source close to the case.
Subsequent reports by the Major Projects Authority (MPA), in 2012 and this year, kept HS2 in “amber-red” status, with little done to tackle the management problems identified previously. As late as last autumn, the Department for Transport’s internal auditors raised concerns about governance and resources on the project, and even this year the Government had “not fully implemented the recommendations they made,” according to the National Audit Office, which accused the department of being “slow” to respond to the issues raised by the reports. The latest MPA report is understood to have reduced the HS2 alert to “amber”, which means that its success is seen as “feasible” but not probable. Improvements have been made to staffing levels and capabilities, sources said, though “severe concern” remained about the project getting “bogged down” in Parliament.
In August, the head of the MPA, David Pitchford, said “a lot of things would need to be defined before, for [HS2] to come out of amber-red, or a rating similar to that.
“Before there will be a significant change in our assessment of it, there will need to be less uncertainty. HS2 is not just a single project.
“Some of the things they will need to build in terms of the stations and things are quite significant major projects in their own right.”
The new figures for 2012 passenger numbers at Euston, the West Coast Main Line’s southern terminus, disprove ministers’ claims of a “capacity crisis” and “time bomb” on the route.
They show that even in the busiest hour of the morning peak, long-distance trains arriving at Euston were only 64.2 per cent full — and suburban and regional trains 77.3 per cent full, making Euston the least crowded London terminus. Across the evening peak, long-distance trains were 56.8 per cent full.
Steep year-on-year declines in rush-hour passenger numbers were also recorded, with long-distance arrivals in the busiest morning peak hour falling by 9.7 per cent. Peak suburban and regional passengers also fell, by 1.2 per cent in the peak morning hour and by 4.2 per cent across the peak three hours.
A Department for Transport spokesman said: “This report is around two years old — things have moved on and we have acted on all the issues raised. HS2 is in excellent shape — we have deposited the Bill for the first phase of the railway from London to Birmingham in Parliament, in Sir David Higgins we have a world-class new chairman and we have won nine out of 10 legal challenges.”
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