“The government has updated the benefit to cost ratio (BCR) of the railway, valuing it at 2.3, or providing £2 worth of benefits for every £1 spent. This is similar to Crossrail and higher than the benefit cost ratio for some other major projects when approved, such as Thameslink and the Jubilee Line extension.”
The government published its latest cost/benefit analysis for HS2 today amid increasing fears that Labour and sections of the business community are losing faith in the high speed rail project.
This is the fifth time the government has attempted to make the economic case for the railway, which promises to cut train times from London to Birmingham in its first phase, then bring faster services to a Y-shaped route between Birmingham, Manchester and Leeds in phase two.
Some of the numbers have changed, but the government still insists the benefits outweigh the costs, and it says HS2 compares favourably with other major rail projects.
It’s possible to raise about a million objections to the way these cost/benefit analyses are done, although the methodology is supposed to be standard and transparent (it’s published here).
Critics have picked over the details endlessly, and the latest business case contains some concessions to objections that have been raised.
In particular the government took a lot of flak for overestimating the value of time business travellers will save from shorter journeys. The old assumptions didn’t take into account the fact that people can work on smartphones and laptops while they are travelling.
So the values for business travel time savings have now been cut by around a third.
But at the same time, the analysts have upped their estimates of the benefits significantly.
The upshot is that last year the government said the full HS2 network would generate £2.50 in benefits for every £1 of public money spent. That’s a benefit cost ratio or BCR of 2.5 to 1.
Now the BCR has been downgraded slightly to 2.3 to 1, which still makes HS2 “high” value for money.
The BCR for the first phase of HS2 (London to Birmingham) remains the same at a more modest 1.7 to 1. That’s “medium” value, in government jargon.
The government sought to put these headline figures into context today when it said in a statement: “This is similar to Crossrail and higher than the benefit cost ratio for some other major projects when approved, such as Thameslink and the Jubilee Line extension.”
But that’s putting a wee bit of spin on the facts.
The BCR for HS2 includes estimates of “wider economic benefits” that will hopefully be generated by the railway. This pushes the total benefits up and makes the BCR more optimistic.
When the costs and benefits of those other big rail projects – Crossrail, Thameslink and the Jubilee Line extension – were done, wider economic benefits were not included.
This Oxford University study says the BCR for the Jubilee Line extension was just 0.95 to 1, suggesting the project would make a loss.
But the government pushed ahead with this major addition to the London Underground because it assumed that the unquantified economic benefits of boosting transport links in the Canary Wharf/Docklands area would make it worthwhile.
Analysts have had to update the BCRs to take into account changes in methodology and create something we can compare accurately to the numbers generated today.
The Department of Transport says the BCRs of those historic projects adjusted to include wider economic benefits are: 1.6 to 1 for Thameslink; 1.75 for the Jubilee Line extension and 3.09 for Crossrail.
Remember that phase 1 of HS2 has a BCR of 1.7 and the full project comes in at 2.3. So HS2 as a whole is not really “similar to Crossrail” in value for money: it’s some way behind.
The full HS2 network beats the Jubilee Line and Thameslink but the final score for those projects are almost the same as phase 1 of HS2.
That’s the bit from London to Birmingham, due to be completed in 2026. Phase 2 isn’t scheduled to be completed until 2033, by which time the assumptions which underlie the cost/benefit analysis are more likely to have changed.
When you compare like with like, HS2 doesn’t exactly beat other big rail projects into a cocked hat when it comes to value for money.
But note that 2.3 to 1 is still at the upper end of the scale. That’s if any of this analysis bears any relation to reality – something of which we are yet to be convinced.
And note that that governments of the past were prepared to push ahead major rail projects with much less “proof” of the future benefits . The Jubilee Line extension was signed off with the wider economic benefits unquantified.
The whole thing was something of a leap in the dark. But the conviction that the extension would create economic growth in the Docklands area of land proved to be (probably) right.
By Patrick Worrall