“The capital cost at 2011 prices of building the complete Y network is £32.7 billion. At present values, it will generate benefits of up to £47 billion and fare revenues of up to £34 billion over a 60-year period.”
Justine Greening, 10 January 2012
The background
The first phase of the “most significant transport infrastructure project since the building of the motorways” got the go-ahead today.
The Transport Secretary, Justine Greening, has given the green light to the London to Birmingham section of the High Speed Two (HS2) rail network, which could now be up and running by 2026.
By 2033, the “Y network” stretching further north to Manchester and Leeds ought to be in operation, potentially slashing the journey from London to Edinburgh to three-and-a-half hours.
The news has revived a long-running argument over the cost-effectiveness of the project. The government is sticking to optimistic projections of future economic benefits despite widespread scepticism from HS2’s many opponents.
The analysis
On the same day Ms Greening announced the launch of HS2, the Department for Transport (Dft) published a revised cost-benefit analysis setting out the government’s whole case for the supposed economic benefits of the project.
It’s a document central to the government’s case, so it’s disturbing to find that the numbers contained in it do not match the figures that the government are trumpeting.
In a written ministerial statement, Ms Greening said: “The capital cost at 2011 prices of building the complete Y network is £32.7 billion. At present values, it will generate benefits of up to £47bn and fare revenues of up to £34bn over a 60-year period.”
The first problem with this is that the minister is not comparing like with like. Comparing the 2011 cost with the 2012 benefit of course makes the gap seem wider, as last year’s prices are slightly lower than this year’s.
The next problem is that these aren’t all the costs of HS2. Ms Greening has included the presumed additional revenue from operating the new line without adding the operating costs, like paying the people who will collect the fares. These costs add another £21.7bn to the bill for the taxpayer.
So a more honest comparison would be between the total projected cost of building and running HS2 of £58.1 billion and overall benefits of £73.2bn to £80.9bn.
To these (supposedly) quantifiable benefits – based on fares and increased productivity due to quicker journey times for workers – the DfT adds “wider economic impacts”, such as the positive long-term effects of better transport links between firms in the same sector.
These benefits, the department says, are “harder to quantify to value”, but it has had a go anyway, coming up with a figure of £5.7bn to £12.3bn. If these notional benefits ever come to pass, it means the taxpayer will recoup between £1.80 and £2.50 for every £1 spent on HS2.
Without the “wider economic impacts”, the supposed benefit is a less impressive £1.60 to £1.90 for every £1 spent.
The last and biggest problem is that, even if we go with the 2011 capital cost, the figure given in the study is not the one Ms Greening quotes – £32.7bn – but £34.6bn. The updated figure for 2012 is £36.4bn, about £3.7bn more than the sum the minister mentions.
Not a vast difference in cash, perhaps (although it’s all relative – £3.7bn would employ more than 100,000 nurses) but a bit of a blow to the credibility of the cost/benefit analysis.
We asked the Department of Transport who had got it wrong: the minister or the number-crunchers?
A spokesman was not immediately able to offer a full explanation, but insisted the lower figure is the correct one.
Logically, that casts doubt over the robustness of the numbers quoted in the cost/benefit analysis, but we await a proper answer.
Even leaving these unanswered questions about the details of the government’s analysis aside, many HS2 critics have cast doubt on the whole methodology behind the study.
The Adam Smith Institute points out that passenger numbers have been over-forecasted in previous rail projects like the Channel Tunnel Rail Link.
Another pro-free market think-tank, the Institute for Economic Affairs, says civil servants have failed to take into account “planning blight” – the effect on house prices and growth in the corridor of land along the route, the IEA says.
And the HS2 study assumes that cutting travel time is good for productivity because time spent on a train is wasted time for business travellers, whereas many people can in fact now happily beaver away using WiFi computers and mobiles during long commutes.
The Centre for Economics and Business Research, which claims to be unbiased, says there is enough capacity in the existing rail network, and says the cost to the taxpayer has been underestimated. For every pound spent, the state will only get 50p back, the think-tank gloomily concludes.
The verdict
All critics agree that economic forecasts that stretch 60 years into the future are very unlikely to be accurate.
The government’s projections of the benefits are based on future ticket prices, demand, economic activity and how the railway line’s competitors are likely to respond.
If any one of these variable changes significantly over the next few decades – and it seems inconceivable that none of them will – that will throw the assumptions completely out of whack.
We’re not saying that HS2 is definitely a bad idea, but we are saying that assumptions made now about the UK economy and transport network 60 years from now are very unlikely to be accurate.
A more immediate problem is the fact that, on the day it announced the biggest infrastructure project for generations, the DfT released two different figures for how much it will cost, and is currently unable to offer an explanation why.
For that reason, Ms Greening’s assessment of economic pros and cons of HS2 are going to stay at the Fiction end of the FactCheck-ometer.
By Patrick Worrall
Has any analysis been done about the economic benefits of freeing up capacity and improving the use of the old network once the new one is open?
One of the economic counter-arguments to HS2 is where the existing traditional network (aka ‘old’ to some) loses not only the ticket revenue but also the subsidies of travellers that migrate to HS2. #DoubleWhammy
The anti HS2 campaigners this say that existing track can be upgraded to improve the service and achieve the objective. What sort of disruption can be expected to commuters and long distance travellers whilst the upgrading takes place, and what is the cost of upgrading to network rail and the railway companies operating over the line?
I believe it is important that we invest in our country and it’s infrastructure, however this heavy bill at an unreliable price tag at a financial crisis for the UK, is it the best time for this? Has it any benefit to those who live in the south? Comments shown on channel 4 news tonight seams as if they are a ramble of children showing there new “brilliant idea”. Being an apprentice and very grateful at 20 to have a job and a career in this competitive Market what opportunities will this provide to the people of the UK, or will like most of the engineering travel on high speed to Germany, again?!?
I believe all contracts have to be put out to tender as per EU law. It’s the free-market, and insures against protectionism.
That said, Cameron, make bloody sure we get the work, what the hell is the point in spending £32b capital if it goes to foreign firms.
Bombardier just got a £180m contract with a govt bung of £80m.
Give priority to UK firms for God’s sake.
The DE economy just grew 3% in 2011, despite a Q4 contraction. The UK grew at just over 1%. We need all the help we can get, even if it’s from this fatuous project.
Thanks!
How about a link to http://www.neweconomics.org/press-releases/high-speed-rail-is-a-%C2%A332-billion-blindfolded-gamble-says-think-tank?
Or the environmental and social impacts?
The foundation for HS2 is ludicrous:’the HS2 study assumes that cutting travel time is good for productivity because time spent on a train is wasted time’. No intelligent person could believe that.
Only an incredibly vain (very rich) person thinks that their time is so precious that it’s worth spending £32bn so that they can get from London to Birmingham a bit quicker instead of using one of the existing lines.
Meanwhile lots of people (poorer, of course) have no railway station at all, and no decent bus services. People have to stand in wind and rain waiting obscenely long times for buses, because there are no shelters, seats, lighting, or even legible timetables.
What could we get for £32 billion (or more!) if we spent it on bus services and train routes for ordinary people around the whole country, not just travel for the richest?
What annoys me about the whole High Speed link is why has this contentious route been chosen? The old Great Central route alongside the M1 lies derelict, surely it would make more sense to reuse the old trackbed. It could link into the Midland Main Line and cause less devastation to the countryside.
When the vast majority of rail journeys made are local this seems like an expensive white elephant along the same lines as the channel tunnel.
The money would be better spent on reducing rail fares, investing in more carriages, reliable rolling stock and signalling, straightening existing rail routes where ever possible, increasing track on conjested routes, and identifying new routes that could bring real commuter alternatives to car journeys.
I regularly commute from Lancaster to Manchester everyday for work and the cost is astonishing given that several people are stuffed into three small carriages and the cost is only minorly less than driving in a car by myself.
I think that you have to ask yourself:
a) Is the Japanese high speed system a failure?
b) Is the French TGV system a failure?
c) Is the London – Paris HS link a failure?
I would suggest that the answer to all is no.
The link to Birmingham is very likely to be the next link of what will be a nationwide system and therefore trying to cost the HS2 link in isolation is complete nonsense.
What I don’t agree with is vote pandering, you make no reference the extra cost of the extra tunneling. We in Kent had no say what ever, and I have to say I don’t hear many discussing what a waste of time the project was.
I might have a little sympathy but for the fact it was Tory MP Erenest Marples who destroyed the original GC route in his quest to support the road lobby; so serves the Tory voters right.
HS2 is not an economic game-changer anywhere in the world.
a) Japan has two London-sized twins to connect and a workforce that needs to commute to its manufacturing plants. Who knows if it pays its way?
b) France has had high speed rail for thirty years yet still fails to make a profit. It is 10 times larger than what UK will have by 2026 yet outlying economic regions have not gained.
c) Europe’s whimsical desire to connect all Capitals holds no economic merit – and explains a great deal about the state of most of the EU.
Existing HSR in europe are struggling in capacity and revenue terms – with Spain’s high speed rail only in existence due to 25% subsidy from EU and its own government illegally providing state aid to its operator.
HS2 risks not fulfilling economic regeneration in the UK’s regions over and above capital being divested locally.
Please can you have a look at the impact of “planning blight” – the effect on house prices and growth in the corridor of land along the route?
Across London, living close to a tube station has a positive impact on growth and prices, as development follows improved infrastructure – why would this be different with better access to a pan-continental high-speed rail network?
Cathy/Patrick,
Nice piece tonight, well presented, fair and informative. Thank you.
Here’s a suggestion: if it goes ahead, keep tabs on which companies get contracts and which of them have links of any kind to politicians. Also check out the TYPE of contracts – if they aren’t fixed price, but negotiable on or on-measure then they are a licence to rip off. Built in contingency figures won’t matter a jot. Check out Marples Ridgway and their part in motorway building while Ernie Marples was in politics, at one time Minister of Transport.
As Ben Bradlee once said…..follow the money.
I find it incredulous that a government-backed business case can omit £21.7 billion worth of costs? Who put this case together? The Chuckle Brothers??
I run capital investment cases all the time, obviously nowhere near this scale, but if anyone committed such a mistake a) they’d be looking for work on the 40,000 list and b) it would have been spotted by the rigorous validation checks.
This entire case is purely political.
If the benefits were 50 quid over 500 years, this would get approved.
And very rarely – all parties are in it up to their necks so large support in Westminster, except the MPs who’s homes will be bulldozed. Advancement has a price to pay, tell em!
The Ground nut scheme comes to mind; another Labour scheme that cost, and came to nothing.
The senior politicians are behaving like little children that are excited by the idea of a new expensive toy.
The very people that expect us to pay for their expenses and be financially persecuted for the casino conduct of bankers that have encouraged irresponsibility by the borrowing to excess, are prepared to risk £32,700, 000,000,00p, at least, while having created the housing benefit plethora, through open sesame to landlords, can now afford to spend on a project while creating minimal growth.
This is redolent of the lack of qualification that one witnesses in Government. How long have these people trained to be qualified enough to influence the lives of so many?
could not agree more ..o what a load of bxxxox
Can you examine what the Governmernt is saying about the reforms to disability benefits compared to what the campaigners are saying? This looks like another bit of PR masking an attack on many of the poorest & most disadvantaged people in the UK
Christopher George’s comment about the Grand Central line is an interesting one: Cambridge have just opened a guided bus way on a disused railway line. however the bus only runs at intermittent times and doesn’t connect with the timetables of the rest of the transport network in the city. The bit I live near only seems to be a park & ride to the hospital. Many people protested that a guided bus wasn’t the best option, why not just have a normal bus or reinstate the railway? It’s a shame that existing routes do not seem to have been considered. And surely tunnelling causes issues for wildlife just as much as an overground railway?
Also, given the overspending on the Olympics should we trust government projections even if they weren’t based on what Sarah Smith described on Tuesday as “guesstimates at best”?(sorry if I misquoted). I would suggest that the project will cost vastly more than has been projected & disrupt many more people than the government is prepared to admit. Plus ça change.
Coaltion are set on cuts to the public sector and Labour now come out in agreement with public sector cuts. We have no money for essential services – hospices (are closing due lack of NHS funding having to rely on charitable donations), schools, hospitals,care for the elderly and disabled,people sleeping rough when they are millions of empty homes that could be put to use,unemployed but hey billions to spend on HS2 that is going shave a few minutes off the journey of a few. Labour want this and so do the Coalition – lets remember them at the ballot box. And pro-HS2 calling those against HS2 nimbies – lets get the essenitals of life sorted out and not political upmanship.
Where is the media coverage about the results of the public consultation? The government’s apparent disregard for the results (was it really 15 to 1 against HS2?) only increases cynicism about politics in general.
There’s another planned consultation in Spring 2012. No doubt HS2 Limited feel they didn’t opress sufficient people and want another go.
Well, I have my hackles up and I’m going for broke. I will fight against this commercially unsubstantiated project that tears through the heart of the nation for the sake of a few minutes.
@polleetickle
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Marian
I agree. Seems to have gone to ground in the media and with poliiticians