Going down the pan …

The first thirty-four pages of Volume 2 of the document HS2 London to the West Midlands: Appraisal of Sustainability (here) actually give us what it says on the tin, an appraisal of the sustainability of Phase 1 (London to the West Midlands) of the HS2 proposal. Well it’s not quite that simple – things never are in HS2 Land – as what we are presented with is a mass of sustainability data set out in two Technicolor tabulations, and we are left, as far as I can see, to form our own conclusions about the overall sustainability rating of the project.

In my blog You weren’t supposed to read that (posted 26 Sep 2011), I tried to do this, with the help of the analysis presented by Ian Thynne in his Appendix 13 to the consultation response made by the 51m alliance (here). The conclusion that I draw in that blog is that HS2 scores very poorly on sustainability, with only two of the eighteen “key sustainability issues” that HS2 Ltd has identified being “supportive” of the objective; these issues are “economic prosperity” (item 14) and “economic welfare” (item 15).

The former item, economic prosperity, is further subdivided into item 14a) “support economic competitiveness and make efficient use of public funds” and item 14b) “support wider economic growth and maintain and enhance employment opportunities”. Recent developments indicate that item 14a), which was given a “+ +” rating in the Appraisal of Sustainability (AoS), should be reappraised and that this optimistic assessment may no longer be justified.

The description of item 14a) covers, in fact, two separate though interrelated topics; both have been affected by recent developments, but I will concentrate on whether HS2 will make efficient use of public funds in this and the blogs that follow and will, hopefully, throw some light on the issue of whether it will support economic competitiveness along the way.

The indicator that the Department for Transport (DfT) chooses to employ to assess whether a project is making efficient use of public funds is the “Benefit Cost Ratio” or BCR. In one of the documents published by the Government in February 2011 to inform the public consultation, Economic Case for HS2: The Y Network and London – West Midlands (here), this is defined as:

“… the level of benefit per pound (£) spent by Government, e.g. if a scheme generates £2 of benefit for every £1 spent this is presented as a BCR of 2.0” (see paragraph 1.1.4 on pages 5-6).

BCRs come in two flavours; with and without wider economic impacts (WEI). We are told in paragraph 4.4.3 on page 33 of Economic Case for HS2: The Y Network and London – West Midlands that these wider economic inputs include those from “better linkages between firms resulting in improvements in productivity extending labour markets and allowing businesses to attract more skilled employees and the additional value to consumers of more goods and services”. Since impacts on “wider economic growth” are covered by item 14b) in the AoS tabulation, it seems appropriate to employ the BCR without WEI when considering item 14a).

When the HS2 proposals were first revealed to an expectant nation, we were told that the BCR without WEI for Phase 1 was 2.4 (see Chapter 4 of High Speed Rail London to the West Midlands and Beyond: A Report to Government by High Speed Two Limited, Figure 4.3a on page 185).

However by the time that the documents were issued for the public consultation, this BCR had slipped to 1.6 (refer to Table 10 on page 43 of Economic Case for HS2: The Y Network and London – West Midlands).

So in less than a year the BCR for Phase 1, without WEI, had fallen by a third. An explanation for this rather dramatic southwards shift is offered in paragraph 5.2.6 on page 43 of Economic Case for HS2: The Y Network and London – West Midlands:

“The BCRs presented above are lower than those previously published in March 2010 as a result of changes to a number of assumptions, as set out in paragraph 1.1.8. The slower GDP growth forecasts produced by the independent Office for Budget Responsibility compared to those of the previous Government are the primary reason.”

So we might draw the conclusion from this that the business case for HS2 is very sensitive to GDP growth forecasts, and that seems reasonable. You might also conclude that, bearing in mind the dire state of the UK’s and other economies at present and the gloomy forecasts for the foreseeable future, the HS2 business case might be in some trouble; if you think this you would be right, but I’m getting a little ahead of myself now.

But, getting back to the business case presented for the public consultation, just how creditable is a BCR of 1.6? Paragraph 5.2.5 on page 43 of Economic Case for HS2: The Y Network and London – West Midlands is upbeat:

“Since the benefits per £1 spent are higher than £1, this BCR represents a positive economic case.”

Certainly it’s positive, but it’s right at the bottom end of what even the DfT finds acceptable. The previous Secretary of State for Transport, Philip Hammond MP, was asked about this when he gave oral evidence to the Commons Transport Select Committee in September 2011 (Q554 in transcript or view the video). He said:

 “As rail projects go, a BCR of 2.6 is quite reasonable. If it were to fall much below 1.5, I would certainly be putting it under some very close scrutiny.”

So when the tabulation in the AoS was being constructed, was HS2 a proposal that would make “efficient use of public funds”? Well even then it was a bit of a close call and probably didn’t justify the “+ +” score, but things have got worse since.

But I will leave that matter until the next blog …


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