… with barely a ripple …

“We conclude that it is disappointing that a major strategic scheme, with the potential to grow and rebalance the economy and to address major capacity issues, is being designed and assessed to a large extent on the basis of the value of travel time savings, which are not universally accepted.”

So said the House of Commons Transport Select Committee (TSC) in its November 2011 report to Parliament on High Speed Rail (paragraph 10 in Conclusions and Recommendations).

I have already, in my blogs … and out to sea … (posted 23 Aug 2012) and … to sink without trace … (posted 27 Aug 2012), looked at the issue of the evaluation of non-productive time saved by faster rail journeys and in this current, and the next, blog I will examine what monetary value should be attributed to those time savings.

This matter was the subject of a fairly lively debate at the oral evidence session held in April 2012 by the Commons Public Accounts Committee (see Q92 and following in the transcript). During this exchange a figure of £70,000 was quoted as an annual equivalent for the per-minute value utilised to evaluate HS2 time savings. The Director General of the DfT’s Domestic Group, Steve Gooding, was keen to point out that “it is the cost to the business, so it is not a salary cost”, but even so the Chairman of the Committee, Margaret Hodge MP, commented:

“Should you not update it? It seems a potty figure to all of us. You are in the top decile of earnings.”

Whenever I see a figure like this £70,000 bandied around, I like to check it. That seemingly simple task has proved too much for me. I’m afraid. You’d think, wouldn’t you, that it would be a comparatively simple task to find out what value has been assumed for a business traveller’s time in the business case calculations? Well, I’ve been able to find three figures quoted, and they are all different!

For example, in the April 2011 HS2 Ltd document Valuing the Benefits of HS2 (London – West Midlands), paragraph 3.5 on page 4 tells us:

“The recommended national average value of working time for rail passengers is £48.64 an hour (in 2009 prices and value of time).”

However, another HS2 Ltd document giving answers to questions raised at a technical seminar and given the reference QA77483 quotes (on page 2) the “appraisal value of time (2009 price and GDP base)” as “£50.18 per hour”.

In its report The completion and sale of High Speed 1 (here) the House of Commons Public Accounts Committee (PAC) advises us that the figure assigned “to time saved by business travellers” is “£54 per hour”.

You’d think that they would know what figure they used, wouldn’t you? This is a bit frustrating, to say the least, for someone like me who likes to check everything. However, we need to progress so I’ll use the average of the three figures, which is £50.94. Assuming 7.5 hour days and 5 day weeks, this equates to £1,910 per week, rounded. Allow 45 working weeks a year and the annual equivalent becomes £85,960, rounded. Not £70,000 then?

What about the other thing that Steve Gooding said about it being the cost to business, rather than the salary cost?

In paragraph 1.2.4 on page 2 of WebTAG Unit 3.5.6 (here), the following additional information is provided:

“The resource cost is calculated as being equal to the gross wage rate plus non-wage labour costs such as national insurance, pensions and other costs which vary with worker hours. The 24.1% mark-up for non-wage labour costs used in the March 2001 edition of TEN has been revised down to 21.2%, a figure derived using more recent data from the 2000 Labour Cost Survey.”

In addition, paragraph 1.1.6 on page 1 of WebTAG Unit 3.5.6 refers to the “market price”, explained as follows:

“The market price unit of account expresses prices in market prices. Market price refers to the price paid by consumers for goods and services in the market and therefore includes all indirect taxation (indirect taxation refers to taxation levied on a product and therefore includes excises, duties and VAT). Prices that do not include taxation (e.g. public transport fares) are still perceived by consumers in the market price unit of account.”

We are told in paragraph 1.1.8 on page 2 of WebTAG Unit 3.5.6 that the market price may be calculated by increasing the resource cost by 20.9%, which is “the average rate of indirect taxation in the economy”.

So now we have two possible travel time values that we can use: the resource cost and the market price and WebTAG Unit 3.5.6 gives values for both in Table 1 on page 4.

So which should be used in the Benefit Cost Ratio calculation?

(To be continued …)

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