Rechecking the sums, part 2

(… continued from Rechecking the sums, part 1, posted on 23 Jul 2013).

There is also the small matter of the dispute over the value of business travellers’ time savings. This debate was summarised by PAC Chairman, Margaret Hodge, in one of the questions that she put to Philip Rutnam, Permanent Secretary of the Department for Transport (Q133 in the transcript and 1 hour 19 minutes into the video):

“When we last discussed this, we said to you that the basis on which you assess business travel – a business traveller’s worth, as opposed to a commuter’s worth – is totally out of date. That was one of our recommendations from our previous consideration of this Report. You appear to have gone away and done nothing about it, although I notice – let me see if I can find it – that you published an analysis in 2012 suggesting a downward revision of how you value business travel to 65% to 50% of current values. I also notice that in countries such as France and Germany business travel is valued at three or four times ordinary commuter time, whereas we value it much more. All those facts show that the more you value the business traveller, the more it looks as if your cost-benefit ratio is okay, but if you were to put a real value on business time that reflected more honestly the cost of the time spent on a train, your cost-benefit ratio would immediately look negative, wouldn’t it?”

The Comptroller and Auditor General, Amyas Morse, felt the need to chip in at this point:

“To be quite honest, we were a bit surprised that you have not thought it right to pursue that strand, because that is such a crucial assumption and it is hard to believe the assumption underlying the estimation basis at the moment, which is that business travellers do no work. It seems to me that that must inject optimism bias into the benefit estimate, wouldn’t you say? Whatever it is, it cannot be zero, so as an estimate, it does sound hard to understand.”

In his response Mr Rutnam made an important distinction between “the methodology” and “populating the methodology with numbers”. He was right to do this, since the questions from the committee members did not, on the whole, appear to recognise the distinction.

On the second point he was able to report some “progress” to the PAC (still Q133). He said that there was “an extensive programme of research under way” and that:

“One element of that programme will be to review the numbers on the value that is put on business travellers’ time, which, as you know, date from a survey over a decade old. We are seeking to revise that and I expect that we will be able to provide new estimates as part of the sensitivity analysis around the new business case produced in the autumn.”

Now whilst Mr Rutnam appears to be offering the PAC something here, he is only promising to use any new figures that the DfT come up with in the “sensitivity analysis”; he is not saying that the figures will be used to calculate the BCR.

On the question of the methodology, he appears to have offered even less (still Q133):

“What I can say is that we are looking at how we can improve our methodology in this area, but our methodology continues to be on a par with best practice in transport planning administrations around the world. You may think therefore that all transport planning administrations are equally at fault, but there is no other methodology out there that is better than the one that we are using.”

So I, for one, am not expecting to see any reduction resulting from a re-evaluation of the value of business travellers’ time in the “bottom line” BCR figures that the DfT has promised to publish in the autumn. For the DfT to concede this point, would result in a further significant reduction in the BCRs. In my blog A great reckoning … (posted 12 Sep 2012) I reported the results of calculations made by HS2 Action Alliance (HS2AA) of the estimated impact of updating the BCR to take account of the PAC’s concerns on the value of the benefits ascribed to time savings by business travellers. The figures that HS2AA calculated at that time were 0.3 for the methodology and 0.15 for the figures assumed, a total reduction in BCR of 0.45.

Important Note: The document from which the quotes reproduced in this blog are taken is an uncorrected transcript of evidence, which is not yet an approved formal record of the proceedings of the PAC. Neither witnesses nor Members have had the opportunity to correct the record, and it may therefore be subject to changes being made in the light of any such corrections being requested.

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One response to this post.

  1. Posted by chriseaglen on July 27, 2013 at 7:25 am

    The world may have different values for investment. There can be people in nations with the ability to syphon money to safe havens who are not concerned about the rate of return but the future access to funds in capital assets. A nation may provide the haven. In such as case BCRs are not of the same interest to the investor has the long term lower risk of confiscation of assets. Even if the asset was recovered in the future from such investor the recoverer would simply obtain an income as the asset is not movable. The search for such investors happens in some nations and from some direct and banking/investment organisations. The BCR is not as relevant. What should be relevant is when such approach of parital approach is used the project should do least harm to the hosting nation, its communities and its environment. A weakness in the debate about HS2 was the lack of planning about where and what and why and a proposition that is simply not achieving the rail service goals but is only incrementally adding to what exists. It is the damage costs versus the social acceptance of the presence of the route through location and the primary purposes. Hence one track versus two tracks in each direction has not been revisited. The position of the Y node and the location of the phase 1. It is possible feelers are out for ‘investors’ looking for a haven for capital investment positioning but not sufficient attention has been paid to the locations and the scale of the project and tracks. More a question of attracting crica £50B from some sources where time used on the train and marginal BCRs are not so relevant. Time to concentrate on the Supreme Court case content and the damage on damage arising from the next opportunity exploitation of the ribbon strip development to land owners thankful for the money creaming desire of the few, regardless of the many. A new form or piracy possibly.

    Reply

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