Meanwhile, in another committee room, part 2

(… continued from Meanwhile, in another committee room, part 1, posted on 16 Aug 2013).

The Treasury Committee reached the topic of HS2 in its questioning of the Rt Hon Danny Alexander MP, Chief Secretary to the Treasury, at approximately 2 hrs 17 mins into the video of the session and Q131 in the transcript.

He was asked by Andrew Tyrie MP, Chairman of the Committee, “how on earth did HS2 survive” the zero-based budgeting examination that the Treasury is now applying to all capital expenditure proposals “right across Whitehall in order to ensure value for money from capital projects”. The essence of his initial reply was that the Government had “committed to” HS2, “as our predecessors did”. This led to the following exchange:

“Q132 Chair: May I just reinterpret that? That means it is exempted from this value for money process. You are committed, so it has got a bye. Is that right?

“Danny Alexander: It might have been available to us to say we are going to stop this, but we have made a very strong commitment to it on the basis not just of the short-term economic analysis but of our view about the longer-term economic transformational potential that this project has in the context of what is still a very divided economy, especially across England. There are substantial wider economic benefits that will come from a project of this scale, scope and ambition, connecting together eight of our 10 largest cities.”

So it appears that HS2 is a runaway train that is unstoppable even when the wheels are coming off.

Andrea Leadsom MP stepped in at this point to pick Mr Alexander up on his apparent disregard of the HS2 “bottom line”:

“To be clear, value for money for the taxpayer does not come into the HS2 project?” (Q133)

After denying that he was saying that and affirming that, “Of course it comes in”, he proceeded to steer the meaning of “value for money” away from consideration of the budgeted cost and on to “ensuring that this project is delivered to budget”. He explained:

“In a sense I would say the step we made on HS2 in the Spending Round was about financial control and delivery, on the basis that our collective judgment is that this is something that is good for the economy and therefore good value for the taxpayer.”

This is an extraordinary statement from a Treasury bean counter. He appears to be saying that the normal measures of the worth of a project, such as BCR, will be ignored by the Treasury in favour of a “collective judgement” of it being “good value to the taxpayer” on the basis of Heaven knows what. This is particularly incredible in the light of the opinion of the National Audit Office (NAO) that, “It is not clear how High Speed 2 will deliver the Department’s strategic objective of delivering and rebalancing economic growth”.

In response to questioning from Ms Leadsom (Q134 to Q137) about concerns expressed by the NAO with aspects of the BCR calculation, Mr Alexander treated us to a preview of the Government’s defence of HS2 that we can expect to hear when the revised business case is published in the autumn.

For example, responding to the NAO’s criticism of the inflated value given to time savings by businessmen in the BCR calculation:

“What I was saying is that I think that too much burden in the public debate has been based on this particular facet of the analysis.” (Q135)

Also, the rationale for casting aside the relevance of the BCR calculation:

“If we simply followed the economic model in the way you are suggesting, this country might not have built the M1 in the 1960s, for example, or completed the M25 in the 1980s. These are transformational projects that go beyond just the travel time benefits of a particular rail service.” (Q134)

Oh no, not “transformational” again!

And:

“I think there is a very strong economic case for HS2 as a project that can transform the economic geography of the United Kingdom in the way that the advent of the railways in Victorian times did.” (Q137)

Maximum points scored for getting the Victorians into the discussion.

He also hinted at another way that the basis of the BCR calculation might be modified to produce a more congenial result.

“You can look at the price that people, particularly business people, are prepared to pay to travel as another proxy for this, and that would also show that there is a strong value attached to higher-speed journeys.” (Q136)

He dodged Ms Leadsom’s request for his view on the point at which the cost benefit analysis will make the HS2 project “unviable”, choosing instead to emphasise that “the people who are running HS2 will be incentivised to deliver” within budget (Q139). To be frank, it is this aspect of the Treasury’s policy that worries me the most. We have already seen, at the local level, how keen HS2 Ltd management is to shave the cost. We have given up all hope of HS2 being an “exemplar project” and of adequate measures being taken to protect the environment through which it would pass.

So what did the exchanges prove? In my view very little was added to our knowledge of why the Government thinks HS2 is such a bright idea, other than it just does. What was clearly demonstrated was that even a Government spokesman as able and articulate as Danny Alexander finds it very difficult to make a reasoned, evidence-based economic case out for HS2.

I’m afraid that it is very much an attempt to make a silk money receptacle from a porcine auditory organ.

Important Note: The quotes from the Treasury Committee oral evidence session that are reproduced in this blog are taken from an uncorrected transcript of evidence, which is not yet an approved formal record of the proceedings of the Committee. 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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