They haven’t been twiddling their thumbs, part 1

In my blog The Chairman doth protest too much, methinks (posted 31 Jul 2013) I made a prediction:

“Now I’m very much afraid that I expect to see a document published in the autumn that will not concede that any of the BCRs have dipped below the crucial value of 1.0.”

Now I really didn’t need the powers of Mystic Meg to predict this; the track record of the Department for Transport in this area, and the will of their political masters to plough on with HS2 regardless of whether it makes economic sense or not, means that it was inevitable that the publishing of the report The Strategic Case for HS2 on 29th October 2013 would see my prediction fulfilled.

It takes one hundred and fifty odd pages of report to tell us, but the nitty-gritty business case is defined by four figures:

  • The BCR for Phase 1 alone is 1.4.
  • The BCR for Phase 1 alone increases to 1.7 if wider economic inputs are taken into account.
  • The BCR for the Y network (Phase 1 and Phase 2 together) is 1.8.
  • The BCR for the Y network increases to 2.3 if wider economic inputs are taken into account.

It will surprise nobody to learn that the DfT has concentrated on the BCR value of 2.3 in its promotion of the report.

On the evening of the day that the report was published the BBC TV Newsnight programme included a filmed report by political correspondent David Grossman, who the programme anchor Emily Maitlis described as their “chief trainspotter”. Mr Grossman has distinguished himself with a number of “exposés” about the case for HS2, characterised by an approach of stripping away the surface gloss and delving into the issues in some detail.

David Grossman began his report by ruminating on the importance for the Government to present a “unshakably-robust” business case for HS2, and on how difficult it was to “peer forward into the future” in order to construct such a case. He reminded us that the report that had been published that day was the Government’s “fifth attempt at constructing a business model”.

He then showed us a clip of Patrick McLoughlin claiming that:

“The business case, including the cost benefit figures, is strong for HS2 – more than £2 return for every £1 invested.”

David Grossman explained:

“In today’s figures the Government says that HS2 will give back £2.30 in benefits for every £1 spent. That’s down from £2.50. It’s still what the Department for Transport would call ‘high value for money’. But, if you look closely, this figure includes what are known as ‘wider economic impacts’. These are far-less certain benefits from things like regeneration, and the DfT’s own guidance says that these shouldn’t actually be included to calculate the benefit cost ratio for a project. If we strip these out, the ratio goes back to £1.80 back for every £1 spent, and moves from high value for money to medium value for money.”

Of course, Mr Grossman was still giving the Government the benefit of the doubt in using the BCR for the Y network in total, rather than just the Phase 1 part covered by the hybrid Bill.

After an insert of Sir Richard Leese, Leader of Manchester City Council, assuring us that the business case for HS2 “has always stacked up”, and similar twaddle, Mr Grossman made an observation that is in the minds of many of us:

“HS2 has been going through some difficult days recently. Firstly, the projected cost has gone up by nearly a third. Secondly, both the National Audit Office and the Public Accounts Committee of the House of Commons have suggested that the benefits should be revised down markedly. You’d perhaps think that, when this was all factored in, the business case would now look far less attractive than the figures presented today.”

You would think that, wouldn’t you! However, Mr Grossman revealed the answer to this apparent conundrum:

“So what has happened here? Well as the costs have gone up HS2 Ltd haven’t been sitting back in their seats, twiddling their thumbs and staring out of the window at the scenery. No, they’ve been very effective at identifying vast new areas of benefits that, supposedly, HS2 is going to unlock for us and chief amongst these are benefits to business travellers.”

He revealed just how remarkable has been the growth in the estimates of these benefits:

“When HS2 first calculated their benefit to business travellers from the new line in February 2011 they put the figure at £25.2bn, although since then there has been a change to the way that the figures are presented, meaning that to make it comparable we probably need to add a billion more. Even so, by August 2012 that figure had leapt to £34.3bn, and in today’s calculation the benefit is put at £40.5bn, or around £15bn more than the original estimate in 2011.”

And that this increase had been achieved because the Government “now assume that a far higher proportion of people on trains are business travellers”.  He explained:

“For example, if you look at the previous model – the previous estimate – back in 2012 they thought that around 30% of travellers on a train between London and Manchester were travelling on business. Now they assume that it’s about 65% – in other words more than double. And because of the way that they value business travellers’ time above that of commuters or leisure travellers, well that means big, big benefits to HS2. This kind of change has led some to accuse the Government of making the evidence fit the policy, rather than the other way around.”

So not so much “twiddling” as “fiddling” you might think!

(To be concluded …)

PS: David Grossman’s report begins at 3min 30secs into the video.

PPS: Not for the first time I have failed dismally on the topicality of this blog, more than a month having elapsed since the Newsnight programme was broadcast and this blog was posted. However, for obvious reasons I have given priority to the compensation consultation. The issues with the HS2 business case are ever-present and will, I suspect, remain so for long into the future.

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One response to this post.

  1. Posted by chriseaglen on December 6, 2013 at 8:42 pm

    After reading the Non Technical Summary of the one track through open countryside it became clear the cost £19B for phase1 was simply a very poor deal that lacked the demand to be feasible to be able to break even. Unless HS2 provide the 4 track version costing of the very fast section with no stops the project does not represent a viable railway scheme. Long distance passengers are too few. All the pundits and commentators miss the obvious flaw that is one track each way and such wide corridor.

    The wider route gains are from exploitation by the Government of the resale of the land from agriculture for building as well as the trading deals in the petitioning stage of some land owners and investment trust is obtaining development rights for line side and road side housiing and site development. This is the normal province of the Hybrid Bill. This is not declared as the purpose of petitioning but the record in London demonstrates how the wheeling and dealing works. Hence the interpretation of BCR does not reflect the game being played by the deal makers.

    Reply

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