I’m not talking about Crossrail, part 1

Immediately following David Grossman’s contribution to the Newsnight programme aired on BBC TV on 29th October 2013 Emily Maitlis got the chance to quiz Transport Secretary, the Rt Hon Patrick McLoughlin MP, about what we had heard from the programme’s political correspondent. She asked him “whether he was confident that the costs of HS2 wouldn’t rise again”, to which he replied:

“Yes, because what we did there was we deliberately built in a large contingency. So what we’ve done is we’ve set a target for Phase 1 of £21bn, but actually I’ve told HS2 that I want Phase 1 to be built for £17bn. But it is right on big projects like this to have a contingency that is part of the budget, but I very much hope that it will be delivered for less than the budget that we have set.”

Well he may have told HS2 Ltd that, but that didn’t stop the Chief Executive of the Company signing off an Estimate of Expense for Phase 1 on 15th November 2013 showing the total cost as £19,390,000,000 (see footnote). So it appears that HS2 Ltd may be ignoring the Transport Secretary, just like it has ignored the views of communities along the line.

Ms Maitlis picked up on a point made by her colleague David Grossman:

“And yet even with this jump – another £10bn – the reduction in economic returns is only slight – the figure out today goes from £2.50 to £2.30 – how can that be credible?”

It was very apparent that the Secretary of State did not want to talk about the details of the BCR calculation – he clearly doesn’t think that we need bother about it – which led to his first contretemps with Ms Maitlis:

Patrick McLoughlin: Well it is credible because there are other things that come into the account and come into the system. But I’m not …

Emily Maitlis: Like what?

Patrick McLoughlin: Well the use of the capacity argument, the amount of trains that are run, and arguments like that.

Emily Maitlis: Well you say, “like that”, but like what? When you give people these figures, and they know that it’s costing £10bn more, they simply don’t look believable.

Patrick McLoughlin: Well they are believable. Look, everything that we publish will be crawled over by various people, and if we’ve got it wrong we will be told. Let me just deal with BCR, because it is an important factor. The fact is that, if you look at the BCR for the Jubilee Line, it was less than one. Actually it would have not stood up to economic value. But it’s in London; it has led to the development of Canary Wharf – over 100,000 jobs. At the moment we are building Crossrail through London. That is a £15bn project. Nobody complains about that – it has a similar BCR – but this a chance for the northern cities to get their part of transport infrastructure spending.

I’m somewhat amused by the Minister’s observation “if we’ve got it wrong we will be told”. I rather thought that they had been told by some fairly authoritative sources, such as the National Audit Office, the Public Accounts Committee and the Treasury Committee, but had not taken on board much of this criticism. Also, I feel bound to comment, Mr McLoughlin is being a trifle free with the facts here; he is not comparing like with like. In a very informative blog posted for Channel 4, TV journalist Cathy Newman sets the facts straight on the comparisons with the Jubilee Line and Crossrail. In her blog Ms Newman accuses the Government of “putting a wee bit of spin on the facts” in its BCR comparisons with HS2 and these two other projects.

She points out that, unlike they have felt the need to do for HS2, the Government did not include wider economic impacts (WEI) in the BCRs for Crossrail and the Jubilee Line to which the Transport Secretary refers. When the calculations are updated for current methodology and adjusted to include WEIs, the Department for Transport’s official BCR for the Jubilee Line extension becomes 1.75 and Crossrail is 3.09. So Crossrail is appreciably better than HS2, not “similar”, and the Jubilee Line is not “less than one” on a like-by-like comparison with HS2.

Ms Newman also cautions that “Phase 2 [of HS2] isn’t scheduled to be completed until 2033, by which time the assumptions which underlie the cost/benefit analysis are more likely to have changed”. This raises the question of whether the Government should be relying on the Phase 2 BCR, which could be way off beam, rather than the relatively more reliable, but lower, BCR estimates for Phase 1.

(To be continued …)

Footnote: The HS2 Ltd total, which employs 2011 prices, includes contingency “at a confidence level of P50”. This means that HS2 Ltd feels that they have a 50% chance of delivering at, or below, the estimate. Presumably the chance of delivering at Mr McLoughlin’s £17bn is much less than 50%. The £21bn figure includes contingency at the P95 level, which gives HS2 Ltd a 95% chance of meeting, or bettering, the budget.

PS: Emily Maitlis’ interview with the Transport Secretary begins at 9min 10secs into the video.

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One response to this post.

  1. Posted by chriseaglen on December 17, 2013 at 8:20 pm

    Jubillee Line and Crossrail are both lines where the public demand is for short journeys. This makes the difference.
    Also the wider economic impacts such as a football field being purchased and converted into a housing estate in the future to recover the land planned increase can come into being without the railway. To connect these two effects is not correct but to misrepresent economic stimulation with the HS2 as though the two are inextricably linked which is not the case for the rural non-station areas, most of the routes.

    Reply

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