Let’s be courageous, part 8

(… continued from Let’s be courageous, part 7, posted on 5 Sep 2016).

The year 2013 saw the Department for Transport (DfT) publishing a draft revision to its WebTAG guidelines. Of the alternatives that had been set out in the report commissioned from the Institute for Transport Studies at the University of Leeds, the DfT chose to employ the “do minimum” approach (Option 2). This meant that the WebTAG guidance retained the cost saving approach determination for the valuation of saved travelling time, but reviewed the evidence and the per-passenger hour valuations derived from that evidence. As a result the WebTAG valuation of a business rail passenger’s time was reduced from £47.18 to £31.96 (see footnote 1) and also the update saw “the introduction of a range around the values [of saved time] reflecting the quality of the available data” (see footnote 2).

It would appear that, in preparing the October 2013 revision to the HS2 business case, the DfT was anxious to avoid the criticisms about the high value of each hour’s business time saved that had been assumed for the original BCR calculation, because the reduced WebTAG guideline value was employed for the October 2013 revision, despite the guidelines being only a draft: my understanding of DfT practice is that revised guidelines are not normally adopted for business cases until they are deemed “definitive” (see footnote 3). Also, in an obvious nod towards accepting that employing a willingness to pay approach could deflect much of the criticism about not taking account of the possibility of using time spent travelling by rail productively, the DfT compiled a “comparison of values resulting from different approaches”, which was the basis for the DfT’s conclusion that the updated WebTAG travel time savings values “are a suitable representation of businesses’ willingness-to-pay” (see footnote 4).

The House of Lords Economic Affairs Committee (EAC), it appears, was not convinced that the “proxy”, as it referred to it, value of £31.96 really did serve to quell the criticism. According to the EAC “the values of working time savings for rail do not take account of the fact that time on a train can be used productively” (see footnote 5).

The EAC’s verdict is quite damning (see footnote 6):

“We find it difficult to have any faith in benefits that have been estimated on the basis of these values, particularly as the Department for Transport has recently concluded that fresh evidence is required and has commissioned further research.”

On the basis of the October 2013 guideline value for business traveller time saved, the value used for the original HS2 business case was about one-half too high. All other things being equal, this would have had a big impact upon the BCR, as business traveller savings form a large proportion of the total benefits claimed for HS2. In some work carried out in September 2012, and therefore before the WebTAG values were revised, the HS2 Action Alliance calculated that, had the original value of business time been just one-third too high, then this would reduce the BCR for the full network by around 0.4 (see footnote 7).

I say that it “would have had a big impact upon the BCR” because, by an incredibly fortunate stroke of serendipity, the DfT discovered that it had underestimated the proportion that HS2 business travellers would contribute to the overall total of passengers. This proportion is analysed separately for four different HS2 journeys, between: London and Birmingham, London and Leeds, London and Manchester, and London and Sheffield. In the original business case the proportion of the total number journeys over each of these routes attributed to travellers on business ranged from 23 per cent to 28 per cent (see footnote 8). For the October 2013 revision of the business case this range of proportions was increased to between 56 per cent and 65 per cent (see footnote 9).

Since business travel hours saved are rated by WebTAG at more than fourfold the value of travel for other purposes, this increase in the business travel proportion delivered a net increase in the value of user benefits of £11.5bn (see footnote 10), recovering a sizeable proportion of the benefits lost from the reduction in the hourly rate.

The DfT provided a written explanation to the EAC of how this windfall had arisen, attributing it to a change in the way that data upon which the travel purpose proportions are estimated had been collected (see footnote 11). Demonstrating the thoroughness that was characteristic of the way that the EAC approached its inquiry into the economic case for HS2, the evidence behind the DfT’s upward revision to the estimate of proportion of HS2 passengers who will be travelling for business purposes is reviewed in the EAC’s report (see footnote 12). The EAC appears to have been far from convinced by the DfT, concluding that “the substantial increase in forecast business travel in the latest economic case is questionable” (see footnote 13).

Overall, the EAC gives a distinct thumbs down to the DfT’s efforts to monetarise the benefits from travel time savings, opining (see footnote 14):

“84 per cent of the estimated benefits of HS2 rely on the values allocated to travel time savings and demand forecasts. The evidence behind both of these is inconsistent and out-of-date.”

The “further research” into the value of travel time savings that I refer to above has been going on since the October 2013 WebTAG revisions, and the DfT published a progress report in December 2014. We are promised that the Department is intending to “go beyond” using the cost saving approach determination by collecting evidence of willingness to pay from stated preference surveys of employers and employees (see footnote 15). The aim is to use this new evidence of willingness to pay to publish new guideline values of travel time savings in an update to WebTAG in 2016 (see footnote 16). No doubt, a corresponding reworking of the HS2 business case will follow this.

(To be continued …)

Footnotes:

  1. See paragraph 391 in the report The Economics of High Speed 2, House of Lords Economic Affairs Committee, 1st Report of Session 2014-15, March 2015.
  2. See paragraph 4.16 in the publication Understanding and Valuing the Impacts of Transport Investment, Department for Transport, October 2013.
  3. See paragraph 6.1.7 of the publication The Economic Case for HS2, HS2 Ltd/Department for Transport, October 2013. This paragraph advises that the revised values “will shortly be mandated for use on all transport schemes”, implying that the updated values were not definitive when the revised HS2 business case was published.
  4. See the sidebar below paragraph 6.1.7 on page 44 of The Economic Case for HS2.
  5. See paragraph 395 in The Economics of High Speed 2.
  6. See paragraph 396 in The Economics of High Speed 2.
  7. See the subsection Impact of the overestimation of the £70k/a on the BCR in the paper Overestimation of value of business travellers time –the facts, HS2 Action Alliance, September 2012.
  8. See paragraph 406 in The Economics of High Speed 2.
  9. See Table 27 in The Economics of High Speed 2.
  10. Footnote 496 on page 116 of The Economics of High Speed 2 derives this net value from an increase to benefits to business travellers of £14.5bn less a decrease in benefits to commuter/leisure travellers of £3.1bn.
  11. See paragraphs 9 to 12 pages 401 and 402 of the publication The Economic Case for HS2 Oral and Written Evidence, House of Lords Economic Affairs Committee, October 2014.
  12. See paragraphs 397 to 415 in The Economics of High Speed 2.
  13. See paragraph 416 in The Economics of High Speed 2.
  14. See paragraph 417 in The Economics of High Speed 2.
  15. See paragraph 5.13 in the publication Understanding and Valuing the Impacts of Transport Investment Progress Report 2014, Department for Transport, December 2014.
  16. See paragraph 5.28 in Understanding and Valuing the Impacts of Transport Investment Progress Report 2014. The “release point” for the new version of WebTAG Unit A1.3 is currently advised as November 2016, according to the DfT document WebTAG: Forthcoming Changes.

 

 

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