Let’s be courageous, part 16

(… continued from Let’s be courageous, part 15, posted on 27 Oct 2016).

It would appear that just how prominent a place the benefit-cost ratio (BCR) will take in any deliberations regarding whether a transport project should be given the go-ahead may depend very much on the particular decision maker who is occupying the Transport Secretary’s seat at the time.

The midwife of the troublesome child that is HS2, possibly even its biological father, the Rt Hon the Lord Adonis, told the House of Lords Economic Affairs Committee (EAC) that he’d “always been somewhat sceptical of BCRs”, which he regarded as “an aid to policymaking” that “should not be a substitute for judgement” (see footnote 1). When pressed, however, he did concede that a project with a BCR of less than 2 would be considered, as a “rule of thumb” within Department for Transport (DfT) circles, as “either weak or there would need to be significant additional factors to be taken into account to make it a project that is likely to be supportable”, but as HS2 “has been above 2” this question had not arisen. He did not make it clear whether this guideline included the consideration of WEI, neither did he say whether it applied to each phase of HS2 or the project overall (see footnote 2). From the overall tone of his evidence to the EAC, however, it does seem that he would have considered HS2 as a worthwhile project even if the BCR had sunk below 2.

It may come as no surprise that the man allegedly dubbed “Spreadsheet Phil” by some Conservative backbench MPs, the Rt Hon Philip Hammond MP, appeared to place a little more emphasis on the BCR when he gave oral evidence to the House of Commons Transport Committee way back in September 2011. Whilst he too was at pains to emphasise that “the economic case in the BCR is only one element of the appraisal”, he did tell that Committee that he had “a general principle that I do not allow the [DfT] to consider projects with a benefit-cost ratio that is negative”. He also famously told the Committee that if the BCR “were to fall much below 1.5” that he would “certainly be putting it under some very close scrutiny” (see footnote 3). So Mr Hammond may have been, perhaps unwittingly, instrumental in setting a lower bound that the DfT analysts would ensure that the BCR for HS2 would not sink below, no matter what.

Rightly or wrongly, my view of the Rt Hon Sir Patrick McLoughlin is that he is, first and foremost, a conviction politician and not a man who would have concerned himself too much with the minutiae of facts and figures that may have been presented to him in support of HS2. Whereas Lord Adonis told the EAC that he took his “responsibilities seriously” and “went through [the business case calculations] in some detail … in 2010” (see footnote 1), Sir Patrick’s apparent inability to answer questions about the details of the HS2 economic case is a failing that I have had cause to complain about in the past (see footnote 4).

Whilst Sir Patrick, when Transport Secretary, was always happy to quote the full network BCR, including WEI, as proof that there was a “good business case” for HS2 (see footnote 5), he also adopted the “cake and eat it” strategy of downplaying the importance of BCR by citing other projects that had proved to be worthwhile where worse BCR values had been projected. For example, he told the EAC that “the economic case for the Jubilee Line was 0.9, but without the Jubilee Line I do not think we would have seen the kind of investment that we have seen in Canary Wharf” (see footnote 6).

Persuasive arguments have been advanced by the HS2 Action Alliance, and others, that convincingly puncture the official HS2 business case and reinforce the charge that the value for money calculation is overoptimistic. Whilst some changes have been made to the assumptions and inputs that the DfT has employed to construct the case, and the headline BCR figures have been adjusted over time, the government analysts have always sought to exercise ingenuity and guile to patch the punctures and ensure that the BCRs remain at, or above, an acceptable level. Where these patches are plainly unconvincing, they have still been employed with apparent shamelessness, and ministers appear to have failed, at least in public, to show due diligence in establishing whether the taxpayer has any real prospect of seeing benefits from HS2 that will give a reasonable return on his considerable investment.

I feel that all of the effort that has been directed at attacking the business case was doomed to earn little return. Even had the DfT conceded, and reduced its BCR predictions, this would not, I fear, have proved to be a silver bullet to fire at the HS2 project: if this had happened, you can be sure that Lord Adonis’s “significant additional factors” would have been played as a trump card to keep HS2 on the rails.

(To be continued …)

Footnotes:

  1. See under Q116 in Evidence Session 10, Tuesday 11thNovember 2014 in Oral and Written Evidence, Select Committee on Economic Affairs, The Economic Case for HS2.
  2. See under Q120 in Evidence Session 10, Tuesday 11thNovember 2014 in the Lords EAC Oral and Written Evidence. Since Lord Adonis referred to the HS2 BCR being “above 2” it is evident that he was considering the total project BCR.
  3. See Q554 in the transcript for the oral evidence session held on Tuesday 13thSeptember 2011, House of Commons Transport Committee, HC1185 High Speed Rail.
  4. See, for example, my blog I’m not talking about Crossrail, part 3 (posted 22 Dec 2013).
  5. See, for example, column 559 of the House of Commons Official Report for 28thApril 2014, in reply to an intervention by John Redwood MP.
  6. See under Q227 in Evidence Session 19, Tuesday 9thDecember 2014 in the Lords EAC Oral and Written Evidence. As I explain in my blog I’m not talking about Crossrail, part 1 (posted 14 Dec 2013), on a like-for-like comparison with HS2 the Jubilee Line BCR was estimated to be 1.75, not 0.9.

 

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