Second class post

In my blog He came forth and saw a great multitude, part 1 (posted 20 Mar 2017) I report that a letter from the Chairman of the House of Commons Treasury Select Committee had, apparently, not been answered by the Secretary of State of State for Transport. In my blog He came forth and saw a great multitude, part 2 (posted 24 Mar 2017) I present my take on observations made in the Chairman’s letter about a recalculation of the business case for HS2 that was published towards the end of last year, and express the hope that the Department for Transport (DfT) would provide some much needed clarification of what I describe as an “apparently confused situation”.

Thanks to a comment on part 2 that was subsequently posted by “john” – thanks john – I have now been able to access to the letter that the Transport Secretary sent in reply. This letter is dated “23 Jan” and, as is normal for Whitehall correspondence, this date has been added in manuscript by the Secretary of State when he signed the letter. Despite this date of signing, it was not put before the public eye until 24th April 2017, when it was posted on the Treasury Committee’s website. As far as I am aware, no explanation has been provided for this two-month intervening period. I think it is unlikely that we can blame postal delays, so either the DfT held back the letter after it had been signed by the Minister, or the Transport Select Committee were tardy in publishing it – we will probably never know.

Whilst it may have been long-awaited – at least by me – I have to confess a feeling of anticlimax now that I have read the Transport Secretary’s letter. In all honesty, I don’t think that the contents of the letter, and the annex that provides more detail, have added much to my sum of knowledge regarding this matter. Far more helpful has been that I have, at last, been able to access an e-published copy of the document Summary of Key Changes to the Economic Case Since 2015. As I explained in He came forth and saw a great multitude, part 2, I was unable to locate a copy when I authored that blog in March this year (see footnote 1). When, at the end of May, I repeated the Google search for this document in preparation for this current blog, it comes up at the very top of the list, and the published date, according to the portal website was 15th November 2016! Notwithstanding this little mystery, I am grateful to have been able to read it now, although it would have been helpful to have done so when I was preparing He came forth and saw a great multitude.

In his January 2017 letter to the Transport Secretary, the Treasury Committee Chairman observes that without the latest update in passenger demand predictions the benefit-cost ratio (BCR) would have fallen dramatically as a result of the November 2016 revision of the business case for HS2, making the project “scarcely worth the candle”. In his reply, the Transport Secretary cries foul on this comment, pointing out that “removing the demand update would significantly dampen the impact of the other changes that were made when updating the analysis, so the impact would be significantly smaller” than the 1.6 reduction suggested by bar chart that had been provided by HS2 Ltd (see footnote 2). In fairness to the Transport Secretary, this interdependence is remarked upon in Summary of Key Changes to the Economic Case Since 2015, which cautions that “care needs to be taken when interpreting the results” of the analysis (see footnote 3), but the document is also fairly unequivocal in stating (see footnote 4):

“Overall the increase in demand drives a 30% increase in benefits and 21% increase in revenues. This results in the BCR including wider economic impacts increasing by 1.6.”

The preponderance of the assumed passenger demand increase in the factors that influence the economic case is, perhaps, even more evident from examining the raw data that is presented in a couple of tables in Summary of Key Changes to the Economic Case Since 2015 (see footnote 5). These show that, in 2011 prices, the predicted total transport user benefits have increased from £61.4bn in November 2015 to £65.5bn in October 2016, with the increase in predicted passenger demand alone contributing an additional £17.7bn to the October 2016 figure.

Whilst I am prepared to accept that there may be other factors linked to the effects of changes in the level of predicted passenger demand, the impact that the revised demand prediction has had is so great that I can’t see any such linkage exerting an appreciable influence on the BCR hike of 1.6 that has been reported by the DfT.

So I feel that the Treasury Committee Chairman’s comments about the dependence of the business case on the level of passenger demand assumed – assumptions that are at best an educated guess – remain valid.

In He came forth and saw a great multitude, part 2 I report that the DfT has changed the assumption about how demand would increase with time by removing the demand cap (see footnote 6). I speculated that this change might be “significant” in the BCR calculation: this speculation would appear to receive some support in Summary of Key Changes to the Economic Case Since 2015. The document admits that, with the demand cap applied, “the impact of this increase in forecast of demand would have been relatively modest, as the effect would have been just to bring forward the cap year … by around 7 years to 2030/31”. The approach now being taken, which leads to aggregated passenger demand over the coming years being much greater, is to “fix the forecast at 20 years in the future, rather than on a particular level of demand”, meaning that demand has been “assumed to grow until 2036/7” (see footnote 7).

Finally. one other gripe that I express in He came forth and saw a great multitude, part 2, that both the Transport Secretary’s letter and Summary of Key Changes to the Economic Case Since 2015 serve to reinforce, is the predilection that the DfT has slipped into of quoting point BCR figures that include wider economic impacts when assessing value for money (VfM), presumably for no better reason than this usually enhances the VfM rating.

Footnotes:

  1. See footnote 5 to He came forth and saw a great multitude, part 2 (posted 24 Mar 2017). The document is not listed on the portal webpage which is linked from footnote 5 on page 10 of High Speed Two Phase 2b, Strategic Outline Business Case: Economic Case and a Google search for the document failed to return any relevant results.
  2. The bar chart is Figure 1.2 in the publication High Speed Two Phase 2b, Strategic Outline Business Case: Economic Case, Department for Transport, November 2016.
  3. See paragraph 1.1.8 in the publication High Speed Two Summary of key changes to the Economic Case 2015 to 2016, Department for Transport, November 2016.
  4. See paragraph 4.2.7 in High Speed Two Summary of key changes to the Economic Case 2015 to 2016.
  5. See Table 1 on page 5 and Table 6 on page 13 in High Speed Two Summary of key changes to the Economic Case 2015 to 2016.
  6. The demand cap is a maximum level of passenger demand that it is assumed will be reached at some time in the future, specified as a maximum demand level. Once the cap is reached, demand is assumed to be level in all subsequent years.
  7. See paragraph 4.1.6 in High Speed Two Summary of key changes to the Economic Case 2015 to 2016.

 

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