The economic case for High Speed 2 remains weak

In July 2011, the IEA published a study on the government’s plans to develop a high speed rail network in England. High Speed 2 (HS2) extends the UK’s initial foray into high speed rail (HS1), which links London to Europe via St Pancras station. Phase 1 of HS2 proposes the development of a new High Speed track from London to Birmingham. Euston Station would be substantially expanded and new stations would be built at Old Oak Common (West London), near Birmingham International Airport and at Curzon Street, Birmingham (10 minutes walk from New Street Station). Phase 2 of the route would develop a Y-link to both Manchester and Leeds.

The government has a poor history of delivering large infrastructure projects and in the study we highlighted a range of serious concerns about the poor economic case that was shown for HS2 (using the DfTs own figures), for example: an unsound methodology that substantially over-estimated the claimed benefits; its over-estimated projections for demand; an unbalanced and unrealistic assessment at just about every level in terms of future risk; substantial gaps in its cost estimates (e.g. the impact on the transport network at Euston); and spurious claims for economic regeneration.

One of the key points in our economic analysis was the assessment of the impact of competition on the (comparatively high) passenger forecasts used by HS2 Ltd (the company appointed to develop DfT’s plans for HSR). It has been a feature of railway investment since the 19th Century that proponents have over-estimated future demand. We pointed out in the ‘lessons learned’ from HS1 that the impact of competition on demand is to be ignored at our peril, with passenger numbers on HS1 far lower than predicted.

The Business Case for HS2 ignored the potential impact of competition over the entirety of the period modelled. HS2 Ltd assumed that the service would be ‘optimised’ with other parts of the West Coast Main Line and this formed the basis of its modelling assumptions for the next 60 years.

HS2 Ltd’s analysis actually demonstrated a poor economic case for HS2 Phase 1 (London to Birmingham), using the DfT’s (flawed) benefits criteria, with a Net Benefit Ratio of less than 2. The DfT has many existing infrastructure projects ‘on hold’ with NBRs of 4 and higher (i.e. offering twice or better the return on investment).

The furore which followed the review of the HS2 economic case at very least highlighted concerns about benefits realisation and gaps in the cost estimates, resulting in our conclusion that the existing Business Case for HS2 offered a poor – and potentially disastrously poor – return to the taxpayer. At that time we thought it staggering that the government wanted to make a decision on going ahead with HS2 without answers to these concerns and based only on a feasibility study for Phase 1 and an extrapolation (i.e. not even a feasibility study) for the Y-link to Manchester and Leeds, the larger part of the route.

Since our publication the Transport Select Committee (TSC) issued a report on its findings (8 November) with a press release announcing that there was a ‘Good Case’ for a high-speed rail network and that at (only) £2 billion per year for 17 years, the specific HS2 proposal was affordable. However, the report itself reiterated many of our concerns about HS2, such that one wonders quite how the press headline could be possible!

To summarise, the TSC supported HSR and only supports HS2 if there is a new business case which is based on the full Y-network, requiring:

  • That it is set in the wider context of a comprehensive transport policy for the UK;

  • Completion of feasibility work (and announcement) of the full route

  • Full reflection of the costs of integrating HS2 with transport systems in London;

  • Revision to the benefits methodology (specifically the ‘value of time saved’, the absurdities of which we pointed out earlier);

  • Review of the technical assumptions (‘risk factors’) underlying 18 trains per hour travelling at 225 mph.

Although not in its recommendations, the TSC also pointed out that it would be better to use existing transport corridors wherever possible (a big lesson from HS1 and so far ignored). To some extent, however, this is pre-determined by the technical assumptions on speed that constrain HS2 to run in a straight line.

Even then the TSC was concerned that:

  • It will be 20 years or more before these benefits can be realised;

  • HSR will ‘squeeze’ out investment in the rest of the network over those 20 years.

Today’s decision suggests that the government has chosen to disregard these and other economic concerns about the scheme.