Monthly Archives: April 2014

America’s Coming High Speed Rail Financial Disaster. Ronald D Utt, Ph.D

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Ronald Utt’s paper “America’s Coming High Speed Rail Financial Disaster” is a compelling read. For full enjoyment read the source here.  Otherwise savour these quotes:

  • In addition to the billions of dollars in capital costs that the federal and state governments will incur the President has committed the nation to providing a perpetual stream of substantial subsidies.  As a result, the HSR program could come to rival the some entitlement programs in how much it will contribute to out-of-control annual federal deficits.
  • With apologies to futurists, people in the construction industry and rail buffs, investing $13 billion (or even $8 billion) in passenger railroads is a little like building a bridge to the 19th century.
  • In essence, the federal government is paying massive subsidies to achieve minor benefits for a  tiny fraction of the travelling public.
  • However extravagant this commitment to jazzed-up 19th century technology may be, the ultimate costs of bringing HSR to the 13 corridors already approved by the FRA will be staggering.
  • The supposed benefits do not even begin to justify the exorbitant costs.
  • One purpose of the review was to address the contention that passenger rail in other countries, especially HSR, operates at a profit (i.e., without subsidies). For 1995–2006, the study found that the governments of Germany, France, the United Kingdom, Spain, Denmark, and Austria spent “a combined total of $42 billion annually on their national passenger railroads.”  The $42 billion that these six countries spent on just passenger rail in 2006 is roughly proportionate to the $54.8 (most of which was funded by user fees) that the government of the United States spent on all forms of transportation, including highways, rail, aviation, water transport, and mass transit.
  • Despite Europe’s huge investment in passenger rail, its market share declined from 6.6 percent in 1995 to 6.1 percent in 2007.
  • This last point is of some importance because one goal of the HSR scheme is to shift travel from largely unsubsidized commercial aviation to heavily subsidized trains. Yet the same scheme in Europe seems to have failed over the past dozen years, despite massive government subsidies.
  • Today, several of the restructured, privatized Japanese passenger rail lines run at a profit, but only because they were acquired at a fraction of their capital costs and the government absorbed much of the system’s debt (circa $300bn).
  • The point of reviewing the recent U.K. experience is not to criticize the rail reforms that the U.K. undertook, but to note that regardless of organization, ownership, and the intensity of the reform effort, building and operating a system of passenger rail service still requires massive public subsidies.
  • Although the entire French passenger rail system receives an estimated annual government subsidy of approximately $10 billion (compared to the annual estimated subsidy of $22.8 billion for the somewhat larger German passenger rail system, which also includes an HSR component) the HSR service between Paris and Lyon—one of 11 TGV lines and 267 miles of the system—is believed by some to be one of only two HSR routes in the world that generate enough revenue to cover both capital and operating costs.
  • Since opening, the [Taiwan] system has lost $2.1 billion, leading The China Post to describe the situation as a “hyper-modern technology [that] was meant to be a source of pride, but instead has turned into a rich source of embarrassment.
  • Spain opened its first HSR line in 1992. Since 2003, it reportedly has spent more on rail than on roads.  Despite this commitment, the EU reports that rail in Spain accounts for only 5.1 percent of ridership, almost 2 percentage points below the EU-27 average of 6.9 percent for all surface transportation modes

 

HS2 – summary case against

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This piece summarises the main arguments against HS2.

  1. The cost, including the trains and the often omitted links to the new stations, will be at least £80 billion. That is equivalent to nearly £3,000 for every household in the land.  Meanwhile, 45% of us use a train less than once a year and 99% of us will seldom, if ever, use a high speed one.
  2. The financial loss faced by those living in 2036, assuming the fares out to the remote year of 2096 actually arise, will be £74 billion at 2011 prices – equivalent to pouring the wages of 74,000 working men’s lives down the drain, or perhaps 100,000 if the forecast fares do not materialise. Not quite WW1 levels but trying hard.
  3. Transformational? The trips generated by the network will add a trivial 1.5% to rail journeys and an even more trivial 0.05% to all passenger-journeys. It is only those which can be transformational since the rest obviously pre-exist.  With numbers as small as that it is impossible to sustain this “transformational” story line whilst maintaining a straight face.
  4. Regeneration: The network is said to generate 100,000 jobs although many, if not most, may be relocations. If the project proceeds each of these supposedly new jobs will have cost the taxpayer £800,000. How many will that destroy in that part of the economy which makes a profit? Again the official story line (economic regeneration etc) is destroyed.
  5. Wider Economic Benefits, the WEBs: The KPMG report claims that the proposal will generate WEBs worth £15 billion per year. Those can only arise because of new or generated business and commuter trips (the supply side). They number circa 7.8 million per year. Dividing the £15 billion by the 7.8 million trips provides £1,930 or nearly £4,000 per return trip, 14 times the average value for the nation as a whole!!
  6. Existing Trips must have higher WEBs than those generated merely because a journey time has been reduced somewhat. The usual theory suggests double. Hence if KPMG’s £15bn is to be believed, existing trips on the West Coast Main Line generate WEBs with an average value of circa 30 times the average for the nation as a whole……… The charitable conclusion is that KPMG did not carry out this reality check. If it had, surely it would not have been so stupid as to publish the £15bn.
  7. The passenger forecasts: The original forecasts made for HS1 were three times as high as the numbers which materialised. Those for HS2 require eighteen 1,100-seat trains per hour, an extraordinary thing not yet achieved on any high speed network in the world. No risk is assigned to that, indicting a flamboyant disregard.
  8. A key driver for the forecasts is the growth in Gross Domestic Product. However, between 1955 and 1995 GDP grew by 150% but rail use did not change. In contrast, since 1995 GDP grew by 40% but rail use has increased by a whopping 70%. The comparison suggests GDP has little to do with it. Instead the recent growth will be due to the razzamatazz of privatisation
  9. Capacity: Virgin’s trains carry an average of 160 passengers whilst offering over 500 seats. In the peak three hours half the seats are said to be empty. That alone places a question mark over the claims that, without HS2, capacity will be inadequate. In any event, substantial increases in capacity could be achieved at relatively low cost by lengthening the train and some platforms etc. More importantly, the sensible approach when demand exceeds supply, particularly if a product makes a loss in the billions of pounds, is to balance supply and demand by raising the price. Against that background I dare say a straight face would have difficulty maintaining the notion that the West Coast Main Line lacks capacity without breaking in half.
  10. Ludicrously the CPRE and DfT claim that HS2 will have the same capacity as a 12-lane motorway. Well, the supposed eighteen 1,100-seat trains per hour will offer a paltry 19,800 seats. That is nearly four times less than the 75,000 available from one lane of a motor road carrying one thousand 75-seat coaches per hour at 100 kph. At that speed the head-ways would average 100 metres.
  11. The quaintly called “Willingness to pay calculus”, upon which the economic analysis depends, allows fares to be subtracted from costs and the difference, the net cost to the government, to be compared with the supposed social benefits. However, the theory reduces to the absurd when it is realised that changing the economic boundary of the scheme or changing the tax regime, changes the net costs. It persists because, without it, no railway scheme would ever pass the cost benefit test – suggesting dishonesty at the highest level.
  12. The North-South divide is hardly likely to be reduced by the proposal; quite the reverse. For example, Phase 1 was said to generate 40,000 jobs with 9,000 in construction and 1,500 attributed to operating the line. Of the remainder, 70% would be in London.
  13. International comparisons confirm that such schemes benefit capital cities rather then the regions and that the financial losses are vast. For example the debt due to the much lauded Japanese system is $280 billion.

This project is not, as claimed by Graham Nalty, in Local Transport Today of 4th April, a great idea being led by the wrong kind of people. Instead it is an entirely stupid idea sold to the gullible by conmen – men who, in the words of Stewart Joy, Chief Economist to British Railways, in his book, The Train that Ran Away, are “prepared cynically to accept the rewards of high office in the railways in return for the unpalatable task of tricking the Government on a mammoth scale”. Such men, Joy wrote, are “either fools or knaves”.

At what point is irrational enthusiasm mis-selling and at what point is mis-selling plainly fraud?

Notes and calculations

(1)   Cost – £43bn for construction plus £7bn for the trains plus £30bn for connections, ref IEA estimate, providing a total of £80bn.  The UK population is circa 60m.  Family size set to 2.2.  Hence the cost per household is £2,933.  That ignores tax at 20.9%, included in the economic assessment.  Perhaps that should be added.  After all, every project or enterprise must make its contribution to the nation.

(2)   Financial Loss.  Table 15 of the October 2013 Economic analysis shows a financial loss at the 2011 price and discount base of £31.5bn for the “standard case”.  Rolling that up at the Treasury Discount rate to the presumed opening year of 2036 provides £74bn.  That represents the actuarial loss, at 2011 prices, faced by those then living – supposing the very high passenger forecasts, and the corresponding fares, out to the remote year of 2096, actually arise.

(3)   Transformational? HS2 Ltd say that the project will generate 76,000 new passengers-journeys per day, (FoI request 13-873).  The 76,000 corresponds to roughly 22.8 million per year.  It is only those new trips which can be “transformational” since all the rest (obviously) pre-exist.   There are currently 1.5 billion passenger-journeys per year by surface rail, and 43.5 billion passenger-journeys by all modes (walk and cycle excluded).  Hence generated, or new, passenger-journeys may account for a trivial 1.5% of all surface-rail journeys and for an even more trivial 0.05%, or one in 2,000, of all passenger-journeys.  Clearly that cannot be transformational.

(4)   Regeneration – cost per job.  If the scheme cost or the long term financial loss are both circa £80bn, see above, and if the supposed £100,000 jobs generated actually arise and are indeed new, and not relocated jobs, then the cost per job is, by division, £800,000.

(5)   Wider Economic benefits. KMPG’s report claims £15bn per year.  These can only arise from generated or new business and commuter trips, the supply side, since all the rest obviously pre-exist.  HS2 Ltd refuse to say how many of the 76,000 generated trips are for business and commuting purposes.  However, paragraph 5.2.13 of the April 2012 Demand and Appraisal report says one third of the HS2 trips are for business purposes.  Increasing that by 25% to allow for commuting provides 41%.  Here we will use 40%, which appears very high indeed compared with the 20% which applies to the nation as a whole. There are 255 effective days per year for such tips.  Hence the new business plus commuter trips may number 76,000 x 255 x 0.4 = 7.75 million per year.  Dividing the £15bn by that number provides £1,930 or close to £4,000 for a round trip.  Nationally Travel Survey Table 0409 provides 177 commuter plus business trips per year per head per year.  The GDP is about £1,500bn. Dividing that by the population, 60mn, and by the number of trips per head, the 177, provides £141, which is 13.7 times less that the £1,930.

Item (9), Capacity – the 160 average train occupancy is from the Office of the Rail Regulator’s data.  It is calculated by dividing Virgin’s passenger-km by its train-km.

The rest is either well known or nearly so to those who care to look.

Paul Withrington

Network Rail’s £70 million “fine” paid by the taxpayer

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Network Rail is to be fined £70 million for failing performance targets on punctuality. The fine will, of course, be paid by taxpayers since Network Rail receives subsidy – fares do not even cover operating costs – bust since 1955 and before.

Furthermore Network Rail has a debt of £30 billion.  That debt is notionally secured against the (imaginary) value of the Regulatory Asset Base, the RAB, on the fraudulent basis that investment in rail leads to an asset that can be traded.  Instead, without Government support, the railways, if retained as railways, are worthless in the market place.

It is not Network Rail and or the banks which should be fined.  Instead it is the Chief Execs, past and present, and their henchmen – all of them guilt of misleading the Government on a mammoth scale.

The claims made by those lobbying for HS2 are the top end of that; a scheme which will, if built, waste resources equivalent to the lifetime wages of 80,000 working men.