The January 2012 and October 2013 economic analyses provide very similar benefit to cost ratios.

That is remarkable. After all, the value of business time was reduced by 32%, from £47.12 per hour to £31.96 per hour, the passenger forecasts were reduced by 15% and the net costs to government at the were increased by 24% for Phase 1 and by 26% for the full network.

Had those changes been simply substituted into the January 2012 study the economic case would have collapsed. Instead, and remarkably, the new study produced benefit to cost ratios which are almost identical to those in the old study.

There are at least two reasons for that.

• The first is that the percentage on business was inflated to 40%, far above the 30% suggested by survey data and far above the percentages used previously (26% for Phase 1 and 29% for the full network).
• The second is obscure. In the earlier study the values of time associated with crowding and interchange for business passengers was the same as commuter time, namely £6.46per hour. In the later study business time, then valued at £31.96 per hour, was used for those items. That alone generated benefits of circa £3bn for Phase 1 and £6.6bn for the full network.

Additionally, we find that those two unjustified changes are inadequate to rescue the scheme – substitution into the 2012 analysis produces stubbornly low benefit to cost ratios (1.24 for phase 1 and ranging from 1.4 to 1.6 for the full network, void of the contentious Wider Economic Benefits). Hence we suspect some other sleight of hand.

As things stand the original benefit to cost ratios would be rescued only if the above changes are admitted and if the percentage on business were to be inflated to 50% and above.

For those reasons we say that this analysis has been shamefully manipulated so as to obtain “the right answer” in defiance of the data.
……………………………
Paul Withrington, director of Transport Watch comments:
“The economic analysis is based on a system enabling almost any tune to be played. Tweak this or that and huge changes arise. The tune selected by HS 2Ltd is a Honky- tonk. It should be switched off and HS2 abandoned immediately”

For more details, or to arrange an interview, please contact Paul Withrington on 01604 847438 or pwith@transport-watch.co.uk and open topic 17.

About Transport Watch
Transport Watch is an independent think tank founded in October 2002. Our objective is to become the non-governmental point of reference for factual data dealing with transport generally and road and rail in particular. For full details visit: http://www.transport-watch.co.uk/

Cost benefit analysis was first conceived for evaluating road schemes where, in the absence of road pricing, or tolls, there is no direct market. The original procedure compared the resource costs with the cash value of time and accident savings plus the savings in vehicle operating costs. All transfer payments, such as taxes, were excluded. The rational was that cash transfers do not create or absorb resources. A similar procedure has been adopted for the railways but with two key differences.

Firstly, railways sell a product. Hence there is a market. In a sane world decisions would be made on a financial basis, namely, if it makes a loss, let alone a loss in the tens of billions of pounds, do not build it. However, if that were the case no railway scheme would ever see the light of day. All of them require massive subsidy from the taxpayer.

Secondly, instead of comparing the cost of the resources used with the social benefits, the comparison is between the “cost to Government” and those social benefits – the so called “Willingness to Pay Calculus”, proposed by Professor Sugden of the University of East Anglia.
Under that dispensation and for HS2 the cost to Government is the capital plus future operating and maintenance costs minus the so called incremental fares – the fares taken by HS2 minus those lost to HS2 by the rest of the railway. Further the benefits are reduced by the loss of tax income due to motorists transferring to the train.

We comment, if people were willing to pay, the system would be profitable. Moreover the theory reduces to the absurd. The proof follows.
Changing the tax regime cannot change the resources used but would change the costs to Government. Similarly, changes in fares policy would change nothing fundamental but would change the incremental fares. Further, if, for example, the rest of the railway were outside the Government then the incremental fares would be the full fares taken by the new route. The analysis would then come out ever so much better. On the other hand, if the Government came to own all the motorway filling stations and cafes, or other elements of the economy, then losses to those elements, due to passenger spending on HS2 tickets, would also be subtracted from the HS2 fares, so increasing the cost to Government no end.

A theory, which provides different answers according to the quirks of the tax system, the fares’ structure, or according to the quirks of Government ownership is clearly absurd. This one has been invented because, without it, no railway project would ever see the light of day. Our view is that it is a fraud on the taxpayer. If they want to build railways they should give the true reasons rather than invent a fraudulent “economic case”.

Paul Withrington, director of Transport Watch comments:

“We do not have “brown envelopes” in this country but, in the light of the above we may conclude that there is corruption in that officials and their consultants appear to be prepared to say almost anything in return for salaries in the hundreds of thousands of pounds. It will not do”

For more details, or to arrange an interview, please contact Paul Withrington on 01604 847438 or pwith@transport-watch.co.uk and open topic 17.

About Transport Watch
Transport Watch is an independent think tank founded in October 2002. Our objective is to become the non-governmental point of reference for factual data dealing with transport generally and road and rail in particular. For full details visit: http://www.transport-watch.co.uk/

The report by the Economic Affairs Committee of the House of Lords cites the net cost to Government of the full high-speed rail network as £31.5 billion at the 2011 price and discount base, but these are weasel words. Let us be clear what they mean.

They mean the sum which, if invested at the Treasury discount rate (principally 3.5%), would fund the construction cost and all future costs, minus the fares, out to the remote year of 2093.

The words are “weasel” because of the choice of 2011 as the discount base. For example, change that to 2001 and, HURRAH, the sum falls to £22bn. Instead the honourable discount base is the opening year, 2033. Rolling the £31.5bn at 3.5% between 2011 and 2033 yields £66bn.

That is the actuarial loss, at 2011 prices, which will be faced by those standing in the opening year – supposing the cost is as claimed and supposing the fares come in. It is the £66bn which the Lords should focus on, not the £31.5bn.

By 2033 over £50bn will have been spent, or perhaps £80bn as suggested by Dr Wellings of the IEA, if the costs of the links to the new stations etc. are included. Apart from technical underestimates the cost may have spiralled because of the shortages which will arise in the construction industry when faced with this huge project.

Hence taken in the round the actuarial loss faced by those standing in the opening year of 2033 is likely to be at least £70bn. That is equivalent to £2,500 for every household in the land, 99 percent of which may seldom if ever use the system. After all nearly half the population use a train less than once a year and 90% of rail journeys are less than 80 miles long.

So if we assign the 70bn to the one percent likely to make significant use of HS2 the cost amounts to an astonishing £250,000 per household.
……………………………..
Paul Withrington, director of Transport Watch comments:

“In the face of such gigantic losses why on earth is anyone contemplating this scheme”

“People from households in the top 20% percent of income travel four to five times as much by rail as do those from households in the bottom or second to bottom 20%. Those who may make regular use of HS2 will be overwhelmingly from the better off. Why on earth should they attract such a vast subsidy?”

“The costs cited by HS2 take us to Manchester, Liverpool and Leeds. However, pressure will build to extend the system to Edinburgh and Glasgow leading to additional loss making expenditure in the tens of billions of pounds2.

“Why should the taxpayer subsidise this vast folly? It is no more sensible than pouring tens of billions of pounds into Harrods, Fortnum and Mason or some loss-making chain of fast food shops”.
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For more details, or to arrange an interview, please contact Paul Withrington on 01604 847438 or pwith@transport-watch.co.uk and open topic 17.

Dear Sirs,

RAIL COSTS

I see that Mr Carne appeared before you following the “astonishing” cost escalation of the Great Western Electrification; up from an original £874 million to £2.8 billion and rising.
That reminds me of the scandal of the West Cost Main Line Modernisation programme. It was to cost £2.35bn in 1997, £2.95 bn in March 1999, £4.75bn in October 1999, £5.56bn in January 2000 and £5.8bn at the start of the Public Inquiry in February 2001. The price rose to £6.3bn during the inquiry when there were press reports that it would cost £9bn. By August 2002 the press was reporting £13bn, but that was cut to £10bn after the Regulator struck out the enhancements required for 150 mph speeds. (Pity, such trains would have negated the “need” for HS2. ……).

Worse still, and among other, Mr Carne said that the reopening of the Borders line in Scotland had been completed on time and within budget. Rubbish, the original capital cost was £72m, at Parliamentary approval, £155m. Now nobody knows because £60m of land acquisition and preparatory costs were taken out and all the quite massive road realignments shifted to the roads budget. Statements of “over £360m” are not challenged by the rail lobby. On budget? On bodger more like it – the man must be “joking”.
Separately from costs, Bombardier said to the Transport Committee of the House of Commons, during an Inquiry into the Future of the Railway that, “To give a few figures. To carry 50,000 people in one direction we would need:

• A 175 m road used by cars, or
• A 35 m wide road used by buses, or
• A 9 m wide track bed for a metro or commuter railway”
(Ev 479 in Volume 2 of the Seventh Report of Session 2003-04).

In contrast, in New York we have a contra flow express coach lane 11 feet wide and 4 miles long, including 1.5 miles in tunnel. It carries close to 700 45-seat coaches in the peak hour, offering 30,000 seats. The coaches may as well be 75-seaters. At 100 kph and with 1,000 per hour the headways would average 100metres, or over 80 bumper to bumper; more than is commonly seen on motorways. That would provide 75,000 seats per hour. Hence, rather than the metro providing the greater capacity, it is the express coach with a dedicated track. That combination would provide seats for all in place of the metro’s standing and crushed conditions and at a fraction the cost.

Against that background why does anyone believe anything that the railway lobby says?
Yours faithfully

Paul F Withrington
Director Transport-Watch

More evidence on how government “cooked the books” to justify HS2

The previous Transport Watch press release showed that the percentage on business, assumed by HS2 in its latest economic analyses, is far above that suggested by survey data. Without that boost the scheme would fail the cost benefit test, but it gets worse.

The table below sets out the sources of the supposed benefits in £(millions).

Item                                                                        Phase 1          Full Network
(1).Improved Access ………………………………1,094 …………….1,115
(2) Reduced crowding …………………………… 4,068 …………….7,514
(3) Quicker interchange ……………………………. 810 …………….4,146
(4) Reduced waiting ……………………………….3,508 ……………. 8,081
(5) Reduced walking ……………………………….. 404 ……………..1,330
(6) Reduced train time …………………………..11,518 …………… 31,007
(7) Improved reliability ……………………………. 2,624 ……………. 5,496
Totals …………………………………………….. 24,026 …………… 58,689
Benefits to road users ……………………………… 568 ……………. 1,162
Total excluding Wider Economic benefits ………24,594 …………… 59,851
Contentious Items total [(1)+(3)+(5)+(7)] ………..4,932 …………… 12,087

Astonishingly only circa 50% of the benefits are due to reduced train time, a factor not hitherto noticed by the Transport Committee of the House of Commons or by the Economic Affairs Committee of the House of Lords.

Transport watch points out that out that several of the other items are implausible.

• Why on earth will access, item (1) above, be better. It may well be worse. Stations may be more remote.
• The trains are immensely long, up to 200 metres. The new platforms will be relatively remote from other services. Hence, Interchange may be worse, item (3) above, and walking, item (5) may be extended rather than shortened. Certainly that is the case at Euston.
• Improved reliability, item (7) above is supposed to generate £5.5 billion for the full network. For heaven’s sake; surely the trains can be made to run on time without building a vastly expensive, heavily loss making, high-speed rail network?

Striking those contentious items out would remove benefits worth £5bn from Phase 1 and £12bn from the full network. That alone would destroy the economic case for both.

Paul Withrington, director of Transport Watch comments:
“The more one digs into the detail the weaker that case becomes. It is insupportable that £50 billion should be hazarded on such fragile grounds”.
“The supposed benefits put forward by HS2 Ltd do not stand examination. At the least a risk factor should be applied in case the forecast passenger do not arise and in recognition of the fragility of the other assumptions. An overall reduction of as little as 20% would destroy the case which, even in its present optimistic form, is desperately weak.

For more details, or to arrange an interview, please contact Paul Withrington on 01604 847438 or pwith@transport-watch.co.uk and open topic 17.

About Transport Watch Transport Watch is an independent think tank founded in October 2002. Our objective is to become the non-governmental point of reference for factual data dealing with transport generally and road and rail in particular. For full details visit: http://www.transport-watch.co.uk/