In this note all references to HS2 are to the network out to Leeds and Manchester.  Financial data are at the 2011 price and discount base except where stated or obvious from the context.

The deficit

Cancelling HS2 would reduce the deficit otherwise arising by £4-£5 billion every year for 15 years, let alone the losses thereafter.

Integrity.

The Willingness to pay calculus

The so called “Willingness to Pay Calculus” used to “justify” HS2 compares the vast financial loss with the supposed social benefits. The same theory could be used to support every loss-making enterprise in the land; a high-speed way of bankrupting the nation. It’s barking mad, or more bluntly, a fraud on the nation. See here

Instead the decision should depend on common sense. Namely, if it makes a loss, especially one in the tens of billions of pounds, DO NOT BUILD IT. 

(If, for perverse reasons, they must do this cost-benefit analysis, they should compare the resource costs with the supposed benefits. For HS2 the resource costs amount to £62 billion. Subtracting fares from those costs provides a loss of £31 billion, halving the cost to Government. Hence, using resource costs, the £62 billion, instead of the financial loss or cost to government, £31 billion, would double the cost appearing in the benefit to cost ratio, destroying the case for HS2 at a stroke).

How big is the loss?

The actuarial loss from the network out to Leeds and Manchester, faced by those standing in the opening year, 2033, will be close to £70 billion at 2011 prices, not counting the cost of links to the HS2 stations etc. and supposing the fares come in as forecast, and the cost does not escalate out of sight, as with other rail schemes.

Here note (a) HS1 carried one third of the originally forecast passengers (b) the West Coast Main Line Modernisation Programme was at least four times over the original estimate (c) the cost of electrifying the Great Western seems to have doubled.

The (vanishing) user benefits

The user benefits put forward by HS2 Ltd amount to £59.8 billion see table 11 of the Economic Case for HS2, October 2013. Half are from savings in train time. However, it turns out that time on a train is spent nearly as productively as is time in an office. Similarly, we suspect non-working time (commuting and leisure) on a train is enjoyed as much, or nearly so, as is time spent anywhere else. Why else does the rail industry advertise for days out by train? Hence half the user benefits should be struck out. Another £12 billion (20%) of benefits are derived from peculiar sources, e.g.:-

• Improved reliability, £5.50 billion, as though they cannot make the trains run on time without building a vastly expensive high speed rail network.
• Reduced walking, £1.33 billion, overlooking that the trains are up to 400 metres long.
• Better interchange, £4.15 billion, again ignoring the train lengths, and in any case why would interchange be better.
• Better access 1.15 billion. Ha, Ha. All of these should also be struck out.

The remaining benefits would then amount to less than one third of those pretended to by HS2 Ltd.

Wider economic benefits, the WEBs

HS2 Ltd claim these will amount to £13.3 billion over the 60 year evaluation period.  However, the firm studiously ignores the damage done to the economy by the vast subsidy this scheme will require.

For example, the scheme is supposed to generate 100,000 jobs. However, with a financial loss of between £70 billion and £100 billion the cost per job amounts to between £700,000 and £1 million, or the lifetime wages of a working man. How many jobs will that destroy in that part of the economy which makes a profit?

KPMG claimed WEBs of an astounding £15bn per year. These can only come from generated business and commuting trips. If KPMG’s £15 billion is to be believed each generated round trip for those purposes would have to produce nearly £4,000, which is ludicrous see here, but apparently swallowed whole by the Government and the Transport Committee.

Transforming the economic geography

It’s a commonplace for Ministers and HS2 Ltd to claim that the scheme will transform the economic geography of the nation. However, whatever the transformation may be, it can only be derived from generated trips, since the transformation from existing trips is clearly already with us. Well, generated trips amount to only 1.5% of all surface rail trips and to only one in 2,000 of all passenger journeys. How on earth can that be transformational?

Percentage on business

Between January 2012 and October 2013 the value of business time, accounting for the majority of in-train benefits, was reduced by 30%, costs were increased by 20% and passenger forecast decreased by 15% yet the benefit to cost ratio was substantially unchanged. How on earth was that achieved?

Answer, among other, by shamelessly inflating the percentage on business far above the previous value or that available from survey data, exploiting the fact that business time is five times as valuable as other time. Here note that savings in business time account for £40bn amounting to 66% of user benefits.

Conclude

This scheme is a huge loss-maker for the nation. Its effect has been shamelessly misrepresented to the Government. Our view is those responsible should be prosecuted and the scheme abandoned with immediate effect. How else may the nation secure honesty in future proposals put forward by lobbyists?