1.   Transformational?

HS2 Ltd claims that the proposal will be “transformational”.

HS2 Ltd also 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.

Transformational?  Ha, Ha.

2.   Job creation

Supporters of HS2 claim it is essential to the nation etc. HS2 Ltd also say that the Y-network will create 100,000 jobs whilst admitting that many, if not most, of those may be no more than relocations.

The initial cost of HS2, including the trains and links to the stations, may be £80 billion. The financial or actuarial loss (costs minus income out to the remote year of 2096) faced by those standing in the opening year of 2036 will be close above £74bn (1), supposing the ludicrous passenger forecasts arise. Hence the cost per job will may amount to at circa £800,000. How much employment will that destroy in that part of the economy which makes a profit?

Job creation? You must be joking. Jobs for the boys more like it. Applying these HS2 principles to the nation as a whole would bankrupt us all in no time.

3.   The North-South Divide

Claims by supports that HS2 or the Y network will reduce the North-South divide or regenerate the North are not substantiated. Any such effect will, at best, be trivial, reference Professor Geddes evidence to the Transport Committee’s inquiry into High Speed Rail (2010-2012).

4.   The Passenger Forecasts – no risk factor

The original passenger forecasts for HS1 were too high by a factor of three. The forecast for HS2 require up to 18 1000-seat trains per hour, or one train every 3 minutes 20 seconds, at peak times, which seems quite extraordinary.

An honest analysis would acknowledge that there is a considerable risk that the forecast may be too high, perhaps by a factor of two. If so the economic case would collapse.

Instead there is a pretence – Figure 1 of the October economic analysis – that there is a 75% probability that the scheme will have a benefit-to-cost ratio categorised as high, i.e. above two.

In the real world such a presentation would lead to a miss-selling action should the project fail, as it probably will.

5.   The “Willingness to Pay calculus”

The quaintly named “Willingness to Pay calculus” underpins the economic analysis. That theory enables the net cost to government to be compared with social benefits, such as the cash values of time savings etc.

The net cost is the full cost minus the “incremental” fares. The latter are the fares from HS2 minus those which the proposal would extract from the rest of the railway. However, the theory leads to the absurd. For example:

• If the rest of the rest of the railway were privatised and free of subsidy then the incremental fares would rise to the full fares taken by HS2. That would greatly reduce net costs to government and increase the benefit to cost ratio no end.
• If, at the stroke of a pen, domestic air transport were nationalised, along with the filling stations on the strategic road network, then the incremental fares from HS2 would be reduced by a amount equal to the loss of income from the air industry and filling stations caused by HS2. That would increase the cost to government, and hence reduce the benefit to cost ratio.
• Private sector projects cost the government nothing. Hence the theory leads to the absurd conclusion that such projects, even if making losses in the tens of billions of pounds, have an infinite benefit-to-cost ratio – cost to government, zero, benefits to customers presumed above zero; hence benefit-to-cost ratio is, oh golly, infinity.
• Merely changing the tax regime, a purely paper exercise, would alter the costs to government and hence the all important benefit to cost ratio.

A theory which produces such capricious result has to be rejected. Without it no railway project would ever pass scrutiny. Probably that is why this intrinsically dishonest “calculus” endures.

Instead decisions concerning projects where there are paying customers should be made on the basis that, if the proposal makes a loss, particularly if the loss is in the tens of billions of pounds, then for heaven’s sake DO NOT BUILD IT.

6.   KPMG’s £15 billion per year Wider Economic Benefits

KPMG’s report of September 2013 claims HS2 and the Y-network will generate an extraordinary £15 billion per year in Wider Economic Benefits (WEBs). These benefits can only arise from generated, or new, business and commuter trips – the supply side.

As at (1) above, generated, or new, trips total 76,000 per day. If 40% are for business or commuting they will number 30,400 per day. For such trips there are an effective 255 days per year. Hence the annual new business plus commuter trips will be circa 7.75 million.

Dividing KPMG’s £15bn by the 7.75 million provides an average value for these new business or commuter trips of circa £1,930, or nearly £4,000 per round trip. That value is 14 times the average for the nation as a whole (2), illustrating how unbelievable the £15bn is.

After all:

• The £4,000 per round trip is in excess of what would have been achieved had the individuals stayed in their offices.
• These new trips arise only because journey times will have been reduced somewhat.
• Pre-existing trips did not need such an encouragement.  Hence they will have higher WEBs, possibly double the average for the new trips, implying an average value attributable to a pre-existing business or commuter trips on the West Coast Main Line of nearly 30 times that for the nation as a whole.

Charitably KPMG did not carry out such a reality test. Had it done so it would never published the £15bn, or at least not with a straight face.

7.   Information denied

In October 2013 we asked HS2 Ltd, under freedom of information legislation, to provide the proportions of trips which were for business, commuting and leisure. That data must be available since, without it, the economic analysis could not be carried out.

HS2 Ltd claimed it does not hold the information. We have continued to press for the data but without success. The date is now 8^th March 2014. We regard this failure on behalf of HS2 Ltd as symptomatic of an organisation which will do all it can to prevent key data from reaching the public thereby suggesting corruption at the heart of the organisation.

(The 40% we have used under the previous heading is consistent with old reports)

8.   The October 2013 economic analysis

This analysis uses a lower value of time for the crucial business trips and a lower number of trips assigned to the scheme. On the face of it those reductions should reduce the computed benefits by 35%. Instead the new study pretends to an increase of 24%, which is astonishing, if not entirely unbelievable.

9.   A 12-lane motorway

The CPRE, and now the DfT, have put it about that HS2 will have the same capacity as a 12-lane motorway. That depends deceptively comparing trains with every seat taken with a motorway occupied by cars containing the national average of 1.5 people.

Instead, the correct comparison is the between the seats per hour offered by the trains and the seats per hour that would be offered by express coaches operating on a motor road.

HS2 pretends to 18 1,000-seat trains in one direction and on one track in the peak hour providing 18,000 seats. 1,000 express coaches travelling at 110 kilometers per hour on one lane of a motor road would have comfortable headways averaging 110 metres. Those coaches may very well have 75 seats each so providing 75,000 seats in the hour.

Hence, rather than  HS2 providing the same capacity as a 12-lane motorway, two motorway lanes, one in each direction, dedicated to express coaches would provide the same capacity as eight high speed rail tracks.

10. The HS2 letter head

HS2 Ltd has, as its letter head, “HS2 engine for growth”. We comment, there is no evidence that this scheme will bring any growth at all. Instead it will waste tens of billion of pounds, thereby stunting growth. Hence from the very first there is misrepresentation.

11. Fraud

Is there any prospect of prosecuting officials at HS2 Ltd and in the DfT for fraud on the basis that the information they produce misleads both politicians and the nation on a mammoth scale, tempting the government to pour £80 billion down the drain – miss-selling on a gigantic scale?

Paul Withrington

……………………….

Footnotes

(1)   Table 15 of the October economic analysis provides a loss to the Government of £31.5 billion.at the 2011 price and discount base.  Rolling that up at the Treasury Discount rate of 3.5% to 2036 provides £74.5 billion, representing the actuarial loss at 2011 prices faced by those standing in 2036, supposing the forecast fares and the ludicrous passenger forecasts actually arise

(2)   The nation’s GDP is circa £1,500 billion. National Travel Survey data provides 177 commuter plus business trips per head by all modes in 2012.  The population is 60 million.  Hence the value per trip is £1,500 billion divided by 60 million and by 177, providing £140 per trip, or £280 per round trip. The £280 is 18 times less than the supposed £5,200 average for the trips generated by HS2.

Mark Hansford, the New Civil Engineer’s new editor, writes on 20^th Feb that “The effect of postponing HS2 on our future prosperity would be crippling”.

HS2 is to cost £50bn including the trains but not the connecting infrastructure. The latter may inflate the cost to £80bn. The financial loss to the nation will be similar or larger if the extraordinary passenger forecasts do not arise. How crippling will that be?

HS2 is said to generates some 76,000 passengers per day, (FoI request), corresponding to roughly 22.8 million per year. It is only those which can be “transformational”, since all the rest exist already. In contrast there are currently 1.5 billion passenger journeys per year by surface rail, and 43.5bn passenger journeys by all modes. Hence, HS2’s supposed generated traffic amounts to 1.5% of all surface rail journeys and to 0.05%, or one in 2,000, of all passenger journeys. Transformational? Ha, Ha.

HS2 Ltd say the proposal will generate 100,000 jobs. Others say most of those will be relocations. Whatever the case, the £80bn and 100,000 implies each job (if it exists) will have cost £800,000. How many would that destroy in that part of the economy which actually makes a profit? Crippling again if you ask me.

Perhaps it is because of comment such as Mark Hansford’s that engineers have such low status.

Paul Withrington

The data and calculations below show that (a) the lower values of time coupled with (b) the lower total HS2 trips, in the 2013 study should reduce user benefits by about 35%. Instead the new study pretends to an increase of 24%, which is astonishing, if not entirely unbelievable.

Likewise the effect of the £10bn added construction costs seems far below the expected.

(1) Trips using HS2:

In 2012 we had 380,000 per 16 hour week day (i).  In 2013 that had fallen to 301,140 , a 21% reduction (ii) . A reasonable presumption is that this reduction would reduce the user benefits by 20%.

(2) Values of time – from table 3 of the October 2013 report we have:

Travel Purpose    Old Values of Time    New Values of Time    % change
Business                     £47.18                      £31.96                      -32.26
Commuting                 £6.46                        £6.81                        +5.41
Leisure                        £5.71                        £6.04                        +5.78

The lower bound benefits from the 2012 study, see table below, are £28.8bn from business users and £15.3bn from the rest, mostly leisure. Hence the expected effect of the changes in time values would be to reduce business user benefits by £9.3bn and to increase the other user benefits by approximately 0.86bn providing a net reduction of £8.4bn. That would reduce the net transport user benefits (range £41.4bn to £46.9bn, mid value £44.1bn) by about 20%.

The effect, coupled with the loss from (1) above, implies an overall reduction in user benefits of circa 35%. Instead there is an increase from the mid-range value of £44.1bn to 54.8bn, or 24%, for heavens sake.

(3) Generated or New Trips

In 2012 24% of trips were new (iii) providing 91,200 (e.g. 380,000 from (1) above x 0.24 = 91,200). The 2013 report cites 26% (iv) providing 78,296 (e.g. 301,140 x 0.26 = 78,296). The latter is close to the 76,886 obtained from HS2 Ltd (v).

This reduction in generated trips is strange. Has HS2’s consultant reduced these and increased the pre-existing trips? If so the move would increase the calculated benefits since new trips are generally assigned half the values of time etc of those attributed to existing trips.

(4) Construction cost

The 2012 construction (or capital) cost was £33bn. That had risen to £43bn for the 2013 by 2013. The £10bn is in Phase 1. Setting the expenditure year to 2023 and the base year to 2011 would provide an additional PV cost of £6.6bn. However, the actual increase in PV capital costs is only £2.1bn, see table overleaf. Again, what on earth has happened?

(5) Cost benefit analysis
The  table below compares the the January 2012 and October 2013 data sets. From that table we find that:
• Net transport benefits (row 4) from the 2013 standard case are 32% above the 2012 low growth value and 17% above the High growth value, corresponding to 24% above the mean value, which is astonishing. Instead a 35% reduction was expected, reference (2) above..
• Capital costs have gone up much less than implied by the £10bn construction cost increase.
• Operating costs, presumed to include maintenance and renewals, have gone down slightly.
• Wider Economic benefits have risen above the high end of the previous range.

What is going on? Have they vastly increased the proportion trips which are for business or what?

TABULATION comparing the 2012 and 2013 economic assessments

(a) Standard case deflated to 2012 values

Data is from Table 9 of the Jannuary 2012 report and table 25 of the October 2013 report

Notes

(i) The Economic Assessment of January 2012 provides, at paragraph 3.2.1, 270,000 trips per day in and out of London plus 110,000 inter-regional trips, a total of 380,000.

(ii) HS2 Ltd FoI number 13-873

(iii) Table 2 of the January 2012 report provides 24%

(iv) Table 22 of the October 2013 report provides 26%

(v) HS2 Ltd FoI number 13-873

KPMG, acting for HS2 Ltd, claim that the proposed High Speed Rail network, connecting London to Birmingham and Manchester and Birmingham to Nottingham, Sheffield and Leeds, the so called “Y” network, will generate £15bn per year in terms of Wider Economic Benefits, the so called WEBs.

However, all the WEBs, or nearly all, should be assigned to the generated or new trips since the other trips, and most of their associated WEBs, would arise in the absence of the scheme.

Dividing the £15bn by the 91,000 trips per day, supposedly generated by the proposal, and by the 300 effective days in the year provides £550 per trip, or £1,100 for a round trip.  Multiplying the £550 by the 1,460 million trips carried by Network Rail in 2011/12 generates circa £800bn, a sum equal to half the nation’s GDP; clearly an impossibility, implying that the £15bn is wildly optimistic.

Alternatively the WEBs could be assigned to the generated business and commuter trips alone. Those number circa 34,000 per day. Dividing the £15bn by 34,000 and the 300 days in the year yields £1,470, or £2,940 for a round trip. Multiplying the £1,470 by the nation’s business plus commuting trips provides an absurd £15,600 billion, some ten times the nation’s actual GDP, illustrating again how ludicrous it is that anyone should ever believe that the proposal could generate WEBs worth £15bn per year.

That leaves HS2 Ltd to either (a) explain why a High Speed Rail trip, generated merely because a journey has been shortened somewhat, should provide vastly more benefits than any other journey on the rail network ever could – a task made doubly difficult because the benefits from a generated, or marginal, trip should be lower than those associated with a pre-existing trip or (b) to throw the analysis into the waste paper basket.

We also have the discredited economic analysis of January 2012. That provided £5.2bn from improved reliability, as though the trains cannot be made to run on time without building a high speed network, £5.5bn from other rail user impacts, meaning better access to stations, for heaven’s sake, £6.7bn from reduced crowding, largely solvable otherwise and £24.5bn from time savings, on the discredited assumption that time on a train is entirely wasted.

Our view is that penalties should be imposed upon those who have led these studies, irresponsible as they are in all their detail – putting tens of billions of pounds at risk.

Paul Withrington

WP REF HS2 SUMMARY DATA again WEB

Our July 2013 piece available, here http://www.transport-watch.co.uk/hs2-economic-analysis-laughed-out-court-july-2013 , explains why the original Economic analysis should be laughed out of court.

For more laughter we now have the KPMG report of September 2013, with the title page caption, “HS2 engine for growth”. The introductory letter of apology, following the front cover provides:

“This document is issued for the party which commissioned it and for specific purposes connected with the captioned project only. It should not be relied upon by any other party or used for any other purpose.

We accept no responsibility for the consequences of this document being relied upon by any other party, or being used for any other purpose, or containing any error or omission which is due to an  error or omission in data supplied to us by other parties”.

In the light of that we ask, how lacking in confidence can the authors be?

The main finding is that there will be Wider Economic Benefit’s, WEBs, valued at £15bn per year, from a “Y” shaped network connecting London to Birmingham and Manchester, and Birmingham to Nottingham, Sheffield and Leeds.

The analysis raises the question as to whether the theory could not be used by Government to justify spending vast amounts of taxpayers’ money on every loss-making enterprise in the land. After all this one, as set out in our previous, creates an actuarial loss of nearly £70bn, a loss which depends on laughably high passenger forecasts – implying that the actual loss is likely to be an amusing amount above the £70bn.

That aside, here is the new thing. The Economic Analysis of January 2012 provides, at para 3.2.1, 270,000 daily HS2 trips at Euston plus 110,000 inter-region HS2 trips between the other cities served, providing a total of 380,000. Table 2 claims that 24% of those passengers, i.e. 91,000, are generated by the scheme itself, representing circa 45,000 round trips. It is only those generated, or new trips, which could generate the alleged £15bn WEB’s since all the other trips arise in the absence of the scheme.

Dividing the £15bn by the 45,000 yields an astonishing third of a million pounds for every generated daily round trip, or, if we assume 300 effective days per year, £1,100 for each generated return trip. Who in their right minds could ever believe that?

In our previous note we expressed the view that if accountants behaved as does the rail lobby, and those promoting HS2 in particular, then those accountants would soon be in prison.

We go on to say that the facts suggest a corruption at the heart of the nation.  Instead of officials receiving bundles of notes in brown envelopes, they take vast salaries in return for the “unpalatable task of tricking the Government on a mammoth scale”, a quote taken from Stewart Joy’s book, ‘The Train that Ran Away’, published in 1973.  Joy was previously the Chief Economist for British Railways. He goes on to say, “These men were either fools or knaves”.

In what category do our politicians fall if they believe, or pretend to believe, this nonsense to do with High Speed Rail, let alone those who produced the reports?

The following table relates to 2011. It is extracted from the DfT data here. It is clear that both speeding and mobile phone use are trivial recorded causes of road traffic accidents.

Providing a powerful example of the disconnect that exists between public policy and the data. Both mobile phone use and speeding are categorised as heinous sins, yet neither is of significance in causing road traffic accidents, despite both being extremely common.

.