Written evidence from HS2 Action Alliance
(TE 117)
1. INTRODUCTION
1.1 HS2 Action Alliance is a not for profit limited
company formed with the objectives of improving government decision
making concerning High Speed 2 (HS2) and securing fair compensation
for those suffering property blight as a result of the HS2 proposals.
We are supported by nearly 60 local groups.
1.2 The current Inquiry is addressing whether
the economic conditions have materially changed since the Eddington
Transport Study, and what type of transport spending should now
be prioritised to best support regional and national economic
growth. We believe that in regard to high speed rail (HSR), the
circumstances are similar, although there is mounting evidence
that demand for transport should be expected to grow more slowly,
and so any capacity arguments in its favour are diminished. We
therefore concur with Eddington's conclusion that the priority
should be improving the existing infrastructure:
"Step-change measures intended to transform
the economy are not, in a world of constrained resources, likely
to be a priority. The UK is already well connected and the demands
for new links are uncertain."1
1.3 However, DfT is now adopting a contrary position
in proposing a new high speed railway, HS2. It claims a sound
business case. We believe that this does not reflect a change
in circumstances, but is the result of a faulty assessment.
1.4 We believe that it is crucial that the Select
Committee for Transport review the case for HS2. The government
is only holding a consultation, not an inquiry. It is increasingly
clear that Government are not entering consultation with an open
mind (as evidenced by David Cameron's speech of 25 November, and
numerous pronouncements by Philip Hammond). Consequently the Select
Committee has a vital role in providing scrutiny to a decision
that may waste tens of billions of pounds of public money for
want of an open debate.
1.5 The Government has recently been making assertions
about the transformational benefits of HS2. These benefits are
claimed to be in addition to benefits identified by HS2 Ltd in
applying DfT approach to Wider Economic Impacts, and the very
small benefits that may arise from agglomeration from quicker
long distance journeys on which HS2 Ltd had commissioned work.
Although not part of HS2 Ltd's published business case, such assertions
are to the heart of Select Committee's Inquiry into transport
and the economy, and priorities for regional and national economic
growth.
1.6 The Select Committee heard from Professors
Overman and Tomaney, who asserted that the evidence for such transformational
benefits was simply not there for HS2. In essence HS2 Ltd own
published position is in agreement, as set out in Appendix 3 of
the report "HS2 Demand Model Analysis" (February 2010).
However, while DfT and HS2 Ltd did not previously make the case
for transformational benefits, they did identify scope for regeneration
projects. Others, notably Greengauge 21, are less reticent in
claiming transformational benefits.
1.7 The Northern Way helpfully direct attention
to a study that it commissioned from ITS Leeds, in the written
evidence that it has given to this Inquiry. This study specifically
addresses the approach taken by KPMG who provided the analysis
that underpins Greengauge 21'a assertions of major economic benefits
for high speed rail connections in Britain. It explains the serious
weaknesses in this approach and why its ascriptions of benefits
are exaggerated.
2. THE HS2 LTD
AND DFT
ASSESSMENT OF
HS2 IS SERIOUSLY
FLAWED
2.1 While we see considerable merit in the general
approach to transport appraisal adopted by DfT, the specific assessment
made of HS2 is gravely flawed.
No case made for subsidy
2.2 The "business case" is effectively
the case for Government subsidising a new railway. However, no
case is made as to why users of HS2 should not be expected to
cover the full costs in the fares that they pay. Given that the
great majority of assessed benefits go to business users, and
that rail users are predominantly from high earning income groups,
it seems to be regressive to use public money to subsidise a transportation
mode predominantly used by the affluent.
2.3 That HS2 is deemed suitable for subsidy is
the more puzzling when the government has determined that people—particularly
businessmen—should be encouraged to adopt alternatives to
travel. Norman Baker has been specifically charged with this portfolio
responsibility. The "business case" for HS2 depends
on it being generative of additional travel.
Failure to address uncertainty
2.4 The assessment fails to address the considerable
uncertainties, particularly concerning the demand for HS2, despite
HS2 Ltd acknowledging the fragility of the business case in relation
to demand (a 20% shortfall in demand results in a Net Benefit
Ratio (NBR) below 1.5). The analysis is done on the basis of a
single scenario.
2.5 The demand projections are developed without
recognition of the clear evidence of domestic travel saturation.
Demand saturation has implications for long-tern growth of demand
for long distance domestic travel in general but also for rail.
Demand saturation could greatly curtail demand growth considerably
before the 25 years of growth forecast for HS2. At minimum a low
or no growth scenario should be included in the analysis.
2.6 The absence of such a consideration is surprising
as the Select Committee on Public Accounts in their Thirty-Eighth Report,
which was concerned with HS1, recorded:
"6. The Department told us that it has now learned
from all this experience, and that the next time it considered
undertaking a major transport project, it would factor more severe
downside assumptions into its business case analysis."
2.7 The evidence that the Public Accounts Select
Committee were considering showed that actual passenger numbers
on CTRL were lower than the 1998 and 2001 "downside"
and "low" cases respectively. For HS2 a downside or
low demand case has not even been developed.
2.8 The effect of properly taking into account
uncertainty would be to recognise the disadvantage of betting
on a high demand growth future, as HS2 does. Alternative means
of providing capacity (or indeed demand management) that can be
implemented incrementally and with short lead times (for example
the measures packaged in RP2) are robust to lower growth outcomes,
and so are favoured in a risk weighted evaluation.
2.9 The 2007 DfT White Paper recognised the problems
of long term forecasts, uncertainty and the need for flexible
solutions:
"Forecasts
have been wrong before, and any strategy that tried to build a
rigid investment programme based on fixed long-term forecasts
would inevitably be wrong again."2
Unrealistic comparator
2.10 The assessment also fails to develop realistic
alternatives against which HS2 is compared, resulting in massive
over-estimation of HS2's benefits.
2.11 The "do minimum" case against
which HS2 is assessed is unrealistic as it does not accommodate
the forecast demand. HS2 Ltd concede that the forecasts are made
without consideration of the affects of crowding3,
that are recognised to inhibit demand growth. The "do minimum"
case has extreme crowding forecast, with an average 16-hour load
factor of 81% and a section of route in Lancashire with a load
factor of 91%. HS2 Ltd explain4 a greater than 80%
load factor as "standing on most trains throughout the day".
In fact the situation would be even worse as HS2 Ltd's demand
projections are for considerably greater increase in journeys
starting from outside London than the reverse (a consequence of
the different income elasticities, see Table 1)..
2.12 This has profound implications for HS2's
appraisal, because against a realistic alternative, eg Rail Package
25 (RP2), far from HS2 having a benefit of reducing
crowding—it would increase crowding and attract a substantial
disbenefit. Some of the more robustly valuable time savings (in
the form of improved service frequency) are also lost with a realistic
comparator, as RP2 delivers these too.
2.13 The benefits of HS2 are grossly overestimated,
partly as a result of using an unrealistic comparator, and partly
because out of date or plainly wrong estimates of key parameters
are used. DfT have failed to put the benefits estimation on a
sound properly evidenced footing, despite the risk of massive
misallocation of public funds that might result from conducting
the assessment on wrong data.
2.14 The alternatives to a new railway developed
by DfT, including RP2, are dismissed completely by HS2 as not
providing sufficient additional capacity. This is despite RP2
being superior in numerous ways to HS2—including proving
less crowding than HS2 (the Committee has already accepted evidence
on this by Bruce Weston, as referenced above). It is necessary
to show that any surplus capacity created by HS2 can be used in
ways that provide benefits sufficient to justify the additional
cost of HS2. No evidence has been presented by DfT that this is
the case.
2.15 We are not able to quantify the overall
effect of this precisely, but there can be no doubt that the greater
part of the benefits claimed are not justifiable. An assessment
that included considerations of risk would be driven to the low
cost, higher NBR alternative of uprating the existing infrastructure,
which can be done incrementally and in response to such increases
in demand that actually arise.
3. DEMAND IS
OVERESTIMATED
Demand saturation
3.1 There is mounting evidence that the demand
for domestic travel is saturating, with travel increasing at the
rate of population growth rather than GDP.
3.2 The government's National Travel Survey (NTS)
data shows that growth in the numbers of trips per person, distance
travelled per person, and time spent travelling have ceased growing.
3.3 This Inquiry has accepted evidence from Bruce
Weston (a director of HS2 Action Alliance) and Bluespace Thinking
that shows a clear decoupling of domestic travel from economic
growth, with recent (but pre-recession) increases in travel at
the level of population growth. It also shows that long distance
travel has followed a similar trend, with trips per person over
50 miles remaining at about 20 since 19956.
3.4 The phenomenon of domestic travel saturation
is not unique to the UK. Work by the European Environment Agency7
reported that decoupling between GDP and total domestic passenger
has been occurring. Commenting on this phenomenon, Crozet in an
OECD discussion paper observed:
"……In Germany, the UK, Italy and France,
domestic passenger traffic has been more or less flat since the
early 2000s."8
Figure 1
GDP AND PASSENGER DISTANCE TRAVELLED
3.5 However analysis conducted on NTS data by
the Independent Travel Commission9 showed that the
relationship between long distance travel and income exists and
was as strong for the last part of the period from 1995 to 2006
as it was at the beginning.
3.6 There is an apparent paradox between lack
of domestic travel growth with increasing wealth, and strong relationship
between income and amount of domestic travel. This may be resolved
by recognising that while the demand for travel may be initially
constrained by shortage of money, demand is actually set by social
and occupational factors. There are enduring variations across
society that cause levels of domestic travel to be associated
with relative income, but with rising real incomes (driven by
per capital increases in productivity) people in particular occupations
and social circumstances reach a point when their travel is not
constrained by income but by their need, desire and time for domestic
travel.
3.7 Despite apparent saturation for domestic
travel generally. long distance rail travel has grown particularly
strongly. Does this mean that rail demand is different?
3.8 Since 1995, National Travel Survey figures
show that rail usage has gone up (by 3.7%/a) and coach and car
have declined (by an average of 2.6%/a for private and long distance
coach, and by 0.3%/a for car). While there has been sustained
growth in rail travel, it looks like an increasing share of a
saturated market.
3.9 There is no good evidence of long term relationship
between rail and real per capital income:
- for decades until the early 1990s rail passenger
numbers were static while GDP and GVA per capita increased considerably,
and
- recently rail passengers on WCML and other intercity
services continued to increase despite the recession.
3.10 To project increases of rail demand to 2033
on a claimed relationship to GDP seems unsafe. What is clear is
that rail has increased its modal share because of:
- the investments of the last 15 years and the
resulting improvements in services, and
- improved revenue management by rail operators
(attracting more price-sensitive passengers while maintaining
yields).
3.11 If service improvements reduce or stop,
growth in passenger numbers is likely to follow.
Out of date demand factors
3.12 Even if demand is forecast on the assumption
of a continuing relationship with economic growth, the analysis
done by HS2 Ltd fails to adopt the most recent estimates of demand
elasticities. Retaining out of date values results in large-scale
overestimation of demand.
3.13 HS2 Ltd and DfT fail to use the up to date
estimates of the factors that relate economic growth to demand
which are used in the latest version of the Passenger Demand Forecasting
Handbook (PDFH), version 5.0. PDFH 5.0 was released in August
2009. PDFH 5.0 income elasticities are considerably smaller than
those used for HS2, so that much less demand is forecast for a
given increase in per capita real income using version 5.0 values.
Table 1
COMPARISON OF INCOME ELASTICITIES FOR INTERCITY
TRAIN TRAVEL IN PDFH 4.1 AND PDFH 5.0
| PDFH 4.1 (2005) |
PDFH 5.0 (2009) |
| To London | 2.00 + 0.0032 per mile
| 1.9 |
| From London | 0.84 + 0.0032 per mile
| 0.9 |
3.14 The approach taken by HS2 Ltd, on DfT's advice, is not
even consistent with draft guidance10 on this issued
by DfT in January 2010, which proposes a cap on the income elasticities
calculated from PDFH4.1 (which increase with distance) of 2.5
on rail journeys to London and 1.5 from London. The cap that HS2
Ltd uses is 2.811.
3.15 Despite being expected to be adopted in April 2010, the
draft guidance has not yet received the Secretary of State's approval.
3.16 This draft guidance recognises that the PDFH 4.1 approach
leads to excessive estimates of the income elasticity's for longer
distance journeys, but still only recommends PDFH 5.0 for sensitivity
purposes. PDFH 4.1 was updated in 2005. The justification given
for not adopting the version 5.0 values is that DfT were reluctant
to recommend changes to the methodology when the results of further
work were due shortly. Some other changes made for PDFH 5.0 are
adopted in the draft guidance. We are not aware that this issue
is currently important to other projects besides HS2, nor, despite
its imminence in January 2010, have the results of the further
work been released.
3.17 To illustrate the effect of using the PDFH 5.0 values
instead of those used by HS2, take London Glasgow. A 2.5% annual
growth in GVA would generate an increase of 7.0% to London and
4.8% from London, as opposed to 4.8% and 2.3% with PDFH 5 elasticities.
Putting aside other factors, over a 15 year period the approach
taken would double growth compared to version 5.0.
3.18 The latest published work by Professor Dargay12
on long distance rail income elasticities gives an overall value
of 1.25—that is plainly inconsistent with the PDFH 4.1 levels.
Modelling issues
3.19 HS2 Ltd's documentation indicates that they project an
overall increase in long distance rail travel of 62% to 2033,
which is in line with a number of other authoritative estimates
based on the same approach to forecasting (ie assuming a relationship
with economic growth). However this figure appears to be inconsistent
with the detailed results of HS2 Ltd's modelling.
3.20 The forecast increase for all long distance operators
is 120% growth. Franchised long distance operators comprise 41%
of total franchised passenger mileage13, with rail
journeys over 50 miles comprising 56% of the total and those over
100 miles 35%14. Further doubts on the modelling arise
as HS2 Ltd has confirmed that it forecasts seven million long
distance journeys per day for just part of the country (affected
by the extended route). Given this is an increase of about 88%
on all the long distance journeys for Britain as a whole, as against
their forecasts of a 44% increase in long distance car (the dominant
transport mode) journeys, their figures are like Dr Who's Tardis—larger
inside than out—and just as impossible.
3.21 The assessment also assumes away the possibility of competition—despite
this being the obvious use of freed-up capacity on the fast line
of WCML.
4. BENEFITS
4.1 The key benefit for HS2 is travel time saving. Reductions
to on board travelling time (of about 30 minutes per journey)
for business travellers is the largest single benefit, worth over
£8 billion. However this benefit is based on the presumption
that businessmen do not and will not work on long distance trains,
that their time is entirely unproductive. This is both self evidently
wrong and inconsistent with the results that studies actually
commissioned by DfT have found. Furthermore, improving technology
has been and can be expected to continue to progressively remove
the barriers to train travellers engaging in the full range of
productive activities.
4.2 On board time savings for leisure passengers are assessed
by HS2 Ltd to be worth over £2 billion. However technology
has been revolutionising the range of activities that may be conducted
from the seat of a long distance train for leisure travellers
as for business travellers, eroding the "disutility"
of such time.
4.3 It is reasonable to assume that by 2025, time in the middle
of long distance time journeys will be fully productive for business
travellers, and amenable to a considerable range of leisure activities
that will make leisure travellers ascribe little value to reductions
in such time.
4.4 The largest leisure traveller benefit is assessed by HS2
Ltd to be a reduction in crowding. Reductions to crowding are
claimed to contribute £5 billion of benefit. However, this
is entirely an artefact of comparing HS2 with the unrealistic
"do minimum" case. Not only is this benefit lost when
compared to RP2 (which has a lower load factor than HS2), but
there will be a crowding penalty for HS2.
4.5 Other time savings benefits to business travellers are
also overestimated by HS2 Ltd. This is because they use out of
date information about the relative earnings of train business
travellers. DfT webtag values for business time savings are based
on 2002 earnings applied to 1999-2001 travel data from the NTS15,
and are escalated throughout the assessment period (to 2085) in
line with estimates of productivity and real wages growth. With
subsequent and forecast increases in business travel, it would
not be possible for the small relatively very high earning business
travellers of a decade ago to make all the rail journeys. HS2
Ltd forecast that business travellers will make 4.6 times as many
long distance train journeys in 2033 compared to 2008.
4.6 The result is that the webtag average earnings in current
money of £70,000/annum must reduce. If we assume the median
earnings for managers and senior officials given by the New Earnings
Survey, this alone would almost halve the value of business benefits.
4.7 The Wider Economic Impacts (and the associated effects
on GDP) assessed within the DfT framework are modest 11% of total
benefits. However, they must be overestimated as business time
and reliability savings are the basis for £1.6 billion of
this benefit, and so the £1.6 billion will reduce in line
with this benefit.
Transformational benefits
4.8 Recently DfT has made claims of transformational benefits
for HS2. As yet DfT have not produced evidence to support these
assertions.
4.9 However, pro-high speed rail pressure groups have offered
evidence. In particular there is work done for Greengauge21 (by
KPMG) and some other studies that seek to estimate the GVA impacts
of transport investments directly, rather than through the standard
DfT approach.
4.10 The Greengauge21 supporter, Northern Way, asked ITS (Leeds
University), James Laird and Peter Mackie,
to review the KPMG work and that done by the
Spatial Economic Research Centre (SERC at the London School of
Economics). These pieces of work purport to identify considerably
larger economic benefits than those assessed by the conventional
DfT approach. The review concluded, as a result of identifying
a variety of methodological issues:
"…….. it remains clear that further
work on methods and techniques will be needed before GVA assessment
could become part of 'mainstream' appraisal."
4.11 Three of a sizable number of issues that
ITS identify are:
- the approach only takes account of the transportation
investments not the other investments that are necessary to deliver
the economic benefits, eg concerning land use etc;
- the tendency for transport to be developed as
a response to demand (ie as a response to economic activity rather
than the cause of it) inflates the estimates of the effect of
transportation improvements made, as the methodology does not
recognise this direction of causality and ascribe it in the opposite
way round; and
- the approach does not identify a net national
increase in GVA, but focuses on local effects that are recognised
as being predominantly re-distributive (ie at the expense of surrounding
areas).
4.12 To illustrate the first point, the GVA approach
would see the regeneration of London Docklands as a transportation
effect and ignore the costs of the non-transport investments,
rather than as an integrated property development project, the
success of which turned on its proximity to the financial centre
of the City of London.
4.13 To identify the transportation investment
as transformational is to mistake one of a number of necessary
investments as determinant. One could as well regard the investment
in providing the electricity supply, telecommunications infrastructure
or indeed the sewage system as transformational. It is wrong to
attribute all the benefits to any one of the investments. But
none of these created physical proximity to the City, and potential
for ready access to the financial services labour force that works
there. Were similar investments in another city to be made, they
would not be guaranteed similar results.
REFERENCES
1 "The Eddington
Transport Study: Main Report Volume 3", December 2006, page
140, section 3, bullet 5
2 "Delivering
a Sustainable Railway", Cm 7176, Dft, July 2007, page 9
3 HS2 Ltd state this
at "HS2 Baseline Forecasting Report" section 2.64 page
19
4 "HS2 Baseline
Forecasting Report" 5.3 page 33
5 High Speed 2 "Strategic
Alternatives" Study: Rail Interventions Report
6 NTS 2009, Table
0307
7 "Transport
at the Crossroads" EEA Report 3/2009
8 "The Prospects
for Inter-Urban Travel Demand", Y. Crozet—Discussion
Paper 2009-14—OECD/ITF, 2009, section 2.2
9 "Long Distance
Travel in Britain: Prospects in a Time of Uncertainty", Independent
Travel Commission, March 2010, page 23
10 Tag Unit 3.15.4d,
DfT Jan 2010, section 4.2.9 page 10
11 "High
Speed Rail London to the West Midlands and Beyond: HS2
Demand Model Analysis" February 2010, section 3.2.6 page
31
12 "The prospects
for longer distance domestic coach, rail and car travel in Britain,"
Prof J Dargay, January 2010, page 35
13 National Rail Trends
2008-09
14 National Travel
Survey 2009, Table 0309
15 Tag Unit 3.5.6
section 1.2.5 page 2 (DfT)
November 2010
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