Further supplementary written evidence
from Malcolm Griffiths (Bluespace Thinking Ltd) (TE 07D)
FURTHER SUBMISSION
CONCERNING ECONOMIC
BENEFITS OF
HIGH SPEED
RAIL
1. Key Points
1.1 Since the start of the Transport Select Committee
inquiry further published information shows that DfT's appraisal
methodology (as applied to HS2) is unsound and that the Government
view, that High Speed Rail (250mph) will benefit the economy,
is not supported by analysis.
1.2 Network Rail's West Coast Main Line Route
Utilisation Strategy (RUS) December 2010 shows that the HS2 Ltd
forecasts of demand are about double those expected by the rail
industry professionals.
1.3 A Centro/KPMG report, widely quoted at the
time of the Conservative party conference in September 2010 concludes
that based on recent data for the West Midlands the correlations
between economic growth and public transport connectivity are
not very robust. The calculated benefits are significantly less
than national data had previously predicted.
1.4 In a recent survey by the West Midlands Chamber
of Commerce 55% of businesses considered HS2 would help their
business however respondents anticipated making just 100 journeys
per day (all businesses, total return trips) on the new line.
1.5 Comments made in debates referencing £
billions/year of regional benefits as a result of HS2 would appear
to be due to misquotes of analytical reports, we found no evidence
in the original documents to suggest HSR would be "transformational"
in terms of regional economic development.
1.6 Analysis by Bluespace Thinking Ltd shows
that health inequalities and education are far more relevant to
closing the UK economic development gap than faster train journeys
to London.
2. HS2 Ltd vs Network Rail's WCML Demand Forecasts
2.1 Comparing Network Rail's West Coast Main
Line Route Utilisation Strategy (RUS) Dec 2010 forecasts of journeys
between Birmingham, Manchester, Liverpool, Glasgow and London
with those predicted by HS2 Ltd shows that HS2 Ltd estimates are
about twice those anticipated by Network Rail. They also appear
to be about twice those assumed by the DfT, DECC, the Climate
Change Committee and the views of the Association of Train Operating
Companies. Although this point has been put to HS2 Ltd and the
DfT repeatedly, neither organisation has responded.
3. Redistribution of benefits
3.1. DfT's appraisal methodology estimates the
economic benefit of transport systems by considering predominantly
the benefit in time saving, over crowding reduction and agglomeration
benefits. The DfT and industry/academic analysts recognise that
for rail travel the methodology does not allow for the fact that
travellers carry out productive work on trains. The combination
of over demand forecasting and the over estimate of the value
of time saved result in a HS2 Ltd calculated Net Benefit Ratio
(NBR) of about 2.7-3. When corrected for demand and the true value
of time saved the NBR will probably be about 1, meaning there
will no economic benefit as a result of the investment.
3.2. Each year there are 1 million return air
trips from Birmingham Airport to Spain, most of these are leisure
trips. Based on ONS data about £500/trip is transferred from
the West Midlands to holiday resorts, plane operators and manufacturers,
fuel suppliers and others. This transfer of £500 million/year
is about 0.7% of the West Midlands total gross disposable household
income (GDHI).
3.3. Less well understood is that HS2 passenger
forecasts suggest that at the levels of fare subsidy proposed
the transfer of leisure expenditure from the West Midlands to
London will be at a similar or higher level. Advance return tickets
from Birmingham to London cost £15, it is easy to see why
the level of leisure travel to London has and will increase.
3.4. Understanding redistribution effects is crucial
if transport is to be used to try and engineer regional economic
growth. While subsidy focussed at getting people to work or dealing
with social inequality may make sense, subsidy for leisure travel
with large re distribution effects is debatable.
4. Economic benefit of High Speed Rail
4.1 Recent studies in support of HSR generally
and HS2 specifically have been carried out by Steer Davies Glieve
and Centro/KMPG.
4.2 The Steer Davies and Glieve (SDG) work looks
at the combined impact of two HSR lines running from the North
East and North West to London along with a Trans Pennine HSR line
running directly between the East and the West. SDG estimate the
wider economic/agglomeration benefits that would be additive to
the basic DfT approach.
4.3 SDG provides a summary table of annual added
benefit results for different locations showing that London is
the major beneficiary at £82 million for the entire network,
it shows that the gains anticipated for the West Midlands in the
range of £18 to £21 million. Although this is some 2
to 10 times greater than the Imperial College assessment carried
out for HS2 Ltd, when compared with the total cost of these major
transportation investments, it shows that these added benefits
are minor.
4.4 Centro/KPMG explain that their report "examines
how transport can support growth and change in economic activity
as measured by Gross Value Added (GVA). The analysis is therefore
asking a different question from a conventional appraisal and
the results are therefore not additive to a welfare cost benefit
analysis".
4.5 As far as we can tell the methodology used
by KPMG is not dependant on whether there is demand for the trains
or whether the proposed increased services are economic. The methodology
is based on observed mathematical correlations between transport
(rail) connectivity and wages as a substitute for GVA, the correlations
may or may not be causal.
4.6 In previous analysis, using national datasets,
KPMG calculated that an area with 10% higher rail connectivity
will tend to have an overall wage level which is 1.3% higher,
an elasticity of wages to rail connectivity of 0.13, yet this
analysis showed much smaller elasticities of 0.05 to 0.09 for
the West Midlands. In this latest study current regional data
produced results that were not as statistically robust. The statistical
analysis showed even smaller elasticities of 0.02 to 0.06. However,
rather than using the current elasticities applicable to West
Midlands a combination of all three sets of data including the
national/London figures were used to calculate the West Midlands
benefits.
4.7 The study calculates that "total annual
workplace GVA impacts for the West Midlands Metropolitan Area
with a High Speed link to London is estimated at £620 million
in 2026, with a growth in workplace employment of 10,000".
These figures may halve if the recent data alone were used. These
results are an estimate of the total benefits and would include
those identified by HS2 Ltd in their more conventional analysis,
but they do not include the cost of the line or dis-benefits to
other areas or regions.
4.8 The report summary however states that the
findings are that "HSR and supporting investments could support
approximately an additional 22,000 jobs in the West Midlands metropolitan
area". They say "these effects combine to support a
GVA impact on the metropolitan area of around £1,500 million
in 2026". Centro/KPMG point out that "the benefits are
concentrated in central Birmingham and around the new Birmingham
International HS station" and that "around 87% of these
benefits could arise as new businesses start up within the metropolitan
area that may otherwise have started up in other parts of the
West Midlands"
4.9 The additional £900 million GVA is apparently
due to significantly increased train services in the West Midlands.
Trains from Birmingham to London are assumed to stay at 4 trains/hour:
however to other locations included in the report the trains rise
from 52 to 69. While Coventry trains to London also stay at four/hour
trains to other locations rise from 24 to 45. It is assumed that
Walsall gets 2 trains to London plus trains to other locations
will go from 6 to 28 per hour. The report does not comment on
the extent of Government subsidy that will be required to operate
these lines or whether similar funding made available to other
areas with higher exhibited elasticities may be more beneficial.
4.10 It is clear that as different entities and
individuals have picked up on different aspects of these studies
there has been misinterpretation of the Centro/KPMG and SDG analysis.
During the HS2 adjournment debate, as a consequence of this misinterpretation,
it was claimed that HS2 would add £5.3 billion/year to the
West Midland's and £10.8 billion/year to the North West's
economies.
4.11 Businesses in the West Midlands probably
understand the impacts of HS2 and may have read the various reports
with more attention to the detail and the caveats. In a recent
survey of members of the West Midlands Chamber of Commerce 510
responses were completed. Of these 75% considered that improvement
of roads to reduce congestion was the highest transport priority.
About half, 55%, considered that HS2 with associated local rail
improvements would help their business although their intended
business travel to London totalled less than 100 return trips/day.
This is a very small percentage of the 72,500 total return trips
forecast for the line by HS2 Ltd.
5. Linkage between long distance inter-regional
travel and GVA growth
5.1 The Government are proposing that transformational
change in the economic inequality that exists between the North
and the South can be achieved by HSR.
5.2 Based on available data from ONS we looked
at the correlation between the provision of transport and GVA/capita
of the regions. Even with the impact of London's high GVA/capita
and high incidence of rail travel we found no significant correlation
between the modes used for in-region transport and GVA. Higher
distance commuter travel (all modes) did correlate with higher
GVA/capita. We found a negative correlation between the extent
of inter regional rail travel and GVA/ head.
5.3 We also found a negative correlation between
the number of business trips and GVA. Notably West Midlands has
the highest rate of business travel with one of the lowest rates
of GVA/capita and the lowest GVA/ capita growth rates over the
last 10 years.
5.4 This negative relationship may not be causal
although most businesses recognise that excessive expenditure
of both time and money on business travel is not good for profitability
or growth. It is possible that the difference is due to business
mix or a lower level of information and communications technologies
use in the East and West Midlands.
5.5 The Victoria Transport Policy Institute (Canada)
has researched the impact of travel on economic development and
have concluded that above certain levels increased travel becomes
counter productive to economic development. It may be that the
West Midlands are above the optimal level for business travel
which may explain KPMG's finding, based on current data, that
West Midlands does not exhibit the expected trends/elasticities
in the transport/wages relationship.
5.6 The VTPI's very comprehensive study interestingly
quotes the UK DfT SACTRA Committee, "The available evidence
does not support arguments that new transport investment in general
has a major impact on economic growth in a country with an already
well- developed infrastructure. At the regional and local level,
in particular, the issue of impact is made more complex by the
possibility that changes in quality of access can either benefit
or harm the area in question. We do not accept the results of
macroeconomic studies which purport to identify very large returns
from infrastructure investment."
5.7 It would appear that the work, findings and
recommendations of the SANTRA Committee have been lost, or are
no longer accepted by the UK Government.
6. Other causes of differential economic development
between regions
6.1 We found little correlation between the provision
of transport and GVA/capita. However we found strong correlations
between health & education and GVA/capita & GDHI/capita.
Disability free life expectancy and levels of higher education
both had very strong correlations (above 0.99) with GVA/capita.
Percentage of population at working age also, as would be expected,
correlates strongly.
6.2 These conclusions are logical as the North
East's disability free life expectancy at birth is 57.1 years
versus the South East's 64.7 years. On average 15% of the working
population of the North East have higher (level 4/5) education
versus 21.8% for the South East. Given that earnings are directly
related to the duration one is able to work and salaries are related
to education level, it is not surprising that GDHI/head is higher
for the SE than the North East.
6.3 We have attempted to normalise the effect
of the regions' cost of living, working age population, life expectancy
and education profiles to the level of the best region. This suggests
they are significant contributory factors, potentially explaining
the reasons for regional GDHI variance. Given the Inquiry is about
transportation we do not attempt to hypothesise on the root causes
or the solutions to these inequality issues in this paper, However,
unless the best thing about the regions is the train to London
it is unlikely that 30 minutes faster rail journeys will address
these issues. They will however need to be addressed if economic
equality, measured by regional GVA or GDHI/capita, is the objective.
7. Summary
7.1 Government strategy that seeks to enhance
the economy needs to encourage and support business and high earners.
However, other than the Rail Industries Association members, it
is not clear which sectors of industry and business believe that
High Speed Rail (at 250 mph) is a priority to help them grow their
businesses.
7.2 Strategies to enable and improve the economy
by helping people get into higher value adding work are applicable
to all regions. Transport has a part to play but there is strong
evidence to show that health and education are more significant,
along with other aspects of Government responsibility. Further
transparency of the issues and their relationships supported by
high level analysis has the potential to significantly improve
Government and Parliamentary decision making.
ACKNOWLEDGEMENTS
Our thanks to the authors of the papers and reports
quoted, in addition thanks to the Office of National Statistics
(ONS) and PopAnalyser.com for help to access and analyse the data.
REFERENCES
Network Rail, West Coast Main Line Route Utilisation
Strategy (RUS) Dec 2010
High Speed Rail and Supporting Investments in the
West Midlands: Consequences for employment and economic growth.
CENTRO June 2010
West Midlands Chamber of Commerce Research Report
High Speed Rail
Steer Davies Gleave, North-South Connections, August
2007
Evaluating Transportation Economic Development Impacts:
Understanding How Transport Policy and Planning Decisions Affect
Employment, Incomes, Productivity, Competitiveness, Property Values
and Tax Revenues. August 2010 Victoria Transport Policy Institute
January 2011
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