High Speed Rail - Transport Committee Contents


Further written evidence from Transport Watch UK (HSR 73A)

In this note HS2 means the link from Euston to Birmingham and the "Y" means the network out to Leeds and Manchester.

THE COSTS

The headline costs at 2009 prices are £17 billion for HS2 and £32 billion for the "Y". Those exclude the trains and tax. Adding the missing elements yields £24 billion and £45 billion, amounting to £900 and £1,700 respectively for every household in the land.

THE LOSSES

The cash loss attributable to HS2 at the 2009 price and discount base is £10.3 billion after accruing fares and cost out to 2086. Rolling that up at the Treasury discount rate of 3.5% to the opening year of 2026 yields £18 billion or £700 for every household in the land.

The cash loss attributable to the "Y", which has an opening year of 2032, and a last evaluation year of 2092, is £17.1 billion again at the 2009 price and discount base. Rolling that up to the opening year yields £37.7 billion or £1,450 for every household.

EMPLOYMENT AND THE NORTH SOUTH DIVIDE

HS2 is said to generate 40,000 jobs. However, circa 9,000 would be during construction, and 1,500 for operating the line. Of the remaining 30,000 over 70% would be in London. Dividing the £24 billion cost by the 30,000 yields an incredible £800,000 per job.

Worse still, many of these jobs may be relocated from elsewhere, rather than new.

Nowhere is there an estimate of the number of jobs that will be lost as a result of the vast public expenditures and financial losses, summarised above, most of which will be born by the taxpayer.

EQUITY

99% of the population will use the system less than once a year. Furthermore, those from the top quintile of household income travel four times as much by rail as do those from either of the bottom two quintiles. Consequently the vast subsidies required will benefit a minute proportion of the population and the better off rather than the nation as a whole.

OPTIMISM BIAS

Optimism bias is applied to costs but not to the passenger forecasts or to any of the other assumptions to do with the schemes' benefits. If it were then benefits would be at least halved and the projects would never be considered.

The need for such caution is obvious. After all, the forecasts for HS1 were three times too high and the uncertainties within the analysis are overwhelming.

FRENCH RAIL

One of the worst reasons for spending tens of billions of pounds on an HSR network is that France, Spain and Germany have them.

Firstly, the distances in Europe are much greater. Secondly, there is no evidence, beyond the claims of politicians and the promoters, that the vast expenditures have aided the economies.

Indeed it may very well be the reverse. After all, Spain has the longest of the networks coupled with 20% unemployment.

As to France, it claimed the SNCF was running into profit at a time when, according to Professor Remy Prud'homme of Parris 12, the subsidy was actually approaching 1% of GDP.

It would be naïve to assume subsidies on that scale did not destroy jobs in that part of the French economy that makes a genuine profit.

Worse still, the pretence to profit in the face of loss, sabotaged the development of sensible transport policies and casts doubt upon any official statement about the SNCF.

The same tendency, namely to exaggerate benefits and ignore losses, is, we submit, the generality among supporters of UK rail and of the UK's high speed network in particular.

THE ECONOMICS

In purely financial terms the proposal makes massive losses, see above.

In contrast the economic analysis compares costs with the cash value of time savings, relief of overcrowding, improved punctuality etc.

That analysis suggests that for every pound spent by the Government there will between £1.6 and £2 of benefit from HS2 and between £1.8 and £3.4 of benefit from the "Y".

However, well known weaknesses and contentious assumptions include:

(1)  Time is entirely wasted when travelling on a train.

(2)  The value of time will rise exponentially at circa 2% for ever, an assumption that doubles the benefits.

(3)  The evaluation periods end 60 years after opening, far beyond the horizon at which any forecasts can be made. If that were shortened to 30 years, which is still too long, 40% of the supposed benefits would be lost.

(4)  The forecasts are unbelievable in that they require a train every three and a half minutes in each direction all day throughout the year.

     Those forecasts depend largely on assuming that growth in passengers is driven by growth in GDP. However, between 1950 and 1995 GDP grew by 200% but there was no growth in passenger rail whatsoever. In contrast, between 1995 and 2010 GDP grew by 36% and rail usage by 70%.

     That suggests there is little or no relationship between passenger growth and GDP. Instead the recent growth is probably due to the short term razzamatazz of privatisation.

(5)  There is a fundamental flaw in the analysis, namely fares are subtracted from costs when they should not be.

     Such payments no more increase wealth than would passing £100 to one's neighbour. The transaction is of course of financial interest but has no place in an economic analysis designed to compare the resource cost of a scheme with the supposed social benefits.

     Striking out the fares would destroy the economic case.

SOURCES

The primary source for the data in this note is Department for Transport's publication "Economic Case for HS2", February 2011

For Greater detail see items 6a and 6b here: http://www.transport-watch.co.uk/transport-committee.htm (terms of reference and evidence accepted by the Transport Committee)

July 2011

PRO-RATA COSTS AND LOSSES FOR METROPLITIAN AREAS
£(BILLIONS) 2009 PRICES
Costs £billions
Losses £billions
PopulationHS2 The YHS2 (a) The Y (b)
Great Britain60,000,000 24451837.7
Greater Birmingham.3,680,000 1.4722.7601.104 2.312
Birmingham1,030,0000.412 0.7730.3090.647
Greater Manchester 2,240,000 0.8961.6800.672 1.407
Manchester 483,0000.193 0.3620.1450.303
Liverpool urban area838,000 0.3350.6290.251 0.527
Liverpool 440,0000.176 0.3300.1320.276
Greater Glasgow 1,770,000 0.7081.3280.531 1.112
Glasgow 592,0000.237 0.4440.1780.372
Greater Nottingham700,000 0.2800.5250.210 0.440
Sheffield550,0000.220 0.4130.1650.346
Sheffield urban area1,000,000 0.4000.7500.300 0.628
Leeds 771,0000.308 0.5780.2310.484
Newcastle290,0000.116 0.2180.0870.182
Tyne and Wear1,119,500 0.4480.8400.336 0.703
Edinburgh486,0000.194 0.3650.1460.305
Edinburgh commuting area 1,000,000 0.4000.7500.300 0.628
Totals of above Metropolitan areas13,118,500 5.2479.8393.936 8.243
London8,000,0003.200 6.0002.4005.027
Rest of UK38,881,500 15.55329.16111.664 24.431

(a)  2026 opening year discount base
(b)  2032 opening year discount base
(c)  Very few people indeed living in "the rest of the UK" will ever use the proposals. Even those from the key metropolitan areas listed will seldom benefit personally. If the regular users number as many as 1 million the cost is £24,000 per user for HS2 is and £45,000 for the "Y". The corresponding present value losses at the named discount bases are £18,000 and £37,700. In reality, or according to the forecasts, in 2043 there will be only circa 70,000 daily arrivals at Euston. Hence regular users are likely to be below 150,000. The costs per regular user then spiral to the entirely unrealistic levels of £160,000 and £300,000.


 
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Prepared 8 November 2011