Written evidence from the RAC Foundation
(HSR 96)
1. BACKGROUND
1.1 This document addresses numbers
1, 2 and 3 and parts of 5 and 6 of the issues identified in the
Transport Select Committee's Terms of Reference. The government
has published a quantity of supporting materials, which contain
full accounts of the analysis in support of the particular proposal
specified in the HS2 consultation. For the purposes of this document
we do not question the proposed physical layout of HS2, the engineering
costing, economic assumptions, traffic modeling or economic appraisal.
1.2 High Speed Rail may, or may
not be a useful component of the nation's strategic transport
infrastructure. But both the previous government and the present
one have committed to the present proposal (HS2) prematurely.
1.3 This is for three reasons: the lack of a
National Policy Statement on roads and railways, adopted in Parliament;
the incomplete state of Infrastructure UK's (IUK) development
of their National Infrastructure Plan; and a failure to specify
how the funding and economic regulation of HS2 would fit with
the current arrangement for the "classic" railway.
1.4 The RAC Foundation is a charity
which explores the economic, mobility, safety and environmental
issues relating to roads and responsible road users. Independent
and authoritative research, carried out for the public benefit,
is central to the Foundation's activities.
2. NATIONAL POLICY
STATEMENT (NPS) ON
SURFACE NETWORKS
2.1 Government has a statutory duty to write
an NPS for surface networks and to secure approval in Parliament.
The previous government did not do this and the Coalition Government
have said that they will not publish one until December 2011 -
long after the current consultation on HS2 has closed.
2.2 There is no doubt that there
is a shortage of surface transport infrastructure—both road
and rail—as documented by the Eddington Transport Study.
These shortages will become worse in the future as: the economy
recovers and the level of economic activity increases; population
increases and relocates to particular parts of the country; industry
relocates as industrial structure changes. The growing demands
on the transport infrastructure will not be geographically uniform:
the needs will be different in different places.
2.3 It is the role of an NPS to
set out government's view of the magnitudes of these needs and
where they will develop. It should set out the government's policy
as to how much resource can be made available and how this resource
should be deployed.
2.4 The strategy is likely to include
a mixture of road and rail measures. In some English Regions (but
not all) population is expected to have increased by one fifth
soon after the proposed opening date for HS2. Many of these are
not on the HS2 line of route. The needs will be for all kinds
of local infrastructure, including local roads and public transport
services. Plainly, because HS2 serves long distance trips on one
line of route it can only perform a limited set of functions,
so if it is to find a place in the strategy it must justify its
claim on resources in competition with alternative ways of spending
the transport infrastructure budget. Until the NPS has been published,
Parliament has not had an opportunity to consider government's
assessment of the extent to which HS2 could play a part in the
solution to the problems.
3. NATIONAL INFRASTRUCTURE
PLAN
3.1 The National Infrastructure Plan is a new
initiative by Infrastructure UK (IUK) and emanating from HM Treasury.
The first document was published just after the Spending Review
in October 2010. This is a welcome exercise. It recognizes the
vital importance of all infrastructures and starts with the words
"For the economy to flourish, people, goods and information
must move freely". The document begins to catalogue the major
infrastructure needs in future decades—including roads and
railways—and discusses the funding liabilities and how they
might be met. The fact that this comes from the perspective of
the centre, rather than any one spending department is of some
significance.
3.2 The October document is only a beginning
and future publications will contain more detail. It is only possible
to estimate the future physical and funding needs after one has
made an estimate of the size and geographic location of the future
demands to be served. The present document refers to the need
for the relevant NPS's to guide IUK's work.
3.3 The National Infrastructure Plan (paragraph
4.24) does mention a high-speed rail network as one possible component
of future transport infrastructure but there is no attempt to
relate it to other transport proposals or to demonstrate its place
in the portfolio of transport and other infrastructure investments
for the future. Presumably, IUK will express a view on this as
the Plan is refined.
4. RELATIONSHIP
WITH THE
"CLASSIC RAILWAY"
4.1 There is now a stable strategic planning
regime for the existing railway. This comprises two statutory
documents issued by government every few years: the High Level
Output Specification and the Statement of Funds Available. The
consistency of these is adjudicated by the independent Office
of Rail Regulation. HS2 would represent a major increase in the
capital invested in the railway, it would have many physical interfaces
with the classic railway and it would abstract revenue from it.
Nothing has been said about how HS2 might fit within the strategic
planning regime for the railways. But it must be fitted in somehow.
One particular concern is that the public funding necessary for
HS2 would be so large that it would inevitably crowd out funding
for better projects on the classic railway as well as other modes.
5. HS2 IN RELATION
TO THE
SECRETARY OF
STATE'S
CRITERIA FOR
DECISIONS
5.1 In the absence of an over-arching strategy
it is reasonable to test HS2 as proposed against the five criteria
for decisions published in April 2011 as policy by the Secretary
of State for Transport.[71]
"…. This approach ensures decisions are
made by taking account of all the relevant information set out
in five cases, consistent with the Treasury Green Book, specifically,
to show whether schemes:
— are
supported by a robust case for change that fits with wider public
policy objectives - the "strategic case";
— demonstrate
value for money - the "economic case";
— are
commercially viable - the "commercial case";
— are
financially affordable - the "financial case"; and
— are
achievable - the "management case"."
5.2 For the purposes of this document we take
all the calculations presented in the HS2 Consultation Documents
at face value. All appraisals considered in the Spending Review
(including HS2, railways and roads) were carried out using the
new techniques. Before considering the "strategic case"
we discuss the other four "cases"
5.3 Demonstrate value for money - the "economic
case": To make benefits that accrue over a long time comparable
with capital investment costs incurred much earlier all money
values over a 60 year appraisal period are brought to a value
today on a common basis (the net present value). The HS2 Consultation
shows that London to Birmingham would offer benefits 1.6 times
the costs or 2.0 if Wider Economic Impacts (WEI) are included.
For the full "Y" scheme the figures are 2.2 and 2.6
respectively.
5.4 These economic returns show much poorer value
for money than a large number of transport schemes. This is documented
in Chapter 3 of the Eddington Transport Study[72].
We note that when the Secretary of State announced to Parliament
approval for 14 Highways Agency in the 2010 Spending Review he
remarked that "For every pound invested, there will be over
six pounds worth of public benefits. On some schemes this will
be higher than ten". These estimates were made in a way that
is consistent with the estimates for HS2 and they also suggest
that there are a number of schemes that are unfunded but with
better returns than HS2.
5.5 Are commercially viable - the "commercial
case": For the first phase to Birmingham the value today
(that is the discounted present value) of the net capital costs
is estimated by HS2 at £17.8 billion and the value today
of net operating costs is £6.2 billion. The value today of
the net revenues is £13.7 billion. Therefore, the revenues
are more than enough to cover the operating costs but they would
not be sufficient to cover operating costs, maintenance and renewals
and a return on the capital invested. That is why taxpayer support
is required to the value today of £10.3 billion.
5.6 For the full "Y" capital costs
are £30.4 billion, operating costs £17.0 billion and
revenues £27.2 billion, leaving a contribution required from
the taxpayer of about £17 billion (after an adjustment for
savings on the classic lines).
5.7 The scheme is not commercially viable. In
some sectors, such as aviation, shipping, tolled roads and other
utilities, infrastructure investment is fully funded from charges
and therefore it is commercially viable.
5.8 Are financially affordable - the "financial
case": Affordability is a judgment for ministers. But many
people were surprised that they were able to find £750 million
in the four years of the Spending Review to fund development work
on HS2; money that would have popular alternative uses—for
instance in preserving local transport services and roads maintenance.
5.9 The greater part of the taxpayer funding
for HS2 would have to be found a number of years into the future.
Affordability over that kind of period cannot be considered without
the context of an overall transport and other infrastructure strategy
which is currently missing. As discussed above it is important
to develop and plan for future transport infrastructure, and this
needs to be set in the context of an overall transport and infrastructure
strategy.
5.10 Are achievable - the "management case":
This requirement can be met: in the past HS1 and the M40 across
the Chilterns have been delivered and Cross Rail is in hand. HS2
would be a very large and contentious project, but it is achievable.
Whether HS2 can be delivered within the projected timescale and
budget is another matter. HS1 required a great deal more public
financial support and took longer to deliver than had been anticipated
when it was first approved.
5.11 Since three of the other four criteria just
discussed work against HS2, if it is to be supported the argument
must be a particularly "robust" strategic case:
5.12 Are supported
by a robust case for change that fits with wider public policy
objectives - the "strategic case". This
might have a number of components.
5.13 Carbon saving. The consultation document
records that the engineering estimates show that overall HS2 would
be broadly carbon neutral. In any case carbon savings have been
valued at the new official rate and are already included in the
economic case.
5.14 Road congestion. The detailed traffic
modelling that has been necessary for the engineering, economic
and financial appraisals has shown that demand growth will occur
on the road network, just as it is forecast for the market for
HS2: and that on current plans for the road network significant
deterioration in reliability must be expected. But the consultation
document also records that in itself HS2 will make a small contribution
to traffic congestion and only on the line of route. This is because
most road traffic is much shorter distance than the trips that
can be served by HS2. The improvements in shorter distance train
services will help, but the traffic congestion benefits are still
dwarfed by the time saving benefits to rail users from faster
travel. They are already included and separately identified in
the economic case.
5.15 Aviation. The Consultation shows
that when the needs of domestic aviation passengers are considered
HS2 offers a limited alternative. The economic case for a direct
link to Heathrow is poor (as is the economic case for a link between
HS2 and HS1).
5.16 Social inclusion and equity. Railways
are predominantly used by those with higher incomes (see p.4 of
the HS2 Equality Impact Screening report) and this seems likely
to be the case with HS2: many of the estimated benefits come from
time savings for business travelers with high value of time. Whilst
HS2 would certainly offer benefits differentially to many groups
by different geographical locations, HS2 is not directed towards
income inequality or relief of poverty.
5.17 Regional economic benefits. Many
claims are made and some of them may have validity. However, they
are often assertion and, beyond the Wider Economic Impacts already
included in the economic assessment, not based on convincing evidence.
The Eddington Transport Review, having reviewed the literature,
came to the conclusion that it is difficult to adduce firm evidence
in support of economic regeneration effectiveness of transport
investments.
5.18 When regional claims are made they must
always be confronted by the question: could the same benefits
have been secured if the same taxpayer monies were spent in some
alternative way?
5.19 This is the case with claims for job creation:
the Consultation Document makes repeated claims that HS2 would
support the creation of jobs. It is certainly true that spending
a large quantity of public funds on public projects will create
jobs: but HS2 is not the only way to achieve this. An argument
for job creation cannot just be made on the direct employment
generated by the construction (because any public project would
do that); it must be based on the consequences for employment
of the operation of the railway. To the extent that long-term
job creation is claimed the distinction must be proven between
jobs diverted from other places and genuine net new jobs.
5.20 Statements such as "HS2 offers a unique
opportunity to bridge the North-South divide" are particularly
ill-defined and unsupported by evidence.
5.21 There is a case for a more systematic and
complete account of the true economic regeneration benefits delivered
by existing high speed rail projects overseas. Since this seems
to be the only substantial "strategic policy" argument
potentially applying to HS2, the government should make more effort
to discover more systematically what regeneration benefits have
resulted in other countries. We need a better understanding of
the particular circumstances that enabled them to occur and the
extent to which those circumstances obtain in this country.
6. LONDON TO
BIRMINGHAM RAIL
CAPACITY
6.1 One very simple argument in justification
of HS2 is that it solves a problem of shortages of rail capacity
in the rail corridor between London and Birmingham.
6.2 If it becomes an absolute case that this
must be done whatever the cost then the argument would be "predict
and provide" which has long been abandoned as an approach
to transport planning.
6.3 A more sensible approach would be to give
more serious attention to alternative solutions, or part solutions[73].
The government has published some analyses of alternative mixed
road and rail road schemes in studies published at the same time
as the March 2010 HS2 report which deliver capacity benefits on
the London to Birmingham corridor but at lower cost. Organizations
objecting to HS2 are providing their own suggestions.
6.4 One possibility that tends to be neglected
is that the capacity problems are managed by significantly more
aggressive use of passenger charges for the existing railway.
Pricing solutions were ruled out in the initial terms of reference
given to HS2. The RAC Foundation has always advocated considering
using charges as a means to manage the demands on a congested
road network. The same applies on the West Coast Main Line. This
would not be popular with rail users who would, of course, prefer
to have better, faster, less crowded services at lower fares,
with the implied subsidies paid by the taxpayer. But the HS2 appraisals
suggest that this could only be achieved at a cost to the generality
of taxpayers that would be disproportionate to the benefits generated.
May 2011
71 "Review of decision making in the Department
for Transport", 27 April, 2011 Back
72
See also the survey by John Dodgson, Rates of Return on Public
Spending on Transport, RAC Foundation, June 2009, www.racfoundation.org. Back
73
For instance, see J Preston, The case for high speed rail:
an update, RAC Foundation, December 2010, www.racfoundation.org Back
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