Conclusions and recommendations
1. The Department does not have sufficient
understanding of the economic impact and regeneration benefits
of transport infrastructure, compared with alternatives, so is
not able to make fully-informed investment decisions.
The Department needs a better understanding of both the economic
benefits of transport investment and the relative merits of alternative
investment, including non-transport options such as investment
in broadband. In assessing the benefit-to-cost ratios of future
projects the Department needs to improve its estimates of the
regeneration benefits and wider economic impacts they will deliver
and also evaluate a wider range of alternative options.
2. The Department gives insufficient attention
to evaluating its major projects. The
Department has not got an evaluation framework in place and has
only recently begun to develop an evaluation plan for High Speed
1. This risks the Department retro-fitting its evaluation to reflect
what has occurred on High Speed 1 rather than properly evaluating
it against original expectations. If the Department does not complete
a proper evaluation there is also a risk that it will miss out
on learning lessons from the project; for example, about how its
decisions about the locations of intermediate stations are affecting
local regeneration. The Department should develop a full evaluation
framework urgently, including an assessment of the economic impact
and regeneration benefits, for High Speed 1. It should also develop
evaluation frameworks now for all its current major projects,
and assure us that these frameworks are in place for all future
projects including Crossrail and High Speed 2 (HS2).
3. The delivery of regeneration benefits from
High Speed 1 suffered from a lack of effective leadership from
the centre. Regeneration is not the Department's
core purpose and responsibility, but the Department justified
High Speed 1 on the basis of the regeneration it would bring around
stations at King's Cross, Stratford and Ebbsfleet. Development
is under way at King's Cross and Stratford but is at a very early
stage at Ebbsfleet. The Department has not been involved in regeneration
at Ebbsfleet because the land is owned privately and so it considered
sorting out delays there to be the responsibility of others. The
Treasury should ensure that a single party has clear overall
responsibility for coordinating the delivery of regeneration benefits
and wider economic impacts from major public infrastructure investment.
4. Over-optimistic and unrealised forecasts
for passenger demand on High Speed 1 left the taxpayer saddled
with £4.8 billion of debt. We have
seen similar problems before with forecasting for the East Coast
Main Line. In the case of High Speed 1the highly over-optimistic
forecast was due in part to the Department giving insufficient
weight to factors such as the emergence of low cost airlines and
the competitive response of ferry companies. When deciding whether
to proceed with a major infrastructure project the Department
needs to do more than analyse the sensitivity of individual assumptions.
The Department should specifically consider what combination of
different factors has to happen for the project to no longer be
viable.
5. Unrealistic passenger estimates for High
Speed 1 must not be repeated in the business case for HS2.
The Department's case for HS2 has modelled demand on the assumption
that ticket prices for HS2 will cost the same as tickets for slower
'classic' trains between London and Birmingham. This unrealistic
assumption acts to exaggerate the HS2 passenger number forecasts.
In reality the operator of HS2 is likely to be able to charge
a premium price and the operators of 'classic' trains would be
likely to drop their prices to retain passengers. The Department
should rework their passenger demand forecasts and benefit-to-cost
ratio for HS2 based on a more realistic estimate of ticket prices.
Its assumptions must be transparent so that sounder judgements
on passenger demand can be made in future.
6. Some of the Department's assumptions about
the benefit of faster travel are untenable. The
Department uses a 'simplifying' assumption that all time travelling
on a train is entirely unproductive. The value that it assigns
to time saved by business travellers at £54 per hour also
appears unfeasibly high and is more than seven times that of people
commuting to and from work. These assumptions may skew appraisals
of projects in favour of long-distance travel. Regeneration benefits
of intermediate stations and benefits from relieving overcrowding
and improving reliability may also be undervalued. The Department
should undertake research to understand better the values passengers
place on different transport benefits—faster journeys, reliability
and over-crowding relief—and to more accurately assess how
people actually spend their time on trains.
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