Committee of Public Accounts - The completion and sale of High Speed 1Written evidence from 51m

THE DEVELOPMENT OF THE HIGH SPEED 2 PROJECT (“HS2”)

I understand that the Committee will shortly be considering a report from the National Audit Office on value for money in relation to the “High Speed 1” rail line, and will at the same time examine expenditure to date on the proposed High Speed 2 (HS2) project.

51m is a group of 19 local authorities which has joined together to challenge HS2. The group is known as “51m” because HS2 will cost £51 million for every Parliamentary constituency.

We believe that the decision to develop HS2 was taken forward without a full, rational consideration of future capacity needs for Britain’s rail network, and of evaluation of alternative means of meeting future demand.

I enclose a submission to the Committee which summarises the key issues. We would be happy both to give evidence to the Committee and to supply any further information for your inquiry.

The development of HS2 was not based on a rigorous analysis of Britain’s future transport requirements, but originated from a high level political decision to take forward a north-south high speed rail route.

As a consequence of this approach, HS2 Ltd has already incurred major expenditure on route design and development, while in parallel seeking to develop a business case to justify the project. The published business case essentially projects current growth into the future, without considering the reasons for growth, potential future scenarios, or a rigorous evaluation of more cost effective options for meeting future demand.

Future Growth Forecasts

The National Audit Office report highlights the over-optimism of successive forecasts for Eurostar passenger numbers, with actual numbers between 2007 and 2011 on average only a third of the level forecast by London and Continental Railways in 1995, and 30% below the Department of Transport (DFT)’s 1998 forecasts.

Despite much lower than forecast passenger numbers, Eurostar has captured 80% of the London–Paris/Brussels market, but overall growth in the market has been much lower than expected. In contrast, rail already has the major share of journeys from the Midlands and the North of England to central London—HS2 Ltd only forecast 8% of its passengers transferring from road, and 3% from air—yet the business case for HS2 is predicated on rail volumes tripling. The volume forecast for HS2 can only be delivered if there is equivalent growth in total travel to and from central London—and the Eurostar results show this hasn’t happened to Paris and Brussels.

The results for the more recent HS1 “domestic” services to Kent are no more positive. Whilst there are no published passenger forecasts for HS1 Kent services, it is clear that passenger numbers are also well below expected levels. The current timetable only requires 24 out of the 29 trains in daily use, against an original expected requirement of 26, and the number of trains in use is being further reduced to 22 in May. Many passengers on the routes affected have continued to use the cheaper, slower services on the existing routes, despite these trains having been slowed down as the result of additional stops. Yet the DfT business case ignores the likelihood of competition between HS2 and services on existing routes, even though there are three different operators between London and Birmingham today, with Chiltern and London Midland offering cheaper prices to compensate for longer journey times than Virgin.

When the Public Accounts Committee previously reviewed HS1, it reported that:

“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.”1

Unfortunately, the HS2 business case shows that these lessons have not been learned. On the contrary, DfT claim that comparison with Eurostar is misleading, as HS1 “provided a completely new international service meaning there was less evidence on which to base passenger numbers” (despite the existing mature air market between London and Paris and Brussels) and, “in addition, services on HS1 began at around the same time as considerable changes in the aviation sector, which were not foreseen in the original demand forecasts.”2 DfT therefore acknowledge that the development of low cost airlines was not foreseen, yet are apparently confident that their forecasts for long distance rail travel growth for the next 60 years are robust and conservative. It should also be noted that the current total air and rail market between London and Paris/Brussels is still considerably less than either the LCR 1995 and the DfT 1998 forecasts for Eurostar.

Over-optimistic demand forecasts are by no means just a British phenomenon. Research at Aalborg University in Denmark3 concluded that:

“For nine out of 10 rail projects, passenger forecasts are overestimated; average overestimation is 106%.”

Recent examples of projects elsewhere in the world include the new Amsterdam–Rotterdam–Antwerp high speed line, and the Taiwan high speed line; in both cases passenger volumes are much lower than forecast.

HS2’s Poor Business Case

Even if the optimistic and risky forecasts for passenger numbers are accepted, the business case for HS2 is very weak.

For the first phase of the project from London to Birmingham, the Benefit Cost Ratio (“BCR”) without Wider Economic Impacts (WEI) has progressively declined from 2.4 in March 2010 to 1.4 now. The BCR with WEI is only 1.7 and as highlighted in the NAO report the DfT have stated that “WEI by their very nature are difficult to observe and therefore evaluate”, the report then goes on to say “the DfT has started work to identify the method it will use to evaluate wider economic impacts and regeneration benefits.”4

Far worse, it is quite clear that the BCR for HS2 is overstated; when the figures are adjusted for accepted risks buried deep in the HS2 documentation, such as the latest economic forecasts, updated forecasting methods and a more realistic value of the time saved by passengers, the return drops significantly below 1.0. As an example, by far the largest benefits (60%) come from the assumption that all time savings lead to additional productive time, in the same manner as for HS1 as highlighted in the NAO report,5 even though the DfT now accept that some time on trains is productive.6

A BCR of less than 1.0 is way below the level usually required for rail schemes, and on the Department for Transport’s own criteria is “poor value for money”, indeed Philip Hammond, the then Secretary of State, told the Transport Committee “If it were to fall much below 1.5, I would certainly be putting it under some very close scrutiny.”7

The first phase will cost the taxpayer £13.5 billion over a 60 year project life, with an initial capital cost of £16.3 billion, and the full proposed “Y” scheme, with branches to Manchester and Leeds, is estimated to cost £32.7 billion. Despite the very high cost of the project, only a few major cities will see real benefits; many more towns and cities, for example Coventry and Stoke-onTrent, will have fewer, slower services, once the major end to end flows have transferred to HS2. The published business case for the full scheme includes a saving of £5.1 billion (Net Present Value) for service reductions on existing routes, although DfT has declined a Freedom of Information Act request to provide details of the anticipated cuts.

Meeting Future Capacity Requirements

Increasing West Coast Main Line (WCML) capacity is not the highest priority

HS2 will primarily relieve the WCML route from Euston. However, long distance services from Euston currently have significant spare capacity; peak departures in the evenings are on average only 56% full and the Manchester trains are less than 45% full (results from a recent independently audited survey). These loadings are less than those from all other London terminals. There has been strong growth on WCML in the last few years, as would be expected after an investment of £9 billion and dramatic improvements to the service, but much of this growth have been in off peak periods, particularly at weekends, when the service had been very poor for many years as a result of upgrade work on the route.

Providing additional capacity on the West Coast Main Line is therefore not a priority for the rail network as a whole, and, given the enormous costs of HS2, there will inevitably be an opportunity cost, reducing potential major investment in other routes.

Cost effective approach for dealing with growth

51m would argue that options to provide additional capacity should be considered incrementally, starting with proposals which prime facie offer the best value for money. The options would include:

Effective use of the capacity provided by Chiltern Railways as a result of the Evergreen 3 project, which now provides competitive journey times between Birmingham and London.

Rolling stock reconfiguration, particularly conversion of some first class vehicles to standard class.

More effective demand management, including when appropriate use of obligatory reservations.8

Operation of longer trains, to the extent that this is possible without major infrastructure expenditure.

Targeted infrastructure investment to clear selected bottlenecks to enable frequencies to be increased.

Construction of new infrastructure (ie HS2).

It is quite clear that DfT started with the proposal to build HS2, and has subsequently developed arguments to seek to sustain this decision.

51m alternative

51m has developed an Optimised Alternative (OA), based on the cost effective approach described above. The OA can provide a massive increase to existing capacity on WCML, and is low risk, as it principally involves lengthening existing trains. A detailed explanation of the OA is set out in Appendix 1 of 51m’s response to the Transport Committee.9 The main aspects of the OA are:

Lengthen inter-city trains to 12 cars;

Reconfigure one first class carriage to standard class; and

Limited infrastructure works at just three specific locations.

The OA increases standard class capacity on the West Coast Main Line by 215% by a combination of longer trains, some reconfiguration from first to standard class and limited, specific infrastructure enhancements to enable some frequency increases. These improvements can be delivered more quickly and more flexibly than HS2, and fully meet the Government’s long term demand forecasts. In contrast, HS2 is an “all or nothing” solution, delivering no benefits until 2026–33.

The illustrative service pattern for the OA provides an attractive all day stopping pattern, with improved journey times and intermediate journey opportunities. The timetable has been “‘proved” through external expert analysis, and has been accepted as deliverable by Network Rail. Rail expert advisers to Transport Select Committee also confirmed that the timetabling and capacity calculations are valid.10

Most importantly, the 51m alternative costs less than 10% of HS2. This would allow major capital investment to be available to other, more overcrowded routes throughout the country.

DfT Consideration of Alternatives to HS2

Whilst DfT asked Network Rail to review the OA, it is clear that alternatives to HS2 have not been properly considered, even though 51m wrote to the Secretary of State asking for an objective evaluation of the OA under independent scrutiny. However, Network Rail made no attempt to engage with 51m, nor to clarify any aspects of the OA. As a result, its report contains significant errors and misunderstandings, which could easily have been resolved with even limited contact with 51m.

The Network Rail report raises two issues with the OA:

Network Rail identify commuter capacity, particularly between London–Milton Keynes/Northampton, as a key problem, and claim that the OA does not provide for it. But the OA was 51m’s response to last year’s consultation, which was entirely focussed on long distance travel, and Network Rail made no attempt to engage with 51m when they did their review. Subsequent work by 51m shows that the OA can provide capacity which fully meets forecast future commuter demand into Euston.

Network Rail claim it would cause major disruption to WCML whilst being implemented. This is wrong: the OA works are similar to those currently being undertaken on this route and is not a rerun of the WCML upgrade. No work is required at Euston—in contrast to the massive disruption that will be caused by HS2 as a result of the complete reconstruction of Euston over an eight year period.

Despite its inherent bias, it is clear that, even on the basis on Network Rail’s report, there are no fundamental flaws in the OA. Network Rail acknowledge that the illustrative timetable is sound and that the additional passenger capacity calculations are valid. However, the degree of disruption as a result of the 51m proposals is greatly exaggerated, and the massive disruption as a result of the total reconstruction of Euston for HS2 is completely ignored.

A Much Better Business Case

DfT asked consultants (Atkins) to carry out an analysis of the alternatives to HS2. This showed the OA as having the best “Benefit Cost Ratio” (BCR) of any of the alternatives,11 and a dramatically better BCR than for HS2 itself, as set out in the table below:

Alternative	BCR (excluding wider impacts)	BCR (including wider impacts)
RP212	4.01	4.66
OA	5.17	6.06
HS2 (London–West Midlands)13	1.4	1.7
HS2 (Full “Y” network)14	1.6–1.9	1.8–2.5

Conclusions

The National Audit Office report raises serious value for money issues in relation to HS1, particularly in respect of demand forecasts.

Despite the Committee’s recommendations in its earlier (2006) report, OfT has not learned from the experience of HS1, and did not factor realistic downsides into its HS2 demand forecasts.

The business case for HS2 is inherently poor; if accepted risks are properly evaluated, the Benefit Cost Ratio drops below 1.0.

More cost effective alternatives for increasing capacity have not been properly evaluated, even though DfT’s own consultants show these have a much better business case.

Significant expenditure has already been incurred on route design and development, despite the lack of a robust outline business case.

We believe that the Secretary of State’s decision to proceed with HS2 and reject the less risky and much less expensive 51m alternative is fundamentally flawed, and there is a critical need for an independent, dispassionate review of the HS2 project.

CARRINGTON DAVIDSON GRANT

REDUCING THE PUBLIC DEPENDENCY ON PLACE SERVICES

Introduction

This document sets out our proposal for the delivery of ADEPT’s research project “Reducing the Public Dependency on Place Services”. The aims of the project are as follows:

To deliver a thought provoking and compelling piece of work, which looks at the potential future context for the delivery of place services; challenges current assumptions about how such services are delivered and; suggests a range of options for ensuring delivery into the future.

To provide decision makers in Whitehall and local government a set of scenarios and potential ways forward to aid long term planning.

To raise the credibility of ADEPT and help to secure its place as a key stakeholder for Whitehall.

This is a key piece of research that should generate National interest. In order to maximize the opportunities for this, we will engage key stakeholders in the project including DCLG and other key Whitehall Departments. Andrew Campbell of DCLG has already expressed an interest in participating in the project.

Phasing

The project is divided into four phases:

Scenario building;

Research into Local Authority responses to the current budget constraints;

Workshops with senior leaders to explore more deeply issues and potential future options; and

Final report and presentation.

The methodology and timing for each phase is set out below.

Phase 1—Scenario Building

The purpose of this phase is to build a number of baseline scenarios for the future relating to how funding, demand and policy decisions might affect the context within which local authorities will be working. This will need to cover:

Potential outcomes of CSR;

Changes in the national and global economy in terms of growth/recession, as well as energy costs and major technological changes;

Growing impact of LEPs;

Changes in health policy;

Changes in education policy;

Changes in criminal justice, including the introduction of Police Commissioners; and

Greater move towards outsourcing and commissioning models.

There are two options here. We will either seek input from relevant experts, such as government economists, academics, consultants operating in future scenario planning and pull together the scenarios ourselves, or we will commission one organisation/expert provider to pull together the scenarios for us. The decision on this will depend on which is the most cost effective and will deliver the best product. This will be established once preliminary meetings have been held with potential providers.

Output: A set of credible and well worked scenarios for the future which can form the foundation for the workshops in phase 3.

Costs:	Expert in put to build scenarios	£10,000
	Plus 4 days @ 650 per day	£2,600
Total:		£12,600

Phase 2—Research into how Local Authorities are responding to current budget cuts

The purpose of this phase is to investigate how Local Authorities are already responding to the current difficulties and how they are planning for the future. This phase does not need to happen after phase 1—it could run at the same time. This will require research skills, plus credibility and an ability to capture the attention of busy Chief Executives and Directors. We propose to carry out this phase ourselves, given our local authority networks and credibility in the sector. We would also call on the ADEPT network to support the work, in terms of responding to questionnaires and requests for telephone interviews.

In terms of methodology, we would design a short but highly focused questionnaire to be completed by all authorities. We would use the President’s day to publicise and secure completed questionnaires, incentivised by a prize, in addition to using other networks and contacts to encourage completion. We would analyses the questionnaires and follow up a selection with telephone interviews.

Output: A readable, concise report of the various approaches of Local Authorities to addressing the issues, which identifies, in particular, any innovative or apparently successful interventions and any barriers to those interventions.

Costs:	6 days @ £650 per day	£3,900
	Printing costs, which are part of a global sum given at the end.

Phase 3—Workshops

The purpose of this phase is to develop an in-depth understanding of issues and options, building upon quantitative and qualitative outputs from Phase 2, and to stimulate creative and innovative approaches to the·potential scenarios which face the sector. This will demand a number of workshops around the country, marketed in such a way as to attract thought leaders and facilitated in such a way as to encourage creative thinking.

We envisage three workshops—one in the south, one in the midlands and one in the north. To keep costs down, we could use venues owned by ADEPT members. We need to bear in mind, however, the relationship between creativity and environment and will need to take a view on the suitability of the venue for the kind of workshop we envisage versus the cost. We propose to engage an experienced facilitator to run the workshops. It is important the workshops are run in a way that encourages people to leave their current assumptions and ways of working behind and enables them to step out of their normal patterns of thinking. We want people to leave the workshops feeling that it has been an invigorating and highly enjoyable event and that it was well worth the time spent, regardless of the outcome of the overall piece of work.

Output: A set of highly interactive and successful workshops, with the outputs of those workshops captured, analysed and interpreted.

Costs:	Independent facilitator	£5,000
	Venue and refreshments	£4,000
	*9 days @ £650 per day	£5,580
Total:		£14,850
*This allows for two of us at each workshop in support of the facilitator, which should help to reduce the facilitator’s support costs.

Phase 4—Recommendations and Final Output

The purpose of this phase is to finish with a thought provoking piece of work that can be presented to Whitehall to contribute to thinking on the CSR, to provoke different approaches from Whitehall including a more joined up response to the issues L.As face, and to enhance the reputation of ADEPT and hence its lobbying power with Government.

We will complete this, working closely with the ADEPT Project Sponsor and, if we can engage them throughout the project, DCLG and other Whitehall colleagues.

Output: A written output, which captures the essence of the whole piece of work in a way that sparks the imagination of Whitehall, in terms of the new approaches and innovative thinking it has produced. May also include a proposal for how to introduce and spread the work around Whitehall.

Costs:	*8 days @ 650 per day	£5,200
*This allows for both of us to present to ADEPT at the November conference and both of us to present to Whitehall.

Overall Costs

Printing and marketing	£500
Phase 1	£12,600
Phase 2	£3,900
Phase 3	£14,850
Phase 4	£5,200
Total:	£37,050
*This does not include travel expenses etc, which would be in addition to this sum and will be contained within the overall project budget.

4 April 2012