High Speed Rail (Preparation) Bill

Written evidence from Greengauge 21 (HSR 07)

1. Greengauge 21 was founded in 2006 to promote a debate on high-speed rail (HSR) in Britain. Funded by a Public Interest Group, widely drawn from across the country, including all of the English regional development agencies, Greengauge 21 has undertaken extensive research and developed a plan for a national HSR network. It has also established (last year) an Industry Leaders Group, which is carrying out further work to help build the capability and understanding of HSR in Britain.

2. This written evidence is submitted on behalf of Greengauge 21 by Jim Steer.

3. All the Greengauge 21 research, commissioned from the experts in the field, has been published (at www.greengauge21.net). It has included studies of:

a. a national plan for HSR (‘Fast Forward’)

b. employment and regional economic impacts of HSR

c. an examination of how the capacity freed up on existing railway lines can be re-utilised when HS2 is built

d. the demand for services using the planned HS1 – HS2 link

e. the potential reduction in air demand at Heathrow as result of HSR

f. the carbon impacts of HS2

g. lessons that can be learned from HS1 in Kent

h. HS2 jobs analysis (the jobs created at the planning, design, construction and operational stages of HS2).

4. I would like to draw the Committee’s attention to the published case for progressing with HS2 and the question of its business case and value for money.

5. The case for HS2 was first published in March 201 0 (Command Paper 7827). It explained the rationale for choosing high-speed-rail over other options in terms of: capacity, connectivity and sustainability.

6. The text in Cm 7827 continues, saying that a HSR network in Britain should: improve the productivity of the UK’s urban economies; enable the major cities of the Midlands and the North to compete and collaborate more effectively (particularly when combined with improvements to Trans Pennine services – for which work is now in hand, through electrification and the Northern Hub); support housing growth in the Milton Keynes/South Midlands growth area; and promote London’s long term effectiveness. It showed that in British cities and towns, gross value added (GVA) per head is strongly correlated with journey time to London.

7. The business case for HS2 has been calculated using standard DfT assumptions – for comparability with other, smaller and more rapidly deliverable schemes. A critical question is whether it is assumed that demand for longer distance rail, which has continued to grow through the period of economic downturn, is likely to reach some kind of limit or saturation level. This has a crucial effect on the project benefit cost ratio (BCR) as shown in the diagram below.

Source: HS2 Ltd

8. Greengauge 21 believes that it is inappropriate to present the BCR on the basis that demand stops growing in 2033 when the project is complete, or 2035 when the BCR would be 1.4:1. While long term forecasting is subject to uncertainty, the national demographic trends alone would suggest that a zero growth outlook is unlikely, and setting a cap at (say) 2048 would indicate a BCR of 2.6:1.

9. The value for money of HS2 has recently been called into question following the revised cost estimates included in the Spending Review settlement. In considering this matter, account should also be taken of the disposal or lease value of the infrastructure asset created. In the case of HS1 (the channel tunnel rail link), the capital costs was £5.8bn, but just three years after its completion in 2007, a 30 year concession was let, returning a cash lump sum to HM Treasury of £2.1bn. The question arises as to what might be expected from HS2.

10. Greengauge 21 commissioned PwC (‘Selling HS2 – Delivering a return on government’s investment, July 2011’) to address this question for the first phase of HS2, a project which post spending review has been set a budget ceiling of £17.2bn (in 2011 prices). PwC assessed the same model that was applied to create the 30 year concession for HS1 and concluded that the value lay in the range £7.5bn – £9bn. In other words, roundly half of the capital outlay could be returned to HM Treasury in cash, 2-3 years after project completion.

11. There are also further cash returns to HM Treasury from this investment, not picked up in a conventional DfT style appraisal. Work commissioned by Greengauge 21 from KPMG explored the question of how a national HSR network could change Britain’s economic landscape and its impacts on employment levels and economic output. This preliminary work concluded that the largest productivity impact would be on Northern Cities and Glasgow/Edinburgh. It projected additional GVA of £17bn - £29bn annually by 2040, and additional tax income to the exchequer of £6bn - £10bn per annum.

12. This evidence suggests that the business case and the value for money from a British tax-payer/HM Treasury perspective is rather greater than indicated by a conventional benefit cost ratio (BCR).

July 2013

Prepared 10th July 2013