Chapter 3: Costs and appraisal of High Speed 2
41.This chapter sets out the planned cost of HS2 and examines the method by which the Department for Transport has determined the project provides value for money.
Planned cost of High Speed 2
42.The Spending Review 2015 set the funding for High Speed 2 at £55.7 billion in 2015 prices. The latest breakdown of cost between the different phases of the project is in Table 6. Nusrat Ghani MP, Minister for HS2, said that the project “will be delivered within the envelope provided at £55.7 billion.”35
Table 6: Breakdown of the £55.7 billion HS2 funding envelope (2015 prices)36
Project phase |
Budget |
|
Phase 1: London-West Midlands |
£27.18 billion |
|
Phase 2a: West Midlands-Crewe |
£3.48 billion |
|
Phase 2b: West Midlands-Leeds/Manchester |
£25.07 billion |
Source: Department for Transport, ‘High Speed Two Phase Two Financial Case’, July 2017, p 7: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/629165/high-speed-two-phase-two-financial-case.pdf [accessed 1 May 2019]
43.The Spending Review 2015 increased costs in line with inflation (at the time of our 2015 report, the total cost of the project was £50.1 billion in 2011 prices). Adjusting for construction price inflation since 2015 would suggest a cost in today’s prices of around £59 billion.37
44.HS2 Ltd told the Committee that spending to date on the project was £4.3 billion. The main costs have been £1.8 billion on land and property purchases and £1.3 billion on “indirect costs” such as consultation, design and workforce.38
45.A full business case for Phase One, with an updated cost estimate, was expected to be published by the Government in June 2019 alongside an authorisation of notice to proceed with Phase One.39 The Government however said in April 2019 that this would now “take place later in 2019” to allow HS2 Ltd “to finalise costs and plans with its contracted suppliers.”40
Estimates the project will overspend
46.There has been speculation that High Speed 2 will overspend its budget. A December 2016 internal report from the Government’s Infrastructure and Projects Authority, leaked to The Sunday Times last year, described the project as being in a “precarious position” and that it was “highly likely to significantly overspend, [by around] 20-60% with the likely cost increasing … to more than £80 bn.”41
47.The rail consultant Michael Byng has estimated the total cost of Phase One will come to £48 billion excluding rolling stock (compared to HS2 Ltd’s estimate of £24 billion excluding rolling stock). He priced the scheme using costing methodology introduced by Network Rail in 2014.42
48.We asked Sir Terry Morgan, the former chair of HS2 Ltd, about these estimates. He said that “everybody has their own guestimate on this” and he didn’t agree with the December 2016 report. When asked for his own estimate, he replied that “nobody knows yet”.43
49.Mark Thurston, the chief executive of HS2 Ltd, told the Committee that it was “important to keep in mind that HS2 is the largest and most complex infrastructure project undertaken in modern British history.” He said they were working with their supply chain to reduce costs: “we are challenging the supply chain to innovate, to work collaboratively and to draw on the experience of some of the world’s leading infrastructure companies working with us.”44
Project appraisal of High Speed 2
50.This section considers the Government’s appraisal of the High Speed 2 project and updates the analysis in our 2015 report on the assumptions used in the appraisal process.
Latest cost-benefit analysis
51.The Department for Transport requires a cost-benefit analysis of all transport projects requiring Government approval. Its guidance on cost-benefit analysis explains why:
“The purpose of transport appraisal is to estimate the welfare impacts of transport investment to satisfy the accounting officer responsibilities that public expenditure represents value for money; this is in accordance with the requirements of the Treasury’s Green Book.”45
52.There are two main categories of benefits that are assessed for transport projects:
- Transport user benefits: the benefit which travellers enjoy as a result of a project, for example due to reductions in travel time or travel cost.
- Wider economic benefits: these include an estimate of benefits not captured by the transport user benefits such as productivity gains through agglomeration, arising from the fact that businesses and workers are brought closer together through quicker travel times, and the benefits that arise as businesses and households relocate as a result of the project.
53.The results of the latest cost-benefit analysis for High Speed 2, published in July 2017, are in Table 7.
Table 7: Estimate benefits, revenues and costs of the full High Speed 2 network (2015 prices)46
|
Net transport benefits |
£74.6 billion |
|
Wider economic benefits |
£17.6 billion |
|
Net benefits |
£92.2 billion |
|
Capital costs |
£55.8 billion |
|
Operating costs |
£27.6 billion |
|
Revenues |
£43.6 billion |
|
Net costs to Government |
£39.8 billion |
|
Benefit cost ratio with wider economic benefits |
2.3 |
Source: Department for Transport, ‘High Speed Two Phase Two Economic Case’, July 2017, p 13: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/634196/high-speed-two-phase-two-economic-case.pdf [accessed 1 May 2019]
Appropriateness of cost-benefit analysis for assessing large infrastructure projects
54.The Department’s guidance on cost-benefit analysis says that the economic impacts of transport projects are “primarily captured by the estimation of [transport] user benefits.”47 For projects that reduce journey times, such as High Speed 2, transport user benefits are calculated by estimating the amount of time saved by travellers who will use the new railway, and applying a monetary value of time depending on the type of traveller (for example, a person travelling for leisure has their time valued at £6.04 an hour, see Table 8 below).
55.In an ideal scenario, according to the Department, “[transport] user benefits will capture the entire welfare effects of a transport investment.” But additional benefits—the wider economic benefits—can also arise:
“Wider economic impacts refers to economic impacts which are additional to transport user benefits. They arise because market failures in secondary markets (non-transport markets), such as the labour and land markets, mean that the full welfare impact of a transport investment may not be reflected in the transport market.”48
56.These ‘market failures’ mean provision is made in the assessment to estimate the wider economic impacts, such as the productivity gains that result from businesses and workers being closer together.
Limitations of Department for Transport’s method of appraisal
57.The Department’s method for analysing the wider economic impacts of a project is limited however as it does not allow land use to vary as a result of new transport infrastructure: for example, if a new railway released capacity for more peak time trains to serve a town, the appraisal of the benefits would not take into account that more houses may be built in that town as a result of the greater capacity to serve commuters.
58.Nick Bisson, Director of HS2 Phase Two at the Department for Transport, acknowledged these limitations. He characterised the benefits of transport projects in three levels:
“The first and most established one is merely the benefits to transport users … The second attempts to quantify the wider economic impacts … but based on fixed land use … and trend-based growth in employment and population …
… The third level, which is the most difficult to do, technically and analytically, allows that land use to vary … this allows the growth in employment and population to vary as a consequence of the scheme.”
59.The third level of benefits—which capture more fully the transformative effect new infrastructure can have—are not taken account of in the existing appraisal. Mr Bisson said “so far, we have not produced a robust quantification of that third level for HS2.”49 We know from history however that transport infrastructure, in particular railways, can bring about profound change in land use, for example the new houses built alongside the expansion of the Metropolitan Railway into Buckinghamshire in the early 20th century.50
60.Bridget Rosewell told the Committee that assessing the project on the basis of transport user benefits was “looking at it from the wrong way up” and questioned how appropriate it was for large transport investments:
“It has grown out of a historic view of why we undertake transport investments, which was not really about large-scale investment, and which was based on the assumption that everything else was unchanged—the economy and the transport system were therefore independent of one another, which was a fundamental assumption of the modelling approaches.”
61.She said the Department’s analysis provided “a poor measure of benefits” for High Speed 2, “the business case is built on the proposition that people save time and that time is valuable to them, that is not the right way we should think about the benefits of large investments.”51 She said the Department for Transport was now moving away from this, putting together cases that look first at some of those economic opportunities, “but it takes quite a long while for the modelling people to catch up.”52
62.We have serious reservations about the cost-benefit analysis used in determining whether High Speed 2 provides value for money. Cost-benefit analysis is an important discipline for comparing the merits of different projects. But it has serious limitations as a technique for examining the transformational benefits that new infrastructure can provide.
63.The limited appraisal method leads to the distribution of benefits in Table 5: 81 per cent of the estimated benefits of High Speed 2 are derived from the time savings (the transport user benefits) made by users of the railway. This makes the cost-benefit analysis very sensitive to the monetary value placed on travellers’ time and the estimated demand for the new railway. As our 2015 report concluded, the reliability of cost-benefit analysis “depends upon the quality of the evidence used in the analysis.”53 We re-examine that evidence below.
Value of travel time savings
64.Our 2015 report was critical of the evidence behind the values allocated to travellers’ time. In the 2013 economic case (the most recent analysis of the project’s benefits at the time of the Committee’s previous inquiry) the value of business travellers’ time savings did not take account of the fact that time on a train can be used productively and the value of non-travel time savings was criticised for being based on surveys of motorists from 1994.54
65.These values, and the methods by which they are arrived at, have since been updated. Table 8 compares the value allocated to travel time savings in the 2013 economic case with the most recent economic case in 2017.
Table 8: Comparison of values allocated to travel time savings for business (by journey distance), commuter and leisure passengers (£ per hour, 2010/11 prices)
Travel purpose and journey length |
2013 economic case |
2017 economic case |
|
|
Business |
0-50km |
£31.96 |
£10.02 |
|
50-75km |
£14.43 |
||
|
75-100km |
£18.41 |
||
|
100-125km |
£22.63 |
||
|
125-150km |
£26.77 |
||
|
150-175km |
£30.56 |
||
|
175-200km |
£33.80 |
||
|
200-225km |
£36.40 |
||
|
225-250km |
£38.40 |
||
|
250-275km |
£39.89 |
||
|
275km+ |
£40.96 |
||
|
Commuting |
£6.81 |
£9.95 |
|
|
Leisure |
£6.04 |
£4.54 |
|
Source: High Speed 2 Ltd, ‘PLANET Framework Model: PFMv7.1 Assumptions Report’, 2017, p 19: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/699029/CS866_D_Assumptions_Report_PFM_7.1.pdf [accessed 1 May 2019]
66.The main difference for the purposes of appraising High Speed 2 is that the value allocated to business time travel now varies depending on the length of the journey. HS2 Ltd said that new evidence published by the Department suggested that “the value of business time savings increases for longer trips.”55
Business travel time savings
67.Before 2016 travel time savings for business travellers were determined by the ‘cost saving approach’. This approach assumed business travel time savings were equivalent to the average hourly incomes of travellers, “on the grounds that unproductive travel time when saved can be converted into productive time which has a value equal to the wage rate.”56 This approach was criticised by witnesses during our 2015 inquiry because it did not take into account that people can work during a train journey.57
68.The new values of time for business travellers are based on ‘willingness to pay’ where surveys indicate how much business travellers are prepared to pay for a shorter journey. The Department introduced this approach in an October 2015 report.58 This method was already used for calculating the value of commuting and leisure time.59
69.The values in Table 8 above are derived from surveys of travellers carried out in 2014.60 Business travellers were presented with a number of scenarios where they had to choose between two options. One option was a slower but cheaper journey than the other.61 Business travellers were told that for each pair of options, they should bear in mind their company’s travel policy.62
70.Responses from the surveys were combined with data from the National Travel Survey to produce “nationally representative values” for use in transport appraisal.63
71.We do not believe that asking business rail travellers hypothetical questions—about how much they would be willing to pay for quicker journeys—is the most robust evidence base on which to base a calculation of the benefits that a £55.7 billion new railway will bring.
Increasing the value of travel time savings for business by distance
72.The number of business travellers surveyed in the research who were travelling more than 50 miles is shown in Table 9 and compared with the data from the National Travel Survey.
Table 9: Number of surveys carried out for rail passengers travelling more than 100 miles, stated preference survey versus National Travel Survey
Stated preference surveys |
National Travel Survey |
|
|
100 to 150 miles |
311 |
142 |
|
150+ miles |
291 |
126 |
Source: Arup, ‘Provision of market research for value of travel time savings and reliability, Phase 2 Report, 14 August 2015, page 79: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/470234/appendix-e-final-14-august-2015-questionnaires.pdf [accessed 1 May 2019]
73.The higher values of time for the six travel bands above 150 miles, as shown in Table 8 above, are based on 291 responses from the stated preference surveys and 126 responses from the National Travel Survey. This is the evidence base for a large proportion of the estimated £55 billion of benefits (60 per cent of the project’s total estimated benefits) that the project will provide for business travellers. The Department said that the number of rail trips in the National Travel Survey dataset was “sufficient for robust calculation of average values.”64
74.We are concerned particularly that the time saved by long-distance rail business travellers has increased in value for the purposes of appraisal since our 2015 report, on the strength seemingly of a few hundred interviews carried out on station platforms.
Using business travel time productively
75.The ‘willingness to pay’ method in theory allows for the fact that a person can use travel time productively, as survey respondents were expected to factor this into their decision-making when deciding how much they were willing to pay for faster journeys. The stated preference surveys also collected data on how business travellers used their time on rail journeys, which are summarised in Box 2.
76.The Department’s October 2015 report said that the data showed “two key results”:
“while travel time is not ‘dead time’, it is not necessarily used as productively as other ‘work time’, with the sentiment that “quicker journeys are always more desirable.”
“How business travellers used their travel time was not found to have a significant impact on the value of time in the choice modelling. The result that the values of time did not vary with time use does not necessarily mean that time use is not important - the values of time estimated in this study are representative of current travelling conditions and uses of travel time. The results could have been different if the opportunities to use travel time productively were significantly different.”65
Box 2: Activities undertaken by business travellers during rail journeys
Source: Arup, ‘Provision of market research for value of travel time savings and reliability’, 14 August 2015: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/470231/vtts-phase-2-report-issue-august-2015.pdf [accessed 1 May 2019].
Non-work travel time savings
77.The latest research also updated the values of travel time savings to apply to commuting and leisure journeys (the 2013 economic case had relied on surveys of motorists from 1994 to calculate these values).66 The latest values, shown in Table 6, are based on surveys of commuter and leisure travellers from the same study, with travellers asked to pick between two options for different trips as described above.
78.The value of time for these journeys does not however differ by journey time. The Government said that “further analysis of the data is required to support possible further segmentation of the non-work values, for example by distance.”67
Audit of latest research
79.The new research was audited by Systra in 2015. Systra disagreed that the ‘willingness to pay’ approach was preferable to the ‘cost saving’ approach: “On the evidence provided, we would, perhaps, have drawn a different conclusion—which is that the issue is currently undecided. We do not think that the evidence presented here is strong enough to draw clear conclusions.”68
80.We welcome attempts to update the evidence for travel time savings. But the new values are based on unconvincing data. We note that 60 per cent of the estimated benefits of High Speed 2 (£55 billion) relate to business travel.
Demand forecasts
81.The other main factor that influences the size of the estimated benefits of the project is the expected demand for long distance travel and given the higher value of time for business travellers, the proportion of that demand who will be travelling for business. This section examines the latest forecasts for demand growth and compares them with recent trends.
Forecasting demand for long-distance rail
82.Our 2015 report concluded:
“Partial information on current railway usage, as well as uncertainty about future technological developments in automative transport and working habits, makes it difficult to assess the plausibility of the Department’s forecasts of future demand for long-distance rail travel.”69
83.Nick Bisson from the Department for Transport said the modelling assumes an average annual growth rate in demand for long distance rail of “only” 1.9 per cent, “an argument could be made that that is conservative”:
“Since privatisation, the rail network as a whole has seen annual average growth of 3.9 per cent. On long-distance services, that has been 4.6 per cent. In the last five years, although the long-distance annual average growth has been 2.5 per cent, on the west coast main line it remained at 4.7 per cent. We have continued to see strong growth on the core markets that HS2 will serve.”70
84.The Government argued similarly in our 2015 inquiry that the 2.2 per cent average annual growth in long-distance rail travel that the modelling assumed at the time, was “a very conservative estimate.”71
85.Growth in long-distance rail demand has varied in the last few years. Office for Rail and Road statistics show that long-distance rail journeys across Great Britain grew by 3.1 per cent in 2015/16, 3.8 per cent in 2016/17 and 0.9 per cent in 2017/18.72
86.Journeys between central London and the West Midlands increased by 6.2 per cent in 2016/17 compared with the previous year, but increased by 2.2 per cent between 2016/17 and 2017/18; journeys between London and the North West increased by 5.1 per cent in 2016/17 compared with the previous year, but decreased slightly between 2016/17 and 2017/18.73
Sensitivity of cost-benefit analysis to demand growth
87.The sensitivity of the project’s appraisal to demand was shown by the reduction in benefits caused by a reduction in forecast GDP growth between the 2016 and 2017 business cases.74
88.The 2016 model had assumed GDP per head annual growth of 1.5 per cent from 2014/15 to 2026/27, and 1.8 per cent from 2026/27 to 2037/38. The 2017 model assumed GDP per head annual growth of 1.25 per cent from 2016/17 to 2026/27, and 1.7 per cent from 2026/27 to 2037/38.75
89.The reduction in predicted demand reduced the estimated transport user benefits by almost £10 billion. Given GDP per head growth forecasts have been lowered again since 2017, the next business case for High Speed 2 may contain further reductions to estimated demand growth.76
Reliability of long-distance rail statistics
90.As mentioned in our 2015 report, we note that the rail usage statistics do not distinguish between local and long-distance journeys. For example, as Virgin Trains are classified as an operator in the long-distance sector, all journeys on their services are captured in the official statistics for long-distance rail travel, regardless of length.77
91.The Minister provided us with figures which show that 15 per cent of journeys on Virgin Trains services between London and Manchester in 2018 were shorter distance trips.78 Without comparable figures for earlier years, it is not possible to determine whether demand growth in between London and Manchester is driven by an increase in long-distance or shorter-distance journeys.
92.The Government maintain the demand forecasts for long-distance rail are “conservative”. But for some of the routes which the modelling for High Speed 2 anticipates will provide the most benefits, this is not borne out by the observed demand growth in recent years.
93.The forecast benefits of the project are very sensitive to the levels of demand predicted by HS2 Ltd’s model materialising: a revision to forecasts GDP per head growth in the latest business case caused the estimated benefits of the project to fall by £10 billion. We note HS2 Ltd’s analysis does not factor in the effect on business travel that developments in communications technology may have.
Forecasting the proportion of business travellers - 2015 inquiry
94.Our 2015 report criticised HS2 Ltd for the large proportion of travellers it estimated were travelling for business. The Government told us that the High Speed 2 modelling assumed that in 2010, the then base year for the model, 39 per cent of long-distance trips over 100 miles were for business, 46 per cent for leisure and 15 per cent for commuting.79
95.Table 11 compares the proportion of business travellers travelling between the main cities on High Speed 2 that was assumed in the August 2012 economic case with the October 2013 economic case.
Table 11: Weekday journey purpose proportions on main High Speed 2 routes used in modelling, August 2012 economic case versus October 2013 economic case (base year 2010)80
August 2012 economic case |
|||
Business |
Leisure |
Commuting |
|
|
London and Birmingham |
26% |
49% |
26% |
|
London and Leeds |
28% |
56% |
16% |
|
London and Manchester |
24% |
54% |
22% |
|
London and Sheffield |
23% |
49% |
28% |
October 2013 economic case |
|||
Business |
Leisure |
Commuting |
|
|
London and Birmingham |
56% |
29% |
15% |
|
London and Leeds |
56% |
40% |
4% |
|
London and Manchester |
64% |
31% |
5% |
|
London and Sheffield |
65% |
31% |
5% |
Source: Atkins, High Speed Two Atkins Model Development Report - PFMv3.0-PFMv4.3, 25 September 2014, Table 2-23: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/640685/Atkins_Model_Development_Report_PFMv3.0-PFMv4.3.pdf [Accessed 1 May 2019]
96.The Department for Transport explained the reasons for the change in methodology to the 2015 inquiry:
“Prior to the October 2013 HS2 Economic Case the journey purpose of trips was determined by using ticket sales data to examine the type of ticket sold (full price, open etc.) and making assumptions about the relationship between the ticket type and the journey’s purpose. This approach had the following limitations:
- The relationship between ticket type and journey purpose was based on national averages and did not vary according to distance or region; and,
- Analysis of the National Passenger Survey data shows that more business trips are now being undertaken using reduced or advanced purchase tickets and this was not reflected in the data and assumptions used.”81
97.To reflect these limitations, the department revised their approach by directly sourcing journey purpose splits from the National Rail Travel Survey. This was a large survey of rail passengers (sample size 436,000) undertaken in London areas in 2001 and other areas of the country between 2004 and 2005.
98.Our 2015 report criticised the department for using this old survey data: “The substantial increase in forecast business travel in the latest economic case [compared to the 2012 economic case] is questionable: the supporting evidence was based on survey data that is over ten years old.”82
Forecasting the proportion of business travellers - comparison with latest National Travel Survey data
99.There have been three further updates to the modelling since the October 2013 economic case. None of the documents associated with those updates have published an update to the journey purpose figures in Table 11. We therefore assume the journey purpose proportions in the latest modelling remain similar to the 2013 economic case.
100.We asked the Minister for updated statistics on long-distance rail journeys by purpose. She provided the figures in Table 12 for the journey purpose split for journeys over 50 miles from the National Travel Survey.
Table 12: Weekday long distance rail journeys by route and purpose, National Travel Survey data, 2002 to 2017 average
Route (both directions) |
Purpose |
||
|
Business |
Leisure |
Commuting |
|
|
London - West Midlands |
42% |
40% |
17% |
|
London - North West |
42% |
52% |
6% |
|
All long distance rail travel (over 50 miles) |
26% |
44% |
30% |
Source: Letter from Nusrat Ghani MP to the Chairman, 25 February 2019
101.During our 2015 inquiry, the equivalent figures for 2002 to 2013 were cited by the then Secretary of State for Transport in support of the modelling assumptions about journey purpose in Table 11.
102.We asked the Minister if the 2002 to 2017 figures could be broken down into shorter time periods. The Minister said however that the sample sizes were too small:
“the number of reported trips in the National Travel Survey is very small and these trips are being reported by a very small sample of respondents (in some cases fewer than 20 people across the five years in total) … This makes any meaningful comparison across the time periods very difficult … the data would not add clarity on changes in the purpose of weekday long distance rail travel on these routes.”
103.But the Minister did provide a breakdown of journey purpose for all long distance rail, below in Table 13, which shows the proportion of business travel has decreased over the period 2002 to 2017.
Table 13: Weekday long-distance rail trips (over 50 miles) by journey purpose, National Travel Survey data for 2003–2007, 2008–2012 and 2013–2017
Trip Purpose |
Time period |
||
|
2003–2007 |
2008–2012 |
2012–2017 |
|
|
Business |
29% |
25% |
25% |
|
Commuting |
26% |
29% |
33% |
|
Leisure |
45% |
45% |
41% |
Source: Letter from Nusrat Ghani MP to the Chairman, 18 March 2019
104.The Minister’s suggestion that the sample size would be too small to make meaningful comparisons across a smaller period calls into question how reliable the data in Table 12 is. Nevertheless, that data, and the data for all long-distance rail travel in Table 13, suggest that HS2 Ltd’s estimate for business travel on High Speed 2 is too high.
Forecasting the proportion of business travellers - comparison with latest National Passenger Survey
105.The latest modelling of journey purposes remains based on the National Rail Travel Survey. We note the survey data is almost 15 years old and the data for London is nearly 20 years old. The latest modelling report from HS2 Ltd says that “analysis of the National Passenger Survey data suggested that the profile of travellers by purpose had remained fairly stable over the period 2004–2011.”
106.The latest National Passenger Survey for Virgin Trains services on the West Coast Main Line, from a weighted sample of 35,698 journeys, showed that 23 per cent of trips were for business purposes, 66 per cent for leisure and 11 per cent for commuting.83
107.The estimated benefits of High Speed 2 are highly dependent on the forecast numbers of business travellers on long-distance rail. The evidence upon which the number of business travellers used in HS2 Ltd’s modelling is based is now around 15 to 20 years old. It does not appear to correspond to the proportion of journeys undertaken for business that the most recent data from the National Travel Survey and the National Passenger Survey show.
108.The sensitivities of the estimated benefits of High Speed 2 to values of time and demand forecasts demonstrate how important it is to the business case that the new railway is designed to be as fast as possible.
109.New analysis of the project is needed which takes account of the transformative effects, including allowing for changes in land use, that new infrastructure can have. The assumptions behind values of travel time and the demand forecasts should be revised ahead of this new analysis. This analysis should be published alongside the full business case by the end of 2019.
36 Prices include contingency and rolling stock. The 2015 Spending Review set the budget for Phase 2a at £3.72 billion and Phase 2b at £24.83 billion. The latest Financial Case for Phase Two, published in July 2017, said there had been a £241 million budget transfer from Phase 2a to Phase 2b in relation to a tunnel at Crewe. The Financial Case said this had not resulted in an increase to the overall funding of the project. Department for Transport, ‘High Speed Two Phase Two Financial Case’, July 2017: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/629165/high-speed-two-phase-two-financial-case.pdf [accessed 1 May 2019]
37 The Office for National Statistics publishes an index of price increases for construction. This suggests that the price of new construction work for infrastructure rose by 6.7 per cent from 2015 to December 2018. Office for National Statistics, ‘Construction Output Price Indices (OPIs), UK: October to December 2018’, Table 2, 13 February 2019: https://www.ons.gov.uk/businessindustryandtrade/constructionindustry/bulletins/constructionoutputpriceindicesopis/octobertodecember2018 [accessed 1 May 2019]
38 Letter to the Chairman from Mark Thurston, Chief Executive Officer of High Speed Two (HS2) Ltd, 7 March 2019. HS2 Ltd said that the indirect costs included technical designs and safety standards, IT systems, design of Phase One and Phase Two routes, HS2 Ltd workforce, HR, legal and facilities costs, consultation, communication and public engagement activities. The remaining spend was on Hybrid Bill development and delivery (£300 million), enabling works (£144 million), main works (£104 million), utilities (£72 million), ground investigation works (£65 million), network activity (£165 million), VAT provisions (£275 million) and other work on behalf of the Department for Transport (£60 million).
39 HL Deb, 24 July 2018, col 1593. Baroness Sugg, Parliamentary Under Secretary of State for Transport, said the cost estimate “will be informed by supplier feedback where contracts have been awarded and will reflect expenditure to date and projected income and maintenance costs. Where contracts have not yet been awarded (e.g. railway systems, rolling stock) HS2 Ltd estimates will be used.”
40 Written Answer from Baroness Sugg, 12 April 2019, Grouped Questions HL14997, HL14998, HL14999, HL 15000.
41 A. Gilligan, ‘HS2 budget ‘will balloon to £80bn’, says secret report’, Sunday Times, 22 July 2018: https://www.thetimes.co.uk/article/hs2-budget-will-balloon-to-80bn-says-secret-report-r9qtwpbpl [accessed 1 May 2019]
42 Tony Berkeley, @tonyberkeley1, 17 March 2018: https://twitter.com/tonyberkeley1/status/
974946514379386880?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E974946514379386880&ref_url=https%3A%2F%2Fwww.transport-network.co.uk%2FLabour-peer-suggests-HS2-costs-double-what-public-is-told%2F14910 [accessed 1 May 2019]
43 Q 5 (Sir Terry Morgan). Sir Terry Morgan was the chair of HS2 Ltd from August 2018 to December 2018.
44 Letter to the Chairman from Mark Thurston, Chief Executive Officer of High Speed Two (HS2) Ltd, 7 March 2019. In an interview with BBC Look North in February 2019, Mr Thurston said “We’ve always said we will know what it costs to build HS2 once we’ve got all our contractors mobilised, all our supply team mobilised. This is a huge economic project for the country.” Steve Bird and Edward Malnick, ‘True cost of HS2 not known, boss of controversial rail scheme admits’, Sunday Telegraph, 16 February 2019: https://www.telegraph.co.uk/politics/2019/02/16/true-cost-hs2-not-known-boss-controversial-rail-scheme-admits/ [accessed 1 May 2019]
45 Department for Transport, ‘TAG UNIT A2.1: Wider Economic Impacts Appraisal’, May 2018, p 2: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/712878/tag-unit-a2-1-wider-impacts-overview-document.pdf [accessed 1 May 2019]
46 The figures in the table cover the 60 year appraisal period which is up to 2093 for the full network.
47 Department for Transport, ‘TAG UNIT A2.1: Wider Economic Impacts Appraisal’, May 2018: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/712878/tag-unit-a2-1-wider-impacts-overview-document.pdf [accessed 1 May 2019]
48 Department for Transport, ‘TAG UNIT A2.1: Wider Economic Impacts Appraisal’, May 2018: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/712878/tag-unit-a2-1-wider-impacts-overview-document.pdf [accessed 1 May 2019]
50 Andrew Martin, Underground, Overground, (London: Profile Books Ltd, 2013) p 169: “On what John Betjeman called ‘these mild home county acres’ the Metropolitan would create Metroland, a series of Tudorbethan havens for the office toilers of London”.
53 Economic Affairs Committee, The Economics of High Speed 2, p 104
54 Economic Affairs Committee, The Economics of High Speed 2, Chapter 8
55 High Speed 2 Limited, ‘HS2 Phase Two Summary of key changes to the Economic Case 2015 to 2016’, November 2016, p 15: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/574742/Summary_of_key_changes_to_the_Economic_Case.pdf [accessed 1 May 2019]
56 Institute for Transport Studies, Valuation of Travel Time Savings for Business Travellers, April 2013, p 15: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/251997/vtts_for_business_m ain_report-dft-005.pdf. The approach calculates the value of business travel time by adding the gross wage to non-wage labour costs. The gross wage rate was calculated for rail passengers using evidence from the National Travel Survey. A percentage increase was then applied to reflect non-wage labour costs such as national insurance and pensions contributions. Economic Affairs Committee, The Economics of High Speed 2, p 108
57 Economic Affairs Committee, The Economics of High Speed 2, p 108
58 Department for Transport, ‘Understanding and Valuing Impacts of Transport Investment: Values of travel time savings’, October 2015: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/470998/Understanding_and_Valuing_Impacts_of_Transport_Investment.pdf [accessed 1 May 2019].
59 Commuting is counted as non-work travel for the purposes of transport cost-benefit analysis. Economic Affairs Committee, The Economics of High Speed 2, p 107
60 Arup, ‘Provision of market research for value of travel time savings and reliability’, 14 August 2015: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/470231/vtts-phase-2-report-issue-august-2015.pdf [accessed 1 May 2019]. The research was carried out by a consortium of Arup, the Institute for Transport Studies and Accent. The surveys also included scenarios that determined what people were willing to pay to avoid crowded and unreliable rail services. But for the values of time in Table 8, the results of the exercise described in paragraph 68 were used.
61 Accent, ‘Appendix E: Pilot Intercept Recruitment Questionnaire’, August 2015, page 82: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/470234/appendix-e-final-14-august-2015-questionnaires.pdf [accessed 1 May 2019].
62 The Arup report acknowledged that this presented issues: “There continues to be a debate as to whether [stated preference] can elicit credible valuations of travel time savings and reliability. This challenge is especially vocal in the area of business travel, given that respondents might not act as agents for their employer’s best interests.” If an employee had said that their employer would not be interested in paying to save time, they were told to answer as if they were paying for the journey themselves. Arup, ‘Provision of market research for value of travel time savings and reliability’.
63 Department for Transport, ‘Understanding and Valuing Impacts of Transport Investment: Values of travel time savings’. The Department’s report describes how the results of the surveys were turned into values of time: “Results from the choice models allow estimation of a value of time for a given mode, journey purpose, trip distance, traveller income etc [but] the survey sample was not constructed to be nationally representative … Therefore, the study team also developed an ‘Implementation Tool’, which applied results from the choice modelling to trips recorded in the National Travel Survey (NTS). Using NTS data from 2010 to 2012, this essentially estimated a value of time for each NTS trip, which could then be averaged to produce nationally representative values for use in transport appraisal.”
64 Ibid. The Department said there were “several reasons” why values of time for business travel could be expected to increase with distance. Longer trips “tend to be more costly … are more likely to involve travel outside of normal working hours … and while it is possible to work while travelling, [the] qualitative research highlighted the limitations on the sorts of tasks that can be completed during a journey.”
65 Ibid.
66 Economic Affairs Committee, The Economics of High Speed 2, p 106
67 Department for Transport, ‘Understanding and Valuing Impacts of Transport Investment: Values of travel time savings’, October 2015: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/470998/Understanding_and_Valuing_Impacts_of_Transport_Investment.pdf [Accessed 10 May 2019]
68 They concluded: “Nevertheless, this study has progressed our understanding of travellers’ values of time savings and we recommend that the DfT undertakes more frequent smaller-scale updating exercises in future.” Systra, ‘Value of Travel Time Savings - Peer Review & Audit’, 30 July 2015: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/470256/vtts-peer-review-final-report-v3.0.pdf [Accessed 1 May 2019]
69 Economic Affairs Committee, The Economics of High Speed 2, p 36
71 Economic Affairs Committee, The Economics of High Speed 2 p 30
72 Office of Rail and Road, ‘Passenger journeys by sector - Table 12.6’: http://dataportal.orr.gov.uk/displayreport/report/html/a10e3c7b-7766–40ae-a87a-14c56cf85a63 [accessed 1 May 2019]
73 Office of Rail and Road, ‘Regional Rail Usage - Table 15.4’: https://dataportal.orr.gov.uk/browsereports/15 [accessed 1 May 2019]
74 High Speed 2 Ltd, ‘High Speed Two (HS2) Phase Two PFM v7.1 Step-through report: Summary of key changes to modelling assumptions between PFM v6.1c and PFM v7.1’, July 2017: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/628528/CS866_C_PFMv7.1_Step-Through_Report.pdf [accessed 1 May 2019]
75 High Speed 2 Limited, ‘PLANET Framework Model: PFMv7.1 Assumptions Report’, July 2017: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/699029/CS866_D_Assumptions_Report_PFM_7.1.pdf; High Speed 2 Limited, ‘HS2 Phase Two Assumptions Report: PLANET Framework Model version 6.1c’, November 2016: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/574740/Planet_Framework_Model_Assumptions_Report.pdf [Accessed 1 Mayu 2019]
76 The reduction in benefits caused by the lower demand growth meant the overall cost-benefit ratio of the project was reduced to 2.0 from 2.6 in the 2016 analysis. However, following an update from the Department for Transport to its appraisal guidance, the cap on demand growth in the HS2 modelling was removed, allowing the number of journeys on the railway to increase with predicted population growth up to the end of the appraisal period in 2093. Previously, demand for the railway had been capped in 2037. The change increased the expected benefits by around 8 per cent and resulted in the cost-benefit ratio increasing from 2.0 to 2.3. Department for Transport, ‘High Speed Two Phase Two Economic Case’, July 2017, Annex C: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/634196/high-speed-two-phase-two-economic-case.pdf
77 Economic Affairs Committee, The Economics of High Speed 2, p 53
78 Letter for Nusrat Ghani MP to the Chairman, 18 March 2019
79 Economic Affairs Committee, The Economics of High Speed 2, p 114
80 These figures were considered in our 2015 report from paragraph 403. Ibid.
81 Written evidence from the Department for Transport to the Committee’s 2015 inquiry, The Economics of High Speed 2 (EHS0090)
82 Economic Affairs Committee, The Economics of High Speed 2, p 118
83 Virgin Trains, National Rail Passenger Survey, June 2018 https://www.virgintrains.co.uk/-/media/vt/files/pdf/national_rail_passenger_survey/national-passenger-survey-18-spring.ashx?la=en&hash=39CA6883C54D928809DD6F9D5CA21D7FE05DF5D9 [accessed 1 May 2019]