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HS2: "TRANSFORMATIONAL" AND OTHER BAD JOKES. IS THERE FRAUD?

Wp ref HS2: TRANSFORMATIONAL AND OTHER BAD JOKES 

1.   Transformational?

HS2 Ltd claims that the proposal will be “Transformational”. 

HS2 Ltd also say that the project will generate 76,000 new passengers-journeys per day, (FoI request 13-873).  The 76,000 corresponds to roughly 22.8 million per year.  It is only those new trips which can be “transformational” since all the rest (obviously) pre-exist.  

There are currently 1.5 billion passenger-journeys per year by surface rail, and 43.5 billion passenger-journeys by all modes (walk and cycle excluded).  Hence generated, or new, passenger-journeys may account for a trivial 1.5% of all surface-rail journeys and for an even more trivial 0.05%, or one in 2,000, of all passenger-journeys.

Transformational?  Ha, Ha.

2.   Job creation

Supporters of HS2 claim it is essential to the nation etc.  HS2 Ltd also say that the Y-network will create 100,000 jobs whilst admitting that many, if not most, of those may be no more than relocations.

The initial cost of HS2, including the trains and links to the stations, may be £80 billion.  The financial or actuarial loss (costs minus income out to the remote year of 2096) faced by those standing in the opening year of 2036 will be close to £70bn (1), supposing the ludicrous passenger forecasts arise.  Hence the cost per job will amount to at circa £800,000.  How much employment will that destroy in that part of the economy which makes a profit? 

Job creation? You must be joking.  Jobs for the boys more like it. Applying these HS2 principles to the nation as a whole would bankrupt us all in no time.

3.   The North-South Divide

Claims by supports that HS2 or the Y network will reduce the North-South divide or regenerate the North are not substantiated.  Any such effect will, at best, be trivial, reference Professor Geddes evidence to the Transport Committee’s inquiry into High Speed Rail (2010-2012).

4.   The Passenger Forecasts – no risk factor

The original passenger forecasts for HS1 were too high by a factor of three.  The forecast for HS2 require up to 18 1000-seat trains per hour, or one train every 3 minutes 20 seconds, at peak times, which seems quite extraordinary. 

An honest analysis would acknowledge that there is a considerable risk that the forecast may be too high, perhaps by a factor of two.  If so the economic case would collapse.

Instead there is a pretense, Figure 1 of the October economic analysis, that there is a 75% probability that the scheme will have a benefit to cost ratio categorised as high, i.e. above two. 

In the real world such a presentation would lead to a miss-selling action should the project fail, as it probably will.

5.   The “Willingness to Pay calculus”

The quaintly named “Willingness to Pay calculus” underpins the economic analysis.  That theory enables the net cost to Government to be compared with social benefits, such as the cash values of time savings etc. 

The net cost is the full cost minus the “incremental” fares.  The latter are the fares from HS2 minus those which the proposal would extract from the rest of the railway.  However, the theory leads to the absurd.  For example:

If the rest of the rest of the railway were privatised and free of subsidy then the incremental fares would rise to the full fares taken by HS2.  That would greatly reduce net costs to Government and increase the benefit to cost ratio no end.

  • If, at the stoke of a pen, domestic air transport were nationalised, along with the filling stations on the strategic road network, then the incremental fares from HS2 would be reduced by a amount equal to the loss of income from the air industry and filling stations caused by HS2.  That would increase the cost to Government, and hence reduce the benefit to cost ratio.
  • Private sector projects cost the Government nothing  Hence the theory leads to the absurd conclusion that such projects, even if making losses in the tens of billions of pounds, have an infinite benefit to cost ratio - cost to Government, zero, benefits to customers presumed above zero; hence benefit to cost ratio is, oh golly, infinity.
  • Merely changing the tax regime, a purely paper exercise, would alter the costs to Government and hence the all important benefit to cost ratio.

A theory which produces such capricious result has to be rejected.  This one was cooked up by Professor Sugden of the University of East Anglia.  Without it no railway project would ever pass scrutiny.  Probably that is why this intrinsically dishonest “calculus” endures.

Instead decisions concerning projects where there are paying customers should be made on the basis that, if the proposal makes a loss, particularly if the loss is in the tens of billions of pounds, then for heaven’s sake DO NOT BUILD IT.

6.   KPMG’s £15 billion per year Wider Economic Benefits

KPMG’s report of September 2013 claims HS2 and the Y-network will generate an extraordinary £15 billion per year in Wider Economic Benefits (WEBs).  These benefits can only arise from generated, or new, business and commuter trips – the supply side. 

As at (1) above, generated, or new, trips total 76,000 per day.  If 30% are for business or commuting they will number 23,000 per day.  For such trips there are an effective 255 days per year.  Hence the annual new business plus commuter trips will be circa 5.8 million.

Dividing KPMG’s £15bn by the 5.8 million provides an average value for these new business or commuter trips of circa £2,600, or £5,200 per round trip.  That value is 18 times the average for the nation as a whole (2), illustrating how unbelievable the £15bn is.

After all:

  • The £5,200 per round trip is in excess of what would have been achieved had the individuals stayed in their offices.
  • These new trips arise only because journey times will have been reduced somewhat.
  • Pre-existing trips did not need such an encouragement.  Hence they will have higher WEBs, possibly double the average for the new trips, implying an average value attributable to a pre-existing business or commuter trips on the West Coast Main Line 38 times that for the nation as a whole.

Charitably KPMG did not carry out such a reality test.  Had it done so it would never published the £15bn, or at least not with a straight face.

7.   Information denied

In October 2013 we asked HS2 Ltd, under freedom of information legislation, to provide the proportions of trips which were for business, commuting and leisure.  That data must be available since, without it, the economic analysis could not be carried out.  

HS2 Ltd claimed it does not hold the information.  We have continued to press for the data but without success.  The date is now 8th March 2014.  We regard this failure on behalf of HS2 Ltd as symptomatic of an organisation which will do all it can to prevent key data from reaching the public thereby suggesting corruption at the heart of the organisation.

(The 30% we have used under the previous heading is consistent with old reports)

8.   The October 2013 economic analysis

This analysis uses a lower value of time for the crucial business trips and a lower number of trips assigned to the scheme.  On the face of it those reductions should reduce the computed benefits by 35%.  Instead the new study pretends to an increase of 24%, which is astonishing, if not entirely unbelievable.

9.   A 12-lane motorway

The CPRE, and now the DfT, have put it about that HS2 will have the same capacity as a 12 lane motorway.  That depends on dishonestly comparing trains with every seat taken with a motorway occupied by cars containing the national average of 1.5 people. 

Instead, the correct comparison is the between the seats per hour offered by the trains and the seats per hour that would be offered by express coaches operating on a motor road. 

HS2 pretends to 18 1,000-seat trains in one direction and on one track in the peak hour providing 18,000 seats.  1,000 express coaches travelling at 110 kilometers per hour on one lane of a motor road would have comfortable headways averaging 110 metres.  Those coaches may very well have 75 seats each so providing 75,000 seats in the hour.

Hence, rather than  HS2 providing the same capacity as a 12-lane motorway, two motorway lanes, one in each direction, dedicated to express coaches would provide the same capacity as eight high speed rail tracks.

10. The HS2 letter head

HS2 Ltd has, as its letter head, “HS2 engine for growth”.  We comment, there is no evidence that this scheme will bring any growth at all.  Instead it will waste tens of billion of pounds, thereby stunting growth.  Hence from the very first there is misrepresentation.

11. Fraud

Is there any prospect of prosecuting those at HS2 Ltd, and in the DfT for fraud on the basis that the information they produce misleads both politicians and the nation on a mammoth scale, tempting the Government to pour £80 billion down the drain – miss-selling on a gigantic scale?

Footnotes

  1. Table 15 of the October economic analysis provides a loss to the Government of £31.56n.at the 2013 price and discount base.  Rolling that up at the Treasury Discount rate of 3.5% to 2036 provides £69.5 billion, representing the actuarial loss at 2013 prices faced by those standing in 2036, supposing the forecast fares and the ludicrous passenger forecasts actually arise.
  2. The nation’s GDP is circa £1,500 billion. National Travel Survey data provides 177 commuter plus business trips per head by all modes in 2012.  The population is 60 million.  Hence the value per trip is £1,500 billion divided by 60 million and by 177, providing £140 per trip, or £280 per round trip. The £280 is 18 times less than the supposed £5,200 average for the trips generated by HS2.


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