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HS2 WIDER ECONOMIC BENEFITS LAUGHED OUT OF COURT Updated January 2014

 File Ref: website/HS2 Laughed out of court again 04 Jan 2014

Our July 2013 piece available, here http://www.transport-watch.co.uk/hs2-economic-analysis-laughed-out-court-july-2013 , explains why the original Economic analysis should be laughed out of court. 

For more laughter we now have the KPMG report of September 2013, with the title page caption, “HS2 engine for growth”. The introductory letter of apology, following the front cover provides:

“This document is issued for the party which commissioned it and for specific purposes connected with the captioned project only. It should not be relied upon by any other party or used for any other purpose.      

We accept no responsibility for the consequences of this document being relied upon by any other party, or being used for any other purpose, or containing any error or omission which is due to an  error or omission in data supplied to us by other parties”.

In the light of that we ask, how lacking in confidence can the authors be?

The main finding is that there will be Wider Economic Benefit’s, WEBs, valued at £15bn per year in 2037 (2013 prices), from a “Y” shaped network connecting London to Birmingham and Manchester, and Birmingham to Nottingham, Sheffield and Leeds. 

The analysis raises the question as to whether the theory could not be used by Government to justify spending vast amounts of taxpayers’ money on every loss-making enterprise in the land.  After all this one, as set out in our previous, creates an actuarial loss of nearly £70bn, a loss which depends on laughably high passenger forecasts – implying that the actual loss is likely to be an amusing amount above the £70bn.

(The next two paras replace the previous)

In any event the £15bn per year benefits canvassed by KPMG are inclusive of all the time savings and other benefits which form part of the standard analysis. Additionally the £15bn are assumed to grow in line with the economy, here set to 2% per year.  The discounted sum of those benefits for the 60 year evaluation period starting in 2037 is £245bn at 2011 prices.  That is three to four times the values of 47.2 and 59.3 bn in the January 2012 analysis.

This vast increase suggests a desperation on behalf of those promoting the scheme, a desperation that may be becoming acute.  At any rate the bosses of the main rail freight companies were reported in The Times of 28th Sept 2013 as claiming the proposal would keep food prices down (for heaven’s sake); an incredible claim bearing in mind that only 8.5% of the nation’s freight goes by rail and that most of that is raw materials or bulk freight.

Here is the new thing – expanded from our previous by reference to business and commuter trips and by the addition of references.

The forecasts provide a total of 380,000 trips per day, of which 24%, i.e. 91,000 are “generated” [1]  It is only those new trips which could generate the alleged £15bn since, by definition, all the other trips, and nearly all their WEBs, pre-exist.  Dividing the £15bn by the 91,000 and by 300 effective days per year provides £550 for each generated trip, or £1,100 for each round trip. 

To appreciate how unrealistic the £15bn is multiply the £550 by the 1,430 million trips made via Network Rail in 2011/12[ 2].  That generates circa £800bn, a sum equal to more than half the nation’s entire GDP, clearly an impossibility.  After all, rail accounts for only 3% of the nation’s passenger journeys and for only circa 5% of business trips [3]. 

Alternatively, the £15bn may be allocated to the sum of generated business plus commuter trips.  Business trips amount to 30% of all HS2 trips.[4], [5]  NTS data suggests that long distance commuting would add up to 25% to business trips [6].  Hence, for HS2, generated business trips plus generated commuting trips may amount to 34,000 per day [7].  Dividing the £15bn by those trips and by the 300 effective days per year provides £1,470 per trip or £2,940 per round trip. That extraordinary value provides nearly £3,000 per round trip, a value which is additional to the value otherwise generated by our man had he stayed in his office and used the phone or a video link or done other work.

Multiplying the £1,470 by the number of business plus commuter trips in the nation as a whole, amounting to 10.6 billion [8], produces an absurd £15,600 billion (over ten times the nation’s GDP).  Similarly, dividing the nation’s GDP, some £1,500 billion, by the nation’s total of business and commuter trips provides a value of £140 per trip, ten times less than the £1,470 implied by HS2’s £15bn.

That leaves HS2 Ltd to either (a) explain why a High Speed Rail trip, generated merely because a journey has been shortened somewhat, should provide vastly more benefits than any other journey on the rail network ever could (a task made doubly difficult since generated trips are likely to have lower values, perhaps half, those associated with existing trips) [9], or (b) concede that the analysis is ready for the waste paper basket.

Why is it that no one at KPMG or HS2 Ltd bothered to do the above sum?  After all, had they done so surely they would not have been stupid enough to publish the £15bn?

Our July piece pointed out that the £44.1bn benefits cited in the economic analysis are sourced as follows: £5.2bn from improved reliability, as though the trains cannot be made to run on time without building a high speed network, £5.5bn from other rail user impacts, meaning better access to stations, for heaven’s sake, £6.7bn from reduced crowding, largely solvable otherwise and £24.5bn from time savings, on the discredited assumption that time on a train is entirely wasted.  Hence, rather than those classical benefits amounting to £44.1bn, £20bn would be nearer the mark although even that presumes the ludicrous passenger forecasts actually arise.

Taken together could there be any more powerful demonstration that the nation has lost its head than the fact that this scheme ever arrived on the drawing board, let alone that it is currently supported by all political parties, all of them seemingly impervious to the nonsense that the supporting “analyses” are?

Perhaps penalties should be imposed upon those who have led the analysis, irresponsible as it is in all its detail, thereby putting tens of billions of pounds at risk.  At the least nobody should ever again believe data produced by ARUP, Atkins, HS2, Greengauge or Network rail in connection with HS2, or any other railway project.



[1] The Economic Assessment of January 2012 provides, at paragraph 3.2.1, 270,000 trips per day in and out of London plus 110,000 inter-regional trips, a total of 380,000.  Table 2 provides 24% of trips as new, or generated.  Hence we have 91,000 generated.
[2] The ORR stats provide 1,460 million network rail journeys in 2011-12.  1,460 million times £550 = £800 billion, slightly more than half the present GDP of £1,500 billion.
[3] NTS table 0409 provides that, in 2012, two out of 31 business trips per head were by rail including London Underground.  Hence 1.5 out of 31 is a fair estimate of the number by national rail, providing 5%.  The same table provides 146 commuter trips per head by all modes of which 12 were by rail.  Half the rail may have been by LU, which carries a similar number of journeys as does Network Rail.
[4] The Demand and Appraisal report for HS2 to the West Midlands, WS Atkins, April 2012, provides at, paragraph 6.4.8, that 30% of trips are business trips. 
[5] NTS table 0407 provides 19% of journeys on business for lengths between 100 and 250 miles, 15% for lengths between 250 and 350 miles and 26% for lengths over 350 miles.  This suggests HS2’s 30% is too high.
[6] NTS table 0407 provides, 5% of trips purposes as commuting and 19% as business for journey lengths between 100 and 150 miles, and 3% and 19% respectively for lengths between 150 and 250 miles.
[7] Generated business plus commuter trips estimated by multiplying the 91,000 generated trips by 0.3 (the proportion which are business trips) and by 1.25 (so as to incorporate commuting trips) providing 34,125.
[8] The National Travel Survey data provides 177 commuter trips and business trips per head by all modes in 2012[8].  Multiplying by the population of 60 million and by the £1,470 per generated business plus commuter trip estimated above provides an absurd £15,600 billion
[9] The classical argument is that the first trip to be generated by a reduction in journey time, or cost, enjoys the same benefit as do pre-existing trips but that the last trip so attracted is entirely marginal and hence takes no benefit from the cost reduction.  Hence the benefit assigned to each generated trips is typically half that assigned to each pre-existing trip.  This argument may, or may not, apply to WEBs.

 



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