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AN UNBELIEVABLE RESULT: January 2012 and October 2013 Economic analyses compared

January 2014
Updated April 2015
File Ref Differences 2012 to 2013 NEW

The data and calculations below show that (a) the lower values of time coupled with (b) the lower total HS2 trips, in the 2013 study should greatly reduce user benefits. Instead the new study pretends to an increase of 24%, which is astonishing, if not entirely unbelievable. 

Likewise the effect of the increased construction costs seems should have depressed the benefit to cost ratios.  Not withstanding the expectation these ratios are immaterially different form those in the January 2012 analysis, see table below leaf

Here is the detail

(1) Trips using HS2.

In 2012 we had 380,000 [1] per 16 hour week day: In 2013 that had fallen to 301,140, [2] a 21% reduction. A reasonable presumption is that this reduction would reduce the user benefits by 20%.

(2) Values of time.

From Table 3 of the October 2013 report we have::

Travel Purpose
Old Values of Time
New Values of Time
% change
Business 
£47.18
£31.96
-32.26
Commuting
£6.46
£6.81
+5.41
Leisure
£5.71
£6.04
+5.78
It is not possible to simply calculate the anticipated effect of these changes on benefits because a substantial proportion of those are derived from time spent walking or waiting etc and for those items commuting and leisure time is valued at two or two and a half times the base values.

Nevertheless it is clear that the very substantial reduction in business time should have reduced the corresponding benefits.  Instead these benefits are increased by one third or by circa £10bn, for heavens sake.

(3) Generated or New Trips.

In 2012 24% of trips were new[3] providing 91,200 (e.g. 380,000 from (1) above x 0.24 = 91,200).  The 2013 report cites 26% [4]providing 78,296 (e.g. 301,140 x 0.26 = 78,296).  The latter is close to the 76,886 obtained from HS2 Ltd [5].

This reduction in generated trips is strange.  Has HS2’s consultant reduced these and increased the pre-existing trips?  If so the move would increase the calculated benefits since new trips are generally assigned half the values of time of those attributed to existing trips.

(4) Costs.

The 2012 construction (or capital) cost was £33bn.  The October 2013 study contains cost with a range of probabilities.  The one most cited is the “P95” value of £42bn, meaning that there was a 95% probability that that value would not be exceeded.  Adding for the trains provides the often cited £50bn.  However that cost was not used in the “standard case” analysis which provides the Benefit to Cost Ratios most often cited. Instead the P50 value of 38bn was applied. 

In any event the net cost of the scheme at the 2011 price and discount base was increased from the 2012 study range of 24.1bn to £26.3bn to a single figure of £31.1bn 

(5) Cost benefit analysis.

The table below compares the 2012 data with that from the standard case 2013 data.  From that table we see that:

  • Net transport benefits (row 4) from the 2013 standard case are 32% above the 2012 low growth value and 17% above the High growth value, corresponding to 24% above the mean value, which is astonishing. Instead a very substantial reduction was expected.
  • Capital costs have gone up.
  • Operating costs, presumed to include maintenance and renewals, have gone down slightly.
  • Wider Economic benefits have risen from the range £5.7bn to £12.3 to £13.3bn; an increase of £4.7bn, or nearly 50%, above the mean of the previous range.
  • The benefit to cost ratios have remained substantially the same.

What is going on? How has that been achieved?  Nearly all the changes outlined above should have reduced the rations substantially.

Have they vastly increased the proportion trips which are for business or what?

 

£(billions): 2011 PV base
Purpose
Jan 2012
Table 9
Oct 2013
Table 15
Low
High
Standard
 case
(1) Transport User Benefits
Business
28.80
32.30
40.50
 
Other
15.30
17.40
19.30
 
Total
44.10
49.70
59.80
(2) Other quantifiable benefits
 
1.00
1.10
0.80
(3) Loss to Government of Indirect Taxes
 
-3.60
-3.90
-2.90
(4) Net Transport Benefits (PVB) = (1) + (2) + (3)
 
41.40
46.90
57.70
(5) Wider Economic Impacts (WEIs)
 
5.70
12.30
13.30
(6) Net Benefits including WEIs = (4) + (5)
 
47.20
59.30
71.00
(7) Capital Costs
 
36.40
36.40
40.50
(8) Operating Costs
 
21.70
21.70
22.10
(9) Total Costs = (7) + (8)
 
58.10
58.10
62.60
(10) Revenues
 
31.80
34.00
31.10
(11) Net Costs to Government (PVC) = (9) – (10)
 
26.30
24.10
31.50
(12) BCR without WEIs (ratio) = (4)/(11)
 
1.60
1.90
1.80
(13) BCR with WEIs (ratio) = (6)/(11)
 
1.80
2.50
2.30
 
 
Transport-Watch:
Phone 01604 847438
Originally January 2014
Updated April 2015
 

[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.  (Weekday flows using HS2 in 2037).
[2] HS2 Ltd FoI number 13-873.  (Weekday flows using HS2 in 2036).
[3] Table 2 of the January 2012 report provides 24%.
[4] Table 22 of the October 2013 report provides 26%.
[5] HS2 Ltd FoI number 13-873.

 



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