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On 16 September, the Tax Payers’ Alliance has released its Research Note 92, ‘The hidden costs of HS2’, written by Chris Stokes. Here’s the introduction:

“While the business case for HS2 continues to unravel, this research note examines the hidden costs of the project. That includes both the costs of promises from Ministers, and the cost of other schemes which will be needed to make it work as advertised.

For a number of reasons costs may be higher:

* The present plans show that many towns and cities will get a worse service. If that is not the case as Theresa Villiers has argued, then the saving in the business plan for reducing existing services would not be possible, costing £5.4 billion.

* Additional pressure on London Underground lines from Euston will make Crossrail 2 necessary, costing at least £10 billion.

* Mitigating the environmental effects of the line, for example by running portions of it underground is likely to add at least £3 billion to the cost.

And revenues may be lower:

* Demand is unlikely to match the Government’s expectations, though we have not included a cost for this in our final calculations.

* Phillip (sic) Hammond has pledged that the increase in capacity will allow competition driving lower fares. But the business case is based on a 27 per cent over inflation rise in fares. If that does not take place revenue is likely to be at least £10 billion lower.

* The final result is that the cost to taxpayers alone will rise from £17.1 billion to a massive £45.5 billion.

The Huffington Post’s coverage included some of the responses to the TPA document:

More than £28 billion of taxpayers’ money will be needed to cover the hidden costs of the High Speed Two (HS2) project, according to an investigation championed by the TaxPayers’ Alliance (TPA).

Rising costs and lower revenues associated with recent pledges made by the Department of Transport are to blame, claims the report.

Critics of HS2 argue that £10 billion will be added to the bill by Cross Rail 2 – the Chelsea to Hackney line – that will have to be built to ease pressure on London Underground lines from Euston, according to the TPA.

Offsetting environmental concerns, such as going underground to avoid visual disruption, will cost an estimated additional £3 billion, it says.

However, Professor David Begg, Director of the Campaign for HS2, called the TPA report a “work of imaginative fiction”. He said:

“Anybody can make up a set of figures for spending that may have to happen in the future. Unfortunately, the key thing this ‘research note’ lacks is any evidence or research.
[…]
Tory MP Kwasi Kwarteng, a member of the transport select committee, agreed with Begg. Speaking at an event organised by the Institute of Economic Affairs (IEA), he said:

“Any input into the model can come up with any answer you want. It is simply the case that it is all dependent on the assumptions you make. It does not take an Einstein or even a sophisticated mathematician to manipulate those assumptions to find the figures you want.”
[…]
Flaws in predicted revenue are also criticised by the report. The project relies on the assumption that many more people will be using rail by the time of HS2’s completion. Kwarteng acknowledged this, saying:

“I’ve seen the benefit-cost analysis and I agree that it is based on extraordinary assumptions: that is that rail demand will increase from now till 2043. If it stops in 2026, then it makes no sense; there will be no benefit. I’ve seen those figures… there are risks, everything in life has risks, but if you balance the risks I think this is an excellent project… railways have been subsidised by the government since the nineteenth century.”

David Begg’s response to the ‘The Hidden Costs of HS2’ was posted on the Biz4HS2 website:

September 16, 2011

The Taxpayers’ Alliance’s report, ‘The Hidden Costs of HS2’, authored by Chris Stokes, claims that there are £28 billion of hidden costs not factored in to HS2’s business case. As a result, they claim that HS2 will cost £45.5 billion. This is a massive claim, for which a substantial evidence base is required. However, the TPA have concocted this figure on the basis of a number of erroneous and baseless claims.

1. The TPA say “the Government will have to spend £5.8 billion improving services for towns and cities who will be getting a worse deal under HS2”

• This is completely untrue. The HSR network would, in fact, free up a significant amount of capacity on existing lines as long-distance journeys transfer over to the new network. This would allow for a complete revamp of the East Coast and West Coast Main Line timetables, which would increase the possible number of services on the lines themselves as well as the services that connect to those lines (note 1).

• Without high-speed rail the rail network in this country is going to become completely blocked. Trains will become even more overcrowded, and the reliability of services will decrease. This scenario has been confirmed by leading authorities, such as Network Rail and Virgin (note 2). In order to squeeze extra services onto a congested line, intermediate stations like Watford Junction will end up being removed. This will have a devastating impact on smaller towns and cities.

• The TPA’s analysis provides no alternative that will release sufficient capacity to avoid this situation. Indeed, they provide no alternative at all. The claim, then, that we will have to spend an additional £5.4 billion on improving services that will be short-changed by high-speed rail is not only untrue, it is incredible. The TPA should ask themselves how much they would have to pay to fix the entire network if we, as they appear to suggest, were to simply sit on our hands for foreseeable future and allow it to deteriorate.

• The alternative that is being proposed by opponents to HS2 will cost vast amounts of money for minimal capacity returns, and will have disastrous consequences for the commuter (note 3). In the words of Network Rail, after 2024, the WCML “is effectively full and any interventions will be disproportionately expensive compared with the benefits gained” (note 4).

2. The TPA say “the Government will have to spend £10 billion creating Crossrail 2”
• Opponents to HS2 seem to want to have their cake and eat it. In one breath they claim that HS2 will be empty and that predicted demand is inflated (on p.4); in the next breath they claim that billions will have to be spent to accommodate the millions of commuters that will end their journey in Euston and need to use the London Underground system (on p.1). Their argument therefore defies logic.

• The only explanation they provide as to why we need Crossrail 2 is this: “Boris Johnson has now said that the construction of the Chelsea – Hackney Line (“Crossrail 2”) is essential to make HS2 work”.

• The only explanation they provide as to how they estimated the predicted £10 billion cost of Crossrail 2 is on the basis of a comparison with the cost of Crossrail 1: “[this] estimate is conservative given Crossrail [note 1] is costing £15.9 billion”.

• The TPA therefore provide no evidence or explanation as to why Crossrail 2 is necessary, and no financial workings. This is a very poor standard of research.

3. The TPA say “the business case and demand predictions are overinflated”

• The business case for HS2 has actually been criticised by leading authorities for being far too conservative. For example, according to Volterra, a leading economic consultancy, the Government’s business case ‘is based on conservative assumptions and a conservative approach to modelling’ (note 5).

• The Government have based its case on time savings, and has failed to adequately account for the wider economic benefits that high-speed rail would produce, such as growth and jobs. In addition, its demand assumptions rely on significantly lower growth figures than have been seen on the network in recent years.

• For example, Greengauge 21 estimated that a high-speed network could deliver benefits of up to £125 billion to the UK economy. Given that the Government estimate is £44 billion, this is roughly three times higher.

• High Speed 1 has certainly exceeded original expectations. Originally estimated to create £500 million for the economy, it is now predicted that it will create £17.6 billion, which is nearly 40 times more (note 7).

In response to the report, Professor David Begg, Director of the Campaign for High Speed Rail, said:
“This is another work of imaginative fiction from the Taxpayers’ Alliance. Anybody can make up a set of figures for spending that may have to happen in the future. Unfortunately, the key thing this “research note” lacks is any evidence or research.

“The TPA has nothing constructive to say about how Britain’s railway capacity crisis can be helped. Instead of just carping and criticising from the sidelines, they should realise that HS2 is the best option for taxpayers and passengers.”

ENDS

[1] Greengauge 21, Capturing the Benefits on Existing Lines, http://www.greengauge21.net/wp-content/uploads/Capturing-the-benefits-update.pdf
[2] Network Rail, West Coast Main Line Utilisation Strategy; Virgin Trains, February 2011 http://mediaroom.virgintrains.co.uk/2011_02_01_archive.html
[3] The campaign has deconstructed the proposed alternative online here: http://www.campaignforhsr.com/a-better-railway-for-britain-why-the-alternative-to-hs2-doesn%E2%80%99t-stack-up
[4] Network Rail, West Coast Main Line Utilisation Strategy
[5] Volterra, Understanding the transport infrastructure requirements to deliver growth in England’s Core Cities, p.25
[6] Greengauge 21, HSR – affordable to all, October 2011
[7] London and Continental Railways and Volterra, Economic Impact of High Speed 1

It’s not possible to accurately predict transport demand, or operating costs, 60 years into the future, and HS2 Ltd’s model has little credibility. As (apparently pro-HS2) Mr Kwarteng said, the HS2 benefit-cost ratio is based on extraordinary assumptions. To get “the figures you want”, just feed in suitable inputs and assumptions into the assessment.

Written by beleben

September 19, 2011 at 11:29 am

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