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Ballparking the economic value of HS2 journeys

with 3 comments

Implicit in KPMG’s advocacy for high speed rail is the idea that HS2 would reduce the ‘cost’ of a journey (i.e., it is less ‘costly’ to do a 98-minute roundtrip from Birmingham to London than it is to do a 164-minute one). According to KPMG, the HS2 Y network would provide positive economic impacts worth ‘up to £15 billion’ annually.

So if

EH is the total annual economic value of journeys with_HS2,

NH is the number of roundtrip journeys with_HS2,

NW is the number of roundtrip journeys without_HS2,

then VH, the value of an individual journey with_HS2, is £125, when NH is 120 million and

VH = EH / NH.

However, one could argue that the quantum of currently_non_viable_journeys is related to quantum of generated_journeys, and that the value of an individual journey with_HS2 should be calculated as

VH = EH / ( NH – NW).

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Written by beleben

April 14, 2014 at 10:55 am

Posted in High speed rail, HS2

3 Responses

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  1. The Wider Economic Benefits, WEBs, attributable to pre-existing trips will continue to exist if HS2 is not built. Hence the WEBs attributed to HS2 must depend on the generated or new trips alone. Further the trips which generate the WEBS are those for business and commuting (the supply side). The other trips generate consumption.

    The KPMG report claims (generated) WEBs worth £15 billion per year. The generated business and commuter trips number circa 7.75 million per year. Dividing the £15 billion by the 7.75 million yields £1,930 or close to £4,000 per return trip. In contrast, the average WEB from existing commuter and business trips by all modes amounts to only £141 (£282 for a round trip); 14 times less than supposedly arising from the new HS2 trips.

    Existing Trips on the West Cost Main Line must have higher WEBs than those generated merely because HS2 has reduced a journey time somewhat. The usual theory suggests double. Hence, if KPMG’s £15bn is to be believed, existing trips on the West Coast Main Line generate WEBs with an average value 28 times as high as the national average (the £141 from (5) above).

    That seems unbelievable – a reality check which suggests the £15bn from the KPMG report has to be rejected.

    For detail see http://transportwatch.wordpress.com/

    transportwatch

    April 14, 2014 at 1:26 pm

  2. The pre-runner to KPMG’s infamous report: HSR in Britain: Consequences for employment & economic growth. This shows HS2 delivering job losses in the East Midlands, London & the South. This job migration away from London is contrary to all the empirical evidence of Tomaney et al and shows the dubiousness of KPMG’s computer simulations. Subsequently, KPMG somehow massaged these losses into economic gains. The report opens with Greengauge 21 explaining that they hired KPMG to write a favourable report of HS2.

    Mike

    April 15, 2014 at 4:25 am

  3. I doubt that any analysis produced by any other accounting firm in 1984 would have been a good predictor of economic growth over the last 30yrs. As the blog points out, the (so called) value should be calculated on a marginal basis (i.e. taking current journeys into account) in the analysis.

    richie40

    April 15, 2014 at 11:51 am


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