Rail 589: Why I remain sceptical of a second high speed line

Early last year, I wrote a column expressing doubts about the value of building a new north south high speed line (Rail 556). I argued that the case was by no means proven because the environmental benefits, which will increasingly dictate government policy, were marginal in relation to the cost.

At the time the idea of a high speed line seemed dead and buried. The Eddington report on future transport needs had just been published and the ex British Airways man was, true to form, very sceptical about the value of a major new rail project. The government was making no plans about building a high speed line and this was confirmed with the publication of the White Paper on rail investment in July which stated that there would not even be an assessment of the scheme until after the next Control Period (2009/14) at the earliest.

However since then there has been the odd murmurings that perhaps we would not have to wait so long for a study into the scheme and, with the replacement of John Armitt by Ian Coucher, Network Rail is now strongly supportive of the idea, having previously been lukewarm at best. Now we have the report by WS Atkins highlighted in the last issue of Rail which argues that there would be £32bn of net benefits for a scheme after the £31bn costs of building had been met..

I have just been to Amsterdam where I dropped in on the huge High Speed rail exhibition and conference organised by the UIC, the worldwide railway organisation. It was hugely impressive. High speed lines are being built across the globe and there was even a stand staffed by Ukraine railway managers who are hoping to obtain support for a European scheme linking the town of Lviv with Krakow in Poland and Berlin.

High speed line projects are, therefore, popping up everywhere and there was much optimism about the future growth but there were some dark clouds hanging over the conference, notably the appalling delays to the Dutch high speed line between Amsterdam and the Belgian border. The line was supposed to be open two years ago but the trains were late in being ordered and now there are further delays because the government took the brave decision to have only the in-cab European standard ERTMS signalling system level two, with no conventional system to back it up. At a press conference, none of the rail managers would give a straight answer as to when the scheme would open, though Spring next year is the best bet, and all the while the private company which built the line is receiving its usage payments. That scheme and the financial failure of the newly completed but heavily loss making Betuwe freight line between Rotterdam and the German border has made many Dutch people I spoke to deeply sceptical of future rail investment.

So has the Atkins report and the impressive exhibition made me more supportive of the idea of a high speed line? I’m afraid not. Indeed, quite the opposite. The Atkins report is, frankly, thin stuff, under 40 pages long and clearly aimed at getting Atkins some cheap publicity, rather than seriously assessing the case for or against a high speed line.

There is precious little detail but basically the case for the line is based on a model called PLANET Strategy which seems a wholly appropriate name for such an other worldly study. The assumptions are so vague and broad that it is impossible to take the conclusions at all seriously and the notion of achieving £31bn of benefits over a 60 period is frankly utterly meaningless, a bit of pseudo science that should not even be reported.

Ultimately, the decision over whether to build a high speed line is a political, not an economic one. The trouble with reports like the Atkins one is that it gives a spurious accuracy to what is really guesswork. The imponderables are so enormous and affect the equation to such a huge order of magnitude that the basis of the report which suggests the scheme may be give £30bn net benefits is, frankly, junk science. It may be £300bn or minus £100bn, depending on the values one ascribes to the various factors.

Most of the benefits arise from supposed time savings by people travelling and multiplying those savings by a value (typically around £20 per hour, but it varies) in order to turn time into money. The study also cites gains through improving competition (it’s very complicated, but trust me!); ‘agglomeration’ benefits resulting from firms in the same industry benefiting by being effectively nearer each other; and labour market effects, notably encouraging workers to ‘relocate to more productive locations’.

These cost benefit studies are supposed to assess the ‘value’ of schemes above and beyond those that can be captured through the fare box. The justification is that society will benefit by more than the cost of the scheme. However, the quantification of these benefits is, as we see from the above, more art than science.

It is not only the assessment of benefits which is pretty much sophisticated guesswork. No one has the faintest idea how much a high speed line would cost, but you can bet it will be more than any figure given in advance. The world’s foremost experts on megaprojects, Bent Flyvbjerg, found, in a study in his book Megaprojects and Risk (required reading for all supporters of big projects) that cost overruns of 50 to 100 per cent (in addition to inflation) are common with megaprojects and overruns of over 100 per cent ‘are not uncommon’.

He also found that rail projects were particularly susceptible to overestimates of usage. You only have to look at the estimates for passengers going through the Channel Tunnel as one of the best examples: the estimate before its construction was that almost 15 million people would be using Eurostar, precisely double the present actual number.

Atkins admits that  ‘the model does not forecast future rail demand, but uses and combines unconstrained mode-specific forecasts. It then calculates the impacts of congestion on the strategic highway network and crowding on long distance rail services on relative mode shares.’

In English, that means the model simply extrapolates long term growth trends and then tries to calculate the costs of congestion on each mode. This highlights the real nonsense of such forecasts. They are not based on any realistic assumptions about the various societal factors affecting transport because they assume ‘unconstrained’ growth, something which cannot be allowed to happen given the world shortage of energy and efforts to try to reduce carbon emissions.

Moreover, the benefits set out in the study are not based on any real value but on people’s estimate of what their time is worth. But it is deeply flawed model and open to all sorts of very major variations depending on what assumptions are made. For example, now that people can work on trains with their laptops and even get wifi, they can treat the journey pretty much as productive time. Therefore, saving an hour on the journey by having a high speed train rather than a conventional one does not really save any money whatsoever. But such factors are not taken into account.

That is why the ‘green’ credentials are so questionable. Yes, of course if people are taking the train rather than a plane, then they use about one sixth of the carbon emissions. However, surely by the time a line were built, there would be harsher taxation of aviation, pushing more people onto rail already. And the large number of high speed rail passengers displaced from conventional rail would, according to Atkins, consume about a fifth more emissions. Certainly, with current technology, high speed rail is not enormously more friendly than car use, provided there is more than one occupant. Over time both technologies will improve their carbon footprints, but predicting which mode will do best is almost impossible.

Now I know that some smart alec PR person from Atkins will probably rebuke me for debunking the methodology, arguing that the model may not be perfect but it is better than nothing. I would suggest the opposite. And here’s the real test of the scheme: let’s see if the private companies who are so keen to make money out of railway franchises would be prepared to put up the money and risk building it. After all, as I set out in my railway history book, Fire & Steam, the railway system was built in the 19th century, with real capitalists and entrepreneurs taking genuine risks with their money.

However, I can guarantee you one thing now – the answer will be no. And here’s why. Say the cost is £40 billion and the investors will require a return of, say, 10 per cent from a mix of equity (shares) and debt. That’s £4bn per year. The estimate of passenger numbers depends greatly on the precise route but say it could be 20 million. So just to pay for the capital costs, their tickets would need to cost £200 each! And that does not take account of the operating expenditure. Therefore, the scheme will have to be government sponsored and heavily subsidised.

Which brings me to my killer point. As mentioned above, the Atkins study admits that its methodology is not based on any real estimates of future rail demand. That, of course, will be heavily price dependent. One of the reasons for the success of high speed rail schemes in France, Spain and Germany is that those countries have traditionally had relatively low fares because they reckon that once a piece of kit is built, then people may as well use it.

That is not the view of the Treasury. Therefore any scheme will have high fares which, in turn, will greatly reduce its potential usefulness. Look at the Kent domestic services where a premium will be paid. Look at the underuse of the Channel Tunnel because of the high charges caused by the government’s refusal to invest in it. The blinkered Treasury view will be that schemes have to pay their way, irrespective of their wider value to society. And that, dear reader, is why it is not going to happen.