Rail 626: Network Rail shows weakness of high speed rail business case

Network Rail’s analysis of the business case for a north south high speed line looks like a massive own goal. It suggests yet again that its directors have little political nous and have made the classic mistake of commissioning research without knowing the answer they wanted. Not only does the analysis suggest that the case for building the line is at best tenuous, the organisation has not endeared itself to the government through the timing and nature of the publication. The report flatters to deceive, begging more questions than it answers and, if anything, further muddying the waters.

 First, though, there is the rather odd timing and nature of the report. HS2, the government company set up by Lord Adonis to examine the feasibility of a high speed line is due to hand over its report to him by the end of the year, with publication expected very early in 2010. Therefore there was some consternation in government circles about what Network Rail was up to and why the company felt it timely to release this report at this time. Certainly in Whitehall it was felt that this was an attempt by Network Rail to park its tanks on the government’s lawn. There was concern that Network Rail was adding complexity to the situation, and while at the launch, Iain Coucher, the company’s chief executive, assured the audience that there had been cooperation with the HS2 company, there was confusion about the precise nature of the status of the two reports.

 In fairness, Network Rail research was launched last autumn before Lord Adonis had firmed up his support for high speed rail and set up the HS2 team to examine the feasibility, but nevertheless Network Rail, not for the first time, does not seem to have considered the political sensibilities before making high profile public interventions.

Certainly there was no attempt by Network Rail to slip out this report without fanfare. Quite the opposite. The report was issued in August during a quiet news day in order to maximise impact and interest, and was carefully (though badly) stage managed There were weeks of prevarication over the date of the launch (and even then NR managed to forget to invite Rail‘s editor) with several postponements, apparently due to technical difficulties with the presentation which incidentally was appalling. The computer generated images showed a robot type figure having a yellow train built around him whizzing through a landscape reminiscent of the post apocalyptic vision of Conor McCarthy’s The Road, a vision rather like those car ads without people or indeed any human frame of reference. It was charmless and artless, the work of a poorly briefed PR agency commissioned by people who have no understanding that the railway is about serving passengers, not developing technology.

 Then there was the secrecy. I was inundated with calls from both TV and radio stations before the event, and rang Network Rail for a briefing on the expected contents. I was treated as if I were asking for intimate details of Iain Coucher’s personal life. Of course, I was not seeking the whole story but simply enough to be able to talk intelligently and knowledgeably about the research. But no. I was merely steered towards the fact that it would focus on the West Coast line – not exactly an earth-shattering surprise, that one – and told all would be revealed at the launch, which was held in a swanky office in a new development behind Bishopsgate, as soulless as the CGI in the DVD.

 Yet, at slow news times, as any competent press officer knows, there is a lot of media interest prior to an event, but it tends to dissipate afterwards. So there was plenty of rather sketchy coverage in advance and little afterwards, suggesting Network Rail’s press strategy could do with some rethinking.

 Perhaps the lack of detailed analysis was fortunate because the report itself does not stand up well to scrutiny. Indeed, it contains an argument which undermines much of the case for a high speed line since the most astonishing aspect of the Network Rail document, completely missed in the national press, is that it effectively argues that a high speed rail route which does not go the whole way between London and Scotland is not really worthwhile within the terms of its analysis.

 The analysis is based on determining a Benefit Cost ratio for a variety of options for a high speed line, and the results overall are very poor. Several options, notably those that do not continue north of Manchester, have terrible Benefit Cost ratios, all under one. In other words, spending say £20bn on building the line would reap societal benefits of less than that, as low as £12bn in one case.

 This type of analysis, as regular readers will know, is based on an assessment of the benefits and costs of a project. Most of the benefits are notional. There is, of course, the fare box which is included in the benefits column (interestingly a third of the revenue would be displaced from the existing railway), but as that would not bring in enough to pay for the project, the ‘benefits’ figure is topped up by giving a monetary value to the small time savings made by people using the line. I have never been a great fan of this type of analysis, since the values attributed to time savings are arbitrary and, of course, wholly theoretical, but it does at least provide a basis on which to compare projects. And it is obvious that a high speed line comes up badly compared with many other big schemes..

 Aware of the flaws in this methodology, the Department for Transport generally likes a Benefit Cost ratio of at least 2 before it will consider funding a major scheme. Between 1.5 and 2 is considered okay and anything less than that is poor value for money.

 The analysis found that there is not sufficient demand between London and Birmingham, and even between London and both Birmingham and Manchester to justify a high speed line. The reasoning is that there would only be maybe four trains per hour to each of Manchester and Birmingham, whereas the line would have a capacity of, say, 16 to 20 and therefore would be greatly underused. In other words (and I rarely use italics, but this is worth stressing), the line currently being examined by HS2 to Birmingham is not worth building!

 It is only by having trains running from Scotland that there would be sufficient usage to justify a line, just as the Kent domestic trains were needed in order to ensure there was a case for HS1. But since HS2 would be built in stages, with the last one, to Scotland, unlikely to be finished realistically before 2030, this means its viability is questionable. There will always be the fear that circumstances – global warming, huge fuel price increases, energy shortages, deep recession, reduction in travel demand – might prevent the construction of the line north of Manchester, therefore leaving Britain with a truncated high speed line which could not even pass the rather low threshold of the benefit cost analysis used by the Department.

 But OK, let’s accept that the decision for going ahead with a full line to Scotland, the option chosen by Network Rail seems complicated and expensive because it involves a series of branch lines running of a main spine. The report considers a number of options and assesses the benefit cost ratio for each one, suggesting that the strongest case is for the full Monty to both Glasgow and Edinburgh with branch lines diverging off to Birmingham and Manchester/Liverpool. In other words, the option with the most railway and the most expensive to build since it would have the largest amount of track. In other words, the solution that an engineering company – remember Network Rail used to have a mission statement extolling its ‘engineering excellence’.

 Then there is the problem of Heathrow. Network Rail suggests, quite rightly, that running trains all through Heathrow (from the unknown station called London Central) is not worthwhile and suggests a spur. But this adds a whole host of complexities. As the line is a spine with branch lines, all trains would be point to point, and it is unlikely that there would be a case for frequent trains from Heathrow to Birmingham or Manchester, negating the whole idea. Frankly, I have always thought Heathrow is a dangerous red herring for this project and this analysis seems to back that up.

  While it would be churlish to call Network Rail’s effort to try to establish a business case as guesswork, it is not far off it. The number of variables and imponderables, known unknowns and unknown unknowns in Donald Rumsfeld’s memorable phrase, is so huge that to boil down to precise numbers for the benefit cost ration of each option. It is clear, though, that the environmental case, like the economic one, is feeble.

 It is instructive to note that a recent analysis by Halcrow into a potential high speed line in Brazil between Campinas, Rio de Janeiro and Sao Paulo suggest that it would cost double the previous estimate ($20bn rather than $10bn) and carry fewer passengers than previously predicted. Indeed research by Bent Flyvbjerg, the world’s expert on the cost of megaprojects, has shown that there is a consistent pattern of underestimating costs and overestimating passenger numbers. Either would weaken the business case such that it might not even reach the weak 1.5 threshold, let alone the 2 which most major projects are expected to require before being given the go ahead.

 Therefore, while it is welcome we are at last having a debate over a north south high speed it is clear that its supporters have an uphill task in proving the case for it. Certainly, for Iain Coucher to argue in the press release that ‘the line has a sound business case that will pay for itself’ is pure nonsense since most of those benefits are notional. To suggest that a government would give the go ahead to a scheme with such a feeble benefit cost ratio, with the added complexity that only a complete line gives a positive ratio at all, is fanciful. The report barely advances the debate by a few inches, and the HS2 company will have to come up with a far more convincing case to cement the cross party support for the line that Lord Adonis craves.