Hammond accounting methods did not make sense

The conventional wisdom on Philip Hammond was the overused political cliche that he was a “safe pair of hands”. The reality was rather different and the agenda he has left for his successor, Justine Greening, is fraught with difficulties.

Hammond played a canny game, by keeping both the railway and car lobbies on board. While his first statement in office was to promise to end Labour’s “war on the motorist”, a figment of the fertile imagination of Daily Mail leader writers, his review of Labour’s transport policy resulted in pursuing much the same agenda with, crucially, strong support for HS2, the new high-speed line that will run initially between London and Birmingham, and later in a Y shape out to both Leeds and Manchester.

He even backed the project with a promise to spend £1bn during the lifetime of this parliament on preparations for the line which will open in 2026 at the earliest. He supported, too, the decision to allow new carriages for London’s Thameslink to be built in Germany rather than in the UK, and he allowed through a multibillion contract to Hitachi for new trains on Intercity routes that is a complex PFI deal regarded as far too complex and expensive by the industry.

Support for HS2 is at best lukewarm in the Tory party, and in certain quarters, openly hostile. Indeed, at the fringe meeting I spoke at during the party’s recent conference in Manchester, it did not take long for delegates to start railing against the rail project even though the subject of the meeting was ending “the war on the motorist”.

Certainly Hammond’s reiterated commitment to HS2 earned him less applause on the conference floor than his notion of increasing the speed limit to 80mph on motorways. The change, though, was not to give boy racers the opportunity to do burn ups on the M1 but rather, he said, the idea should be supported because it would bring “hundreds of millions of pounds of net economic benefits” to the country and put us in, don’t groan, “the economic fast lane”.

This was typical Hammond. He was shadow chief secretary to the Treasury before the election and he is widely seen as the chancellor in waiting. There is good reason why Hammond’s appointment has elicited near-panic in the military about his spending plans: at the Department of Transport he demonstrated that his sole concern in decision-making is economic outcome. No other considerations were taken into account.

In this respect, an analysis of his claim about the 80mph policy is illuminating. What he did not say in announcing it is that the Transport Research Laboratory, which suggested there would be “net economic benefits” by increasing the speed limit, also rejected the idea because it would cause an extra 18 deaths per year. Moreover, nor did he mention the fact that the change would require the installation of 800 new camera systems to monitor average speed, when, in fact, speed cameras are seen by the Tories as instruments of the devil (after his appointment last May, he immediately scrapped central government support for cameras, forcing some authorities to remove them).

Nor did he make any mention of the environmental effects of raising the legal limit to 80mph, even though research has shown that there would be a 1.7% increase in both carbon dioxide and nitrogen oxides emissions. In the bizarre methodology of transport economics, however, the fact that millions of motorists would theoretically manage to get to their destinations four minutes per hour quicker (provided they dodged the resulting extra accidents), would outweigh all these negatives.

The case for HS2 is based on the same thinking. The benefits in the so-called “business case” are based on the notion that millions of people will make small-time savings, and these are ascribed a monetary value. There are flaws in the methodology, as many people will transfer from slower trains to the new fast ones, but since they work on them, the value of time savings is illusory. Such detail has so far being ignored as HS2 is the Tories’ big idea for transport expansion, given that a third runway at Heathrow has being ruled out. The recent suggestion from Hammond that there should be a high-speed rail line between Gatwick and Heathrow suggests panic in the Tory ranks over the lack of any promised new runway capacity in the south east.

Justine Greening therefore finds herself plunged from the obscurity of being No 3 in the Treasury into a complex and high-profile political maelstrom. From talking to people who have had constituency dealings with her, she is sharp, good at detail and her record suggests that she is more interested in both public transport and the environment than her predecessor, who would use his ministerial car for the short hop from his office to the Commons and admitted he was too scared to cycle in London. She has even been photographed turning up to a meeting on a bicycle.

The question is whether that translates into any policy change. As MP for Putney, under the Heathrow flight path, she will clearly not countenance any change on the runway policy and support for HS2 is a bedrock of Tory policy, even if, under closer scrutiny, the figures do not add up. As a woman, she may be less interested in allowing boys to speed faster on motorways and scrapping the 80mph idea would be an easy way to demonstrate that she is a politician with a wider perspective than simply being driven by narrow economic concerns.

She may, too, be concerned that cuts in road safety spending may lead to a rise in deaths on the road. While it would be a mistake to expect radical changes in policy, there may well be a change in tone, which is quite possibly why Cameron promoted such a junior minister into the cabinet.

  • Greg Tingey

    Surrey Can Road Station has just got funding.
    Coincidence, or what?

  • Rich

    Mr Wolmar,

    Just wondering. Have you ever, at any point whilst conducting your  tireless media camapaign against the construction of a new, modern railway in the UK which would help us take part in the same program the rest of the developed world appears to be taking part in, ever once stood back and thought, “Maybe HS2 is the just the first step on the road to getting people off the roads and on to to trains, which will become more and more important in the future. Maybe HS2 is but the first step into a sustained investment program in the railways for decades to come, which have suffered for so long at the hands of the road lobby, and maybe it’s deserving of support, lest the whole idea of serious railway investment be abandoned for the next few generations by future governments because they received a messge loud and clear from the people that they simply do not want modern, fast railways, and serious rail investment is a vote loser. Maybe a high speed railway connecting eventually *all* of the UKs major cities has to start somewhere, and HS2 would seem as good a starting point as any. Maybe no railways would ever have been built had they been subject to same amount of scutiny regarding the “business case” and insatiable demands of some intangible “proof” of their benefits”.

    Hmm?

  • Anonymous

    Key difference, the original railways had no competition from aeroplanes or motorised road vehicles as is the case today which is why they were the “dot-com’s” of the Victorian age. HS2’s business case is dependent on shifting people from the competing modes – which it simply can’t do if the price at the point of usage is higher than road or air.  People are bodyswerving the railways of today for this very reason let alone a high speed line which inevitably will charge a price premium for its use.

    The biggest string the railways (and therefore HS2) have to their bow is that they are more immune to the effects of oil prices since the technology to power them by renewables is fairly mature.

  • Rich

    “People are bodyswerving the railways of today…”

    Can you elaborate a little on this statment please? There’s been reports in the press this very week about rail passenger numbers being at their highest since the 1920s, which would suggest to me that statement is simply not true. What figures is it based on?

  • Anonymous

    High passenger numbers doesn’t necessarily mean the railway is making money or is in rude health.   Record passenger numbers maybe, but the industry is still a financial basket case up to its eyeballs in debt with the highest fares and highest subsidies in Europe – and here they are about to blow another £30bn on a line nobody really knows is needed or not, yet the finances of the existing railway are quite frankly – a mess. The old maxim that “you can sell £10 notes for a fiver all day long” rings particularly true.  The rail companies get most of their passengers from season ticket holders, which are regulated and therefore make them very little money, and any extra goes into the Treasury’s coffers.  The profitable part of the railway is long distance, as it always has been, and is therefore a different market with a lot more discretionary travel.  It is a bit like the airline industry where you can earn a fortune or lose one depending on economic conditions.  Two franchise collapses on the ECML has demonstrated this.

    There’s the rub. Given the politicians’ obsession with profitability that drove Beeching and the momentous cock-up that has gone on for the last 15 years I don’t expect HS2 to be any different.  Look at the money that HS1 and the Channel Tunnel cost and they are still relative white elephants. 

    This is the problem when using economics to argue for and against anything on the railways because there are so many variables all interacting with one another, and so many wild assumptions underpinning said calculations, there is little chance of drawing any meaningful conclusion.  As I was quoted in RAIL 661 saying:

    ‘The crux of it is that the economic arguments both for and against HS2 aren’t worth the paper they are printed on and can be manipulated to say whatever you want…..the maths are so complex and the assumptions are so ambiguous that whatever number drops out at the bottom is likely to be meaningless’.

  • Anonymous

    And on that note, isn’t a wee bit ironic that the polticians relied on a very ropey economic analysis (the Beeching Report) to justify the closure of railways and yet here they are today using an equally ropey economic analysis to justify building one.  The madness and hypocrisy of it never ceases to amaze.

  • Rich

    I’m not asking about finances and nor did I say the railways are making tons of money. You stated that people are avoiding using the railways. That is blatantly not true. 

    I would agree with your last paragaph and that is the whole point of the original question. If HS2 does not go ahead then that is it for high-speed rail in this country. It’s not just HS2 being rejected, it’s the UK putting a stake in the ground to make do without high-speed rail for good. It will not be tackled any government for the forseeable future. So to me, the question is not simply about the “business case” of one particular route. It’s the whole issue of where we see the railways in the future and what role we wish them to have. The thought that in 50-100 years time we are still patching up what we’ve got, cramming extra carriages on etc whilst the rest of Europe has built much better railway systems – I would regard that as a scary prospect and one which deserves more consideration than just the “business case” of HS2 in isolation. There’s a whole range of things to consider about the position that would put us in, for example how the UK would rate as an attractive place for overseas investors, and I am not hearing anti-HS2 people, Mr Wolmar included, addressing it. Too much short-termism and not enough thinking about the bigger picture that cancelling HS2 would present us with.

    And regarding Beeching – the main failing was not considering future transport requirements decades from when those decisions were being made, and that is the same failing right now with HS2 sceptics.

  • Ian Raymond

    Part of that is – for the regions – the key point with regards to HS2, Rich. I’m used to dealing with queries from inward investors to an area, and for them *connectivity* is key. Regardless of whether they themselves will use it, they see the presence (or development of) high speed rail as a key factor in the decision to relocate / invest. Christian Wolmar doesn’t see this – but that’s because it’s not his job, it’s something you only learn ‘on the ground’. The problem is how you do you come up with an economic figure that will quantify the *possible* inward investment generated by international firms relocating thanks to HS2? Answer: if you’re honest and realistic, you can’t, it’s as much a “qualitative” debate that’s needed as a “quantitative” debate.

    Let’s look at it another way; has the channel tunnel rail link been a financial success? Or has it’s success been in other ways? Experience tells me you can’t always rely on numbers, and all aspects of the argument on all sides should be viewed; there’s too much of this “it will bring in 1m jobs” “it’ll be a financial white elephant” being slung about by both sides.

    (PS – as an aside, although I’m pro HS2 I should state that I hate the faux-airline travel experience that it’s bound to bring…)

  • Rich

    Cheers for the reply Ian. That’s exactly what concerns me about rejecting high-speed rail, which let’s be clear, that is what rejecting HS2 will be. HSR *won’t* be back on the agenda. How on earth we’re suposed to remain a competitive location for business compared to Europe after that I don’t know, and to see people labelling it a “vanity” is just absurd. We are being “vain” by trying to remain competitive? Having a modern, efficient railway with the wider benfits it brings in terms of investments is just part of the real “business case”, not harping on about time-savings etc. I should point out though that the south-east won’t be at a disadvantage as it already has it’s HSR link to Europe, which went ahead because as we all know, there is very little opposition to tax-payers money being spent on transport project in the south-east.It really is about time HS2 “sceptics” started addressing this issue of what exactly it is about the rest of the UK which means we are unique and do not need to spend money on a modern rail system, and where exactly this will leave us in the future. I honestly see nothing but long-term disaster if we do not do this with any (none?) foreign investment being confined to the south-east, and the same short-sighted obsession with the “business case” from anti-HS2 people is exactly what led to Beeching.

  • Rich

    Well many thanks for your considered reply to my points on this thread Christian. Do you even read your own blog replies?? Hello??? Is anyone there or does “Britain’s leading transport commentator” have carte blanche to talk crap about high-speed rail in the media? Please, if you’re not going to respond to rubbish you post on here then please stop posting links to it on Twitter. Thanks.

  • Christian Wolmar

    Funnily enough, I have a busy life earning my living by editing research,speaking, writing books and articles,so don’t always have time to respond to everything people write…. I have a book deadline in 2 weeks, so that’s my focus – tweets, on the other hand, take 30 secs

  • Christian Wolmar

    …but I will eventually answer what you say, though I have addressed it before.

  • Rich
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