The civil service tradition of burying bad news was in evidence on October 15 when it published a report on the impact of High Speed One produced by a group of consultants headed by Atkins. It is a detailed study, entitled, not very enticingly, First interim evaluation of the impacts of high speed 1 final report and its findings are not good news for the supporters of HS2 as it finds that the benefit cost ratio – the measure used to assess projects – was well under one. In other words, the cost of the scheme was more than the benefits that it has created. Consequently, we did not get Patrick McLoughlin getting up in Parliament to boast about the successes of the scheme and the report was quietly slipped out without any press release.
Much of the report is impenetrable jargon and much more space in the 260 pages is taken up with explanations of the methodology than clear analysis. Indeed, the conclusions are very difficult to ascertain and are buried in the middle of the introduction – with no clear executive summary.
However, within it there are a few nuggets that have a relevance to HS2 and other schemes. For example, the new line has attracted few people out of their cars. Three quarters of passengers surveyed by the consultants said they would have used the train anyway and a further 10 per cent would not have travelled. Only 13 per cent reported that otherwise they would have travelled by road, primarily car.
One of the key indicators of the success or otherwise of a transport scheme is the increase in house prices in the areas served by the new system. In fact, High Speed One has had no impact on local house prices according to the survey with prices rising by the same amount in the areas around the stations as the England and Wales average. Ashford and Ebbsfleet in fact fared particularly badly with rises below the average. Ebbsfleet, of course, was supposed to be a big growth area with 10,000 new homes but in fact only 300 have been built and the station is at the moment a white elephant.
The report suggests that the overall costs, including work at St Pancras and refinancing, is something in the order of £16bn. This is made up of the original costs of construction including Underground connection at St Pancras of nearly £7bn, plus further refinancing costs of £3.4bn another £700m in further work on the Underground and some £5bn in future debt repayments. This is far removed from the generally published figure of £6bn and shows why the Treasury now insists in putting a big ‘optimum bias’ contingency into future schemes.
Therefore, with benefits calculated at between £9bn and £12bn, the benefit cost ratio is put at 0.53 (in other words it would never have proceeded if normal Department rules had been followed) or 0.64 if wider economic effects are taken into account.
The report states clearly that ‘This suggests that relative to a scenario where the HS1 project had not been pursued, the Government incurred incremental net liabilities’. In fact, it is not really the government that has incurred a loss but the economy as a whole i.e. according to the analysis, it would have been better not to have built the line at all.
As regular readers of this column know, in my view – and that of any others in the industry honest enough to admit it – the whole Benefit Cost ratio analysis is a completely inappropriate tool for judging schemes. It was devised largely as a way of comparing schemes but has been transformed into the key tool of the government when it wants to assess the validity of the scheme. The details of the results – such as HS2 will deliver £62bn or £100 bn of benefits to the economy by year x or y – are not just rubbish but dangerous rubbish. They give a spurious legitimacy to a whole process that is based on a vast number of assumptions which are so tenuous they invalidate any conclusions. This report suggests, indeed, that a ‘sensitivity’ estimate (in other words different assumptions) could produce a BCR range of 0.53 to nearly 1, which really makes a nonsense of the whole analysis. They do, however, create vast numbers of jobs for consultants such as Atkins who incidentally as in any other report like this recommend that this analysis should be carried out ;regularly’ rather than just as a one-off. Now why would they say that?
So, you may ask, why have I focussed on the results of this study? The answer is that this is the method that is being used to determine whether HS2 goes ahead. As it happens, the various consultants who analysed the likely impact of the Channel Tunnel Rail Link as it then was suggested Benefit Cost ratios pretty much in line with what has emerged. Booz Allen who conducted the analysis before construction found that the ratio was between 1.4 and 0.4 depending on the number of passengers on Eurostar. In fact, passenger numbers have been at the bottom end of the estimate, so the prediction was fairly accurate.
However, the politicians decided to push ahead with the construction of HS1 because it was seen as a strengthening our links with Europe and ensuring that the Channel Tunnel realised its potential. Therefore, they pretty much ignored the analysis carried out before construction and went ahead anyway. I actually think they were right to do so. We would not have got the Olympics without High Speed One, nor a refurbished St Pancras or indeed the whole redevelopment of the land at Kings Cross.
Indeed, this reinforces the point that I have made numerous times about the ridiculous emphasis placed on Benefit Cost ratios. As I have argued many times before, it is time that we had a much more holistic and qualitative – rather than quantitative – approach to analysing the validity of a project. Applied to HS2, this would mean a fundamental analysis of the current network of the railways, an assessment of the impact of future technology, the likely economic effect on the whole country, rather than just areas served by HS2, and so on. It would, of course, make the decision more difficult for politicians, but it would result in a far better analysis of the project. It would, in short, be a grown up way to do things rather than the childish reliance on the comfort blanket of meaningless figures.
The implication of the Atkins analysis for the future of HS2 is fascinating. There is no doubting that promoters of HS2 have struggled to over the issue of the Benefit Cost ratio for the scheme. For the first phase, to Birmingham, it is around 1.5 which is ‘medium’ value for money, and in effect very poor compared to a host of other transport schemes. For the whole scheme, it hovers around 2, just scraping into what could be considered as ‘high’.
Most of the benefits, as mentioned above, are based on time savings of people travelling on the trains which is a ludicrous factor given that nowadays many people actually like spending more time on trains as it is a great place to work especially as wifi will soon become universal. The founder of the Railway Children charity, David Maidment, who has become a prolific author since retiring, told me recently he does nearly all his writing on the Pendolinos up and down from Crewe.
So here’s a challenge for the supporters of HS2. Set out the case for HS2 without using this flawed methodology. Convince sceptics like me that this is a worthwhile investment of £50bn or so by pointing to international examples, potential benefits, and advantages but in a real world context – a real world of fast changing technology such as improvements to video conferencing technology and reductions in emissions from motor vehicles, a world with a completely different type of economy from the 20th century and of a world where the greatest threat is of climate change. Then convince us that spending this vast amount of money on a scheme whose promoters so far have shown little recognition of any of these factors is definitely worthwhile.
First Great Western changes its spots
There is something intensely galling about franchises taking on the names of historic railway companies. And First Great Western decision to morph into Great Western Railway is particularly galling and la dishonest piece of marketing. The Great Western Railway lived up to its name – at least most of the time – and was during much of its history truly Great which earnt it the slightly tongue in cheek nickname of God’s Wonderful Railway (sceptics responded rather unconvincingly with Great Way Round).
You can see why FGW have gone for the change. It has developed a poor reputation and made some crucial mistakes such as the awful refurbishment of the 125s with horrible mock leather seating with ridiculous headrests and lighting more appropriate for an interrogation by the Stasi than a restful journey (often half the lights are turned off making it a bit better but the other day coming back from Oxford at 9 30 pm, they were all blazing to ensure no one dozed off). FGW’s customer service has been pretty average (I have had both good and bad experiences) and the on board catering requires a fat bank account. It’s nickname of Worst Great Western with even a website to go with it was far worse than Great Way Round.
With a massive investment programme going into electrification and other improvements, it was tempting for FGW to try to claim some of the credit and to combine it with a rebrand. The BBC fell for it saying ‘the rebrand is part of a £7.5bn programme, which involves the electrification of tracks…’ Well, yes, but the money is all coming from Network Rail and therefore is taxpayers’ dosh, not investment from First Group.
An insider suggested to me that the reason for the change was to give staff a greater sense of belonging as they were railway people and felt no affinity with First. I can see why that may be the case and there are undoubtedly good railway people within the company including Mark Hopwood its boss, but I do not think that justifies what is essentially a marketing con. The Great Western Railway, which uniquely of the Big Four created in 1923 had a history stretching back to the 1830s was an integrated railway operating both the trains and being responsible for the tracks, the stations and the rest of the infrastructure. It was a freestanding organisation which made far-reaching decisions about the railway and, indeed, the region it served. The new ‘Great Western Railway’ is a franchise that currently has a contract that lasts, following a controversial extension, until 2019 and may then disappear for ever. The very core of the old GWR was that it would be there in the long term, and that informed its ethos. FirstGroup, with all the best will in the world, can make no such commitment.