Rail 1003: The HS2 black hole and hyped to oblivion

I’ve seen many damning reports by various Parliamentary committees and agencies such as the National Audit Office over the years, but few, if any, have been as coruscating as the recent Public Accounts Committee on the cutting of the Birmingham – Crewe section of HS2. In particular, this all party group of MPs has been scathing about the decision making process which has resulted in the Department for Transport having no ideas as to how ‘HS2 will operate as a functioning railway following recent changes’.

Of course, those of us who follow the rail industry knew that the way the decision was made. Far from being based on weighty assessments of the project’s value, it was a cheap political stunt – and not even a very good one, an announcement by the railwaysceptic Rishi Sunak at the Conservative party conference. Sunak made this decision without reference to Network Rail or any other industry players as a way of offering a bit of red meat to his ever shrinking base. With its limbs cut off, the whole HS2 project is a fiasco, a scandal on a par with other fine messes which this government has got us into such as PPE procurement and the treatment of the Windrush generation.

Essentially, the project now has a benefit cost ratio below one. In other words, for every £1 spent on the scheme, it will deliver less than a pound’s worth. The only reason that it is now worth continuing with Phase 1 is that otherwise £11bn would have to be spent on remedial works which adding to the £23bn already spent (all this is at 2019 prices bizarrely) would have all been wasted.

So work continues on what I have dubbed the Acton to Aston shuttle, despite the fact that even taking into account the £11bn as a benefit, the benefit cost ratio is somewhere between 1.1 and 1.8, when normally the department expects it to be at least 2 for major projects. A revised business case is apparently being prepared but don’t hold your breath as it is bound to produce an embarrassing figure, however much it is doctored. This will be made more difficult by the fact that as the PAC reports, ‘the Department and HS2 Ltd do not know how much the programme will now cost’.  Moreover, since the original business case was based on there being many more destinations and therefore passengers, the revised case will obviously include fewer benefits. I would not like the job of the poor civil servants who will have to play around with various assumptions in order to come up with the best possible figure and ensure it is, at least, above 1!

This uncertainty over cost is because throughout the scheme, the contracts have been let on a ‘cost plus’ basis which essentially gives carte blanche to the contractor to charge whatever they want. While the PAC does not mince its words, some of the best quotes are delivered rather like a deadpan comedian’s lines such as: ‘The Department has also set out its intention to bear down on the costs of Phase 1, help HS2 Ltd to change its culture on cost control, and strengthen its own governance and control of the programme with increased oversight and reduced delegation’. Oh really – so 15 years into the scheme, with more than £25bn (in today’s money) having been spent, now the Department is going to ‘bear down on costs’. Well I never.

And where do we go from here? The PAC finds that neither the Department nor HS2 Ltd know what impact the cancellation of Phase 2A will have. In making the announcement, and issuing a half-baked plan for the North that offered no clear way forward, the project has been cut adrift like a boat in a storm.  The PAC is sceptical of the ability of the government to obtain private funding for the section between Euston and Old Oak Common, saying the Department does not have a ‘plausible or detailed proposition’ to put to the market. Yet, in an interview for my podcast, Calling All Stations, Jim Steer, the director of Greengauge 21 which has been at the forefront of pushing for the high speed line, suggested that without reaching Euston and Crewe, the line was no more useful as a national asset than the ‘Romsey, Hythe & Dymchurch Railway’ which seemed a bit hard on that heritage line which played a crucial role in WW2! The two Andy mayors, Street and Burnham, who represent the Tories and Labour respectively, are also trying to gen up private sector money for the completion of Phase 2A but I suspect they will find it tough going. Moreover, making the scheme more complicated by setting up Private Finance Initiative type schemes will only delay any hope of early completion.

Steer is right, though. The scheme makes no sense without further connections and this will pose the incoming government, widely expected to be Labour, with a series of very difficult questions right from the outset. As the PAC argues, solutions have to be found quickly or otherwise yet more money will be wasted. There are possible cheaper schemes north of Birmingham from Handsacre Junction which may not require the full monty of a dedicated high speed line all the way up. However, to make such decisions, a new set up for the project will be required in order that the new railway will be better integrated with the existing one. Even I as a longstanding HS2 sceptic recognise that leaving it as just phase one would be a waste.

One urgent matter is to sort out the rolling stock. HS2 2.0 will have to be more flexible than the original idea, which means that trains will have to use sections of conventional railway and even existing stations, and therefore should be shorter than the 400m trains originally envisage. But other changes will  be needed, notably what happens at Handsacre Junction which must not become a bottleneck.

My view has always been that the failure of proper project management has been at the root of the cost escalation. There has never been any sign that someone, either a minister or the head of HS2 Ltd has ever got to grips with this project. There is no Alastair Morton figure, the sadly now dead executive who drove through the Channel Tunnel project in the face of financial difficulties, dithering ministers and a hostile press. The new government’s first job should be to appoint a similar gifted person – if there is one – as HS2 tsar.




Hyped to oblivion


Remember hyperloop? These were the pods that would with a combination of maglev and a vacuum pipe would talk passengers at 600 or 700 mph linking San Francisco with Los Angeles in 38 minutes or running under the Baltic between Finland and Estonia. Trains, we were told, were old slow tech and hyperloop was the future. Indeed, it was in the words of the company pushing the project, which had the support of Elon Musk and Richard Branson, going to ‘reinvent transit’. Branson, who was at one time chairman of Virgin Hyperloop, as it was known for a time, even said it was ‘ridiculously exciting’. Well it seems that it wasn’t.

Just before Christmas, news was slipped out that the renamed Hyperloop One company, which had decided to focus on freight, was winding up after $450m of investors’ money had been spent on its development without a single contract to build a scheme being signed. Frankly, as I wrote when the idea was first mooted in the mid 2010s, the whole idea was flawed from the start. There was no viable business model. The pods would have carried only around 30 people and the necessary separation between them at these high speeds would have meant that the capacity would have been a few hundred people an hour, never anything like enough to pay even a small proportion of the capital costs. The figures never added up and it seemed strange that investors were prepared to put up so much money given that even a back of envelope calculation would reveal that the economics never stacked up.

There were basic technical issues, as well. Apparently the tubes in which the pods were to travel had to be in a straight line as it would have been difficult to maintain vacuum round bends but in reality it was the economics that was never viable.  China has, too, tried to develop the technology and there are suggestions it may build a 110 mile long line between Shanghai and Hangzhou, but this is at a very early stage and, in any case, will encounter all the same difficulties as Hyperloop One. So the future of the old iron road remains safe.


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