HS2: a disaster in the making

The government claims that every pound we spend on Britain’s second high-speed rail line (HS2) will net close to two pounds in benefits over 60 years. That might be right, of course.

But the Mail on Sunday yesterday posed the excellent question, “how do they know?” The benefit includes “transport user benefits” (from reliability and less crowded services) of £47bn, then £9bn from “wider impacts” (the ability of businesses to cluster together, an increase in the efficiency of the labour market and so on) and other bits and bobs such as £200m from reduced greenhouse gas emissions.

Add it all up and take away some losses and you end up with a number of £50bn or so. Set all that against a net cost of not much more than £25bn and it looks pretty good. However, it is of course all nonsense.  The IEA notes that the analysis looks to “be pushed to the limit of what is academically rigorous.”

But the real point to bear in mind here is that almost all forecasts of the costs and benefits of almost all infrastructure projects are almost always completely wrong. They are no better in general than biased guesses. How do I know? This paper By Bent Flyvbjerg of Said Business School.

He looked at projects in 20 different nations and found that not only do around 90% of big projects suffer from cost overruns, but those cost overruns come in at an average of 45% of the spend for rail projects and 33% for bridge or tunnel projects.

Worse, it isn’t just the cost that the planners almost invariably get wrong. It is the benefits too. The traffic on the average rail project is overestimated 90% of the time, with forecasts for usage tending to come in at about double the actual usage.

I looked at all this in the editor’s letter in Moneyweek when HS2 was being talked about last August. At the time, our own James Ferguson humoured us by using Flyvbjerg’s figures to look this new disaster in the making. He made the reasonable assumption at the time that it would involve the same “empire-building, pork-barrelling, incompetence and skewed incentives as most other projects”.

He concluded that HS2, far from providing a positive benefit to the taxpayer, or even breaking even (ever), would “generate a loss of 79p on every £1 spent”. There’s a big difference between that and a gain of £2.

There’s more on this here, where Matthew Sinclair thinks the whole thing is an “expensive white elephant” justified with “naïve projections”. And this paper argues that even if HS2 does bring benefits, the opportunity cost is just too high. So, the answer to the Mail’s question “how do they know?” They don’t.
 
PS According to the Independent on Sunday, HS2 is also “a fast track to environmental calamity”.

24 Responses

  1. 04/02/2013, Boris MacDonut wrote

    Doubling your money in 60 years is not a good deal. The effective return is just over 1% per annum. Why aren’t they doing more to improve east/west travel in the UK? Surely the toffs would like to get to Cornwall more quickly. Cornwall is still officially the poorest English County.

  2. 04/02/2013, HH2 Madness wrote

    Hopefully last week’s announcements about the northern legs of HS2 will alert more people to the fact that HS2 is a vanity project that serves no-one but the politicians – or so they dream. Cameron et al want to go down in history as being like the pioneering Victorians but there are 2 massive differences – a) the railways and bridges of that era were built with private money, not public and b) we’ve been glad of the Victorian’s efforts. In years to come when HS2 is vastly underutilised, miles and miles of countryside destroyed, property market remains depressed, they will be hated figures remembered for their folly and ego not their wisdom. They probably mean wel in parts – but they have got this so so wrong. Madness. We must look at the alternatives urgently for better, joined up and usable transport.

  3. 04/02/2013, shinsei1967 wrote

    The Daily Mail figures don’t seem to have included any economic impact (including multiplier) of the actual construction of the HS2 and its rolling stock.

    You don’t have to be a born again Keynesian to think that’s a pretty major oversight.

  4. 04/02/2013, Bayard wrote

    I surely can’t be the only one to be amazed by the optimism of the forecasts for the patronage of HS2. Simply, where are all these people to come from, who want to get from Birmingham, Manchester, Sheffield etc to London so quickly and are prepared to pay for the privilege?
    In my mind however, the biggest unanswered case in the whole HS2 scheme is “why so fast”? That a high-speed rail line will bring benefits can be shown, even if it is at some cost to the taxpayer, but the extra benefits of the extra miles an hour above existing trains have every little benfit to show for their cost – most of the claimed benefits would accrue to a slightly slower line and those extra miles an hour massively increase the cost, as the line must be straighter, not just in a horizontal plane, but a vertical one as well.

  5. 04/02/2013, Bayard wrote

    They also mean that existing redundant rail tracks, of which there already exists one between London and the north, the old Great Central main line, can’t be used.
    However, thse extra miles an hour would mean one thing: we would have a faster train than the Germans, just like back in the 30′s, when our fastest train beat their fastest train by 1/2 a mile an hour.

  6. 04/02/2013, Bayard wrote

    They also mean that existing redundant rail tracks, of which there already exists one between London and the north, the old Great Central main line, can’t be used.
    However, thse extra miles an hour would mean one thing: we would have a faster train than the Germans, just like back in the 30′s, when our fastest train beat their fastest train by 1/2 a mile an hour.

  7. 04/02/2013, shinsei1967 wrote

    @Bayard

    I happen to think HS2 is the wrong transport project but it is fairly clear that speed is of secondary importance to increased capacity.

    And though I don’t personally know many Brummies who want to commute to London there are clearly millions of them, hence the reason the existing infrastructure is so crowded.

  8. 04/02/2013, reasoned debate wrote

    newspapers tend to write stories with a slant that reflects the opinions and bias of their readership. That that the opinion may not be factually based is not important

    However the Guardian and Telegraph, all 3 parties and most governments of most countries in the world.support hsr.

    If according to the fyberg research most mega projects end up sometimes well over budget the inference seems to be that we should not have any such projects no matter what their worth.so to prove how bad the economic case for hs2 is according to the daily mail, they just leave out the wider economic benefits of this project.

    Today there is a story of the huge economic benefits expected of hs2 by KPMG . AIn any case the main benefit of hs2 is capacity .

  9. 04/02/2013, Banker wrote

    This project is 20-60 years too late. Even banks have realised that better labour value is to be found outside London and are moving not just back ofice but also middle and even front offices to the regions. I already can work from home as efficiently as at work with no data compromise for employer (Remote Desktop). In the future there will be just less need for long distance commuter travel. Also how can it be productive to enciurage even more people to waste productive working hous on commute by bringing more cities withing commuting distance of London?

  10. 04/02/2013, eggshell wrote

    The trains leaving London to Brum are at peak times crowded but they are full of those commuting to the areas around London .they are not crowded all the way to Brum.The fact that they want this train to go so fast means that it will not accomadate these people and the places along the route will not get the trains as often as they do now.The countryside will be devastated up the length of England and peoples lives put on hold.If built those just outside the corridor will have to endure years of
    construction on their doorsteps ,unable to move and then have to fight to get any compensation 1 year after it has been running.There will be years of road holdups due to rerouting.To expect to fill this train with 1,000 + passengers every 4 mins 18 hours a day which has been stated is quite honestly complete madness.There has been little honesty in the consultation of the first stage so I give little hope of their being with the second.

  11. 04/02/2013, reasoned debate wrote

    he consultation started with the release of the preferred route. i dont see how a 20 metre wide railway will devastate the entire countryside this is an immense over-exaggeration. I concde that there will be large disruption in the areas concerned during construction

  12. 05/02/2013, Patrick wrote

    Boris @ 1 is right. Doubling your money in 60 years is not a good deal. In a rational economic world, capital would be deployed towards the maximisation of return and social utility. Why is the government so determined to press on regardless with this? It shows the government’s propensity to behave irrationally and throw good money after bad. Remember the Nimrods.

  13. 05/02/2013, Bayard wrote

    s1967: If HS2 was about extra capacity, then the old Great Central line would easily provide that extra capacity. The new line is only needed for extra speed. If Brummies want to commute to London, that is only because it is cheaper to live in Brum and work in London than to live and work in London. Either the fares on HS2 will be so high that it will be only marginally cheaper to commute or property prices will rise by the same amount. I can understand people widhing to spend a large part of their life commuting if it means living in the country and working in the city, but not if it means living in one city and working in another. AFAIK, there are no intermediate stations planned, so this is not going to be a commuter railway, so is going to do little to end congestion on the existing lines. Finally, how much extra capacity on the existing lines do you think £25bn would buy? Quite enough, I suspect, but we wouldn’t have the fastest train in Europe.

  14. 05/02/2013, chris wrote

    Fair points and fair comments, indeed even 60 year return on investment is pathetic and much worse than the prime London property (optional wink).

    Merryn, don’t you think the U.K. seems to be following the Japan’s path of grand uneconomical investments in the name of stimulating growth (with the obvious results) ?

  15. 05/02/2013, JohnMac wrote

    I live near Crewe. I never hear people say that the train to London is too slow, but people always complain that it’s too expensive.

  16. 05/02/2013, Boris MacDonut wrote

    #15 JohnMac. Coming from Crewe you are probably still in wonder at the invention of the wheel.

  17. 06/02/2013, NeutronWarp9 wrote

    Boris, ‘why aren’t they doing more to improve east/west travel in the UK? Surely the toffs would like to get to Cornwall more quickly.’ I trust you are being facetious. The only ‘city’ in the county is Truro, a bustling metropolis with a major CBD – in tea rooms.
    Perhaps HS2 alone has its critics but, apart from the hubs and destinations, one should factor in the major private developments that will be built along the side of the line.
    Of course we can all be Nimbys but one light at the end of the tunnel for many of the grey critics is that they will not be around to witness HS2′s ‘devastating impact’ on our precious enviroment. What have we to spoil? Flat, green fields with a cluster of hills hither and thither.
    The only real squeal from many seems to be the impact on house prices.

  18. 07/02/2013, Boris MacDonut wrote

    #17 Warp. I’m referring to East/West travel. This would include Bristol. It takes 2 hours to get to London from their and it is only 100 miles. Then there is Plymouth, Cardiff, Swansea……Wales could do with a better link to their colonial capital.

  19. 07/02/2013, Mombers wrote

    Did they take into account increased Housing Benefit payments when the rental value of properties near the stations goes up?

  20. 07/02/2013, Romford Dave wrote

    I’d imagine they’re hoping that the boom part of the cycle has returned by 2072 so that housing benefit is just a teeny weeny % of GDP.

    I’m more concerned that they’ve made allowance for negotiating with Bob Crow Junior’s younger son Robert, the one minute to midnight £bungs train drivers will need to mentally recover from driving at such traumatically fast speeds.

  21. 09/02/2013, Bayard wrote

    NW9, no-one will be building anything alongside HS2 unless some intermediate stations get built. Currently none are planned.

  22. 10/02/2013, smlaing wrote

    They have to find new ways of spending future taxes. Also there are numerous private interests to be considered here. MP’s Pensions are no way high enough to satify their bloated expectations

  23. 13/02/2013, Barkingmad wrote

    I’m confident the existing rail network could be significantly improved for more benefit at less cost than this ‘vanity’ project. The journey time is often not really the issue – the cost of the tickets / sufficient and inexpensive parking at major stations more so!

    The cost is huge and likely underestimated, it’s going to take too long to build and by then (if Google have their way) we may have auto-driving cars to help reduce congestion on the roads and more electric cars so a lot of the reasons for it existing may have disappeared anyway.

  24. 25/02/2013, Joe Wilson wrote

    I have no problem with investment in infrastructure per se but this project demonstrates a complete lack of joined up thinking.

    What is needed is a modern 4 track railway, connected to the existing high speed link at the Olympic park with the initial destination probably Manchester rather than Birmingham (which is already rather well served by rail.

    Why not at the same time build a private motorway alongside it from the M25 to the M6 Toll and extend that to Manchester too.

    Oh and put a massive water pipe underneath it all to improve water distribution in the UK.

    Result: A joined up mixed us infrastructure project that might just deliver some benefits for the UK as a whole!

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