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”.