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HS2 business case slammed by National Audit Office

HS2 business case slammed by National Audit Office

🕔16.May 2013

hs2The business case for a £17 billion HS2 high speed rail line between London and Birmingham has been severely criticised by the National Audit Office in a report that questions whether the high-profile project is necessary and affordable.

In an embarrassing blow to the Department for Transport the NAO says the company formed to develop a case for HS2 to Birmingham and then on in a Y-shaped route to the North-west and North-east  has not proved the Government’s insistence that the network  will boost regional economies and create jobs.

The NAO adds that while the DfT’s methodology for appraising the project puts a high emphasis on journey-time savings, from faster and more reliable journeys,” the relationship between these savings and the strategic reasons for doing the project, such as rebalancing regional economies, is unclear”.is making too many mistakes in its handling of the project:

  • The strategic case contains evidence of general growth in rail travel but has limited evidence on where, and by how much, increases in capacity are needed on the West Coast Main Line. Including this information would help the Department to demonstrate why it has concluded that alternative options would not deliver sufficient capacity to meet forecast passenger demand.
  • It is not clear how High Speed 2 will deliver the Department’s strategic objective of delivering and rebalancing economic growth. The Department estimates the line will support 100,000 jobs through development around stations, and in constructing and operating the line. It does not know how many jobs would be created without this investment.
  • It is unclear to us whether the business case covers the full Y-shaped network or just the route between London and the West Midlands. The Y-shaped network has a stronger economic case but this is much less certain as route designs are less well‑developed.
  • HS2 Limited has not yet analysed the effect of premium pricing on forecast passenger demand, revenues and the benefit–cost ratio. To forecast passenger demand, HS2 Limited uses the same average fares for high-speed and conventional rail in its models, although premium fares are charged on High Speed 1.
  • The relationship between the Department’s strategic objectives for High Speed 2, such as rebalancing the economy, and journey time savings, the largest quantified benefit in the economic case, is unclear. The Department has not structured its programme management around how it will deliver the strategic objectives.

There is also criticism of cost-benefit ratio calculations, which the NAO found had twice contained mistakes. The report points out that data used by the DfT to calculate benefits from HS2 for business passengers is 10 years out of date.

A NAO spokesman said: “It’s too early in the High Speed 2 programme to conclude on the likelihood of its achieving value for money. Our concern at this point is the lack of clarity around the Department’s objectives.

“The strategic case for the network should be better developed at this stage of the programme. It is intended to demonstrate the need for the line but so far presents limited evidence on forecast passenger demand and expected capacity shortages on existing lines. It is also unclear how High Speed 2 will transform regional economies by delivering jobs and growth.

“The Department is trying against a challenging timetable to strengthen its evidence and analysis, which at present provide a weak foundation for securing and demonstrating success in the programme in future.”

The report notes that the estimated cost of phase one from London to Birmingham will change as costs become firmer.

In some documents, the estimated cost is between £15.4 billion and £17.3 billion but a new estimate is being developed based on a clearer route and more information. The NAO estimates that there is a £3.3 billion funding gap over four years (2017-18 to 2020-21) which the government has yet to decide how to fill.

The Government has responded to the NAO report by claiming that the analysis was “out of date”.

The HS2 project has been backed by Birmingham City Council with claims that the arrival of high speed trains at a terminus in Digbeth will eventually create more than 20,000 permanent jobs in the West Midlands.

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