National Audit Office: ‘lack of common sense’ and ‘unrealistic analysis’ overstated HS2 business case by 86%

The Government previosuly overstated the benefits of the proposed HS2 rail line by 86%, a report from the National Audit Office has concluded. In 2010, the official benefit cost ratio (BCR) was for £2.60 of benefit for every £1 spent, but the Department for Transport has now admitted to double counting many of these benefits, with the NAO blaming a lack of common sense, saying the DFT:

“Does not always recognise the limitations of its analysis nor scrutinise outputs to make sure they make sense. This means that its analysis has been open to challenge and, in some cases, decisions have been made using unrealistic analysis. Economic analysis must be checked to ensure it is realistic.”

The BCR now stands at £1.40 for every £1 spent, however this calculation still relies on the idea that all time on trains is wasted, so therefore a cash value can be put on faster journeys. With regard to the concept that all time on trains is wasted, the NAO commented:
“Economic assumptions also need to reflect changes in real-life behaviour. The Department is well regarded in government and internationally for its economic analysis. However, it was slow to take account of potentially significant changes to passenger behaviour in its initial economic analysis for HS2. It has subsequently revised its business case to include new evidence on the value of business travellers’ time and has a programme of further research to understand how passenger behaviour has changed now that new technology is available such as laptops, tablets and internet connections on trains.”

Whilst it is true that that the last economic analysis provided a lower value for business users time, the DfT decided to compensate for this by increasing the number of business users they predict would use HS2 to keep the benefit-cost ratio up.

Back in 2011, Philip Hammond told the transport select committee: “As rail projects go, a benefit-cost ratio of 2.6 is quite reasonable. If it were to fall much below 1.5, I would certainly be putting it under some very close scrutiny.”

The report also criticises the DfT for a ‘lack of systematic evaluation’, ‘insufficient focus’, ‘unrealistic milestones’, lack of key management information, financing choices driven by affordability ‘rather than value for money’, unclear strategic cases for investment, ‘confused’ governance roles, ‘shortcomings’ in the use of economic analysis’, and delayed decision making.

The NAO said the DfT needs to do more work on developing clear strategic business cases and scrutinising the economic analysis of the estimated benefits of new railways, stating:
“Failing to explain the rationale for investment can undermine the support the Department needs for a programme to go ahead. Programmes that aim to bring wider national and economic benefits, such as High Speed 1 and High Speed 2 (HS2), face the problem of a lack of evidence to demonstrate such impacts. Economic analysis must be checked to ensure it is realistic.”

This report comes hot on the heels of a report by the French equivalent of the NAO, La Cour des Comptes, who concluded with regard to the TGV; there had been over-optimistic passenger forecasts, it was an irrelevant worn out model, there were unsustainable costs, incoherent assessments of socio-economic impacts, and that it is a project taking its last breath.

Stop HS2 Campaign Manager Joe Rukin responded:
“Yet again, we have another independent body producing a scathing report on HS2 on the back of a scathing report about the TGV, which is what we are meant to be ‘catching up’ with. It is hardly news that there was no common sense used when drawing up the business case for HS2, as every argument for the project has been knocked down, and it has only survived because of stubborn politicians who do not want to face the facts organisations like the NAO have revealed.”

“When the national auditors are saying the business case for HS2 was overstated by 86% because there was a lack of common sense, unrealistic analysis and double counting, you have to wonder how many other things have been got fundamentally wrong concerning HS2. The whole case for HS2 has been made up and the project should be cancelled before more money is wasted because of politicians vanity.”

Penny Gaines, chair of Stop HS2 added,
“The National Audit Office report highlights the need for the Department for Transport to take into account the way people really live and work today and for their economic assumptions to reflect changes in real life behaviour. It took years for HS2 to even acknowledge that people work on trains. They consistently ignore the possibility of more fundamental changes due to increased use of videoconferencing and other digital technologies.”

“The NAO also points to the fundamental problem with HS2 – that the strategic objectives are unclear. The government now claim that Phase 1 was about capacity, and that Phase 2 is about connectivity. But every decision about HS2 has prioritised speed over connectivity and the needs of the public. With this week’s announcements about High Speed 3, they seem certain to prioritise speed of any new railway in the north over the real east-west connections that ordinary people want.”

“With Boris Johnson saying that Crossrail 2 was more important for the economy then HS2, and the leaders of northern councils emphasising the need for more connectivity between northern towns and cities, the sooner we look at the real transport needs of the country the better. HS2 should be cancelled as soon as possible.”

The Public Accounts Committee will be holding a hearing regarding the report on 10th November.