Our response to Philip Hammond’s letter to MP’s

In the interests of open debate, a few days ago we put onto the website the text of the email we sent to every Member of Parliament about the Stop HS2 convention.

Philip Hammond subsequently sent a letter to MPs “to set the record straight” – you can download the letter here.

This is what we say in response to his letter.

1) We have seen a report that suggests the first phase of the route will cost £34.7 billion.  We’ve made it available on our website here.

Philip Hammond’s response says that the first and second phase – to Manchester and Leeds, will cost £33 billion.

Whichever set of figures you decide to accept, it means building just part of the network will cost over £30 billion.  And how much more would it cost to extend the railway to Scotland?

This is an eyewatering amount of money, and the country needs to be really sure that the benefits of this massive expenditure to build part of one project actually make it the best use of £33 billion.

2) The Government has been suggesting that building a high speed railway is part of their “low carbon” strategy.  We have pointed out on a number of occasions on this website that HS2 Ltd say that their proposed scheme will “not be a major factor in managing carbon in the transport sector” (but might increase carbon emissions).

In this letter Philip Hammond has at last acknowledged what HS2 Ltd have said: the HS2 railway scheme is carbon neutral.  But he did not address the issue of carbon efficiency.

3) We said “none of the householders or business owners directly affected by the proposed route have had any form of formal communication”.

Philip Hammond said “the proposed route has been well publicised, including adverts in local and regional media”.  Adverts are not formal communications:  our statement stands up to scrutiny.

We again ask Members of Parliament – “are you sure in your mind the HS2 project will deliver what it promises? It is a huge amount of money to commit for years to come.”

We would like to re-iterate our invitation to Members of Parliament to the Stop HS2 convention – we would love to see you there.  There you will be able to hear alternative views about the effects of HS2, and will be better informed about the issues when, or if, you debate HS2 in the Houses of Parliament.

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13 comments to “Our response to Philip Hammond’s letter to MP’s”
  1. Interesting comments, I am preparing a specific letter as well on Hammond’s, comments. Remember that the Wendover HS2 figure was aired as a range of £25-34.7bn cash in a letter to Hammond on 22 September and he has never replied.
    The core of this is a general confusion between Present Value and cash. Hammond does not make this clear. You can speculate why.

    Cash is real, extracted form taxpayers or borrowed (the government is expected to borrow £21 billion in 2015-16 even if its budget plans are as forecast in June 2010 with a 1.1% GDP borrowing requirement – which is looking fairly optimistic).

    Present Value is a mathematical manipulation of all future cash flows to allow money spent or received at different future times to be directly compared. Present value is only used in the BCR. That is fine although government methodologies in practice are odd. Government present values have no inflation or interest rates, they use a “social” interest rate of 3.5%.

    Present value is not used when it comes to paying the bills. For that you need real cash. The £34.7 billion figure is an attempt at real cash. The treasury wants budget bids in real, inflation adjusted money as this is what has to pay out to contractors and has to collect in from us or borrow (at a real cash interest rate).

    The HS2 actual cash cost in actual 2009 money, ex renewals (after 2055 so a wild guess anyway) is £19.34bn. This might have dropped to £18.54 bn based on remarks by Hammond about more efficient civil engineering. He is certainly now using the new business case figures – which of course we have not seen yet. You then need to inflate the 2009 money by 2.5% per year. That takes it to £24.5 billion on HS2 Ltds own calculations. This is the basis for an actual Treasury budget request.

    The issue of optimism bias was raised. There are three levels, 18% on signed contracts and firm specifications and designs, 40% on detailed and agreed plans but no contracts and 60% on project proposals. You might imagine that HS2 is at 60% but in fact, the HS2 trains are at 18%, the compatible trains are at 40% and the route is also at 40%. This implies it is all agreed and that the train contact is signed. The Treasury could object but will Osborne let it? The £34.7bn uses less generous optimism bias, see the detailed letter to Hammond.

    A further aspect is that the £24.5bn HS2 figures are still at public sector rates. The BCR figures are at private sector rates. To get these, multiply public sector (ex tax) by 1.209. This means that the inflation adjusted real cash cost at private sector rates is at least £29 billion assuming that all routes and design specifications have been confirmed. The consultation should mean that no route is confirmed. Also, you may have noticed that inflation is a lot higher than 2.5% so this boosts the real cash cost further. However, it may be that the Treasury is happy with public sector cash bids.

    In this context, view the £33 billion of Stages one and two with caution. It is totally unreliable; I have seen no worked data on stage two costs.

    Carbon – I reiterate that whatever the smooth words, in the actual calculations disclosed, HS2 is a big carbon emitter reliant on cutting domestic air for c 50% offset. The air offset is dubious so HS2 adds 0.25-0.5% annually to UK transport emission based on the 2006 peak. Higher speeds will boost this. Reality is that HS2 has no idea. HS2 has also never published a proper carbon budget for construction or maintenance or explained exactly how is it carbon neutral. Maybe we will have more detail in March.

    • Mr Hammond has said “If we used financial accounting we would never have any public spending, we would build nothing … Financial accounting would strike a dagger through the whole case for public sector investment “.

      It seems that he can make up the rules as he goes along. But how does he explain that we can’t afford to build new schools but we can throw billions at a new railway?

  2. Are the figures being bandied about are really comparable? DfT/HS2 figures appear to be for the infrastructure only. The Wendover report also includes figures for the rolling stock but with an increased optimism bias, tax and inflation. For rolling stock, because the trains will have to comply with EU directives (TSIs) they will be genuinely off-the-shelf so over-inflating these costs is not justifiable (for once). It is however very logical to include rolling stock as without it a railway has no point! The waters are further muddied by comparing costs for Phase 1 using DfT 2009 money against Wendover’s estimated inflated future money. Unless like is compared with like, any alternative figures will only confuse!

    The sums involved certainly are enormous in terms of the money normal people have access to but, to get some perspective, apparently the government gets about 18 Billion from drinkers and smokers each year, so deducting NHS costs of about £6bn, the nations drinkers and smokers could pay for HS2 in two or three years!! There are clearly more sensible examples, but, to repeat, UNLESS LIKE IS COMPARED WITH LIKE, alternative figures will only confuse and anti-HS2 arguments will be weakened if not dismissed entirely!

    • Specially designed and built trains will be needed so they can run on the WCML north of Birmingham.

      These so called ‘classic-compatible’ trains will run up the HS2 track to somewhere north of Lichfield and then switch onto the WCML and continue north to Manchester, Liverpool and Glasgow.

    • the thing is that the figures already INCLUDE the optimism bias so it doesnt need to be added again ! also the govt figures for expected number of passengers etc are doubted because they are in the future and obviously when forecasting you have to estimate everything based on what has happened to date but we never really know what may happen in the future but we have to plan for the future.

      and surely when stophs2 came up with the £34 billion of co-incidentally twice the govt estimate, they must have made all kinds of assumptions as to inflation, interest rates and of course the dreaded optimism bias ! so as you say very much a case of oranges and apples.

    • I entirely agree with Rich over figures quoted for cost of HS2. £17bn is an awful lot of money by anybody’s standards, particuarly as virtually every other area of public expenditure is being cut in the hope, where possible, that the Big Society will come to the rescue . Our village is being asked to find £25k a year to keep our library, for instance. You can imagine how popular that is. There is no need to exaggerate or use a different method of calculation so long as DfT is using a recognised accountancy convention. Obviously if engines and rolling stock are not included then say so. If STOP HS2 quotes different figures from DfT it must clearly explain why and justify. Otherwise the minister will respond, as he did in his letter, causing questions to be raised about the overall case STOP HS2 puts forward. The arguments are so powerful there is no need to take risks.

  3. A billion here, a billion there – who said that?

    Whatever way you look at it, there’s only so much money in the pot and if you spend it on one thing it’s not there to spend on something else. There are plenty of excellent transport schemes with very good business cases that will be side-lined by HS2.

    If the first stage is built, there’s no guarantee that it will go any further and connect to northern cities and Scotland. In 15 years time the Public Accounts Select Committee of the day may well question why, at a time of fragile economic recovery, £17bn was spent in this way with no strong economic or environmental arguments in favour.

    It’s an enormous risk. A reckless gamble with taxpayer’s money.

    • the best business case for transport is hs2 so it isnt a reckless gamble. the line which does have strong economic and environmental credentials is not due to start construction for 3 or 4 years so not in the current recession. and do you therefore think that economic circumstances mean that we should you have cancelled crossrail and thameslink as between them they are costing more then the first leg of hs2 ? do you not think we need to plan for the future ? all these projects provide much needed jobs and investment in railway infrastructure the key word being investment

      • Nick,

        If you are so confident that HS2’s business case stacks up then why not accept, that as they do in France, that we should have an open informed public debate, not the misinformation put about by Hammond.

        • i thought we were having an open debate ! but yes as i have said many times in my comments i may not agree with you but you have as much right to your opinion so yes to open debate – and in any case the consultation is due to start soon.

      • I’ve just read a very interesting article by John Whitelegg and Eric Britton. You can read it here

        http://worldstreets.wordpress.com/2011/02/08/uk-high-speed-rail-going-very-fast-in-the-wrong-direction/

        They say that there are better ways to invest in transport and create jobs in local economies – we could insulate 20 million homes, make every house a mini power station to generate and export its own electricity, sort out poor quality commuter railway lines around all our cities, sort out inter-regional rail links and build 10,000 km of segregated bike paths.

        These projects would benefit a lot more people than HSR and provide a better return on public investment from all taxpayers.

        • what would insulating 20 million homes do for the overcrowded trains ? and how are all the people in all these urban areas going to react if you widen existing lines or reopen closed rail routes ? look at the criticism of hs2 which is going to run through mostly non-urban areas. and how much do you think all these reopenings would cost ? also the existing railways were built a long time ago and work and living patterns have changed so upgrading/reopening parts of the old network may not be beneficial anyway.

          i also think that the debate is about hs2 and railways and for us to argue the pros and cons based on the benefits and disbenefits as we see them from our perspective. this isnt the place to argue for admittedly worthwhile things like more cycle paths or for home insulation for which a program exists. you also have to consider that we have to reduce the ongoing costs of everything including the day to day railway. but we shouldnt shy away from difficult long term investment decisions such as hs2 just because we are in cost cutting mode at the moment. it would be foolhardy to neglect future planning by saying we cant afford it now

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