Hammond questions his own HS2 cost figures

Philip Hammond has spotted that the cost of HS2 concerns people. Surveys like this, a Yougov poll from last week, clearly show that many people don’t think spending £30 billion or more on a railway that links just four cities is a worthwhile investment.

Philip Hammond has been using the figure of £33 billion since early February: in a letter sent to all MPs which he signed he said:

“Phase I and II together, including the network from London to Manchester and Leeds is estimated at around £33 billion. These figures are calculated factoring in construction risk and optimism bias in accordance with Treasury methodology.”

£33 billion should – as the Secretary of State for Transport quotes it to MPs – should be a reliable indicator of the expected costs (in 2009 figures).

But in an interview (free subscription required) with the Financial Times on Friday, Philip Hammond appears to be distancing himself from the costs of the proposed railway.

‘A survey on behalf of the TaxPayersAlliance by YouGov on Saturday suggests that 48 per cent of people want to scrap the scheme – against 34 per cent who disagree – in order to “save £30bn”.

‘But Mr Hammond sought to undermine that argument by saying the scheme’s costs would be “significantly below” the numbers being discussed at present.

‘He went on: “The figure of £33bn … assumes that we build the stations ourselves, build the trains, build the track, and then, once operating, we keep ownership of it. That isn’t going to happen.”’

However, even in his comments to the Financial Times, he is being misleading.

The HS2 Ltd Consultation document clearly states on p53

2.60 The cost of constructing a Y-shaped network linking London, Birmingham, Manchester and Leeds, as well as the Channel Tunnel and Heathrow, is estimated to be £32 billion (in 2009 prices). This includes allowances for risk and optimism bias of more than 60 per cent. In addition, there would also be capital costs for rolling stock procurement and replacement of £5.3 billion and annual operating and maintenance costs of around £1.1 billion (again in 2009 prices).

So as well as £30+ billion for the tracks, there has always needed to be more money spent on the trains and the operating costs.

So, to summarise:

  • HS2 Ltd used Treasury guidance to come up with the capital cost of building HS2, which in 2009 figures is between £32 billion and £33 billion.  Philip Hammond signs a letter, s sent to all MPs saying HS2 will cost £33 billion.
  • Philip Hammond signed the foreword of the main HS2 consultation document, implying that he agrees with the content of the documents.
  • The public looks at the figures and says “it’s not worth it, is it?”
  • And now Philip Hammond tries to backpaddle away from the costs of HS2.
DfT Hammond's letter to MP's re Stop HS2 - page 1

DfT Hammond's letter to MP's re Stop HS2 - page 1

Philip Hammond's letter to MP's about Stop HS2, p2

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29 comments to “Hammond questions his own HS2 cost figures”
  1. RiCH I agree with your sentiments about homes etc I also believe it is better to enable people not to have to do long commutes and that means more busness opportunities destributed around the country. Not a train for those who do not like the dissapearing first class carriages in ordinary trains to increase capacity.I also agree with Andrew Gibb in his 11.58 pm entry. Now i must go to work.on foot im lucky enough to have a local job don you?

    • Back for lunch so to continue .No doubt you will think that i know nothing about trains and a few years ago that was true, but my partner travels on one or several nearly every working day.Unfortunately he gets little time spare, so no time to write here,but i get chapter &verse in the evenings.There are some places as a woman i would not wish to stand on the unmanned station even in daylight .I also have done a lot of reading.I have just read a piece from the McNulty report that there should be- – renued focus onmaking better use of existing capacity. I have just reread a bit that you wrote about Fake outrage Rich. it would not go though my lawn but it was because the british countryside may be destroyed. It made me look into there being a realy good reason for its sacrifice .as i said i have read a lot .asked questions recieved rubbish answers and so I truely believe there are better solutions than Hs2. The business case does not stand up to scrutiny,The govenment has gone into power thrown too many balls into the air at once and got into a mess as they all fall down together.Things that look good from behind a desk need thorough investigation, it is ridiculous that we are arguing about this plan when so little about the route has been investigated environmentally.But then whist claiming to care the government seems to not be bothered a jot about what would be destroyed.

      • Elaine, this is one railway line. It does not represent the total obliteration of the countryside. It’s just a railway line. I’ve just noticed on the From a public meeting discussion that you believe it to be the “mass destruction of all we hold dear.” I’m sorry but this is just a gross exaggeration and you must surely realise this. Trust me, I enjoy cycling in the countryside, but it is just a railway line. Nothing more. I know StopHS2 want us all to believe that there will not be a single blade of grass left in the countryside when HS2 is built, but it is just plainly not true. And if we don’t start putting long-term, proper investment (and not make-do-and-mend short-term bodge jobs) into our railways, then sooner or later, it will be more motorways and dual carriageways, and surely no-one wants that instead. The population is growing. We’re living longer and like it or not we have much higher levels of immigration these days. Some more, long-term tranpsort capacity has to be provided one way or the other. We can’t pretend it’s the 1950s forever.

        All the best.

        • Rich once a train is put through it is just the beginning .The building and developing starts because it is no longer green belt.The piece of countryside near me will be destroyed along with the sports grounds and a business employing 650 people.This is just one small town you just need to multiply it all the way up the proposed line.There are lakes ,hundreds of wildlife areas,places of special interest so dont tell me it is just a train.On a different subject have you read about the spanish HST that opened in december that has had to close due to only averaging 9 passengers a day at £16,000 per day .The business case for hs2 is shaky I do not want this to happen in Britain nothing could compensate for that.

        • Some pro HS2 ‘experts’ are already talking about a 4 track line –this would be a new transport corridor and who knows how it would develop

          • A FOUR TRACK LINE? Are you SERIOUS?

            Four parallel tracks- in effect a modern version of the WCML , ECML , the Brighton line or the GW main line out of Paddington… Double the trackbed – 50m wide, roughly comparable to a Motorway…though, of course the sloping banks of cuttings and embankments would be no greater than for two track… but still an ABSOLUTE NIGHTMARE to those already fearful of what the outcome might be from the current proposals,- never mind an enlarged- and yet more expensive version…

            But wait a moment. Just this week suggestions have been made that ,even a full decade before HS2 could be realised, the frequency of services planned would be at the limits of capacity, with nothing to spare for services ,for example, to and from Heathrow or through international services to mainland Europe.

            Also, one of the cries most frequently heard from those people living along the sections of the route between West London and Birmingham Airport, about three quarters of the length of the projected line’s initial stage, is “ALL the PAIN for NO GAIN”.

            Unlike the M 40,which could well be seen as a much greater blot on the landscape, or the rebuilt A 41, so far as these people are concerned THERE IS NO ACCESS, so they can see NO BENEFIT and NO POINT!

            If you ask such people,as I have done at “anti” gatherings “But what if there were to be one or more intermediate stations, would you still be so strongly opposed to the HS scheme?” then many would say “Ah, THAT WOULD BE DIFFERENT …”

            The problem, as the engineers have explained at the roadshows, is that if you stop just one train on such an intensively trafficed route, then you will in so doing, “consume” three or more “paths”, even if you provide loops at the stations so that non stop trains can overtake. In other words, you are once again reducing capacity.

            * How then does HS1 function, with the route shared between the “Eurostar” international trains and the slower domestic “Javelin” trains to the Kent coast?

            It runs,of course,a less intensive service compared with that suggested for HS2, with the Javelin trains using the HS tracks to bypass the conjested conventional lines out of London,and then diverting back on to the “classic” lines to complete their journeys to the more distant towns, while their “paths” through the Tunnel are used by the cross Channel shuttle trains.

            But to return to HS2, if TWO EXTRA TRACKS, not just loops, were laid for major portions of the route,at least, then, with non stop trains using the centre tracks,trains offering intermediate access, similar to the Kent “Javelins”and maybe travelling at a lesser speed than the non stop trains, and using duplicate lines, could solve the otherwise intractable problem.

            Four tracks? An even greater challenge.But could it bring greater benefit to a greater number?
            Could it reconcile a greater number to the benefits of the HS plan .Given a station within reach, the well recognised “sparks effect” kicks in and house property values are enhanced rather than blighted.

            Freed from the constraints of the ultra fast non stop services it would surely be possible to offer connections with other existing services such as Chiltern, so as to integrate the High Speed with the “classic”.

            Extra tracks would also allow for greater flexibility of maintainance and minimise delays should technical problems occur,as well as giving the opportunity for future growth.

            So there it is.

            Would then “BIGGER” be “BETTER”? Maybe, on reflection, THE ANSWER could be “YES”.

  2. another grand plan from the short sighted useless politicians – when will they get to grips with the crumbling transport system we are saddled with at present ? We have crumbling roads, unreliable rail services NOW ! surely these problems need addressing before some grand plan to vast sums of TAXPAYERS money on a scheme of extremely dubious merit.

  3. Everyone is talking about £17 billion to Birmingham and £34 billion to Leeds and Manchester as if these figures are absolute facts. Let’s not forget that these are only estimates.

    The £17 billion estimate for the first stage to Birmingham are based on a specified route (including stations) and uses standard costs per kilometre for cuttings, tunnels, viaducts etc. The estimated total for the route comes to £12,295,571,970. A 40% ‘optimism bias’ is added to this, in accordance with treasury rules, and this brings it up to £17.2 billion.

    The £32 billion estimate for the complete Y to Leeds and Manchester is not based on any specified route and is therefore at best an educated guess. The consultation document says that the £32bn will include the links to Heathrow and to HS1. However, now that some more specific work has been done on possible routes to Heathrow, this section alone could cost between £7.3bn and £8.7bn – http://www.skyport-heathrow.co.uk/2011/05/11-route-option-to-link-hs2-to.html

    £32bn for the complete network, less £17bn for phase 1 to Birmingham, less £8bn for the link to Heathrow, leaves £7bn to complete the Y to Manchester and Leeds. This does not seem credible to me.

    What’s more, no allowance has been made for price escalation. All estimates are based on 2009 prices. It’s 2011 now and the prices of steel, copper, cement and diesel have all gone up, and are likely to go up a lot more before construction starts in 2017.

    Also, changes have already been made to the route, including the need to enlarge tunnels, construct green tunnels and build significantly more structures, especially within the section between Euston and the M25. If work does start in 2017, with inflation and design changes, the costs could have escalated to God knows how many £bns, and that’s not including the trains or interest on the debt.

    No one knows what the actual costs will be, but they will be a lot more than expected now.

    • “No one knows what the actual costs will be, but they will be a lot more than expected now.”

      So you have told us one side of the equation.

      How about your analysis of the ‘benefits’ side of the equation?

      What do you think will happen to those?

      Maybe thats why costs and the benefits are based on a known point in time. i.e.2009

    • I agree. No one knows what the actual benefits would be either. Over a 60 year period from opening, the discounted value of benefits has been estimated at £43.7bn, and fares revenues at £27.2bn (both expressed at 2009 prices).

      Based on the figures in the consultation document, for a 60 year period, costs = £44.3bn, revenues & benefits = £70.9bn. Therefore it looks like a profitable scheme.

      But, as with the cost side, there are credibility issues with the benefits too.

      1) 40% of the claimed benefits are dependent on journey time savings.
      2) The passenger forecasts, upon which the economic analysis depends, are improbably high.
      3) Trying to predict demand 35 years into the future is fraught with uncertainty and risk. Sir Rod Eddington thought that a 10 year period was long enough.
      4) Any strategy that tries to build a rigid investment programme based on fixed long-term forecasts will inevitably be wrong.

      No one knows what the costs might be, or what the benefits might be either. But beware of the bias to understate the costs and overstate the returns.

  4. Im not sure of the value of this article. I’ve read it several times to get my head around what is being said. Seems like trying to pick holes in nothing. I take it there isn’t much other news around?

  5. Which 4 cities are we talking about? If I were to assume London , Birmingham, Manchester and Leeds, what of course you are forgetting about is Glasgow and Edinburgh. Of course we dont know the exact details of the route North of Lichfield as of yet, but I seem to recall Penny mentioning Newcastle not so long back????? And Durham??

    Lets not forget these are classic compatible trains…..

    • As you well know Gary, being the expert of all things HSR, HS2 is only half of the national HSR network.
      Phase 1 is the scrawny line to Birmingham, phase 2 is the (God only knows) Y to Manchester and Leeds.
      Together both phases come to £33bn, no doubt it will be more.

      Glasgow will not be until HS3 or 4.

    • Glasgow and Edinburgh are not down to Hammond and DfT. They are controled by Transport Scotland although Scots will be paying regardless and they are a part of the business case. As HS2 Ltd said they benefit from the 30 minute saving London Birmingham.

      Stations will no doubt depend on who Hammond feels he can easily buy off and where he might get most support. Some areas are more naive and vulnerable to his superficial spiel. He can sound very plausible, providing he isn’t questioned or asked for detail. He is after all a product of the classic Oxford PPE boys brigade.

      • You make him sound like some Machiavellian figure who’s deliberately scheming and plotting to waste money and upset people. I take it when you hear talking positively about the benefits of HS2, you simply think he’s lying? What’s his reason for this?

        • I believe as Eros does that you cannot believe what Mr hammond says. Having read and seen the things he says since almost the beginning of the announcement of HS2 he has fended off answering questions with name calling, then when eventually he has given a proper reply he has twisted figuers to appear in his favour.He makes out all of Bham is behind him when actually the council vote just scraped through.It appears that the Chinese want to get in on the project but unless they do something about the human rights i cannot see that being popular.Also the unions are not happy about the possible leasing of the line.anyway why do you believe all he says rich ,are you a friend of his?

          • why do you believe all he says rich ,are you a friend of his?

            Yes Elaine, you and eros have rumbled me. Me and Phil are best mates and this is all some dastardly plot we’ve dreamt up to get him another job. We’d have gotten away with it too, if it wasn’t for you meddling kids.

            • Rich perhaps you will be good enough to ceace bothering us now then, and think hard about what your country means to you .You are welcome to the concrete jungle but to me Britain is the countryside in all its diversity.Homes and jobs for people near where they live.It is well known that noise creates stress .If Cameron believes in the Community ,the BIG society he should not be planning to destroy big chunks of it.Once again double talk.Anyway sadly i dont suppose you will change your mind but i wish you well and hope that some day you will loose your rose tinted glasses where the govenment is concerned and realise that most of them are just out to make as much as they can from the tax payer before they retire on a good pension paid by the tax payer.

            • think hard about what your country means to you

              I wish you well also Elaine. Believe me, I have thought about the country and what’s important to me is it’s economic strength in areas other than the south-east, which means that people can buy somewhere to live, pay the bills and feed and clothe their kids. I put all this, as any decent-minded person surely would, above some people being a bit upset about a railway being built near them. If you’re opposing it on the economics of it then fine, but statements like this:

              you are welcome to the concrete jungle but to me Britain is the countryside

              ..tells me what your true objections are based on. Why we had all the fake outrage around the “their lawns our jobs” campaign I don’t know. Looks like the basic premise of it is spot on.

        • No, he’s a a politcian first and foremost, who wants out of transport, but has to toe the line and prove his worth so that he can get his job in the treasury. Power, career etc call it what you like. How do you think he got where he is today? He’s doing a job and looking for what he thinks is a better one.

        • Do you believe any of the following groups are underfunded?
          If you had over £30billion to spend in the next 10 years what in order of preference would be your priorities to spend it over the wide spectrum of the following categories?
          A) Health (Hospitals Surgeries Drugs etc)
          B) Social services (welfare of the old and infirm, carers, unemployed, family credits etc)
          C) Education (better teaching, better schools, reduction of university fees etc)
          D) Defence of the realm (personnel, equipment, protection, and defence of people and property – Police and policing.)
          E) Transportation, (state of our roads, railways etc)
          F) A new rail link from Birmingham to London and then Manchester and Leeds
          As Public borrowing, hit £10 billion for April alone, the highest ever recorded compared with £7.3 billion the previous year, It is clear that for some time to come we have to prioritise a lot of our national expenditure.
          Given you could only choose 4 of the above which two would you shelve until further finances were available?

          • wellJohn obviously not F but as to the rest it would have to be spread between them.I believe they all could make some savings and i believe that there are savings that could be made with more bulk buying with schools ,hospitals etc pooling information and buying together but that is unlikely to happen.it does seem that the forces may be doing so.why the question?

          • John, maybe another before F. ‘Improving the digital infrastructure properly, fibre optic network for all, and not relying on taking money from the BBC to achieve a seriously sub-optimal solution’.

          • As has been explained by mate Phil H on more than one occasion, contrary to what anti-HS2 people believe, there is not some pot of £30 billion sitting there to be spent on whatever we want. It’s an investment. In other words, it’s expected to generate significant returns, and as your options A,B,C & D do not fall into that category, they are irrelevant to any discussion on HS2. As there is no evidence that HS2 spend will encroach on the budget for E, that just leaves F. And you can feel free to add in another option for giving everyone faster internet access, provided someone can come up with the elusive answer to the question of what exactly it’s going to allow us to do that can’t be done right now.

            • absolutely rich.

              and what about the 70% of people use rail for leisure travel ? are they going to be beamed down their internet connection to their destination ?

              seriously, we must remember that no matter what the reason for travelling is people arent travelling for its own sake they are going somewhere for leisure, business or other reasons and are generating economic growth.
              maybe people in the chilterns all have jobs and i guess all the visitors to the area walk or cycle dont they they dont drive or take the train do they ?

            • People do travel for all sorts of reasons, and will continue to do so in the future. None of them are generating economic growth while doing so. I could take my children to the Thinktank in Birmingham and maybe have a Mcdonalds. I could alternatively buy an off-peak advanced saver family rail card ticket to London for a similar cost and then take them to the science museum (free entry) in London and have my BigMac at Euston. Neither action generates any more or less economic growth, just changes who I give my money to. If the train cost more I’d skip the BigMac, if the train cost less I’d spread my wealth by buying something else on my day out.

              If built HS2 will definitely move money and investment around the country – but the important question is will it generate any significant overall growth or just rob one area to benefit another? Moving a job from Coventry to Birmingham or Birmingham to London is not growth. Drawing a line around Ashford and claiming that every last penny spent in the town is somehow part of the grand total benefit of HS1 would be fine if the scheme was paid for by the local people – but as it was paid for by the nation that boundary is irrelevant, and the true benefits to the nation are relatively tiny.

              I’m not saying that transport is not necessary at all as clearly bad transport links will hamper economic development, for example by making it more expensive to transport goods from a UK factory to the end users and by limiting the ability to attract suitable workers to toil in the factory. But the general assertion that ‘travel = economic growth’ is in my humble opinion nonsense.

            • So defence of the realm, education schools and hospitals are not investments for our future?. That’s Rich. And £2billion today will have the same purchasing power in 20 let alone 10 years time, Oh that’s very Rich coming from a man who thinks if he wears a bowler and umbrella he’s going to get a job in London. Stay where you are Rich, it’s that mindset that has got our country into this financial mess.

          • @john williams: “If you had over £30billion to spend in the next 10 years

            I note you’re still living in a time warp?

            What next ten years might that be because the Hybrid Bill isn’t due to pass through Parliament until sometime during 2014/2015 and (assuming the Bill passes on to the statute book) construction won’t even begin until a year or so later – in fact the bulk of this alleged £30bn pound investment isn’t going to begin until approx ten years from now, so in fact your hypothetical list of priorities is meaningless.

            What will happen in the real world is a seamless continutation of the annual £2bn investment budget on large scale rail infrastructure projects, currently dedicated to CrossRail and ThamesLink. So if you want to suddenly reallocate scarce funds to other policy fields, such as A, B, C & D in your imaginary scenario, you’ll have to severely curtail category F because category G is a figment of your imagination in the current period.

            • I’m not sure your ABC’s align with the original post – where has G come from? Anyway no matter – the assertion that as we are currently spending £2bn a year on existing rail projects that is justification to keep spending £2bn a year on the next rail project is complete and utter rubbish. If HS2 can be justified as a strategic UK investment then fine, but that is the only valid criteria. In simple analogy having paid off the HP on your car would you then immediately take out a new loan to buy another? Of course plenty of people do, but the sensible ones would first ask the question as to whether they could better spend their money on something else or even perhaps pay a little extra off the mortgage or other debt, rather than succumbing to their own personal vanity project.

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