Simple Arithmetic on HS2 increase

Councillor David Salter, from Lichfield, sent in the following:

I’ve done some very simple arithmetic to highlight the enormity of Patrict McLouglin’s announcement of the HS2 cost increase.

Figures of ‘x billion’ pounds are rolled off the tongue quickly, casually and without meaning or emphasis.

Did you realise that there hasn’t even been a million days since the birth of Christ (2013 x 365 = 734745) in fact it’s less than 3/4 of a million. We won’t reach the million days mark for another 7 hundred years; it will actually occur in the year 2736 to be precise…. A billion is 1000 times longer.

To have the £10 billion cost increase in your bank account today you would have had to have earned £13,600 per day, every day, since the birth of Christ 2,013 years ago.

The flip side of that equation is; how long will it take for HS2 to pay for itself?

If the HS2 train makes, let’s say a generous £100,000 every day in ticket sales it would be 1 thousand 400 years * before those ticket sales amounted to the £50 billion it is actually likely to cost, and that’s without taking into account the running costs, wages, electricity bill etc for that 1400 year period. And all for the privileged few who can afford the cost of the ticket and who live close enough to the station to warrant its use.

(* 100,000 x 365 x 1400 = 51,100,000,000)

That’s not our children’s money they’re spending, it’s four hundred generations of children.

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9 comments to “Simple Arithmetic on HS2 increase”
  1. David, Today I saw billions of pounds from a wider perspective.

    On the BBC News website there are pictures of the Earth taken from the Cassini space probe the other side of Saturn – A BILLION miles away. Can anyone imagine multiplying that distance x 43?

    http://www.bbc.co.uk/news/science-environment-23419543

    HS2 is a sinful waste of money, promoting destruction to this vital tiny speck of the universe, under the dubious banner of growth and prosperity. Bear in mind that on this same tiny speck of the universe, called Earth, live millions of people who don’t even have food or clean water to drink.

  2. Apologies for the typo: “operations are over 6 hours” should read “operations are over 16 hours”.

  3. The maths is far too nutty. If the proposed service pattern for Phase 1 is 10 trains an hour and we assume only 500 seats, operations are over 6 hours and trains that depart return then we have:

    500 x 10 x 16 x 2 = 160,000 seats a day, all travelling at least 160 km, probably more. A ‘generous’ fare box of £100,000 a day therefore works out on average at 62.5p per seat at about 0.4p per mile.

    At these rates the privileged few will be an unwashed multitude, which the Duke of Wellington warned about when the Liverpool and Manchester opened in 1830.

    If on average each seat yielded only £50 a day and 75% went in operating costs there would be £2 million a day ‘surplus’ which would total £50 billion after 68.5 years or so. And so on according to your choice of assumptions.

  4. Thank you for your comments.
    My excercise was simply to emphasise the enormity of the numbers being so glibly quoted.
    Instead of just saying 10 billion, I wish the words “ten thousand million” were used; that itself might be a reallity check.

    • It was a good comment to make. Billions seem to get bandied around like they are of no consequence, and I think a lot of people may not appreciate how big a billion really is.

      Your item also raised a few ideas in my head, the result of which is another FOIA request winging its way to HS2 Ltd, so thanks for your comment.

  5. With inflation on the way up what will this do to hs2 budgets ? Will the minster be asking for more money in the near future or as he wants a blank cheque so he does not have to bother asking .this is yet a good excuse to cancel hs2 but don’t hold your breath

  6. I have dug a little deeper into the HS2 revenue figures to check what their calculations say.

    Looking at the Phase 1 (London-Birmingham) forecasts, for 2037 they have the following total additional daily revenues:
    Commuters: £15,668.00, Business: £782,175.50, Others: £1,027,669.00, Total £1,825,512.50
    [These are in 2011 prices, not discounted]

    According to the Demand and Appraisal Report, April 2012, adding Phase 1 will increase the number of daily boardings and alightings at Birmingham Stations by 26,800 in 2037.
    Dividing the total additional revenue by the number of new boardings and alightings gives us an average fare of £68.12 per passenger per one way trip (i.e. £137.23 for return trip).
    This does not seem totally unreasonable given that this includes First Class as well as Standard Class.

    What this does also show is the large proportion of the revenue (56%) which comes from non-commute/non-business travellers. These are the “leisure” travellers who will be sensitive to price changes, and any introduction of premium fares (which I think we can all agree is likely) would significantly reduce these travellers. Given they make up over half the patronage (when no premium fare is charged), it is easy to see that HS2 will be vulnerable to any introduction of Premium Fares.

  7. Sorry, but a bit if a reality check is needed here. The total cost of construction and maintenance is not just being paid out of the revenue raised by ticket sales.
    Take a look at Table 1 of the document “Updated Economic Case for HS2, August 2012”, on HS2 Ltds website http://www.hs2.org.uk/news-resources/publications/economic-documents.

    From this you will see the total cost for the full Y network for 60 years (as calculated back in August 2012, so it is the lower costs without the latest uplift) is given as £58.7billion (or £58,700,000,000).
    Total revenues however are only £32.9billion (£32,900,000,000).
    Therefore there is a net deficit of £25.7billion (£25,700,000,000) to be paid for.

    This net cost is paid for primarily by the £51.0billion (£51,000,000,000) of economic benefit of the travel time savings plus the £15.5billion (£15,500,000,000) of “Wider Economic Impacts” (i.e. more jobs etc).
    [NB the above figures should have the caveat “as claimed by HS2 Ltd” as I think there are errors in their calculations which overestimate the benefits – I am merely trying to explain the world as HS2 Ltd chooses to see it.]

    Whilst this might appear to be good news for the pro-HS2 lobby, the problem is that so much of the return the country (or rather we tax-payers) will get is mainly in the form of these intangible benefits which look great in the planning stage but do not appear on a balance sheet when the system is in operation. Once the system is in operation there will be inevitable pressure to increase the fares above those charged on the conventional rail. This will bring in additional revenue but with the resultant decrease in the number of travellers on the train the other benefits will decline – but as they don’t appear on any balance sheet this will be simply ignored. When HS2 Ltd appeared before the Transport Select Committee they claimed that the issue of fare was unimportant, because you always managed to get the same total revenue back whatever you charged. This was a clear demonstration that different fares are likely to be charged after opening, and also shows HS2 Ltd don’t really understand their own justification of HS2.

    Another point to bear in mind that the total revenue quoted in the report I quote above is the total revenue across the whole rail network, not just on HS2. According to the economic case report published in 2011, 65% of HS2 users were switching from “classic rail”. So 65% of people on HS2 will not be generating additional revenue, as they would have been paying already. This additional revenue can only come from new rail users. Then again, new rail users need not only on the HS2 service. Once people transfer from the “classic rail” to HS2, this will give the opportunity for new users to choose the “classic rail” for more local trips. Or some new trips may be using a mixture of “classic” and HS2 – “classic rail ” being a feeder into the High Speed section. So it should not be assumed that all the new revenue will go to HS2, some of it will go to the “classic rail”.

    Frankly I am doubtful if the revenue will cover the operating costs. To avoid quoting figures, let us go back to a bit of simple reality …
    Currently the West Coast Mainline requires a large subsidy to operate, despite the fact the track it runs on has been built and paid for over the last 180 or so years. We are now going to have a new railway which is going to be more expensive to operate because of the higher speeds and will need to be maintained to a higher standard due to the higher speeds – so do you really think it will not need a subsidy like the WCML?
    Alternatively, if they can find a method of operating HS2 without subsidy, why not apply it to the current rail system to reduce the massive rail subsidy?

    As a final point, the question “how long will it take for HS2 to pay for itself?” is one that ought to be put directly to HS2 Ltd. For the Y network, HS2 Ltd last claimed a benefit cost ratio of 1.7 Given the up front costs of construction are being paid by the benefits being spread over the 60 years after opening, a quick back of the envelope calculation would be 60 years x (1 / 1.7), or 35 years. The discounting effect will reduce the contribution of later years but then again the value of time will continue to rise. I think it would be realistic to say it would not have paid for itself until at least 30 years after opening. (In comparison I think a rule of thumb in business it to make your money back in 10 years).

  8. It’s also ignoring the fact that these were 2011 prices and there is the small matter of inflation – likely to get worse in the next few years!

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