In an article in the Daily Telegraph, assistant editor Jeremy Warner makes a fairly blunt assessment of the HS2 BCR calculation:
“As is becoming apparent, the Department of Transport (sic) had to engage in something close to deceit to come up with a positive cost/benefit analysis.”
Those of us who have taken an interest in the five versions of the HS2 business case that have been published over the period March 2010 to August 2012, may well feel some sympathy with this accusation. The recent questioning (transcript) of Department for Transport (DfT) and HS2 Ltd representatives by the House of Commons Committee of Public Accounts (PAC) indicates that there is some scepticism amongst PAC members that they were receiving totally straight answers from their witnesses. On the specific point of the treatment of the benefits that accrue from savings in travel time by business travellers, Margaret Hodge MP (PAC Chairman) had this to say (Q135):
“Not to have regard to that simply to create an outcome that justifies a project that you are committed to for totally other reasons, is, we find – unanimously in this Committee, actually – not a good way for you as an accounting officer [to] do business.”
This indicates that perhaps all members of the PAC might also feel that Mr Warner has a point. At one moment (Q70), exasperation appeared to get the better of Lady Hodge; her outburst “I wish you guys were honest” clearly demonstrating that she was not happy with the way that her witnesses were answering the questions.
Even, as I reported in part 2 of my blog Rechecking the sums (posted 27 Jul 2013), the Comptroller and Auditor General, Amyas Morse, finds it “hard to understand” the stance that DfT/HS2 Ltd is taking on calculating these benefits.
I’m afraid that I also have to declare for Mr Warner, having accused HS2 Ltd of sophistry in my blog People like us (posted 20 Sep 2012).
There is even an academic term for what might be happening with the HS2 business case; “strategic misrepresentation”. This term was explained by Professor Bent Flyvbjerg of the Saïd Business School of the University of Oxford in an interview that he gave recently to the BBC TV Newsnight programme. He said that budgeting for large projects was something that they had “studied in detail here at Oxford” and that:
“We find actually that in some instances decision makers, politicians and policy makers will deliberately under-estimate the costs and over-estimate the benefits and the revenues in order to get their projects started. So if a project looks good on paper, it’s easier to get approval for the project in Parliament, or whoever is approving the project. You know the old saying that it’s easier to get forgiveness than it is to get permission – that seems to be sometimes the heuristic that is used to get projects started.”
However, Mr Warner’s “home truth” appears to have spurred the Chairman of HS2 Ltd, Douglas Oakervee, to write to the Daily Telegraph to complain about the allegation in the article, which he rejects as “entirely untrue”. He adds that the “Department for Transport and HS2 Ltd have been entirely transparent, publishing and updating information as we come to know more about the project”.
I would suggest that for Mr Oakervee to have us believe him there is a simple course of action open to DfT/HS2 Ltd. When the time comes to publish the revised BCR calculation, promised for the autumn of this year, he and his associates should produce an honest evaluation that the PAC members, and the rest of us, will not feel has been massaged “to create an outcome that justifies” HS2.
As I reported in part 1 of my blog Rechecking the sums (posted 23 Jul 2013) two factors, the increased budget for the project and the move to adopt version 5.0 of the Passenger Demand Forecasting Handbook, will drive the BCR values down, possibly to be in the range 0.6 to 1.5. Part 2 of Rechecking the sums reveals that moving towards the approach that the PAC members wish to see adopted for valuing the benefits of business traveller time savings could erode these BCRs by up to a further 0.45, possibly.
Now I’m very much afraid that I expect to see a document published in the autumn that will not concede that any of the BCRs have dipped below the crucial value of 1.0; you may recall that in my blog … and round the bend … (posted 15 Aug 2012) I reported that Philip Hammond, when Transport Secretary, had stated that he had “a general principle” that he would not allow his department “to consider projects with a benefit-cost ratio that is negative [meaning less than unity] … however attractive they may be for other reasons”.
I am not sure how DfT/HS2 Ltd might be able to massage the figures “to produce a more congenial result”; using the words from Parade’s End that I quoted in my blog A work of fiction (posted 8 Sep 2012). In his evidence to the PAC, Philip Rutnam, Permanent Secretary of the DfT, did stress that working on trains was possible “only if there is the space in which to do so” (Q135), so perhaps we can expect a new benefit to be introduced for reduced crowding. Mr Rutnam also reeled off a number of “simplifying assumptions” that the DfT makes (Q133), so perhaps we will see some changes made in this area that benefit the BCR figure.
The Chief Executive of HS2 Ltd, Alison Munro, also dropped a strong hint that an approach has been found that will preserve the BCRs at tolerable levels in an interview that was broadcast in the same Newsnight programme as the Bent Flyvbjerg interview.
“I don’t think that you should necessary assume that the business case – the quantified benefit-cost ratio – will go down.”
Now I could just be wrong about this, because in his letter Mr Oakervee may be setting out his stall for dealing with bad news on the BCRs:
“We have continually said that HS2 is about far more than a cost/benefit ratio – as is the case for any scheme, from a small roundabout upwards. A purely bureaucratic approach to planning would have left us without the M1, M25 or Jubilee Line extension.”
So perhaps we are being prepared for the DfT to dump the “Hammond Principle”.
Whatever the new BCR calculation shows, Margaret Hodge appears to know, in her own mind, what the outcome should be (Q134):
“If you did that – if you have regard to your research that you have done so far, and if you have regard to international best practice – you would bring that value down, and immediately what you would find is that this is not a value-for-money project based on cost-benefit analysis.