From the Archives: The Economics Exam HS2 question

Today numerous A and AS level students are getting their results, so we are reposting  The Economics Exam HS2 question, originally posted in May 2011.  This has not been updated for the 2012 economic case, which changed the cut off date, or the 2013 economic case which is still being updated

Reading the “Economic Case for HS2″, one of the current HS2 consultation documents, reminds me of exam questions for economics students.

It discusses the demand forecasts produced by HS2 Ltd for growth in long distance rail travel.

But first it’s worth looking at the HS2 main report published in March 2010.  This report gives the reasons for HS2 Ltd chosing 2033 as the cut off date for growth in rail demand

p48 2.3.38 Growth in rail demand was calculated using the standard industry and Government recommended approach. This assumes that growth is driven by changes in rail fares, population and employment and in particular people’s propensity to make more rail trips as they become more affluent. Unlike for road and air forecasts, the approach for rail produces a demand forecast that grows indefinitely. Therefore as a proxy for market maturity and given the long term uncertainty in the forecasting methodology, DfT recommends forecasting no further growth beyond 2026. Because of the longer term nature of HS2, we have extended this cap to 2033. This therefore amounts to a 150% increase in long distance rail to and from London between 2008 and 2033.

This year’s  “Economic Case for HS2″  chooses a different date, further into the future.

And lets just have a look at their reasons for changing the date.

p 15 3.2.9 …For our earlier work we capped growth of rail demand in 2033, at a level of demand in the WCML corridor that is slightly more than double current levels. With the lower current GDP forecasts, this cap would now be hit later, in 2043. This level of demand is consistent with households becoming wealthier as GDP per head grows and adopting lifestyles with more frequent long distance travel as demonstrated by those in higher income bands today. We have also capped our forecasts for growth of demand for other transport modes at 2043.

If this was an example given in a real economics exam, the question might be

Q: The revised forecasts changed the cut off date to 2043.  Why did HS2 Ltd chose this date?

A: Because that’s the date that their forecast showed the demand had doubled.

In other words, they chose 2043 as their cut off date for demand growth, because it gives them the answer they want, so they can argue that HS2 should be built.

However 2043 is nearly two decades later then the normal Department for Transport cut off date for appraising rail projects.

If there was a sensible reason for picking 2043, HS2 Ltd would have said so in the Economic Case.

What does this say about HS2 Ltd’s methodologies for other aspects of their case?

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