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Sunday, September 15, 2013

Why this £50billion folly must hit the buffers: Waning support for HS2 route between London and the North is proof politicians can't be trusted with our money


By Stephen Robinson, September 15, 2013

Three years ago it must have seemed such a good idea. High Speed 2 would connect London to Birmingham and, from there, the 225mph super locomotives would thunder up to Leeds and Manchester.

It sounded so modern, so forward-looking, so Continental — a reflection of the gee-whizz new style of David Cameron’s Coalition Government.

But now, that high-speed dream is becoming a slow motion nightmare as costs mount by the billion and one of the Government’s transport experts conceded this week the much-trumpeted economic benefits are spurious.

The mounting costs of HS2
Unpopular: Support for the new High Speed 2 rail route between London and the North is waning as the costs continue to rise 

How things have changed since Mr Cameron, having inherited an economic crisis from the outgoing bankrupt Labour government, dreamed of a way to securing political immortality — just like his predecessors — through the creation of an eye-catching, major  infrastructure project.
In the Fifties, Harold Macmillan, another patrician old Etonian Tory, had inspired the building of 300,000 houses a year; Margaret Thatcher gave the go-ahead to the Channel Tunnel rail link; for Mr Cameron, HS2 would be the fast route to a legacy.

He was well aware that he could do nothing about the one infrastructure project that Britain did desperately need — a third runway for the capital’s hub airport — because the Tories and LibDems had set themselves against the expansion plan before the election.

So, rather than aggravate West Londoners living in marginal Coalition-held seats situated under the Heathrow flight path, he took the fateful decision to endorse HS2, even if this was, in electoral terms, a targeted assault on loyal Tory voters who lived near its proposed route in the Chilterns, and all points north.

Opposition: Members of STOP HS2 pictured yesterday with a 10 foot high inflatable white elephant outside parliament as Secretary of State for Transport Philip Hammond and the staff of HS2 Ltd give evidence to the Transport Select Committee inquiry of HS2
Opposition: Members of STOP HS2 pictured yesterday with a 10 foot high inflatable white elephant outside parliament as Secretary of State for Transport Philip Hammond and the staff of HS2 Ltd give evidence to the Transport Select Committee inquiry of HS2

But now, cross-party political support for HS2 is unravelling faster than you can say: ‘Mind the Gap.’ 

The Department for Transport is in a state of turmoil as its vast press office and battalions of consultants fight to keep HS2 on track as the projected costs rise exponentially.

In the summer, the increasingly embattled and enfeebled Transport Secretary Patrick McLoughlin had the awkward task of confessing to Parliament that his department had underestimated the cost of HS2 by a matter of £10 billion.

Yes, the original price of more than £32 billion seemed bad enough, until it was upwardly revised to £42.6 billion, plus another six billion or so for the new rolling stock which, unbelievably, had somehow been overlooked.

Supporter: Transport Secretary Patrick McLoughlin this week tried to claim HS2 would generate a boost to the economy of £15 billion every year
Supporter: Transport Secretary Patrick McLoughlin this week tried to claim HS2 would generate a boost to the economy of £15 billion every year 

As the great U.S. Senator Everett Dirksen said, while reflecting in the Fifties on the American government’s capacity for vacuuming up unlimited quantities of taxpayers’ money: ‘A billion here, a billion there — pretty soon, you’re talking  real money.’

On Wednesday, Mr McLoughlin, in a desperate effort to bolster crumbling support for the rail project, repeated the outlandish claims of the management consultants (KPMG, who received £200,000 of taxpayers’ money) that HS2 would somehow ‘generate’ an annual boost of £15 billion to the economy.

Professor Dan Graham, of Imperial College, London, a highly-respected adviser to the Government on infrastructure projects, including HS2 and Crossrail, was not impressed.

Questioning the entire basis of the unusual financial modelling used for the report, Prof Graham tartly commented: ‘These numbers really need to be scrutinised, otherwise they could turn out to be fanciful.’

His scepticism is echoed by countless others, including Richard Wellings, of the Institute of Economic Affairs.

He says: ‘This loss-making project fails the commercial test, while standard cost-benefit analysis shows it to be extremely poor value for money. The Government has therefore employed consultants to boost the economic case for the scheme.’

Meanwhile, the cost guesstimates continue to rise, and no one believes even the upwardly revised £50 billion figure, which is already out of date as it based on 2011 values.

As London’s Mayor Boris Johnson has unhelpfully pointed out: ‘This thing isn’t going to cost £42 billion, my friends. The real costs going to be way north of that. Keep going till you reach £70 billion, and then keep going.’

The truth is, the political weather has changed abruptly for the worse for HS2. When the Mayor is out on manoeuvres questioning the wisdom of spending on grand projects — of which he is normally much enamoured — you can be sure he has smelt a potential opportunity to outflank his old rival the Prime Minister.

Poor value for money: The boost that those behind HS2 claim the project will have on the economy has been called in to question by experts
Poor value for money: The boost that those behind HS2 claim the project will have on the economy has been called in to question by experts 

In any case, as a rule of thumb, it is always wise to be suspicious of any policy supported by all the major political parties. Like gay marriage and ring-fenced foreign aid spending, HS2 has enjoyed self-congratulatory support in the House of Commons, and very little enthusiasm around the country.

Thanks to Lord (Peter) Mandelson, we now know that HS2 was from its inception designed as a political stunt in the dying days of Gordon Brown’s administration.
The economic rationale was never tested, Mandelson has since confessed, and nor was sufficient attention given to ‘the massive disruption to many people’s lives construction would bring’.

Indeed so, though it would be unworthy to suggest that the fact that his lordship’s magnificent home on the fringes of London’s Regent’s Park might be sullied by the construction nearby of the first few hundred yards of track, might have triggered his intervention.

Showing belated candour, Mandelson gave the game away about how HS2 became Labour policy in 2010. ‘We were on the eve of a General Election and keen to paint an upbeat view of the future,’ he says.

A Stop HS2 poster on a railing in Wendover, Buckinghamshire, where the rail route is planned to run near to
A Stop HS2 poster on a railing in Wendover, Buckinghamshire, where the rail route is planned to run near to

The last Labour Chancellor, Alistair Darling, has also declared he is now a sceptic.
Indeed, it seems that we are witnessing the Great HS2 Train Robbery of the British taxpayer, as cynical and cunning as the show put on by Ronnie Biggs in 1963, and one with much more devastating consequences for the hundreds of thousands of people whose homes will be blighted by a project that won’t be completed until 2033.

Labour set the trap, trumpeting a gigantic infrastructure project to bring untold riches to the party’s electoral heartlands in the North, and Mr Cameron took the bait.
Yet although it is sticking in his throat and enraging his own natural supporters, he continues to take the poison.

eron speaks during leaders' meeting with business and trade union represent
David Cameron has vowed to fight back against an 'unholy alliance' attacking plans for a new high speed rail line 

Feelings run particularly high in the Chilterns because rather than listening to their woes, ministers have, instead, tried to placate the concerns of people who live in the North by mysteriously adding a six-mile dog leg (costing an extra £600 million) to the route.
This would take the trains away from some of the more salubrious parts of the Chancellor George Osborne’s Tatton constituency in Cheshire.

Given our collective tendency to deprecate our lousy road and rail networks, it is easy to overlook the fact that Britain is relatively well served by trains. Most of our workhorse trains run faster than non-high speed trains on the Continent.

The high-speed train model works best in connecting vast conurbations which are far apart, as are usually found in Asia. But such trains, which need to run on straight lines, are not well suited to squeezing through crowded British cities.

These truths have been ignored from the beginning.

From the outset, the economic case for HS2 was made by cooking the books and overlooking the fact that shaving a few minutes off the journey-time between London and Birmingham is, in terms of raising productivity, irrelevant.

Most damningly, the National Audit Office found the economic assumptions behind the new rail link baseless, a view endorsed by an incredulous Margaret Hodge, Labour chairman of the Public Accounts Committee.

She said: ‘We have been told that it will deliver around 100,000 jobs but there is no evidence that all these jobs would not have been created anyway.’

She went on to say that transport bosses had ‘belatedly identified errors in its calculations that have wiped £12 billion off the expected benefits’ and left themselves ‘no room for mistakes’.

Campaigning: Ukip leader Nigel Farage claims his councillors now represent 50,000 disgruntled voters living near the proposed HS2 route in Buckinghamshire
Campaigning: Ukip leader Nigel Farage claims his councillors now represent 50,000 disgruntled voters living near the proposed HS2 route in Buckinghamshire 

As the business case for HS2 has collapsed, so Patrick McLoughlin has begun to suggest the rail link is not about reducing journey-times after all, but about bringing new capacity to the East and West Coast lines.

This sudden change of emphasis seems to ignore the fact that other — simpler and much cheaper — steps could be taken to increase the number of seats on the current rolling stock.

For example, most platforms can be lengthened; extra carriages put on; first class capacity reduced; signalling improved.

The minister also seems to be overlooking the fact that much of the worst overcrowding on Britain’s network is not south to north, but east to west, as anyone trying to get to Reading from London knows to their cost and discomfort.

But, of course, you don’t win yourself a grand legacy in politics with mundane things such as putting a few extra carriages on the back of a Virgin Pendolino train. No, David Cameron seems to aspire to something much grander.

The consequences of this folly and false logic are disastrous for hundreds of thousands of people.

Former chancellor Alistair Darling said HS2 could turn into a 'nightmare' because of soaring costs, adding the economic benefits of the scheme were 'highly contentious'
Sceptic: Former chancellor Alistair Darling said HS2 could turn into a 'nightmare' because of soaring costs, adding the economic benefits of the scheme were 'highly contentious'

Contrary to some portrayals, these are not just residents in the Home Counties and shire Tories who are complaining, Nimbyishly, about the potential blight of their property.

Indeed, blocks of council flats in the London borough of Camden would have to be bulldozed as part of the scheme which would involve the expansion of Euston station.

Also, Camden Market, a magnet for young visitors from all over the world, would become a vast building site for up to eight years with railway bridges having to be replaced to carry double-decker HS2 trains.

Most ridiculously of all, the Government has sought to parade the ‘green’ credentials of this folly when, in truth, HS2 amounts to one of the greatest acts of environmental vandalism in our history.

More than 130 wildlife sites on the route to Birmingham will be directly affected. The line will cut through the Meriden Gap, the green lung that has successfully stopped Birmingham sprawling right into Coventry.

Environmentalists normally support big public transport projects because they reduce the use of cars, but not this one.

As the Green Party points out, HS2 trains will be huge users of electricity, drawing twice as much power as an existing Intercity train.

And then, of course, there are the 300,000 or so householders who live directly by the planned route and who are likely to suffer blight. These human stories from Buckinghamshire and Warwickshire have been well-documented. In those areas, some locals consider themselves ‘lucky’ if they live in houses that would have to be demolished — because at least their property would be compulsorily-purchased by the Government.

Much worse off, though, are those who live a couple of hundred yards away from the proposed new track. They face years of construction disruption, then noise from the trains. Once lovely homes cannot be sold at any price. Home-owners who are divorcing, or having another baby, or simply want to move, are trapped, unable to sell up.

Neighbours in Great Missenden gather to protest against the HS2 route through their village
Neighbours in Great Missenden gather to protest against the HS2 route through their village 

In some parts of the Chilterns, estate agents are so weary of trying to sell the vast backlog of blighted homes that they are demanding a fee of £1,500 from the vendor before putting them on their books.

It is an astonishing situation, so much human misery for such a flawed project producing so little in return.

Meanwhile, the remaining true believers hope that if enough money is spent, the project will reach the point of no return and will have to go ahead. Spending by the quango HS2 Ltd — which is a funnel through which your money passes to lawyers, consultants and public relations companies — is approaching £300 million, and not a sod of Chiltern earth has been cut.

By the next election, £1 billion will have been spent on a project that may never actually happen.

The main political beneficiary of this  nonsense is Ukip leader Nigel Farage, who cheerfully boasts that since the May local elections, Ukip councillors now represent 50,000 HS2 blighted voters and their families, most of them in Buckinghamshire.

‘The Government needs to get the message,’ he says, ‘that people have had enough of being treated with contempt by Conservative ministers on this issue.

‘Instead of throwing good money after bad, Cameron should be scrapping this white elephant that is destroying so very many lives and businesses.’

Mr Farage makes a good point. How did the Prime Minister become so detached from his natural supporters to advocate what is really a Labour-inspired big government folly.

And, more importantly, does David Cameron have the courage — and humility — to blow the whistle on a project that seems to be discredited on every front.



Sound Familiar?
Gotta love the Brits...

HS2 Facts


November 28, 2010

The proposed £17B development of HS2 is being promoted on strategic, economic and environmental grounds. The myths and facts behind these arguments tell a different story…
Fact: Government’s case for HS2 is flawed.

Myth 1:  HS2 is green
  • HS2 will increase carbon emissions, but the Government say the project is carbon neutral. We are committed to 80% reduction in emissions by 2050.
  • 400kph trains use 3 times the power that 200kph trains do.
  • Even HS2 Ltd don’t know how much landtake will be needed for HS2
  • The 72 metres ‘vegetation management’ width is wider than Wembley (69 metres).
  • HS2 will encourage extra journeys.  It assumes that 22% of the projected passengers, almost 40,000 people per day, will only travel because HS2 is built.
  • HS2′s case ignores the environmental costs.
Myth 2: HS2 will deliver regional benefits
  • The benefits will mainly go to London. Three times as many passenger journeys will be towards London, not away from it, so redistribution will end up there.
  • The limited regional benefits will be sucked to the few stations.
Myth 3: HS2 is a sound investment returning over £2 for every £1 spent
  • It overestimates the value of time savings.
  • It originally assumed 133% background growth in demand. This is a huge increase in demand, and is double that of other reputable forecasts. When the new economic case was produced, HS2 Ltd simply extended the forecasting period.
  • It also assumed an additional 133% increase in demand due to HS2 itself. This is much more than the West Coast Main Line upgrade, which delivered a bigger service improvement.
  • It ignores competition from conventional rail. Failure to realistically assess the competition was a mistake made by HS1 and the Channel Tunnel.
  • It ignores the impact of new technologies, which are reducing demand for travel.
Myth 4:  Only HS2 can solve our capacity issues
  • The DfT’s own alternative, Rail Package 2, delivers all the capacity requirements.
  • Rail Package 2 is designed to meet demand incrementally, has a superior rate of return, and costs just £2bn.  Clearly better value for us all.
Myth 5: HS2 will greatly reduce domestic air travel
  • HS2 argues for a modal shift, based on unrealistic demand for domestic air travel.  It assumes an increase of 178% by 2033, whilst today the domestic air travel market is in decline.
Myth 6:  The UK lacks fast connectivity between our cities
  • Journey times between our major cities are faster than our European competitors.  We already have an extensive fast rail network.
“Fact” 1:  HS1 is a national success story – Transport Secretary, Philip Hammond
  • Of £7.1bn invested, over £4bn has been written off, as well as Govt grants of £1.3bn. Passenger numbers are a third of the forecast, and train sizes  and services have been cut.  Is this the sort of ‘success’ we want to repeat?
“Fact” 2: We will establish a high speed rail network as part of our programme to fulfil  our joint ambitions for creating a low carbon economy – Coalition Agreement
  • HS2 will pollute more than car travel and use vast amounts of electricity.  Alternatively a 65% WCML capacity increase would come with longer trains.
“Fact” 3: Investments of high economic value are protected across all types of transport.   - Spending Review Document
  • The DfT say expenditure on HS2 will amount to £750m by 2015, but a freedom of information request shows the real budget is £1.15bn.   The Hybrid Bill is timetabled for approval in 2015. The total capital budget for transport is due for real cuts of 11%.  In 2014-15 this will be £7.5bn, and from then a projected £2.5bn per year will be needed for HS2, taking money from more worthy projects. In 2015, our debt interest will still be £45bn p.a.
“Fact” 4:  We have one of the most expensive railways in the world. More expensive to build, more expensive to operate and more expensive to ride on than any comparable system. That is not acceptable. – Philip Hammond
  • At £160m/mile, HS2 will be the most expensive railway in the world.
“Fact” 5:  The Government is prioritising economic infrastructure that supports growth.  - Spending Review Document
  • The Government’s own approach says that the growth benefits are just £3.6bn of the total benefits from HS2, and this is overestimated.
“Fact” 6:  All the evidence of other major transport projects is these can bring huge economic benefits to the regions of Britain. – David Cameron
  • Prof. Overman of LSE in evidence to the Transport Select Committee, said that “claims about the transformational nature of transport investments for particular areas, should be greatly discounted… because they have no convincing evidence base to support them.”
“Fact” 7:  The business case … is very strong. It has been properly modelled – Philip Hammond
  • The business case has not been made against the cheaper and better value for money alternatives. If properly modelled, the business case disappears.
  • It has been assumed that all time on trains is wasted, and opportunities to reduce travel are ignored.
Don’t be rail-roaded into it!
  • The strategic economic benefits are unproven.
  • It is not a low carbon solution.
  • It has a business case based on false assumptions.
  • It will benefit very few, at a time when a great many are expected to suffer.
  • It will cause huge environmental damage.
  • It will commit future generations to huge subsidies, increasing the national debt.
  • It will not move much travel from planes or cars, and assumes many more journeys
  • It will make our country more dependent on the London economy.
  • It will increase energy consumption.
  • It has alternatives that deliver greater benefits at less cost and less damage.
  • It does not learn from the financial failure of HS1, the only comparable project.
  • It will crowd out crucial investment in transport, which is needed and beneficial.
  • It ignores the Internet, which is changing the way we communicate, and how mobile technologies enable people to work when travelling.
Do your own research…

Bent Flyvbjerg who works at Saïd Business School, University of Oxford, wrote a paper entitled: “Survival of the unfittest: why the worst infrastructure gets built—and what we can do about it”. The investigation studied 258 projects in 20 countries which included rail, road, tunnel and bridge constructions. These projects cost from hundreds of millions of dollars to billions. For rail projects the average cost overrun was 44.7% and the average overestimation of passenger traffic was 105.6%.
Among the observations made in the report are the following:

“We conclude that if techniques and skills for arriving at accurate cost and traffic forecasts have improved over time, these improvements have not resulted in an increase in the accuracy of forecasts”.
“From an eco
nomic point of view the projects should never have been built, at least not in the form they were. They survived because benefit–cost ratios presented to investors and legislators were hugely inflated, deliberately or not”.

The author then goes on to investigate the possible explanation for cost overruns and benefit shortfalls. He suggests they may be caused by technical, psychological, or political-economic reasons. Further investigation leads to him reach the following views: “Finally, political-economic explanations and strategic misrepresentation account well for the systematic underestimation of costs and overestimation of benefits found in the data. ………… A key question for explanations in terms of strategic misrepresentation is whether estimates of costs and benefits are intentionally biased to serve the interests of promoters in getting projects started”.

“In sum, the UK study shows that strong interests and strong incentives exist at the project approval stage to present projects as favourably as possible—that is, with benefits emphasized and costs and risks de-emphasized”.

“Nevertheless, seemingly rational forecasts that underestimate costs and overestimate benefits have long been an established formula for project approval as we saw above…… The consequence is, as even one of the industry’s own organs, the Oxford-based Major Projects Association, acknowledges, that too many projects proceed that should not”.

“In this situation, the question is not so much what project managers can do to reduce inaccuracy and risk in forecasting, but what others can do to impose on project managers the checks and balances that would give managers the incentive to stop producing biased forecasts and begin to work according to their Code of Ethics…… Better forecasting techniques and appeals to ethics will not do here; organizational change with a focus on transparency and accountability is necessary”.
In the conclusions of his report he observes:

“The article shows that such differences between estimated and actual outcomes are pronounced for large infrastructure projects, where substantial cost underestimates often combine with equally significant benefit overestimates, rendering cost–benefit analyses of projects not only inaccurate but biased”.

“But the projects that are artificially made to look best in business cases are the projects that generate the highest cost overruns and benefit shortfalls in reality, resulting in a significant trend for ‘survival of the unfittest’ for infrastructure projects”.

“The cure to the problem is enforcing an outside view in the planning of new projects and employing a method called reference class forecasting, based on Daniel Kahneman’s Nobel Prize-winning theories of decision-making under uncertainty. However, to be effective such new methodology must be combined with better governance structures with incentives that reward accurate estimates of costs and benefits and punish inaccurate ones”.

“Finally, stimulus spending has recently resulted in extra money and attention for infrastructure investing. This is placing increased pressure on project delivery. Stimulus spending—together with rapidly increasing spending on infrastructure in emerging economies and on information technology in infrastructure—is driving infrastructure investment from the frying pan into the fire”.
As this study was published in 2009, there has been time to take its lessons on board.

Reproduced from: Bent Flyvbjerg. Survival of the unfittest: why the worst infrastructure gets built-and what we can do about it. Oxf Rev Econ Policy (2009) 25(3): 344-367 doi:10.1093/oxrep/grp024. By permission of Oxford University Press on behalf of The Oxford Review of Economic Policy Ltd. The published article is available online at http://oxrep.oxfordjournals.org/content/25/3/344.full.pdf+html