NAO report shows HS1 is a financial disaster

Today, the National Audit Office publishes a report that demonstates HS1 is a financial disaster and radically confirms the doubts and fears of opponents of HS2.

The report reveals that  passenger demand has fallen far short of forecasts and government guarantees are kicking in so “the Department is now responsible for servicing and repaying the project debt. We estimate that net taxpayer support may reach £10,200 million”.

The calculation used to justify HS1 was that transport benefits, wider economic impacts and regeneration benefits would amount to a ratio of 1.5 to 1 over costs. (Even this ratio was regarded as something of a minimum in terms of value for money.) Some of the wider impacts are unmeasurable so it was always vital that at least the transport benefits were delivered, as they can be more solidly assessed and amounted to more than 50% of all expected benefits. But actual numbers have been on average  only a third of those forecast in 1995 and only two thirds of those forecast in 1998.

The report says the Department would need to demonstrate that non-transport benefits (regeneration and other economic impacts) will have a value “of at least £3,300 million to exceed the costs the taxpayer is likely to incur and £8,300 million to achieve the benefit-cost ratio of 1.5 to 1 originally expected from the project.” As many of these costs are unmeasurable, this is unlikely to happen. In fact no evaluation plan or tracking of benefit deliveries is yet in place, years after services started on the line. Apparently the Department of Transport is taking its time “developing a plan to evaluate the project”.

The NAO raps the Department of Trasport’s knuckles for not reasessing the HS1’s costs and benefits since 2001 despite promising Parliament it would in 2005, significant changes in the level of taxpayer funding and Treasury guidance that projects should be evaludated when they are completed or very advanced.

In response to the report, the Department says it has improved its forecasting methodology. This is unconvincing. Much of the blame for the over-optimistic original forecasts is assigned to the unpredicted development of competition from low cost airlines. In other words, the invisible hand of the market provided a solution to the problem more quickly, at no cost to the taxpayer, that actually generates taxes rather than consumes them.

I doubt the Department’s forecasting ability has improved to the extent that it can predict similarly innovative solutions that will emerge from the markets of the future. If that was possible, the Soviet Union’s economy would have left the free world standing. Somehow, it didn’t work out like that. Nor will it with HS2.

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Comments & Responses

3 Responses so far.

  1. Tom Wright says:

    The article states

    “Apparently the Department of Transport is taking its time ”developing a plan to evaluate the project”.

    Not surprising really as it must be much more fun building a new train track (HS2) than measuring an old one and if the old one was found to not be economically viable then they might not let them build a new one and then what would they do all day?

  2. Gary says:

    At the Transport Select Committee meetings on HS2, one of the participants ( professor from Leeds University ) pointed out that the post build reports on TGV lines in France gnerally painted a very good picture, and indeed he did state that HS1 was the only exception to all high speed lines built in the last 20 years or so. The ” invisible hand ” of the market suffered between Paris and Brussels as there are now no flights between the 2 cities.

  3. beleben says:

    Gary is mistaken in he thinks that HS1 is “the only exception to all high speed lines built in the last 20 years or so”.

    For example, the entire Spanish AVE network has low demand.

    And the French language article on the LGV Picardie

    states that it has not been built because of the low capacity utilisation on LGV Nord.