The latest figures issued by the HS2 high-speed rail scheme have revised down the economic benefits for the fourth time – suggesting the scheme will barely, if ever, break even. Originally the scheme was forecast to bring £2.40 of benefit for every pound invested. The revised benefit-cost ratio (BCR) is 1.2-1 .
When he was Transport Secretary, Philip Hammond responded as follows to a question on value for money:
Q554 Chair: How much would the benefit-cost ratio have to fall before you or the Chancellor decided that this scheme was not good value for money?
Mr Hammond: I have a general principle that I do not allow the Department to consider projects with a benefit-cost ratio that is negative, i.e. “Let’s spend £1 to get 90p.” You might think that is obvious, but that has not always been the practice in the past and projects have been approved that have benefit-cost ratios below 1. We have taken the view from last May that we will not consider projects of that nature, however attractive they may be for other reasons. Rail projects do not offer benefit-cost ratios as attractive as road projects typically, but in the interests of modal balance we have taken the view that it would not be appropriate to rank projects simply by BCR, but that it would be appropriate to look at some modal spread as well. As rail projects go, a BCR of 2.6 is quite reasonable. If it were to fall much below 1.5, I would certainly be putting it under some very close scrutiny. But, as I said earlier, the economic case in the BCR is only one element of the appraisal that we will do. We will look at the strategic case, we will look at the managerial case-the deliverability of the project-and the environmental case, as well as the economic case.
I received a holding answer to my recent, related Parliamentary Question:
Steven Baker (Wycombe, Conservative): To ask the Secretary of State for Transport pursuant to the contribution of her predecessor to the Transport Committee, Oral Evidence, HC 1185, Q 554, on high speed rail, whether it remains her Department’s policy to place the High Speed 2 scheme under close scrutiny in the event that the estimated benefit to cost ratio falls below 1.5; and if she will make a statement.
Justine Greening (Putney, Conservative):
holding answer 30 April 2012
Appraisal of the High Speed 2 scheme will continue to be carried out in a rigorous manner in accordance with the Department’s well-established WebTag guidance. The BCR forms only part of the decision-making process alongside the wider business case, including strategic, commercial, financial and management cases. I shall continue to scrutinise all aspects of the project carefully, as I would any scheme of this scale and importance.
Now our proposed high-speed rail network is not the first grand government project undertaken. There’s a wonderful book by David Myddelton, They Meant Well – Government Project Disasters which explores six of government’s worst financial failures. In the recommendations, he writes:
Before politicians decide to embark on a large quasi-commercial project they should provide convincing answers to two obvious questions:
• Why won’t a private enterprise company undertake this project? (If it will, let it.)
• Why does government, in contrast, think the project worthwhile?
Large projects might benefit from having one or two official ‘devil’s advocates’, who would have two main functions: to raise ‘politically incorrect’ questions, which (for example) contradict some of top management’s assumptions; and to ask ‘dumb’ questions, admitting ignorance without any fear of ‘looking stupid’. Here one needs independent-minded people of the sort Nevil Shute was talking about. It would be useful to have them around from the very start of a project. Then they could question its shape, basic assumptions and precise aims while they were still open to argument.
It’s time or past time for just this challenge. Private investors would not undertake this project because it is not commercially viable. As I have said before, this project uses state power to direct scarce capital into a project that would not be financially viable in the private sector so we should expect the country to get poorer as a result.
Those involved should look seriously at why Government is undertaking a project which is in danger of being yet another grand failure, one we can ill afford. Unfortunately, as the Transport Committee Report pointed out “Of the three groups [the strategic, technical and analytical challenge panels], currently comprising 22 people (all men), only the Analytical Challenge Panel contains any evident critic of high-speed rail.”
As the challenge panels are stuffed with HS2 supporters, it falls to the Secretary of State to defend the public interest. Justine Greening should now do so.