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.