Wednesday, April 15, 2020

For Some a Hundred Billion Pound Bill for HS2 Starts to Look Like Small Beer as Virus Woes Continue

Government Authorises Construction to Start as Few Notice Go Ahead of 'Vanity Project'
Shipping News Feature

UK – With only one topic filing the news a cynic might say that today's announcement by the government authorising the joint venture companies involved to begin the detailed design phase of the high speed rail project HS2, plus a Notice to Proceed marking formal approval for construction to begin, even in the middle of the pandemic, was subtly timed to be released with as little notice as possible.

That however was the news today as the much criticised scheme, now believed to cost upward of £100 billion, got the go ahead for the next phase. The decision is certainly controversial, even dividing the oldest of allies. Speaking as the news was released of the Notice to Proceed, Maggie Simpson, Rail Freight Group (RFG) Director General, commented:

”We are delighted that Government has finally given the go ahead to start the construction of HS2. This decision is welcome news for many of our member businesses who will supply materials and engineering services to build this vital new railway. At a time of ongoing economic uncertainty this is a shot in the arm for the rail freight sector.”

One of the most vociferous of opponents of the scheme, particularly in the light of its rapidly ascending costs, has been Lord Tony Berkeley OBE, himself a former RFG Chair and long-time colleague of Ms Simpson. Berkeley also served as Deputy Chair on the Oakervee HS2 Review Panel and we have written previously of the dismissal of all of that panel except Oakervee himself.

Not that Berkeley’s criticism should be ascribed to sour grapes over that incident, after cautiously hoping that the government would consider freight carriage as an essential part of the project in its earliest days, Berkeley took a critical stance in 2013 with the RFG boss saying costs and projected benefits required more consideration, and not by those with vested interests in the development.

Now Berkeley, having written recently to the Prime Minister to reiterate his misgivings, has unleashed a further expression of his discontent, particularly in the face of the growing fears of recession as the country picks up the final bill for the damage caused to the economy by the pandemic. He says in his usual tone, now familiar when talking on this subject:

“The Government’s giving HS2 the go-ahead at a likely cost of over £50 billion for Phase 1 just a day after the OBR suggested that the UK faced the worst recession for 100 years and a forecast drop in GDP of 35% is certainly well timed to get minimal scrutiny. The accompanying Department for Transport (DfT) Full Business Case claims that HS2 will help the economy by providing shovel ready work for the construction industry, but fails to acknowledge that there are more and much cheaper rail shovel ready projects which will bring greater benefit to rail users.

”DfT has also not explained whether the main contractors have agreed to design and build Phase 1 for the latest DfT funding envelope of £45 billion, especially when ministers were already saying since March 2019 that the Phase 1 spending envelope was £55 billion, similar to the more credible estimate of Michael Byng of £54.5 billion quoted in my HS2 Dissenting Report.

”The Benefits are still based on 17 trains per hour for the whole scheme into Euston, in spite of evidence from around the world that no high-speed lines operate more than 12 to 14. No prudent economist would base a business case on an operation that is not achievable in practice. Elsewhere in the Business Case, the DfT struggles to find even more ambitious benefits to attribute to HS2, including ‘higher foreign investment into the UK’ (2.11). Is this really dependent on HS2?

”The DfT accepts that the Benefit Cost Ratio (BCR) will be affected by the current Coronavirus travel restrictions, but fails to quantify by how much and for how long. However, it reduces the BCR to 0.8 for the Funding Envelope of £40 billion (Table 2.4), reducing to 0.7 for 10% less demand. Surely the lower demand is very likely as a result of Coronavirus changing demand? Putting all these together, I believe that the BCR quoted in my Dissenting Report of 0.6 is much more realistic. Fig 2.1 reminds us that a BCR of over 2.0 is ‘good’ and below 1.0 is ‘poor’.

”At a time of the Coronavirus health and business costs well exceeding those of HS2, it is surprising that ministers are still throwing more good money, our money, after bad. The NHS could clearly benefit from the £ billions that could be saved for investments in the NHS and other parts of the UK economy by scrapping HS2, whilst still potentially investing in alternative and much better targeted rail projects listed [by me previously].

”Ministers seem to be keeping their collective heads well in the sand, whilst hoping that the lack of scrutiny due to the Coronavirus will mean that, by the time they surface with the full knowledge of the UK’s financial situation, it will be too late to stop this unnecessary drain into what remains a massive vanity project.”

Photo: Tony Berkeley and Maggie Simpson plainly agreeing on something after he stepped down as RFG Chair in 2018.