Transcript HS2 Lobby Day. Please take a seat. Welcome Andrea Leadsom MP Theresa Villiers MP Minister for Transport.

HS2 Lobby Day.
Please take a seat.
Welcome
Andrea Leadsom MP
Theresa Villiers MP
Minister for Transport
A review of the HS2 Business Case
Chris Stokes
7
Background
British Rail
1967 – 1993
• InterCity Planning and Resources Director
• Deputy Director, Network SouthEast
Deputy Franchising Director
1993 – 1999
Executive Director, Strategic Rail Authority 1999 – 2000
Principal, L.E.K. Consulting
2000 – 2003
Independent rail industry consultant
2003 to date
Board Member, Office of Rail Regulation
2004 – 2006
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Forecast demand growth
HS2 forecast background demand growth for 2008 –
2033:
• Long distance rail
133%
• Domestic air
178%
• Car
43%
“long distance rail demand will more than double,
driven by people’s increasing propensity to travel
further and more frequently as they grow
wealthier”
9
HS2 forecasts are higher than others
HS2 say if forecast demand falls short by just over
20%, the Benefit Cost ratio for HS2 drops to 1.5
10
Origins of forecast HS2 demand
• Switch from existing rail
• New trips
• Switch from air
• Switch from car
Notes
57%
27%
8%
8%
• The “new trips” demand is over and above the forecast 133% long
distance rail growth
• The “switch from air” volumes are higher than current air volumes
between Heathrow and the NW and Scottish lowlands
• The switch from car is forecast to decongest the M1 by 2%
HS2’s overall forecast growth (including new trips and air and
car transfers) is 267%
11
Actual growth
12
Is travel still growing with GDP?
13
Domestic air traffic to London airports is
declining – is 178% growth by 2033 credible?
16
14
12
10
All London airports
Heathrow
8
6
4
2
0
2000
2002
2004
2006
2008
Source: CAA
14
Future rail growth
Rail has shown very strong growth in recent
years – possible reasons:
• Improved reliability
• Improved services eg West Coast Main Line
• New trains
• Cheap advanced fares
But will compound growth continue?
15
Rail growth – downside risks
• Saturated markets eg Eurostar to Paris and
Brussels, Shinkansen – even with high
speed, world class products
• Virgin have now won “low hanging fruit”,
particularly Manchester – London air
market and central London business travel
• Potential reduction in business travel –
internet use, video conferencing
16
Eurostar volumes are way below
original forecasts for HS1
2009 total passengers 9.2m – against original forecast of 25m
for 2006
17
HS2 volumes – competition risks
Rail
• Chiltern London – Birmingham route being upgraded: c90
minute journey times, cheaper fares
• Continued fast trains on the “classic” route – needed to
serve Milton Keynes/Coventry/Wolverhampton in any
case
Unanticipated competitive responses
• Eurotunnel – large, low cost ferries
• Eurostar – low cost airlines opening up alternative “city
break” destinations
• Shinkansen – wide body low cost flights Tokyo - Osaka
18
Financial case for HS2
• Capital costs
– Infrastructure
– Trains
• Incremental revenue (NPV)
• Incremental operating costs (NPV)
£17.8bn
£15bn
£2.8bn
£15bn
£7.6bn
Note: fares assumed to rise by RPI+1% until 2033, an increase of
27%
Net revenues (£7.4bn) cover c42% of the capital costs
19
Non financial (economic) benefits
• Time savings
– Business travellers
– Commuter/leisure travellers
• Agglomeration benefits
• Imperfect competition
Total
£17.6bn
£11.1bn
£2bn
£1.6bn
£32.3bn
Time benefits assume all travel time is unproductive, and imply an average
salary for business travellers of £70k pa. “Imperfect competition” is
estimated at 10% of the time savings
20
“Agglomeration benefits”
• These are low relative to the cost of HS2 and are
principally made up of benefits through operation
of additional trains on the capacity freed up on
the existing network
• Benefits directly as a result of reduced journey
times were estimated for HS2 by Imperial College
at only c£8m pa
• The existing West Coast Main Line upgrade has
already transformed journeys on the route
– For example Manchester now has a 20 minute frequency, 2 hour 8
minute journey time (previously hourly, 2 hours 40 minutes)
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Are there alternative ways of increasing capacity?
• Capacity is already being increased - most Pendolinos are being
lengthened from 9 to 11 cars, increasing standard class seats from 294
to 444 (+51%)
• Further increases could be achieved by reducing the proportion of
first class
• Trains could also be lengthened to 12 cars (except to Liverpool)
This gives at least 65% more capacity at low capital cost, without any
disruption
• Work done for DfT by WS Atkins as part of the HS2 programme
suggests major further capacity increases are possible by incremental
improvement at much lower capital costs, giving a higher benefit cost
ratio (3.6 against 2.7)
22
The opportunity cost
• The Midlands and the North might get greater
regeneration benefits (without increasing the
“gravity impact” of London and the South East) by
renewal and electrification of their regional
networks – at much less overall cost
• In contrast, HS2 is likely to dominate rail capital
expenditure to the exclusion of other projects
23
So have other countries got it
wrong?
• The case for high speed rail depends on quality of
rail services and the geography in each country
• The British network already offers fast journey
times and high frequencies on main lines to
London, with much less scope for the step change
that high speed rail delivered in, for example,
Spain and Japan
• Distances between key cities are generally shorter
in Britain than other “high speed” countries,
reducing the potential benefits
24
Conclusions
• The business case for HS2 is not yet proven,
and at best marginal
• The risks are overwhelmingly downside
• There is likely to be a significant opportunity
cost in relation to the existing rail network
25
High Speed Rail – Deceiving the
regions?
Mike Geddes
Honorary Professor, University of
Warwick Business School
High Speed Rail – Deceiving the regions?
Speaking at the Conservative Party Conference, Transport
Secretary Philip Hammond said the high speed rail network
would “change the social and economic geography of Britain;
connecting our great population centres and international
gateways”.
Hammond further suggests that linking England's main cities
with a high-speed link – with further links to Scotland in the
future – could help break down the north-south divide:
"Bringing those economies in closer reach of London, allowing
them to benefit from London's magnet effect in the world, is
going to help solve some of the most intractable postwar
social and economic problems Britain has faced."
The Guardian, 3 and 4 October 2010
High Speed Rail – Deceiving the regions?
This echoes a number of Influential public and
private voices, especially the promotional
group Greengauge 21, who argue that high
speed rail will create jobs, improve the
competitiveness of regional economies and
promote regeneration.
High Speed Rail – Deceiving the regions?
• Research by KPMG for Greengauge suggests HSR could
create 25-42,000 new jobs and higher wages with most
impact in the North and Midlands, especially in the
core cities.
• Steer Davies and Gleave for Greengauge claim that
wider economic benefits to the West Midlands could
be in the region of £5.3 bn.
• Doubtless influenced by such claims, the government
itself in the High Speed Rail Command Paper says there
would be substantial economic benefits to the major
city regions of the North and Midlands.
High Speed Rail – Deceiving the regions?
But claims such as these are highly unreliable.
They project benefits over long periods (up to
60 years), well beyond any reputable
economic forecasting horizon.
They produce no real evidence of how HSR is
supposed to generate economic benefits.
High Speed Rail – Deceiving the regions?
In fact the evidence is very different:
• The key study conducted for HS2 Ltd by Imperial
College says that the amount of new economic
growth created by HS2 would be ‘very small
indeed’ – maybe £8m pa.
• Most of the wider economic benefits claimed by
government from HS2 do not depend on the new
high speed ‘connectivity’ but on improvements to
local services. These however would require
additional subsidies which seem highly unlikely in
the current economic climate.
High Speed Rail – Deceiving the regions?
• But what HSR will do is to redistribute economic
activity between places. Many expert studies suggest
that this is a significant effect, and that in general the
larger the local economy the more it will benefit. Socalled ‘agglomeration benefits’ flow primarily to the
most economically powerful existing agglomerations.
• Thus the likelihood is that the greatest benefit from
HS2 and the wider proposed HSR network is likely to be
London.
• London is also likely to gain because any economic
growth would be concentrated in the service sector,
not manufacturing or agriculture
High Speed Rail – Deceiving the regions?
We do not yet have robust evidence about
whether other major cities, such as
Birmingham, would benefit and if so how
significantly.
HS2 say they will not have such evidence until
the end of the public consultation.
High Speed Rail – Deceiving the regions?
• But what we can say is that:
• If London (and possibly other major cities) benefit from the
redistribution of jobs and businesses induced by HSR, this can
only be at the expense of regions, towns and rural areas not
served by stations on the proposed route
• These losers from high speed rail are likely to include whole
regions such as East Anglia and the South West not connected
at all to the proposed network.
• While Birmingham might possibly gain, this could only be at
the cost of other West Midland towns and rural areas,
especially perhaps those suffering reduced conventional rail
services to London. Any gain to Manchester would come
from the great majority of the region unserved by an HSR
station.
High Speed Rail – Deceiving the regions?
Thus HSR would indeed “change the social
and economic geography of Britain”. But to
argue that it will promote regeneration and
regional development seems like a big city
stitch-up aimed at deceiving the regions.
Joe Rukin
Speed is NOT Green
HS2 is not a low carbon solution
HS2 will have no significant downward impact on aviation
HS2 will not ease congestion in any significant manner
HS2 is intended to promote more travel
There are less polluting alternatives
HS2 will leave an unnecessary scar on some of our most
unspoilt countryside
HS2 is not a low carbon solution
• We will establish a high speed rail network as
part of our programme to fulfil our joint
ambitions for creating a low carbon economy.
- The Coalition Agreement.
This ignores all the evidence.
HS2 is not a low carbon solution
Booz Allen Hamilton “Estimated Carbon Impact
of New North-South Line” July 2007.
“In essence, the additional carbon emitted by
building and operating a new rail route is
larger than the entire quantity of carbon
emitted by the air services."
HS2 will have no significant downward
impact on aviation
• HS2 Ltd expect 178% increase in domestic
aviation.
• Demand has been falling.
• No affect on many routes.
• If domestic services are cut, what happens to
those slots.
• Is HS2 an airport transfer service?
HS2 will not ease congestion in any
significant manner
• Fewer than 2% of those driving on the
motorways between Birmingham and London
are expected to switch to HS2.
• “High-speed rail proposals are high cost, highrisk megaprojects that promise little or no
congestion relief, energy savings, or other
environmental benefits.”
– The Cato Institute Policy Analysis No 625. Randal O’Toole. October
2008
HS2 is intended to promote more
travel
• Almost 40,000 ‘new’ journeys projected.
• 40,000 parking spaces at Birmingham
Interchange, almost two miles from
Birmingham International.
There are less polluting alternatives
• Rail Package 2
• Not Travelling
HS2 will leave an unnecessary scar on
some of our most unspoilt countryside
• “Don’t destroy land, they’re not making it any
more.”
• “Start off by collecting all the fact, then you
can distort them to your own purposes.”
• Runway not a railway
Questions to the Panel
Thank you for your attendance.
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