UK

HS2 Costs Questioned By National Audit Office

16/05/2013 10:06 BST
Alamy

The HS2 high-speed rail project has an estimated £3.3 billion funding gap which the Government has yet to decide how to fill, a report from a Whitehall spending watchdog said today.

It was not clear how HS2 - which runs through Tory heartlands and is bitterly opposed by some - would deliver and rebalance economic growth, the report by the National Audit Office (NAO) added.

The timetable for planning phase one of the project - from London to Birmingham with work due to start in 2016/17 - was "challenging", the NAO said.

This challenging timetable "makes delivering this work difficult and increases the risk that the programme will have a weak foundation for securing and demonstrating success in the future", the report said.

Expressing "reservations" about the business case for HS2, the NAO said the Department for Transport's (DfT) methodology for appraising the project put a high emphasis on journey-time savings, from faster and more reliable journeys.

But the report added that the relationship between these savings and the strategic reasons for doing the project, such as rebalancing regional economies, was unclear.

The NAO said it was also unclear whether the business case covered just phase one or the full route including phase two - the Y-shaped network from Birmingham to Manchester and Leeds due to open in 2032/33.

The report said phase two had a strong economic case but that this was much less certain as route designs were less well-developed.

Saying there were "risks to affordablity", the NAO went on: "The NAO estimates that there is a £3.3 billion funding gap over four years (2017-18 to 2020-21) which the government has yet to decide how to fill."

The report said this "gap in affordability" coincided with the "peak spending years for phase one".

The NAO went on: "The department capital forecast for these four years is £33.7 billion but its capital budget if kept constant at 2014-15 levels would be only £30.4 billion."

The NAO said the benefit-cost ratio - the cost of the project set against the likely benefits it will bring - had twice contained errors and that the current estimate of £1.4 in benefit to every £1.0 spent was "likely to change".

It added that between March 2010 and February 2011 benefits from HS2 reduced by £12 billion, with nearly two-thirds of this reduction due to errors in the way passenger demand was modelled.

The report said that the DfT estimated the line would support 100,000 jobs through development around stations in constructing and operating the line.

The report went on: "It (the DfT) does not know how many jobs would be created without this investment."

The NAO also said that HS2 Ltd had not yet analysed the effect of premium pricing on forecast passenger demand, revenues and the benefit-cost ratio.

The report went on: "To forecast passenger demand, HS2 Ltd uses the same average fares for high-speed and conventional rail in its models, although premium fares are charged for HS1 (the London to Folkestone Channel Tunnel link)".

NAO head Amyas Morse said: "It's too early in the HS2 programme to conclude on the likelihood of its achieving value for money.

"Our concern at this point is the lack of clarity around the department's (DfT) objectives."

He went on: "The strategic case for the network should be better developed at this stage of the programme.

"It is intended to demonstrate the need for the line but so far presents limited evidence on forecast passenger demand and expected capacity shortages on existing lines.

"It is also unclear how HS2 will transform regional economies by delivering jobs and growth."

"The department is trying against a challenging timetable to strengthen its evidence and analysis, which at present provide a weak foundation for securing and demonstrating success in the programme in future."

Commenting on the report, House of Commons Public Accounts Committee chairman Margaret Hodge said: "The DfT has produced a business case that is clearly not up to scratch and shows no signs of having learnt the lessons from HS1, which the committee reported on last year. "

She went on: "Some of their (the DfT's) assumptions are just ludicrous.

"To take just one example, on the benefits to business travellers, the department continues to assume that business travellers do not work when on the train and to use data that is over 10 years old."

Hodge continued: "There is virtually no evidence in this business case to support claims that HS2 will deliver regional economic growth, one of the key aims and justifications for this project.

"We have been told that it will deliver around 100,000 new jobs but there is no evidence that all these jobs would not have been created anyway.

But Transport Secretary Patrick McLoughlin said: "I welcome any examination of the HS2 programme, but I do not accept the NAO's core conclusion.

"This is because it depends too much on out-of-date analysis and does not give due weight to the good progress that has been made since last year."