16 May 2013
In an early examination of progress by the Department for Transport in planning for the High Speed 2 rail network, the National Audit Office has expressed reservations about the Department’s business case. In particular, in presenting its case for investment in the project, the Department is said to have poorly articulated the strategic need for a transformation in rail capacity and how High Speed 2 will help generate regional economic growth.
According to today’s report, the Department’s methodology for appraising the project puts a high emphasis on journey-time savings, from faster and more reliable journeys. However, the relationship between these savings and the strategic reasons for doing the project, such as rebalancing regional economies, is unclear.
It is also unclear to the NAO whether the business case covers just the route between London and the West Midlands (phase one, due to open in 2026) or the full Y-shaped network with lines from Birmingham to Manchester and Leeds respectively (phase two, due to open in 2032). The Y-network has a stronger economic case but this is much less certain as route designs are less well-developed.
The benefit-cost ratio calculated for phase one has twice contained errors and the Department has been slow to carry out its own assurance of the underlying analysis. The NAO’s opinion is that the Department and its advisers HS2 Limited should update the data underpinning some key assumptions in the ratio.
The most recent benefit-cost ratio (published in August 2012) is 1.4 to 1 but is likely to change. This to be expected as the ratio is sensitive to changes in data underpinning assumptions, such as GDP growth forecasts. It does not, however, reflect the Department’s current assumption on the relationship between passenger numbers and GDP growth. The Department now expects passenger numbers to grow more slowly when GDP increases. It should also carry out research into how business travellers use their time on trains. HS2 Limited has also not yet analysed the effect on passenger demand, revenues and the benefit-cost ratio of charging passengers premium prices.
The report notes that the estimated cost of phase one will change as costs become firmer. In some documents, the estimated cost is between £15.4 billion and £17.3 billion but a new estimate is being developed based on a clearer route and more information. 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.
“It’s too early in the High Speed 2 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 objectives. 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 High Speed 2 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."
Amyas Morse, head of the National Audit Office, 16 May 2013
£15.4bn to £17.3bn
Estimate of the capital cost of constructing phase one.
Phase one, between London and the West Midlands, is due to open.
1.4 to 1
The most recent transport benefit–cost ratio for phase one, published in August 2012.
2.5 to 1
August 2012 benefit–cost ratio for the Y-shaped network, from London to the West Midlands, Manchester and Leeds, when wider economic impacts are also included. For phase one this ratio is 1.7 to 1.
Amount to be found by government spread over the four peak years of construction of phase one (2017-18 to 2020-21) to cover the gap between the Department's forecast capital spending and its capital budgets if these were kept at 2014-15 levels.
1. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.
2. The NAO’s vision is to help the nation spend wisely. Its independent public audit perspective helps Parliament hold government to account and improve public services. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 860 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on w hether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of more than £1 billion in 2011.