Transport and the Economy - Transport Committee Contents

Written evidence from HS2 Action Alliance (TE 117)


1.1  HS2 Action Alliance is a not for profit limited company formed with the objectives of improving government decision making concerning High Speed 2 (HS2) and securing fair compensation for those suffering property blight as a result of the HS2 proposals. We are supported by nearly 60 local groups.

1.2  The current Inquiry is addressing whether the economic conditions have materially changed since the Eddington Transport Study, and what type of transport spending should now be prioritised to best support regional and national economic growth. We believe that in regard to high speed rail (HSR), the circumstances are similar, although there is mounting evidence that demand for transport should be expected to grow more slowly, and so any capacity arguments in its favour are diminished. We therefore concur with Eddington's conclusion that the priority should be improving the existing infrastructure:

"Step-change measures intended to transform the economy are not, in a world of constrained resources, likely to be a priority. The UK is already well connected and the demands for new links are uncertain."1

1.3  However, DfT is now adopting a contrary position in proposing a new high speed railway, HS2. It claims a sound business case. We believe that this does not reflect a change in circumstances, but is the result of a faulty assessment.

1.4  We believe that it is crucial that the Select Committee for Transport review the case for HS2. The government is only holding a consultation, not an inquiry. It is increasingly clear that Government are not entering consultation with an open mind (as evidenced by David Cameron's speech of 25 November, and numerous pronouncements by Philip Hammond). Consequently the Select Committee has a vital role in providing scrutiny to a decision that may waste tens of billions of pounds of public money for want of an open debate.

1.5  The Government has recently been making assertions about the transformational benefits of HS2. These benefits are claimed to be in addition to benefits identified by HS2 Ltd in applying DfT approach to Wider Economic Impacts, and the very small benefits that may arise from agglomeration from quicker long distance journeys on which HS2 Ltd had commissioned work. Although not part of HS2 Ltd's published business case, such assertions are to the heart of Select Committee's Inquiry into transport and the economy, and priorities for regional and national economic growth.

1.6  The Select Committee heard from Professors Overman and Tomaney, who asserted that the evidence for such transformational benefits was simply not there for HS2. In essence HS2 Ltd own published position is in agreement, as set out in Appendix 3 of the report "HS2 Demand Model Analysis" (February 2010). However, while DfT and HS2 Ltd did not previously make the case for transformational benefits, they did identify scope for regeneration projects. Others, notably Greengauge 21, are less reticent in claiming transformational benefits.

1.7  The Northern Way helpfully direct attention to a study that it commissioned from ITS Leeds, in the written evidence that it has given to this Inquiry. This study specifically addresses the approach taken by KPMG who provided the analysis that underpins Greengauge 21'a assertions of major economic benefits for high speed rail connections in Britain. It explains the serious weaknesses in this approach and why its ascriptions of benefits are exaggerated.


2.1  While we see considerable merit in the general approach to transport appraisal adopted by DfT, the specific assessment made of HS2 is gravely flawed.

No case made for subsidy

2.2  The "business case" is effectively the case for Government subsidising a new railway. However, no case is made as to why users of HS2 should not be expected to cover the full costs in the fares that they pay. Given that the great majority of assessed benefits go to business users, and that rail users are predominantly from high earning income groups, it seems to be regressive to use public money to subsidise a transportation mode predominantly used by the affluent.

2.3  That HS2 is deemed suitable for subsidy is the more puzzling when the government has determined that people—particularly businessmen—should be encouraged to adopt alternatives to travel. Norman Baker has been specifically charged with this portfolio responsibility. The "business case" for HS2 depends on it being generative of additional travel.

Failure to address uncertainty

2.4  The assessment fails to address the considerable uncertainties, particularly concerning the demand for HS2, despite HS2 Ltd acknowledging the fragility of the business case in relation to demand (a 20% shortfall in demand results in a Net Benefit Ratio (NBR) below 1.5). The analysis is done on the basis of a single scenario.

2.5  The demand projections are developed without recognition of the clear evidence of domestic travel saturation. Demand saturation has implications for long-tern growth of demand for long distance domestic travel in general but also for rail. Demand saturation could greatly curtail demand growth considerably before the 25 years of growth forecast for HS2. At minimum a low or no growth scenario should be included in the analysis.

2.6  The absence of such a consideration is surprising as the Select Committee on Public Accounts in their Thirty-Eighth Report, which was concerned with HS1, recorded:

"6. The Department told us that it has now learned from all this experience, and that the next time it considered undertaking a major transport project, it would factor more severe downside assumptions into its business case analysis."

2.7  The evidence that the Public Accounts Select Committee were considering showed that actual passenger numbers on CTRL were lower than the 1998 and 2001 "downside" and "low" cases respectively. For HS2 a downside or low demand case has not even been developed.

2.8  The effect of properly taking into account uncertainty would be to recognise the disadvantage of betting on a high demand growth future, as HS2 does. Alternative means of providing capacity (or indeed demand management) that can be implemented incrementally and with short lead times (for example the measures packaged in RP2) are robust to lower growth outcomes, and so are favoured in a risk weighted evaluation.

2.9  The 2007 DfT White Paper recognised the problems of long term forecasts, uncertainty and the need for flexible solutions:

"Forecasts have been wrong before, and any strategy that tried to build a rigid investment programme based on fixed long-term forecasts would inevitably be wrong again."2

Unrealistic comparator

2.10  The assessment also fails to develop realistic alternatives against which HS2 is compared, resulting in massive over-estimation of HS2's benefits.

2.11  The "do minimum" case against which HS2 is assessed is unrealistic as it does not accommodate the forecast demand. HS2 Ltd concede that the forecasts are made without consideration of the affects of crowding3, that are recognised to inhibit demand growth. The "do minimum" case has extreme crowding forecast, with an average 16-hour load factor of 81% and a section of route in Lancashire with a load factor of 91%. HS2 Ltd explain4 a greater than 80% load factor as "standing on most trains throughout the day". In fact the situation would be even worse as HS2 Ltd's demand projections are for considerably greater increase in journeys starting from outside London than the reverse (a consequence of the different income elasticities, see Table 1)..

2.12  This has profound implications for HS2's appraisal, because against a realistic alternative, eg Rail Package 25 (RP2), far from HS2 having a benefit of reducing crowding—it would increase crowding and attract a substantial disbenefit. Some of the more robustly valuable time savings (in the form of improved service frequency) are also lost with a realistic comparator, as RP2 delivers these too.

2.13  The benefits of HS2 are grossly overestimated, partly as a result of using an unrealistic comparator, and partly because out of date or plainly wrong estimates of key parameters are used. DfT have failed to put the benefits estimation on a sound properly evidenced footing, despite the risk of massive misallocation of public funds that might result from conducting the assessment on wrong data.

2.14  The alternatives to a new railway developed by DfT, including RP2, are dismissed completely by HS2 as not providing sufficient additional capacity. This is despite RP2 being superior in numerous ways to HS2—including proving less crowding than HS2 (the Committee has already accepted evidence on this by Bruce Weston, as referenced above). It is necessary to show that any surplus capacity created by HS2 can be used in ways that provide benefits sufficient to justify the additional cost of HS2. No evidence has been presented by DfT that this is the case.

2.15  We are not able to quantify the overall effect of this precisely, but there can be no doubt that the greater part of the benefits claimed are not justifiable. An assessment that included considerations of risk would be driven to the low cost, higher NBR alternative of uprating the existing infrastructure, which can be done incrementally and in response to such increases in demand that actually arise.


Demand saturation

3.1  There is mounting evidence that the demand for domestic travel is saturating, with travel increasing at the rate of population growth rather than GDP.

3.2  The government's National Travel Survey (NTS) data shows that growth in the numbers of trips per person, distance travelled per person, and time spent travelling have ceased growing.

3.3  This Inquiry has accepted evidence from Bruce Weston (a director of HS2 Action Alliance) and Bluespace Thinking that shows a clear decoupling of domestic travel from economic growth, with recent (but pre-recession) increases in travel at the level of population growth. It also shows that long distance travel has followed a similar trend, with trips per person over 50 miles remaining at about 20 since 19956.

3.4  The phenomenon of domestic travel saturation is not unique to the UK. Work by the European Environment Agency7 reported that decoupling between GDP and total domestic passenger has been occurring. Commenting on this phenomenon, Crozet in an OECD discussion paper observed:

"……In Germany, the UK, Italy and France, domestic passenger traffic has been more or less flat since the early 2000s."8

Figure 1


3.5  However analysis conducted on NTS data by the Independent Travel Commission9 showed that the relationship between long distance travel and income exists and was as strong for the last part of the period from 1995 to 2006 as it was at the beginning.

3.6  There is an apparent paradox between lack of domestic travel growth with increasing wealth, and strong relationship between income and amount of domestic travel. This may be resolved by recognising that while the demand for travel may be initially constrained by shortage of money, demand is actually set by social and occupational factors. There are enduring variations across society that cause levels of domestic travel to be associated with relative income, but with rising real incomes (driven by per capital increases in productivity) people in particular occupations and social circumstances reach a point when their travel is not constrained by income but by their need, desire and time for domestic travel.

3.7  Despite apparent saturation for domestic travel generally. long distance rail travel has grown particularly strongly. Does this mean that rail demand is different?

3.8  Since 1995, National Travel Survey figures show that rail usage has gone up (by 3.7%/a) and coach and car have declined (by an average of 2.6%/a for private and long distance coach, and by 0.3%/a for car). While there has been sustained growth in rail travel, it looks like an increasing share of a saturated market.

3.9  There is no good evidence of long term relationship between rail and real per capital income:

  • for decades until the early 1990s rail passenger numbers were static while GDP and GVA per capita increased considerably, and
  • recently rail passengers on WCML and other intercity services continued to increase despite the recession.

3.10  To project increases of rail demand to 2033 on a claimed relationship to GDP seems unsafe. What is clear is that rail has increased its modal share because of:

  • the investments of the last 15 years and the resulting improvements in services, and
  • improved revenue management by rail operators (attracting more price-sensitive passengers while maintaining yields).

3.11  If service improvements reduce or stop, growth in passenger numbers is likely to follow.

Out of date demand factors

3.12  Even if demand is forecast on the assumption of a continuing relationship with economic growth, the analysis done by HS2 Ltd fails to adopt the most recent estimates of demand elasticities. Retaining out of date values results in large-scale overestimation of demand.

3.13  HS2 Ltd and DfT fail to use the up to date estimates of the factors that relate economic growth to demand which are used in the latest version of the Passenger Demand Forecasting Handbook (PDFH), version 5.0. PDFH 5.0 was released in August 2009. PDFH 5.0 income elasticities are considerably smaller than those used for HS2, so that much less demand is forecast for a given increase in per capita real income using version 5.0 values.

Table 1

PDFH 4.1 (2005) PDFH 5.0 (2009)
To London2.00 + 0.0032 per mile 1.9
From London0.84 + 0.0032 per mile 0.9

3.14  The approach taken by HS2 Ltd, on DfT's advice, is not even consistent with draft guidance10 on this issued by DfT in January 2010, which proposes a cap on the income elasticities calculated from PDFH4.1 (which increase with distance) of 2.5 on rail journeys to London and 1.5 from London. The cap that HS2 Ltd uses is 2.811.

3.15  Despite being expected to be adopted in April 2010, the draft guidance has not yet received the Secretary of State's approval.

3.16  This draft guidance recognises that the PDFH 4.1 approach leads to excessive estimates of the income elasticity's for longer distance journeys, but still only recommends PDFH 5.0 for sensitivity purposes. PDFH 4.1 was updated in 2005. The justification given for not adopting the version 5.0 values is that DfT were reluctant to recommend changes to the methodology when the results of further work were due shortly. Some other changes made for PDFH 5.0 are adopted in the draft guidance. We are not aware that this issue is currently important to other projects besides HS2, nor, despite its imminence in January 2010, have the results of the further work been released.

3.17  To illustrate the effect of using the PDFH 5.0 values instead of those used by HS2, take London Glasgow. A 2.5% annual growth in GVA would generate an increase of 7.0% to London and 4.8% from London, as opposed to 4.8% and 2.3% with PDFH 5 elasticities. Putting aside other factors, over a 15 year period the approach taken would double growth compared to version 5.0.

3.18  The latest published work by Professor Dargay12 on long distance rail income elasticities gives an overall value of 1.25—that is plainly inconsistent with the PDFH 4.1 levels.

Modelling issues

3.19  HS2 Ltd's documentation indicates that they project an overall increase in long distance rail travel of 62% to 2033, which is in line with a number of other authoritative estimates based on the same approach to forecasting (ie assuming a relationship with economic growth). However this figure appears to be inconsistent with the detailed results of HS2 Ltd's modelling.

3.20  The forecast increase for all long distance operators is 120% growth. Franchised long distance operators comprise 41% of total franchised passenger mileage13, with rail journeys over 50 miles comprising 56% of the total and those over 100 miles 35%14. Further doubts on the modelling arise as HS2 Ltd has confirmed that it forecasts seven million long distance journeys per day for just part of the country (affected by the extended route). Given this is an increase of about 88% on all the long distance journeys for Britain as a whole, as against their forecasts of a 44% increase in long distance car (the dominant transport mode) journeys, their figures are like Dr Who's Tardis—larger inside than out—and just as impossible.

3.21  The assessment also assumes away the possibility of competition—despite this being the obvious use of freed-up capacity on the fast line of WCML.


4.1  The key benefit for HS2 is travel time saving. Reductions to on board travelling time (of about 30 minutes per journey) for business travellers is the largest single benefit, worth over £8 billion. However this benefit is based on the presumption that businessmen do not and will not work on long distance trains, that their time is entirely unproductive. This is both self evidently wrong and inconsistent with the results that studies actually commissioned by DfT have found. Furthermore, improving technology has been and can be expected to continue to progressively remove the barriers to train travellers engaging in the full range of productive activities.

4.2  On board time savings for leisure passengers are assessed by HS2 Ltd to be worth over £2 billion. However technology has been revolutionising the range of activities that may be conducted from the seat of a long distance train for leisure travellers as for business travellers, eroding the "disutility" of such time.

4.3  It is reasonable to assume that by 2025, time in the middle of long distance time journeys will be fully productive for business travellers, and amenable to a considerable range of leisure activities that will make leisure travellers ascribe little value to reductions in such time.

4.4  The largest leisure traveller benefit is assessed by HS2 Ltd to be a reduction in crowding. Reductions to crowding are claimed to contribute £5 billion of benefit. However, this is entirely an artefact of comparing HS2 with the unrealistic "do minimum" case. Not only is this benefit lost when compared to RP2 (which has a lower load factor than HS2), but there will be a crowding penalty for HS2.

4.5  Other time savings benefits to business travellers are also overestimated by HS2 Ltd. This is because they use out of date information about the relative earnings of train business travellers. DfT webtag values for business time savings are based on 2002 earnings applied to 1999-2001 travel data from the NTS15, and are escalated throughout the assessment period (to 2085) in line with estimates of productivity and real wages growth. With subsequent and forecast increases in business travel, it would not be possible for the small relatively very high earning business travellers of a decade ago to make all the rail journeys. HS2 Ltd forecast that business travellers will make 4.6 times as many long distance train journeys in 2033 compared to 2008.

4.6  The result is that the webtag average earnings in current money of £70,000/annum must reduce. If we assume the median earnings for managers and senior officials given by the New Earnings Survey, this alone would almost halve the value of business benefits.

4.7  The Wider Economic Impacts (and the associated effects on GDP) assessed within the DfT framework are modest 11% of total benefits. However, they must be overestimated as business time and reliability savings are the basis for £1.6 billion of this benefit, and so the £1.6 billion will reduce in line with this benefit.

Transformational benefits

4.8  Recently DfT has made claims of transformational benefits for HS2. As yet DfT have not produced evidence to support these assertions.

4.9  However, pro-high speed rail pressure groups have offered evidence. In particular there is work done for Greengauge21 (by KPMG) and some other studies that seek to estimate the GVA impacts of transport investments directly, rather than through the standard DfT approach.

4.10  The Greengauge21 supporter, Northern Way, asked ITS (Leeds University), James Laird and Peter Mackie, to review the KPMG work and that done by the Spatial Economic Research Centre (SERC at the London School of Economics). These pieces of work purport to identify considerably larger economic benefits than those assessed by the conventional DfT approach. The review concluded, as a result of identifying a variety of methodological issues:

"…….. it remains clear that further work on methods and techniques will be needed before GVA assessment could become part of 'mainstream' appraisal."

4.11  Three of a sizable number of issues that ITS identify are:

  • the approach only takes account of the transportation investments not the other investments that are necessary to deliver the economic benefits, eg concerning land use etc;
  • the tendency for transport to be developed as a response to demand (ie as a response to economic activity rather than the cause of it) inflates the estimates of the effect of transportation improvements made, as the methodology does not recognise this direction of causality and ascribe it in the opposite way round; and
  • the approach does not identify a net national increase in GVA, but focuses on local effects that are recognised as being predominantly re-distributive (ie at the expense of surrounding areas).

4.12  To illustrate the first point, the GVA approach would see the regeneration of London Docklands as a transportation effect and ignore the costs of the non-transport investments, rather than as an integrated property development project, the success of which turned on its proximity to the financial centre of the City of London.

4.13  To identify the transportation investment as transformational is to mistake one of a number of necessary investments as determinant. One could as well regard the investment in providing the electricity supply, telecommunications infrastructure or indeed the sewage system as transformational. It is wrong to attribute all the benefits to any one of the investments. But none of these created physical proximity to the City, and potential for ready access to the financial services labour force that works there. Were similar investments in another city to be made, they would not be guaranteed similar results.


1 "The Eddington Transport Study: Main Report Volume 3", December 2006, page 140, section 3, bullet 5

2 "Delivering a Sustainable Railway", Cm 7176, Dft, July 2007, page 9

3 HS2 Ltd state this at "HS2 Baseline Forecasting Report" section 2.64 page 19

4 "HS2 Baseline Forecasting Report" 5.3 page 33

5 High Speed 2 "Strategic Alternatives" Study: Rail Interventions Report

6 NTS 2009, Table 0307

7 "Transport at the Crossroads" EEA Report 3/2009

8 "The Prospects for Inter-Urban Travel Demand", Y. Crozet—Discussion Paper 2009-14—OECD/ITF, 2009, section 2.2

9 "Long Distance Travel in Britain: Prospects in a Time of Uncertainty", Independent Travel Commission, March 2010, page 23

10 Tag Unit 3.15.4d, DfT Jan 2010, section 4.2.9 page 10

11 "High Speed Rail London to the West Midlands and Beyond: HS2 Demand Model Analysis" February 2010, section 3.2.6 page 31

12 "The prospects for longer distance domestic coach, rail and car travel in Britain," Prof J Dargay, January 2010, page 35

13 National Rail Trends 2008-09

14 National Travel Survey 2009, Table 0309

15 Tag Unit 3.5.6 section 1.2.5 page 2 (DfT)

November 2010

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2011
Prepared 2 March 2011