May 16, 2013

Report urges DfT to strengthen HS2 business case

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Artist's impression of Birmingham Curzon Street station. Artist's impression of Birmingham Curzon Street station.

A REPORT published today by Britain's National Audit Office (NAO) into the early stages of planning for High Speed 2 (HS2) suggests the Department for Transport (DfT) needs to strengthen the strategic business case for constructing the high-speed line from London to Birmingham, Manchester, and Leeds.

The NAO says that while the strategic case for the project includes evidence of general growth in rail travel it is unclear where, and by how much, capacity increases are needed on the West Coast Main Line, which Network Rail has warned will face serious capacity constraints by the start of the next decade. The report suggests the DfT needs to include this information to demonstrate why alternative options, including further upgrading of the WCML and development of existing alternative routes, would not deliver sufficient capacity to meet forecast demand.

The NAO also questions how the project will contribute to the DfT's strategic objective of delivering and rebalancing economic growth, which at present is heavily skewed towards London and southeast England the report notes that HS2 Ltd, the organisation responsible for developing the project, has recently commissioned work to establish what the wider economic impacts are likely to be, although it also suggests the DfT should provide a clearer vision of how the project will benefit regional economies.

The report also seeks clarity on whether the business case put forward by the DfT covers the entire network or just the initial phase from London to Birmingham and a junction with the WCML near Lichfield. It notes that the overall network has a stronger economic case, although this is less certain because route options for the second phase have not yet been clearly defined. HS2 Ltd expects the benefit:cost ratio (BCR) for phase 1 to be 1.7:1, rising to 2.5:1 for the full network, although the NAO notes that BCR is likely to fluctuate through the life of the project as the ratio is sensitive to changes in the underpinning data, particularly cost estimates, GDP growth forecasts, and the relationship between GDP and passenger demand.

However, it notes that the BCR calculated for phase 1 has twice contained errors due to incorrect passenger demand forecasting. HS2 Ltd has since begun an independent audit of passenger demand forecasts and analysis behind the BCR.

The NAO recommends that the DfT and HS2 Ltd need to update the data underpinning key assumptions in the BCR. Last August the DfT adopted a lower assumption for long-distance rail travel, meaning traffic is expected to grow more slowly when GDP increases, but this has not been factored into the BCR for phase 1. DfT data on business travel used in the BCR was also found to be more than 10 years old, using the results of a survey carried out between 1999 and 2001. The report recommends new research into business users, and more broadly suggests that the DfT routinely update data on which it bases key assumptions and forecasts.

The NAO also argues that the government's plan to introduce the hybrid bill for phase 1 to parliament in October is too ambitious and contains no contingency despite the significant volume of preparatory work required. The bill is now likely to be published in December, although the report describes this as "challenging," warning that the recent Intercity West Coast franchising debacle highlights the mistakes that can occur when an unrealistic timetable is adopted.

Finally, the report calls for the development of a mature cost estimate, which will allow the government to agree long-term funding for the project. The NAO estimates there is a £3.3bn funding gap over four years (2017-18 to 2020-21), but there is currently no cross-government mechanism for agreeing funding. DfT documents suggest the capital cost of phase 1 is likely to be between £15.4bn and £17.3bn, and an updated estimate is currently being developed.

- On the same day as the NAO report, the DfT published its draft environmental statement for phase 1, which takes into account a number of additional mitigation measures recently added to the project. The consultation will run until July 11, and documentation is available on the HS2 Ltd website.

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