1. HS2 - What tests should be applied in evaluating the final business case ?
Chris Nash

2. Valuing costs and benefits Options considered
Key Issues
Forecasting demand
Pricing policy
Valuing costs and benefits
Options considered

3. Long run trend in rail passenger traffic in Great Britain3

4. Impact of improvements in telecommunications
Forecasting demand
Will long run trend favouring rail continue? (NB demand capped in 2036)
PDFH concludes driven by economic growth but with little growth in car ownership and rising road congestion
Impact of improvements in telecommunications
- will need for travel reduce?
3. Increased competitiveness of the car (autonomous cars?)
Should we examine a range of scenarios? (rather than just sensitivity testing and risk analysis)

5. - Rail fares rise by RPI +1% from 2020
Pricing Policy. WEBTAG advises to assume continuation of existing policy
- Rail fares rise by RPI +1% from 2020
HS2 fares same as conventional rail
Air fares continue to decline
Motoring costs decline as efficiency improves but no rise in fuel tax or further use of road pricing
So by 2036 in real terms
Rail +25%
Air %
Car -40%

6. Examples of Network Rail forecast growth over 30 years for alternative scenarios with economic growth ( %) and different pricing of alternative modes
Range Prospering in isolation London to: Birmingham 33-87% 67% Manchester % 115% Leeds % 108% Birmingham to Leeds % 103% Manchester % 95%

7. What are the major economic benefits of HSR?
Phase One
Full Network
Oct 2013
Transport benefits (Business)
16,921
40,529
Transport benefits (Other)
7,673
19,323
Other quantifiable benefits
407
788
Indirect taxes (loss to Govt)
-1,208
-2,912
Net transport benefits
23,793
57,727
Wider economic impacts
4,341
13,293
Total costs
29,919
62,606
Revenues
13,243
31,111
Net cost to Government
16,676
31,495
Benefit cost ratio (inc WEIs)
1.7
2.3

8. Most of the benefits time or time related (crowding, reliability)
Values of time
Most of the benefits time or time related (crowding, reliability)
Most of them relate to business travel
Based on cost savings approach (wage rate plus overheads)
New work based on willingness to pay puts values up!
Can fit more meetings into a day
Avoids travel in (very) unsocial hours

9. Values of Time for rail travellers per hour (2010 prices) DfT 2015
Current
Recommended
commuting
6.81
10.01
other leisure
6.04
4.57
Business
31.96
36.19
(>100km)

10. Wider economic benefits
Current appraisal method considers these only for major conurbations
- Agglomeration benefits
- Labour market benefits
Imperfect competition
Are there also benefits from improving inter city connections?
Venables – specialisation and economies of scale
KPMG – correlation between productivity and rail connectivity, but does this imply causation?
Should a LUTI model be developed to examine locational implications and further agglomeration?

11. Range of options considered
First British domestic HSR study – Atkins 2002
Options considered:
Different routes
New conventional line
Timing
Pricing
Road and air investment
Best option a Y shaped network like HS2

12. HS2 alternatives examined
Alternative routes
Longer trains
Upgrading of existing lines
51M proposals
But not
Is infrastructure suitable for 400km (and actual 360kmph running) needed?

13. Source: derived from Atkins (2012)
Table 13 Incremental benefits and costs over 51M package (£b2011PV)
Incremental benefits and costs compared with 51M proposal
51M incremental
costs and
benefits of HS2
Benefits
Costs to gov
BCR
Source: derived from Atkins (2012)

14. HS2 Conventional line 9% cheaper
Lower speed options
HS Conventional line 9% cheaper
Atkins Conventional line 15% cheaper
But loses 42% of the benefits
Civity vs 300 km plus
Capital cost 6.3% less
Operating cost 2.8% less
Benefits 15% less

15. Conclusions on what is needed
The revised business plan should:
Look at alternative demand scenarios
Look at pricing policy (including yield management)
Use latest values of time
Use a LUTI model to examine land use
Look at alternatives including upgrading existing infrastructure and restricting speeds to 300 kmph
BUT NO REASON TO SUPPOSE THE CONCLUSIONS WOULD CHANGE