High Speed 2 (Economic Affairs Committee Report)

Lord Hollick Excerpts

Thursday 23rd January 2020 Lords Chamber

[Lord Hollick (Lab)]

My Lords, I congratulate the noble Lord, Lord Forsyth, and his colleagues on their excellent report, which sadly shows that many of the questions raised in our 2015 report remain unanswered.

The two reports from the Economic Affairs Committee and an admirable solo contribution from my noble friend Lord Berkeley earlier this month make up an evidently popular box set with common plot lines. First, there is the shared enthusiasm for significant investment in our transport infrastructure but dismay that many alternative, less expensive and less environmentally disruptive solutions to the capacity and network constraints have been inadequately considered or, in some cases, ignored. Secondly, there is clear evidence that the cost of HS2 is spiralling out of control. Thirdly, the benefit-cost analysis, a widely used method of assessing the economic value of the project, is flawed. Fourthly, the oversight of a large-scale infrastructure project is inadequate.

Our enthusiasm for infrastructure spend was based on the assumption that all options would be considered before a final plan was adopted. It is evident that a number of lower-cost options which would have increased network capacity and offered greater connectivity—and in some cases still could—have been sidelined without full public debate.

The failure of the Government and HS2 Ltd to be transparent and communicate details of the cost overruns and project uncertainties in a timely manner has deprived Parliament of the opportunity adequately to scrutinise progress and undermined public trust in HS2. This communications strategy has allowed the project to proceed to the point where the sums invested are now so great that sensible alternatives to reduce costs or reprioritise work have become costly and complex. Some say that was the plan.

A benefit-cost analysis is how the Government assess the economic value of projects. Its usefulness as a decision-making tool depends on the accuracy of cost estimates and the assessment of benefits. It is attractive to policymakers because it can provide an illusory certainty. In the case of HS2 this certainty has unravelled as costs in real terms have doubled and the calculation of benefits is highly questionable.

As the noble Lord, Lord Forsyth, said, the economic case published by HS2 Ltd in 2015 assumed a capital cost of £55 billion and claimed a benefit-cost ratio for every £1 invested of 1.8, increasing to 2.3 when wider economic benefits such as those associated with bringing people and businesses closer together are included. Last year, the chairman of HS2 revealed that total costs had increased to £78 billion and that the benefit-cost ratio had dropped from 2.3 to 1.3. In a paper published today, the Institute for Government estimates that, based on the Oakervee review cost estimate of £106 billion, the costs of the project risk exceeding the benefits.

The benefits flowing from the proposed project are founded on a long-term estimate of income based on the number of travellers, the fares charged and the wider economic benefits expected to flow from HS2. Approximately 60% of these benefits are based on an assumption of the willingness of business travellers to pay higher fares. As the noble Lord, Lord Forsyth, noted, this is derived from a survey of travellers’ answers to hypothetical questions on station platforms. This data has rightly been described by the committee as unconvincing. One key assumption underpinning the forecast is that there will be 18 trains per hour; experts advise that there can be only 14 trains per hour, which is the number that travel per hour on European high-speed networks. Another key assumption underpinning the forecast of benefits is the number of travellers. This is based on a 20 year-old model which does not even correspond to the number of journeys undertaken for business in the latest national travel survey. More work is needed to make sense of these assumptions.

If the Government are to proceed with HS2 phase 1, they must reduce costs. Making the London terminus Old Oak Common—possibly to be renamed Boris Terminus—and running the trains at the same speed as the rest of Europe will save an estimated £10 billion to £15 billion. These savings can be invested in upgrades to improve capacity, speed and connectivity in the Midlands and the north. This is the surest way to achieve a positive return on this massive investment in this decade. The Government can in the meantime take a fresh look at the lower-cost, higher return options to improve the transport system set out in my noble friend Lord Berkeley’s report.

With their laudable ambition to invest a further £100 billion in transport infrastructure, the Government need now to put in place measures to avoid the shambolic HS2 process, where project oversight has been absent. The Department for Transport is the sponsoring department, with the optimism bias and defensive mentality that comes with that role. The Treasury appears to have neither the inclination nor the resources to oversee multiyear projects.

The NAO and the Infrastructure and Projects Authority provide valuable rear-facing analysis of projects. When George Osborne first floated the idea of setting up the National Infrastructure Commission, he planned to invest it with statutory powers to oversee infrastructure and other projects from the planning stage to completion. Whitehall departments made it clear that they did not want such a body poking its nose into their affairs, and the statutory status was quietly dropped. Apparently, the National Infrastructure Commission does not even plan to review HS2—or Hinkley Point C, another rather expensive project—because they were greenlit before it was established. So much for effective adult supervision. Putting the National Infrastructure Commission on a statutory basis should be a priority if the Government want to deliver their projects on time and at a realistic budget and help to secure parliamentary and public support.