thenextwave

Straining the train

Posted in economics, politics, transport by Andrew Curry on 22 September, 2013

Britain’s high speed train project, HS2, is something of an enigma wrapped in a mystery. The projected costs are spiralling, currently at £50bln and counting; the line antagonises voters in every constituency it is planned to run through, and could cost the government seats in the next election; and pretty much every credible transport expert says that if you’re going to spend that much money on rail infrastructure you’re better linking regions together rather than creating a faster funnel into London. And yet the project stays afloat, buoyed up, it seems, by the claims of its supporters.  Indeed, a recent article in The Guardian by Simon Jenkins likened the HS2 to the Afghan war:

There is no more debate about whether it makes sense. The only question is how long can its apologists hold out, as costs soar and supporters slip away in the night. Has Patrick McLoughlin, the brave, embattled transport secretary, the guts to tell his bosses in Downing Street that the line cannot be held and retreat is in order?

And as newsbiscuit joked, for £50 billion you could move the whole of Birmingham 20 minutes closer to London and skip building the rail line completely.  

Cost benefit wars

One of the features of the HS2 has been the emergence of what one might call ‘cost benefit analysis wars‘, in which proponents have waved around the CBAs done to support the project, and critics have gone under the bonnet to take the CBAs apart. Cost Benefit Analysis is a slightly arcane part of project assessment, and it works like this: the projected outcomes are calculated and added up, and then the projected costs are calculated and totalled, and then – after applying a discount rate to allow for the cost of capital, margins of error, and so on the scheme either comes out positive or negative.

One critical assumption in the way the Department of Transport thinks about the world has finally been made fully visible: that transport time is unproductive time. (I’m writing this on a train, so what do I know?) When you look back at the economics of many bypass schemes, this one element of the model – how much time does it save a traveller? – is often the decisive element of the calculation, making the difference between hitting the CBA threshold and missing it. Indeed, perhaps more than any other single assumption, this is the one that reveals the way in which a bias towards the car is still built into our transport planning, since it’s not really true (at least it’s highly contestable) for rail, cycling, and walking.  

Measuring and mattering

The second element is that many of the likely costs are not factored in. Admittedly some are impossible to measure accurately, such as increasing the over-dependence of the British economy on London: but the problem with Cost Benefit Analysis is that not everything that matters can be measured, and also vice-versa, that just because you can measure it, it doesn’t mean that it matters. Other factors, such as the increase in prices of houses close enough to the stations to benefit from the transport, represent private gains off the back of public investment (and a classic case for a Land Tax), and gains whic distort further an already over-priced market. 

It’s not just critics who have been sceptical. The National Audit Office said the link between the cost assessments and the strategic case for HS2 was “unclear”, while the House of Commons Public Accounts Committee said the Department of Transport’s projections were based on “fragile numbers, out of date data and assumptions that do not reflect real life”. The PAC also said there was no evidence that the project would help the economies of Britain’s regions – and would instead suck economic activity into London. Plus ca change, and all that.

Moving the scoreboard 

The result? The Department of Transport, which has long benefitted from its CBA assumptions to promote projects, has suddenly decided that it’s too simple an analysis for such a complicated project. Transport Secretary Patrick McLoughlin even made a speech describing as “madness” the focus by opponents on Cost Benefit Analysis, which given the DfT’s role in all of this, and long history with CBA, definitely counts as chutzpah. Fortunately, HS2 Ltd, the state-funded body managing HS2, had commissioned a new study using a more complicated method from the management consultancy KPMG. And even more fortunately for the government – phew! – KPMG’s more complex methodology found another £15 billion worth of benefits because of better connections within regions.   

But as Robert Peston pointed out, one of the key assumptions of the KPMG report was that transport connectivity was the only barrier to regional development (so more transport connectivity would sort that) and also made no assumptions about the relative benefits of ‘high speed’ against more conventional rail capacity. And on top of that, LSE academic Harry Overman, a former HS2 adviser, reckoned the KPMG report had significant technical errors which meant it vastly over-stated the benefits. His post is a little technical, but the logic is clear: transport connectivity improves regional productivity by improving the quality of labour markets. But the effects of this are much more marked at a local and regional level than long-distance.       

In passing, this discussion also throws up the dirty secret of high-speed rail: that it is less sustainable than conventional speed rail. (Most of the sustainability claims compare high-speed rail to flying or long-distance driving). The physics of this are pretty simple. As speed increases, the effort involved in pushing the air out of the way, and therefore the energy consumed, increases disproportionately. So whatever the sustainability advantages that rail can typically lay claim to go out of the window when you talk about High Speed Trains, unless, of course, you’re driving them off a carbon free energy network.

Market disciplines

The other aspect of Cost Benefit Analysis – and the other modelling variants – is that it is essentially trying to apply market disciplines to planning, and this isn’t always the best thing to do. The case for HS2 is often compared to HS1, the high speed line that links London to the Channel Tunnel. It went way over budget and has not returned its investment. Sometimes governments have to underwrite projects that do not make financial sense, on the basis that they make political or social sense. And, at least in theory, Cost Benefit Analysis techniques should be able to price in these non-financial elements to the model, if unreliably. The trouble is that quickly you run up against a whole raft of limits: the limits of pricing, certainly, but also the limits of markets. Without having to go all Michael Sandel on you, there are many things that are kept outside of markets for a good reason.  

But even when you look at HS2 in terms of priceable benefits, both economic and social, if one is going to spend £50 billion on the rail network, you don’t get the most significant social and economic benefits by reducing the journey time from Birmingham to London by 20 minutes. Instead, you invest in improving the cross-country rail system, especially in the North of England, to improve the inter-connectedness of its towns and cities, and reduce the level of car dependency. (For a start you could repair and re-open the rail tunnel that connects Manchester to Sheffield for £300m). But for a politician, that’s not a prestige project. 

All about status

And I realise that I haven’t yet answered the question of how and why such projects stay aloft in the face of so many pressing criticisms. Clearly there’s some classic in-group behaviour (as the in-group gets more sharply attacked by others, it increases its attachment to the thing that it is being attacked for). And I think the other element is that we always underestimate the role of status in human and group behaviour, despite Michael Marmot’s excellent work. High status groups (and politicians are by definition the sorts of people who seek out status) need the emblems of status as proof of their status. A lot of that is just in the trappings – the whistling police outriders that clog up London’s strets when a Minister has to go to a meeting, for example, the multiple offices, the coteries of yes-people. But there’s nothing like a high-status project to buoy up a high status individual. Harold Wilson had Concorde, Tony Blair the Iraq war, Thatcher, the Channel tunnel. For Cameron and Osborne it’s the HS2. They usually end in tears.

 

The image at the top of this post is from www.bigsmoke.org.uk and is used with thanks.

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2 Responses

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  1. Nick Wray said, on 24 September, 2013 at 5:19 pm

    Useful BBC summary of the pro and con arguments:

    http://www.bbc.co.uk/news/magazine-24159571

    I quite like the suggestion that Phase 2 of HS2 (HS3?) is built first – i.e the Birmingham-Manchester/ and /or Birmingham-Leeds link. This would also eliminate the concerns about London ‘sucking in’ all the goodies.

    I do wonder whether the very long time-scales of the project, along with the inherent signal-noise of futures work on complex projects like this begs the question can large-scale, expensive projects ever gain traction in a data rich, consultant-thick, but courage poor world? By courage, I mean genuine belief (even when wrong-headed). When one hears the mendacious response of Ye Olde New Labour at their conference to HS2 –which seems to boil down to: “we were pro, but probably best to go with the ‘no’ crowd now, but we’ll hedge our bets and see which way the wind is blowing down the (High-Speed?) line” — you can’t help wonder why any UK engineer wouldn’t take the Clapham Omnibus to Germany, Spain, Japan, China, Korea or any of those other countries which have been able to get their high-speed skates on, to varying degrees. But then we haven’t even decided if we’d even engineer any such project in km or Imperially measured miles! QED?

  2. […] Articolo originale: Straining the train […]


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