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29.10.13

£2.30 of benefits for every £1 spent on HS2

The Government has now published the new business case for HS2, claiming a benefit-cost ratio of 2.3 for the full Y-shaped network – down slightly from the previous estimate of 2.5.

This means the Department for Transport expects to realise £2.30 of benefits for every £1 spent on the full project linking London to Birmingham, Manchester, the East Midlands and Leeds via a new 225mph line.

The DfT has launched a new 153-page ‘Strategic Case for HS2’, plus new economic documents published by HS2 Ltd.

On the benefit-cost ratio, crucial for major infrastructure projects, the strategic case document notes: “The main conclusion is that, using standard assumptions, HS2 shows a good return on investment with a benefit-cost ratio of 2.3 for the full Y network (Phase One and Two combined) and 1.7 for Phase One on its own. Under the Government’s assessment system the full Y network will therefore deliver ‘high’ value for money and Phase One on its own will deliver ‘medium’ value for money. This is similar to Crossrail and higher than the benefit-cost ratio for some other major projects when approved, such as Thameslink and the Jubilee Line extension.”

“We have…examined what would happen to the benefit-cost ratio if demand continued to rise to 2040 or 2049. This has a very significant positive impact on the benefit-cost ratio showing that the benefit-cost ratio would rise to between 2.8 and 4.5. The upper end of this range, which would still have British people travelling considerably less by rail than people in Spain or Italy do now, would deliver ‘very high’ value for money. Even on the most pessimistic scenarios, the full Y network with a demand ‘cut-off’ year in 2049 (just 16 years after the completion of the railway) would be ‘high’ value for money.”

The Government has reduced the ‘value’ of business travel time savings to account for the fact that people do work on trains – this addresses a common criticism made by sceptics against previous analyses.

The new document adds: “HS2 will be the biggest infrastructure project in Europe and will have a significant direct impact on local jobs, particularly in engineering and construction. Our most up to date estimates indicate that while HS2 is being built it will create 24,600 full-time equivalent (FTE) construction jobs, excluding jobs in the supply chain. Other published analysis, using alternative methodologies, have estimated that, at its peak, HS2 will create 50,000 jobs.”

(The above graph showing the jobs created on HS2 can be found here at 5.1.5 on p96).

Transport secretary Patrick McLoughlin said: “The case for the new line rests on the step change in capacity and connectivity it will provide. The new north-south railway is a long term solution to a long term problem. Without HS2, the West Coast, East Coast and Midland Main Lines are likely to be overwhelmed. With it, we will transform intercity travel. There will also be benefits for regional and commuter services. It will increase the amount of freight that can be carried by rail.

HS2 will provide a very significant increase in capacity on the rail network. It will deliver a 14 trains per hour capability in Phase One, rising to 18 trains an hour in Phase 2 – transforming intercity rail services. Significant journey time improvements will be possible, such as reducing the journey time between London and Manchester from 2h08 to 1h08. HS2 will connect eight of our 10 largest cities and bring two-thirds of the population within two hours of London.

“And HS2 could provide space for at least an extra 20 West Coast Main Line freight paths, with each extra freight train typically taking 40 lorries off our roads; easing congestion and reducing carbon emissions.”

“HS2 has been allocated a funding envelope of £42.6 billion in the 2015 Spending Review and will not exceed that allocation. It includes £14.4bn of contingency, which I am determined to bear down on and I have put in place rigorous controls, including a target price for HS2.

“We are continuing to work with the construction and supply industry and with local communities to ensure that this unprecedented investment in a new north-south line will deliver the best possible return to the British economy, and be built at the lowest possible cost and with the lowest possible environmental impact.”

McLoughlin has been urging Labour to stop wavering on the project and back it firmly.

Lawrie Quinn, Chair of the Railway Engineers Forum, responding on behalf of the High Speed Rail Industry Leaders Group, said: “The updated business case is hugely welcome, and paints a compelling picture of the wide-ranging economic and transport benefits that HS2 will bring. As many of us who have worked on big infrastructure projects like this will know, the business case will become even stronger as the project goes on and as more businesses gear up for HS2 and look to invest in our growing UK cities. What this new research shows is the benefits the project will have for travellers off the HS2 route too. It will free up additional capacity in the routes into and out of our largest cities, bring more frequent commuter services for places such as Watford, Milton Keynes, Rugby and the outskirts of Birmingham, Leeds and Manchester, and better rail links for places including Shrewsbury, Cambridge and Lincoln.

“The business case is made and the industry is ready and waiting to deliver. What we need now is for politicians to give the project their full backing when the Bill returns to Parliament this week.”

(Library image of Patrick McLoughlin and David Cameron: Stefan Wermuth/PA Wire)

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