Dear Secretary of State,
We were naturally alarmed to learn yesterday of how serious errors by civil servants in your department caused you to abandon the award of a new franchise on the West Coast Main Line (WCML), at a cost of tens of millions of pounds to the taxpayer.
The news has only served to reinforce the concerns that the TaxPayers’ Alliance has long held about the calculations and assumptions behind the case for HS2, a project for which you are set to invoice UK taxpayers at least £32 billion.
We believe that in the wake of the WCML fiasco, you should now be demanding a wholesale re-evaluation of the calculations made by your department with respect to HS2.
Over the last two years, the TaxPayers’ Alliance has published a number of pieces of research questioning those calculations, namely:
• High Speed Rail (
http://www.taxpayersalliance.com/highspeedrail.pdf)
• HS2 Capacity Analysis (
http://www.taxpayersalliance.com/hs2capacity.pdf)
• The hidden costs of HS2 (
http://www.taxpayersalliance.com/hs2hiddencosts.pdf)
Your Permanent Secretary recently told the Transport Select Committee that the latest HS2 business case, published in August 2012, “uses the most up-to-date information”, yet there is clear evidence to the contrary.
To summarise, the specific questions which we would put to you, and which we believe you should be putting to your officials, are the following:
• Why do you ignore the extensive research that concludes that business travellers do work on trains, whilst also using out-of-date data (eleven years old, no less) and incorrect assumptions on the value of time? Indeed, your department misled the Public Accounts Committee on the value of time, during evidence on 18th April 2012, stating that the £70k per annum was not an earnings figure. This has now been identified as incorrect following receipt of further information through a Freedom of Information request. Value of time benefits provide 55% of the total HS2 benefits and using the correct value of time will significantly reduce these.
• Why are you still using an outdated forecasting model (Passenger Demand Forecasting handbook v4.1) rather than the updated model (PDFH v 5.0)? The old model significantly overstated forecast growth of long distance trips and thus the growth in demand for HS2.
• Why do you not include fare competition to or premium pricing for HS2, even though premium prices are charged for HS1? This issue has been raised by the Public Accounts Committee: price competition is an important part of delivering value for money for passengers on the railways and can have a significant impact. For example, Chiltern Railways has increased its revenue between London and the West Midlands by 45% since the completion of Evergreen3 last year, due to improved services and their fares being lower than the WCML; many of these additional passengers will have transferred from the WCML.
• Why do you exclude the recent High Level Output Statement (HLOS) and InterCity Express Project (IEP) announcements from the base case against which HS2 is assessed? These investments will increase capacity and reduce journey times, particularly on the Midland and the East Coast Main Lines, which will have the effect of significantly reducing the benefits of HS2.
• Why do you exclude the direct services to HS1, committed to by your predecessor in the decision on HS2 at the beginning of this year? Inclusion of these services will reduce the number of HS2 services from Euston to the destinations on the HS2 route and thus reduce HS2’s revenue (as well as resulting in some cities almost certainly not getting the high speed services to London which they have been promised). Furthermore, the economics of the HS1 services will be dreadful, significantly further worsening the overall HS2 business case.
• Why do you apply a 41% optimism bias (OB) to the operating cost savings? This dramatically increases the supposed benefits of HS2, when its purpose is to allow for underestimations in costs. Your department says it has applied optimism bias to the operating cost savings as there are no rules in the OB guidance on savings. This is entirely contrary to the purpose and intention of OB.
I trust that you would agree that delivering taxpayer value for money is of paramount importance for all government departments. It is absolutely essential that decisions can be made about the potential value of HS2 based on accurate, reliable and evidence-based calculations and projections, so I very much hope that you and your colleagues will take on board these concerns with the seriousness which I believe they merit.
Given the public interest in these matters, I am releasing this letter to the media.
Yours sincerely,
Matthew Sinclair
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