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Ministers launch new High Speed 2 case

A critical nine weeks for High Speed 2 (HS2) has begun with publication of a detailed report setting out the business case for the controversial project.

The Department for Transport (DfT) published the report, The Strategic Case for HS2, which says better economic modelling has led it to revise its benefit to cost ratio from 2.5 to 1 to 2.3 to 1 for the full “Y” route from London to Leeds and Manchester.

This means HS2 remains broadly the same value for money as it was when the ratio was last calculated in August 2012 – despite a significant rise in its budget in that time.

The reasoning was set out in full in a separate DfT report The Economic Case for HS2 as the government launched a major public relations offensive ahead of critical stages in two key pieces of legislation.

Ministers hope that by the end of this year they will have introduced a hybrid bill to allow construction of the first phase. They also hope to have Royal Assent for the preparation bill which will allowing land purchases and preliminary works to start.

Getting this legislation through will be tough. The Commons Treasury select committee and the Commons public accounts committee recently raised concerns about the justification for the scheme’s £42.6bn price tag.

The new economic case – created by HS2 Ltd, in accordance with Treasury and DfT guidance – places a financial value on the social benefits of the rail link.

It replaces the analysis carried out last summer and uses tools the project promoter said had been enhanced since that was published.

HS2’s benefits are defined in the new report as reduced overcrowding on the existing rail network; and quicker, more frequent and more reliable journeys.

The costs and benefits have been appraised from 2026 – when phase one is due to open – to 2092, the 60th anniversary of the opening of phase two.

The model gives a projected benefit of £2.30 for every £1 spent.

A further appraisal of variables found there was a 79% chance of the scheme giving benefits of £2 or greater for every £1 spent; and a 99% chance of it giving value in excess of £1.50 per £1 spent.

The report adds that the Treasury’s rules for economic modelling were leading to an underestimate of benefits.

The reports were published a week after outgoing HS2 Ltd chairman Doug Oakervee hit out at rules that constrain the assessment of major infrastructure projects.

Under Treasury rules, forecast demand growth on HS2 must stop at 2036, only three years after phase two opens.

If it is assumed that demand will grow steadily until 2049 the benefit to cost ratio could be as high as 4.5, says the strategic case report.

“We have tested the limit that is placed on future demand in the standard appraisal,” it says. “When following this standard approach, demand for HS2 would be projected to freeze in 2036, which is only three years after phase two will open. This assumption will effectively mean that after 2036 there was absolutely no increase in the number of passengers using HS2 at any point in the future. This is a conservative assumption - and is unlikely to be true in practice.

“We have therefore 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, showing that the benefit to cost ratio would rise to between 2.8 and 4.5,” says the report.

It adds that the model’s use of a single value of time for all lengths of trip was also leading to “significant understatement of benefits”.

HS2 Ltd says another benefit it is being forced to ignore is the economic boost from expected changes in land use in regions benefiting from the scheme.

“The case for the new line rests on the capacity and connectivity it will provide,” said transport secretary Patrick McLoughlin.

“We need this capacity because in the future, as our economy and our population grows, we will travel more.”

The strategic case says demand for rail services has doubled since 1980 and would be driven higher by predicted rises in GDP and population over the next 20 years.

Within 15 years, more trains will be needed to keep up with demand, the DfT said - yet the number of train paths, or available slots on existing routes, is limited.

“The West Coast Main Line is under stress because there is more demand for train services than there are train paths available,” says the report. “There are similar issues facing the two other north-south main lines - the East Coast and Midland Main Lines.”

The DfT says that upgrading existing lines would require new tracks and major junction improvement works.

It said this could cost £20bn and require 2,500 weekend line closures, rendering it “untenable”.

The strategic case report says the only alternative is to build a new railway. It says the economic benefits of faster journeys on a high speed line far outweigh the 9% cost premium, and higher environmental impact, compared with building a standard line.

The report says the DfT intends to start construction of HS2 by March 2017.

To do this it will have to make swift progress pushing the two HS2 bills through the parliamentary process.

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