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Watchdog questions HS2 economic case

Department for Transport (DfT) officials have defended the government’s work on the economic case for High Speed 2 (HS2) after coming in for criticism last week.

They were forced to act after the economic case for the project came under fire from public spending watchdog the National Audit Office (NAO). 

The NAO’s review of early programme preparation for HS2, published last week, says the DfT has inadequately articulated the strategic case for high speed rail.

But the DfT responded to the NAO review pointing out that a more detailed business case is due to be published later this year.

The DfT set out its strategic outline business case for a high speed line from London to Birmingham with spurs to Manchester and Leeds in 2011. This was followed by publication of an economic case for the Y-shaped network when the government announced the scheme’s go-ahead in January 2012. 

The economic case was updated after further analysis in August 2012.

The NAO’s review says project promoter HS2 Ltd has only produced limited evidence of where and how much capacity relief would be provided is limited. The NAO report also says that there has been a  failure to explain why alternative approaches to meeting forecast demand, such as upgrading existing lines, cannot be used.

In response to the NAO’s criticism a DfT spokesman said: “We know the business case will evolve over time and we think there are many benefits that will become clearer as the programme develops, which is why we are committed to regularly updating it.”

 “HS2 Ltd is taking forward a programme of work to assess how HS2 will impact on the economy at the national and regional level. This will provide a deeper understanding of how HS2 might interact with land use, business investment, jobs and growth.”

The NAO report criticises  the calculation of benefit-cost ratios (BCR) by HS2 Ltd. Figures published by the DfT in August 2012 claim a cost to benefit ratio of 1:1.6 to 1:1.9 for phase one of HS2 and of 1:1.8 to 1:2.5 for the whole Y-shaped network to Manchester, Leeds and Sheffield.

The NAO report says the DfT has been slow to provide assurance of the underlying analysis behind its BCR calculations, it has failed to analyse the effect of premium pricing on forecast passenger demand and it is using out of date data on benefits for business travellers.

But, according to the DfT, the NAO report is based on out of date data. Transport secretary Patrick McLoughlin said: “I welcome any examination of the HS2 programme, but I do not accept the NAO’s core conclusion.

 “This is because it depends too much on out of date analysis and does not give due weight to the good progress that has been made since last year. This includes the appointment of an expert management team and the announcement of detailed plans for the line north of Birmingham.

 “The case for HS2 is clear. Without it the key rail routes connecting London, the Midlands and the North will be overwhelmed. HS2 will provide the capacity needed in a way that will generate hundreds of thousands of jobs and billions of pounds worth of economic benefits.”

Accounting giant Deloitte backed HS2 this week with results of its own research into the economic benefits of high speed rail. Deloitte lead transport partner Ian Simpson said: “The first phase of HS2 could contribute £14.5bn to UK GDP, including £9.8bn in construction, and require up to 271,000 person years to get the project on line. This would be a great boost to the regions benefiting from the route, the struggling construction industry and the wider economy.”

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