The following article was written by Sir Christopher Foster as the preface to the an independent review into the economic case for HS2 by Chris Castles and David Parish. (They are also authors of a joint letter arguing against HS2 printed in the FT today.)
Sir Christopher is a former chairman of the RAC Foundation but he started his career at the Ministry of Transport where he was chief economist and special adviser first to Barbara Castle and then Dick Marsh. He then held a number of positions at the London School of Economics, including Professor of Urban Studies and Economics, before joining Coopers and Lybrand where he became Public Sector and Economics Partner and Adviser to the Chairman (first of C&L then of PricewaterhouseCoopers (1988-1999). Sir Christopher’s other private sector appointments include serving as member of the Board of Railtrack (1994-2000).
“Almost fifty years ago, Alec Valentine, then chairman of London Transport, asked me to look at the economic case for what is now the Victoria line. The Treasury had to be persuaded that though it would require a subsidy – not a huge one – it was worthwhile. I remember summarising the argument in two articles on The Times’ editorial pages. The Treasury was persuaded. Londoners have used the Victoria line for many years. Travel in London without it now seems unthinkable.
“If only London Transport had gone onto persuade the government to let them build Valentine’s second favourite, the Hackney–Chelsea line, or a version of Crossrail had been built, say, twenty years ago, how much better off Londoners would be. But two factors, as well as economic stringency, have intervened: politics and ‘optimism bias’ – a tendency to look on the bright side that is wholly out of place in serious objective analysis.
“Valentine and his staff who helped me were scrupulously and deliberately honest. Costs were never underestimated and benefits were rigorously analysed. Unfortunately, over the years political considerations and optimism bias, which can be accidental or deliberate, have played an increasing role in project appraisal of major projects. An example is the cost of the London Olympics 2012, which was grotesquely underestimated – some would say deliberately – to secure the event for Britain. Another example is Ministry of Defence procurement where, repeatedly and persistently, the costs of projects have been seriously underestimated and the benefits overestimated to the point where some have been a complete waste of money. Evidence for both comes from the National Audit Office (NAO). Not only has such wasteful expenditure over broad tracts of the British economy been misguided but, over the years, it has been a powerful contributor to the current fiscal crisis.
“I doubt one could find a worse current example than High Speed 2 (HS2) of a failure to make a credible case for a major project. As a surviving pioneer in the use of cost–benefit analysis to evaluate projects I have over the years known many economists active in this field. I do not know one economist I respect who believes in the case for HS2.
“I believe Chris Castles and David Parish’s admirable summary will persuade any reasonable reader why this is so. It is followed by their report which sets out clearly the arguments and evidence supporting the conclusion that there is no economic case for HS2. I have known both for many years and I often worked with them in the past. Their experience of project evaluation in many countries around the world is formidable.
“Let me end by briefly explaining why HS2 is a bad project. The main reason is that it is not needed. The existing network can carry all the forecast traffic; even if one were to accept – as the report demonstrates one should not – the optimistic traffic forecasts presented by the Government. The benefits of faster journey times have been greatly exaggerated by the false assumption that time spent by business people on trains is wasted. HS2 will divert only 1% of traffic from the motorways competing on the line of route. Neither will it reduce the flights at London airports. HS2 will be at best carbon-neutral in its environmental impact. But it will generate new traffic which will harm the environment. In addition, a new line across the British countryside will have a very damaging effect on the environment wherever it is. The claims of large economic benefits to the regions are unproven, certainly exaggerated.
“Experience in other countries suggests it is more likely to benefit the capital London than the regions. Far greater economic development benefits could be achieved by a balanced programme of complementary investment in high-priority rail and road projects.
“The overall impact of proceeding with such a misconceived scheme will be counterproductive. Now, more than ever, is the time when limited funds for public investment should be spent wisely and on the basis of a careful, transparent review and analysis of the relevant evidence. However, as the report explains, the evaluation that has been done is not only deeply flawed in the respects already shown, but it also breaches many rules laid down in the Treasury’s Green Book on project evaluation. For all these reasons the HS2 project does not live up to the claims that have been made for it. As the authors show, the costs are likely to exceed the benefits substantially.
“These benefits will only be realised, the Government concedes, if well over half the capital costs are met by the taxpayer. The report argues that this is a gross underestimate of the likely burden on taxpayers. Moreover, the irony of the situation is that the people likely to travel by high-speed train, which the taxpayer will be subsidising, are assessed as having average incomes of £70,000. Most will be businessmen.
“The Government should recognise and face up to these shortcomings. It should explain to Parliament and the public the difference these errors make. It should cancel the project.”
Read Full Post »