Sunday, 18 August 2013

Network Rail report overlooks cuts required to operate HS2

The projected cost of the HS2 high-speed rail scheme continues to rise inexorably. In June, the Transport Secretary informed MPs that construction costs had jumped from £33 billion to £42 billion - with the trains themselves costing a further £7.5 billion. Even as Patrick McLoughlin announced the rise in Parliament, those figures were continuing their upward climb, since his calculations were based on 2011 prices.

A few weeks later, London Mayor Boris Johnson suggested that construction costs would probably top £70 billion.  Today, the Institute of Economic Affairs announced that HS2 could cost the taxpayer more than £80 billion.

While construction costs of HS2 have occupied many commentators, the likely cost of running services on the new line has not been scrutinised in much detail – even, it seems, by Network Rail. In their recent report proposing new services for the existing rail lines once HS2 is built, Network Rail makes no mention of the need - laid down by HS2 Ltd itself - to find £7.7 billion of savings to support the operation of HS2. Yet this is a key element of the economic case for HS2.

HS2 Ltd, in attempting to assess the likely economic benefits of the high-speed rail scheme over its first 60 years of operation, suggests that running costs of £22.2 billion will be set against £32.9 billion of revenue. A comfortable margin, it might seem. However, behind the £22.2 billion figure lies a rather larger number.

HS2 calculates that the actual cost of operating HS2 would be £29.9 billion over that period. They have then reduced the headline figure to £22.2 billion by assuming that savings of £7.7 billion will be achieved through a reduction in the number of long-distance services operating on the existing network. In their economic case, these savings offset part of the cost of operating HS2.

Without this transfer of what is in fact the Government subsidy from services on the existing lines to HS2, the cost of operating HS2 would come very close to the revenue that it is supposed to generate (£29.9bn of costs versus £32.9 billion of revenues over the period in question). And while it might be possible to predict operating costs reasonably accurately, HS2 Ltd's revenue figures rely on a vast number of new rail journeys being generated by the building of HS2 - by no means a certain outcome.

How does HS2 Ltd propose that the Government finds this £7.7 billion of savings?  The answer lies in its rather dry document setting out proposed service patterns on HS2 and the existing rail network.  It shows that, once HS2 services are operating between London and Birmingham, Sheffield, Manchester and Leeds, traditional intercity services between those cities would be reduced in number – leaving intermediate stations with a poorer service.  Many towns and cities, including Coventry, Stoke-on-Trent, Doncaster, Chesterfield and Wakefield, would face a reduction in the number of intercity services to London.

In place of those intercity services, HS2 Ltd proposes that some extra commuter services be introduced, for example between Milton Keynes and London Euston, and into Birmingham city centre from the surrounding area.

Such a change in service patterns would enable a reduction in ‘train kilometres’ on the West Coast, East Coast and Midland Main Lines combined of more than 24 million kms per year – a figure that translates into £7.7 billion of savings over the 60-year appraisal period.

Although these ‘classic line’ savings of £7.7 billion are a fundamental part of the HS2 economic case, Network Rail seems oblivious to them. Its new document Better Connections: Options for the integration of High Speed 2 sets out an array of options for services on the existing network once HS2 opens - which not only would do nothing to bring about the required savings but could increase costs.

Network Rail has failed to address the question of how all these new services would be funded, and has failed to explain how they would find the £7.7 billion needed to part-finance the operation of HS2 if the reductions in traditional long-distance services proposed by HS2 Ltd are not made. In a week when rail travellers learned that once again they face inflation-busting fare increases, we can probably guess who will be left to pick up the bill.