Calver Platform. Courtesy of Phil Marsh

Mind the gap as National Audit Office clashes with Government over HS2

Published 17th May 2013

NAO suggest the Government is getting HS2 wrong but admit it’s too early to judge!

The National Audit Office (NAO) is not staffed by people who run the rail industry, or presumably any other industry and many parts of their report confirm this. In fact, many people would argue that the Department for Transport (DfT) also couldn’t run a rail business either. But in this instance, the Transport Secretary Patrick McLoughlin seems to have hit the nail on the head by saying that the data used by the NAO and presumably provided by the DfT, is old and therefore out of date.

More questions to be asked

This raises more questions in so far as who provided what data from the DfT to the NAO to analyse and did they challenge the DfT robustly enough for the latest data?

This report is an absolute gift to the anti-HS2 campaigners who are beating the HS2 communications team hands down in all areas.’s Phil Marsh spoke to Lord Adonis about this a few weeks ago and he agreed that the HS2 Communications team were ineffective.

Railway budgeting

Major projects in the rail industry usually contain up to a 40% budget contingency in cash terms and some recovery time in programme management so there is plenty of scope for savings in financial terms. The Olympics for example was delivered financially, and on time despite worries beforehand.

So far as rebalancing the economy is concerned, the report does not seem to indicate much understanding about how faster, more reliable and regular train services can boost the economy and attract passengers in ever growing numbers delivering spectacular growth. So NAO criticism about passenger demand forecasting may not be terribly correct here – as any time served railway professional will confirm.

Work in progress?

The same applies to job creation claims from both sides. HS1 was opened just over five years ago through to St. Pancras and as well as regenerating that area, Ashford is now a business centre as is Lille, and both have a huge local rail industry, regenerating the area.

The proposed HS2 maintenance depot at Calvert 10 miles north of Aylesbury and 15 miles west of Milton Keynes, will help to regenerate that area - which sorely needs it! Should the link with the East-West rail link there be deemed enough to build a station there, then that really would help the area and provide a fast link between HS2 and an arc stretching between Reading, Milton Keynes and Bedford. HS2 say that the time lost in stopping trains there makes the case uneconomical, but not every train needs to call there.

HS1 lessons for HS2?

HS1 was sanctioned by Mrs Thatcher and the original business case was written before the advent of budget airlines and environmental concerns. Expected passenger figures were deliberately inflated to make the finances fit and this was uncovered during the 1998 contract renegotiations which found finance to pay for the line’s construction.

Budget airlines also killed off the regional Eurostar project and the trains now operate for SNCF in France. But conversely, the airlines have suffered major loss of business between London, Paris and Brussels with high-speed rail taking the vast majority of the market which has expanded with the fast services.

So the same can be expected from HS2 when it opens, especially when section two opens to the north and domestic air services will reduce allowing airport slots to be used for lucrative long-haul flights.

DfT Skills gap?

The DfT does have its serious problems as seen in the franchising farce over the last year, but they also have some seriously knowledgeable and skilled railway development managers. So we should have confidence that the project managers there will deliver as they have done at Kings Cross and are on the Thameslink and Reading projects for example.

But, future franchises will be able to deliver better services more reliably post HS2, so just how accurately can the financial benefit for this measured? Many would argue that this is impossible 20 years or so in advance. Lord Adonis and Sir David Higgins spoke passionately about this just a few weeks ago as reported on The NAO would do well to listen to them!

Health costs?

Road traffic accident research shows that the average cost per accident is half a million pounds. Given the recent news about how much pressure A&E hospital units are under in terms of coping with patients costing hundreds of millions of pounds, a reduction in road accidents with drivers changing to rail will save money and lives. Has the NAO or the DfT factored this into the calculations?

The NAO Report in brief

The HS2 project has a shortfall of over £3 billion between 2017 to 2021, the NAO claim. The report also says that the timetable for planning and construction of phase one to Birmingham “is challenging and this makes delivering this work difficult and increases the risk that the programme will have a weak foundation for securing and demonstrating success in the future".

The NAO also questions the methodology and the subsequent business case for the line which is based on faster and more reliable journeys. They question how these will benefit the economy and question why the benefit-cost ratio (BCR) has been reduced, twice.

The BCR has been calculated using passenger demand forecasting but the NAO questions the methodology used so far as fares and premium pricing are concerned. It is also unclear how HS2 will transform regional economies by delivering jobs and growth the NAO wrote.

In an early examination of progress by the Department for Transport in planning for the High Speed 2 rail network, the National Audit Office has expressed reservations about the Department's business case. In particular, in presenting its case for investment in the project, the Department is said to have poorly articulated the strategic need for a transformation in rail capacity and how High Speed 2 will help generate regional economic growth.

They said:

Commenting on the report, House of Commons Public Accounts Committee chairman Margaret Hodge said: "The DfT has produced a business case that is clearly not up to scratch and shows no signs of having learnt the lessons from HS1, which the committee reported on last year. " She went on: "Some of their (the DfT's) assumptions are just ludicrous. To take just one example, on the benefits to business travellers, the department continues to assume that business travellers do not work when on the train and to use data that is over ten years old. HS1 ended up costing the taxpayer billions when it was supposed to pay for itself. An estimated #3 billion funding gap has been identified for HS2, already bringing into question the affordability of this project."

Ms Hodge continued: "There is virtually no evidence in this business case to support claims that HS2 will deliver regional economic growth, one of the key aims and justifications for this project. "We have been told that it will deliver around 100,000 new jobs but there is no evidence that all these jobs would not have been created anyway. The department has also set an extremely ambitious timetable for the project, with no room for mistakes.

Past experience does not fill us with confidence in this optimism. Unless the department gets its act together, HS2 will not deliver all intended benefits for travellers and the regions, and it will not deliver value for the taxpayer.

Transport Secretary Patrick McLoughlin said he "did not accept the NAO's core conclusion and depended "too much on out of date analysis and does not give due weight to the good progress that has been made since last year. The case for HS2 is clear. Without it the key rail routes connecting London, the Midlands and the North will be overwhelmed." He also said that the Jubilee Line would not have been built to run at a profit but it had regenerated east London and Docklands

Mr McLoughlin also said that "We are not building HS2 simply because the computer says 'yes'. We are building it because it is the right thing to do to make Britain a stronger and more prosperous place."

Shadow Transport Secretary Maria Eagle said the report was a "worrying wake-up call" for the government.”

The ‘Stop HS2 campaign manager’ Joe Rukin said: "The project is out of control because the politicians involved have been seduced by the words 'high speed rail' and have been complicit in fabricating a case for their vanity project." He said: "The NAO say everything the Stop HS2 campaign has been saying for three years. The government and MPs haven't wanted to listen to us, but the surely have a duty to listen to the NAO."

NAO head Amyas Morse said: "It's too early in the HS2 programme to conclude on the likelihood of its achieving value for money. "Our concern at this point is the lack of clarity around the department's (DfT) objectives."

And suggests that this is the key point in all of this – its too early for such a report!

Written by Phil Marsh

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