Department for Transport’s economics go off-track

October 29, 2014 5:06 PM

Today saw the publication of a quietly damning National Audit Office report into the ability, or lack thereof, of the Department for Transport to effectively analyse large-scale transport projects.

It does not make pleasant reading for anybody concerned about transport infrastructure in the UK.

The Department has failed, the report says, to adequately challenge economic analyses “where there is strong pressure and lobbying (by Government) for a programme to go ahead.” In short, in situations where politics has been put before policy. The estimated positive impacts of HS1 were said to be “over-optimistic,” and that the Department should have engaged in a “sense-check” before going ahead with the project.

On HS2 – and this is worth quoting at length:

“The original benefit-cost ratio for the first phase of the High Speed 2 programme at 2.4:1 was considerably higher than ratios for other programmes but the Department did not query why this was the case. Later on, it identified that errors in modelling had the effect of some benefits being double counted. After this was corrected and changes made to some other assumptions the ratio is now 1.4:1.”

 

Let’s reflect just for a moment on the fact that the Department for Transport, which along with the Treasury has signed off £50 billion of borrowed money to this project, made such substantial errors that they overstated the cost-benefit ratio of the project by almost double but refused to look again at this clearly unusual forecast until pressure from politicians and taxpayers forced them to commission another report into the strategy behind the projectThere is also by no means a consensus that the new benefit-cost ratio is sound, with both the IEA and the IoD (full disclosure: the latter article was written by me for my previous employer) casting significant doubt on the ability of HS2 to regenerate the north or that it would address the concerns of business travellers. In a series of reports, we’ve demonstrated too the hidden costs of the project, that it won’t solve Britain’s capacity issues, and that it won’t deliver the jobs we are told.

 Adding to the criticism, the NAO suggest that “finance choices have been based on what the government can afford or on policy rather than value for money.” It’s no wonder that only 27% of business leaders think the project will deliver on the latter metric when it’s a third consideration for the Department.

The report concludes that the Department has “not made as much progress” on “developing clear strategic business cases and scrutinising economic analysis of the estimated benefits of new railways.” Perhaps more worrying, there is also the suggestion that the Department has not been “monitoring and evaluating benefits against (a) programme’s original objectives and using evaluation to inform future programmes.” If we’ve failed to learn the lessons from badly off-track the projections for HS1 were, one would suggest it’s unwise to bet £50 billion of taxpayers’ money that this time it might be different.

Taxpayers are entitled to feel concerned indeed that all parties are blindly pushing ahead with HS2 at a time that the Department is being criticised for an inability to properly analyse the impact it will have. Politicians enjoy announcing grand projects and cutting red ribbons at opening ceremonies. HS2 might make for a good press release, but it’s bad for Britain.

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