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Of Course HS2 Should Be Cancelled – It Failed The Cost Benefit Test Years Ago

It may be late and it might not even happen but there’s a possibility that HS2 will be cancelled. Good. For no one should ever have even thought about building it. It never did – and never will – pass a cost benefit test. That is, we have a look at whether we will be richer or poorer if we build it. If poorer then we don’t as making ourselves poorer is not a known aim of any form of economic governance.

And H2 would make us poorer:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Cost of HS2 never properly analysed, warns rail expert[/perfectpullquote]

Well, actually, it’s worse than that, they lied.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] A growing Cabinet revolt is threatening to sink the HS2 rail link. Ministers are alarmed by the project’s spiralling costs and are ‘increasingly minded to kill it off’, says a senior source. Initially put at £33billion, the budget is thought to have soared to more than £60billion. Treasury insiders admit the scheme is being added to an audit of major capital projects in which its future will be assessed ‘from scratch’. This means funding could be squeezed or stopped. [/perfectpullquote]

We shouldn’t ever have started it and even now that we have we should still stop it. What’s spent is of course spent but to use that to justify wasting more is the sunk cost fallacy.

As to why, here’s one I made earlier:

“Finally people seem to be waking up to the dog’s breakfast which is the economic case for the proposed High Speed Two London-Birmingham rail link.

You know, this lovely train set that the politicians want to plonk down in the middle of England. I’ve never quite been sure why it is that politicians love such train sets: most of us get over this around the age of 14 when we discover girls.

The basic problem is that all those terribly clever people who did PPE at Oxford seem not to have noticed what y’all Register readers have been doing this past 15 years: connecting all the world and its Mum to the internet wherever they may be.

A little diversion into the economics of these things: when making a decision on whether to splurge £12bn or whatever on a project, you do what is called a cost benefit analysis. Simply, you add up all the costs – the money you’ve got to spend, the value of the countryside you’ll trample, what else you could be doing with the money instead and so on.

You also add up all of the benefits: clearing that countryside of ugly trees, the extra economic growth that will come from whatever the project is, etc. With transport projects the largest of these benefits, by far, is the time saved by people travelling.

Which seems pretty obvious really: when we’re talking about projects to transport people around we’d not be surprised to find that the major benefit is that, er, people can be transported around. The question, though, becomes: how are we to value that time that is saved by those people?

A rough rule of thumb is to look at what people would be paid if they weren’t travelling. Not perfect, by any means, but it’s a reasonable enough approach. Or rather, it used to be reasonable enough, but now it isn’t; which is the problem with the HS2 calculations.

Take our first class passenger: no one else can afford the damn seats so we assume that it’s business travel on expenses. When they’re in the office doin’ stuff they get paid according to the value of their output. (yes, yes, I know, but please, this is economics we’re talking here)

When they’re on the train they can’t be doin’ stuff. So, if their time in the office is worth £50 an hour (say) then their time on the train is a loss of £50 per hour. Halve the journey time and we’ve thus created a value of £25 per passenger per trip. This forms part of the “value added” benefits of such transport projects.

No, really. This is the way that the numbers are worked out, even though those aren’t the correct numbers. And this is how HS2 comes to have a £19.8bn “value” ascribed to travellers. Of that, £12.6bn comes from those business travellers: the remainder from lowly commuters and leisure travellers. That’s offset against all of the costs, along with the other benefits, and is the major reason why HS2’s cost benefit analysis shows that the benefits are higher than the costs. So, let’s go build the train set.

But, as the perceptive among you will note, people actually are doin’ stuff while on the train these days. We’ve got this whole communications revolution that large numbers of you dear readers have been working on for the past 15 to 20 years. We can make phone calls from trains these days, imagine that! We can work on spreadsheets because we’ve got laptops. We can write emails firing people because we’ve got mobile connectivity on our laptops. We can actually work while spreading out in a first class seat.

Anyone who has actually been on a train recently (anyone who’s been able to get a second mortgage to afford a first class seat, at least) will know that most of the people on those trains are indeed working. Thus, we can’t say that the value of the time shaved off the journey is worth the pay rate of the people who save the time.”

HS2- cancel the train set because it will just make us all poorer.

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Quentin Vole
Quentin Vole
2 years ago

Sadly, there’s far too much ego invested to cancel HS2. What will happen is the first phase (the part that causes maximum disruption) will be built to Birmingham at a cost that will exceed the estimate for the whole project. The rest will then be ‘forgotten’, leaving us with the world’s most expensive railway to nowhere.

It’s almost as though politicians don’t have a clue.

Rhoda Klapp
Rhoda Klapp
2 years ago

Here’s a test. Find someone who wants it who will not be making money from expenditure on the project (even if no train ever travels on it.). If you CAN find such a person, suggest that any profitable enterprise should be funded by private money. Surely it will attract many investors? No? Well don’t do it then.

Jonathan Harston
Jonathan Harston
2 years ago

Who wants to get to Birmingham faster?

2 years ago

No-one. However some people would like to get from Birmingham to London faster.

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