This document discusses tests that should be applied in evaluating the final business case for HS2. It recommends examining alternative demand scenarios, pricing policies, using updated values of time in the analysis, employing a land use and transport interaction model to study location impacts, and considering alternatives to HS2 such as upgrading existing infrastructure or restricting speeds to 300 kmph. However, the conclusion is that there is no reason to suppose the overall conclusions supporting HS2 would change as a result of applying these additional tests to the analysis.

1. Institute for Transport Studies
FACULTY OF EARTH AND ENVIRONMENT
HS2 - What tests should be applied in evaluating
the final business case ?
Chris Nash

2. Key Issues
1. Forecasting demand
2. Pricing policy
3. Valuing costs and benefits
4. Options considered

3. Long run trend in rail passenger traffic in
Great Britain

4. Forecasting demand
1. Will long run trend favouring rail continue? (NB demand
capped in 2036)
PDFH concludes driven by economic growth but with little
growth in car ownership and rising road congestion
2. Impact of improvements in telecommunications
- will need for travel reduce?
3. Increased competitiveness of the car (autonomous cars?)
Should we examine a range of scenarios? (rather than just
sensitivity testing and risk analysis)

5. Pricing Policy.
WEBTAG advises to assume continuation
of existing policy
- Rail fares rise by RPI +1% from 2020
-HS2 fares same as conventional rail
-Air fares continue to decline
-Motoring costs decline as efficiency improves but no rise in
fuel tax or further use of road pricing
So by 2036 in real terms
Rail +25%
Air -30%
Car -40%

6. Examples of Network Rail forecast growth
over 30 years for alternative scenarios with
economic growth (0.5-2.25%) and different
pricing of alternative modes
Range Prospering in
isolation
London to:
Birmingham 33-87% 67%
Manchester 52-158% 115%
Leeds 41-145% 108%
Birmingham to
Leeds 39-117% 103%
Manchester 40-126% 95%

7. What are the major economic benefits of HSR?
Phase One Full
Network
Oct 2013 Oct 2013
Transport benefits
(Business)
16,921 40,529
Transport benefits
(Other)
7,673 19,323
Other quantifiable
benefits
407 788
Indirect taxes (loss to
Govt)
-1,208 -2,912
Net transport benefits 23,793 57,727
Wider economic impacts 4,341 13,293
Total costs 29,919 62,606
Revenues 13,243 31,111
Net cost to Government 16,676 31,495
Benefit cost ratio (inc
WEIs)
1.7 2.3

8. Values of time
•Most of the benefits time or time related (crowding,
reliability)
•Most of them relate to business travel
•Based on cost savings approach (wage rate plus
overheads)
•New work based on willingness to pay puts values up!
-Can fit more meetings into a day
-Avoids travel in (very) unsocial hours

9. Values of Time for rail travellers per hour (2010 prices) DfT 2015
Current Recommended
commuting 6.81 10.01
other leisure 6.04 4.57
Business 31.96 36.19
(>100km)

10. Wider economic benefits
Current appraisal method considers these only for major
conurbations
- Agglomeration benefits
- Labour market benefits
-Imperfect competition
Are there also benefits from improving inter city connections?
Venables – specialisation and economies of scale
KPMG – correlation between productivity and rail
connectivity, but does this imply causation?
Should a LUTI model be developed to examine locational
implications and further agglomeration?

11. Range of options considered
First British domestic HSR study – Atkins 2002
Options considered:
-Different routes
-New conventional line
-Timing
-Pricing
-Road and air investment
Best option a Y shaped network like HS2

12. HS2 alternatives examined
•Alternative routes
•Longer trains
•Upgrading of existing lines
•51M proposals
But not
Is infrastructure suitable for 400km (and actual 360kmph
running) needed?

13. Incremental benefits and costs compared with 51M proposal
51M increm
costs a
benefi
Benefits 7.108 4
Costs to gov 1.173 2
BCR 6.06 1.6
Source: derived from Atkins (2012)

14. Lower speed options
•HS2 Conventional line 9% cheaper
•Atkins 2002 Conventional line 15% cheaper
But loses 42% of the benefits
•Civity 250-280 vs 300 km plus
Capital cost 6.3% less
Operating cost 2.8% less
Benefits 15% less

15. Conclusions on what is needed
The revised business plan should:
-Look at alternative demand scenarios
-Look at pricing policy (including yield management)
-Use latest values of time
-Use a LUTI model to examine land use
-Look at alternatives including upgrading existing
infrastructure and restricting speeds to 300 kmph
BUT NO REASON TO SUPPOSE THE CONCLUSIONS
WOULD CHANGE