Major Projects in focus: Is HS2 on the right track?
As the debate about the benefits – or not – of HS2 rages on, Colin Marrs asks if there’s enough firm evidence to make an informed judgement on this controversial major project
In January 2009, the Department for Transport created a new arms-length company, High Speed Two Ltd (HS2), to examine the case for a new rail line linking London and the West Midlands. The department was certain the arms-length model had proved its worth in delivering Crossrail and the Channel Tunnel Rail Link (High Speed One), and boasted: “The successful completion of High Speed One and re-opening of St Pancras in November 2007… give confidence in our ability to carry through transformational rail improvements for the future.”
A little under two years later, the coalition’s first transport secretary, Philip Hammond, announced that the government would pursue a Y-shaped network, to be delivered in two phases. The first phase would be a line from London to Birmingham and the second leg to Manchester and Leeds, with connections to points further north via the East and West Coast mainlines. However, it dropped the original plan for a direct connection to Heathrow Airport.
Six years on from the previous government’s original announcement, and the official verdict on progress is somewhat mixed. The Major Projects Authority’s latest annual report, released last year, found that HS2 had made “excellent progress” since 2013, “having delivered to plan on all milestones”. Despite this, the scheme was given an overall amber/red delivery confidence assessment, indicating “that the focused attention that is being applied to addressing the remaining issues must continue”.
Sadly, what exactly those issues are remains unclear, as High Speed Two is stubbornly refusing to release reports prepared into the project by the MPA in 2011 and 2012 – a stance currently being challenged via the Information Commissioner’s Office. At the time of writing, HS2 was appealing against a decision by the ICO that said the reports should be released. But even in the absence of these official assessments, experts say there is enough evidence to make some judgement on the handling of the HS2 project so far.
HS2 was established as an incorporated company with the secretary of state as sole shareholder. However, the company was not granted powers to undertake commercial activity, so is wholly funded by central government grant. “HS2 is different to many arms-length bodies – it has an unusual dual function, acting both as advisory and delivery body,” says Jonathan Pearson, senior researcher at the Institute for Government.
HS2 benefits from a number of advantages thanks to its company status, according to Pearson. Firstly, it is not restricted by government pay caps, allowing it, at least in theory, to compete with the private sector in attracting talent. Secondly, Pearson says, separating officials from the mother department can help remove the day-to-day distractions that an in-house team would face. More practically, he adds, it can provide cover for politicians faced with announcing controversial decisions.
Roger Vickerman, professor of European economics at the University of Kent, says HS2 is getting the balance right in its recruitment policy. He says: “The majority of people are secondees from the civil service, so they understand the process. But there are also enough outsiders to provide a fresh pair of eyes and avoid mistakes like the one that led to the DfT having to rerun the franchise process for the West Coast Mainline.”
The company has also established a clutch of “external challenge groups” made up of experts, in an attempt to ensure that its approach is rigorously scrutinised. Individual groups cover strategy, analysis, technical issues and consultation, while a separately established economic advisory panel keeps an eye on the approach to assessing economic benefits.
However, the arms-length structure does have some disadvantages. Departments still have to retain a team responsible for dealing with their bodies, and Pearson says problems can arise at this interface. “Often there is a lot of churn in these civil service teams and the way that they connect into senior decision-makers may not be ideally run,” he says. And such bodies can suffer from negative perceptions among the press and public about “wasteful quangos”, he adds.
Making the economic case for any transport project involves dusting down the DfT’s standard value for money assessment model. An economic case for the route was first completed in March 2010, producing a predicted long-term benefit ratio of £2.40 for every pound spent. However, by August 2012, revisions of the plan had seen this fall to 1.9 to 1. The figure for the first phase to Birmingham had a ratio of just 1.4 to one – putting it into the department’s low value for money category.
Critics of the project leapt on the figures as evidence that HS2 is a waste of time and money. But, according to Vickerman, the outputs are a reflection of the model’s inability to cope with a project the size of HS2. “There is an argument that the model is great for a trunk road or a roundabout, but not so good at dealing with large-scale transformational projects,” he says.
In particular, the modelling was poor at predicting the potential effect of HS2 in rebalancing the national economy, he says. “The model is largely applicable to urban schemes where you capture effects on local labour markets. However, it only comes up with relatively small effects on businesses deciding to relocate due to better rail links. The experience of Crossrail showed that there was actually a big effect on these decisions.”
In response, the coalition government, which backed the project, decided that it needed to free itself from the restrictions of the department’s standard modelling, and commissioned consultancy KPMG to produce a document, published in September 2013, using a different approach. The report, focusing on benefits to regional economies, found that HS2 could increase economic output by £15bn per year. Whereas the normal DfT model could not take longer-term estimates into account, the KPMG report found that, if demand continued to rise until 2049, the benefit-cost ratio could rise to up to 4.5.
Not all were convinced by the new workings. In evidence to the Treasury Committee, London School of Economics professor Henry Overman said that the report actually demonstrated the failure of the expert challenge system. “My feeling with this is that at some point HS2, DfT or the peer review panel should have pointed out that there were several parts of the report that were problematic and not in line with current guidance… I do not understand, for example, why the £15 billion number was allowed to go out there.”
Andrew Adonis, the original transport secretary behind HS2, has voiced his scepticism about the value of any form of economic modelling. Giving evidence last year to the Economic Affairs Committee, he said: “My own view is that this is an aid to policymaking, but it should not be a substitute for judgement. The reason why we have ministers who take decisions, and a government and parliament that take decisions, rather than simply putting them through a computer, is that this is a matter of judgement.”
His point is backed by Miguel Coelho, economist at the IFG, who says that all estimates have a “false pretence of precision”. “What you really need is to build the evidence and take the stakeholders through the process of discussing the various inputs and outputs in terms of different scenarios,” he says. “Coming up with a point estimate of a benefit cost ratio just triggers an adversarial response from someone who takes a different view on some of the assumptions.”
Another criticism about the management of HS2 is that it has been pursued by the Department for Transport and HS2 in isolation from other departments. Stephen Joseph, executive director of the Campaign for Better Transport, says: “Silos within the civil service have not helped. The problem has been in coordinating different approaches to transport – investment by councils and local enterprise partnerships, as well as the replacement of rail franchises.”
With increasing devolution, he says that the problem is only likely to get worse, and that government needs to learn the lessons fast. “There needs to be a debate about some sort of mechanism for coordinating planning large scale projects. It makes sense to coordinate these things properly with local authorities and other bodies.”
In addition, some have accused the department and HS2 of changing their justification for the project during the process. Joseph says: “They started off talking about the time savings that would result from having a high speed line. But, perhaps because some of those arguments have been questioned, their argument is now framed around capacity.”
Adonis disputes this version of events. In his committee evidence, he said that it was “a hard-headed analysis of likely capacity requirements” that drove the rationale for HS2. And to be fair, the 2010 command paper committing to the project was clear that “over the next 20 to 30 years the UK will require a step-change in transport capacity between its largest and most productive conurbations, both facilitating and responding to long-term economic growth”.
An initial consultation on the route of the line was published in February 2011 and ran until July that year. When the results were published, they revealed that over 90% of respondents were against HS2. In March 2012, the government announced that it would undertake a more detailed consultation with residents and organisations along the route of the London to West Midlands first phase.
Tom Crane, director of opposition campaign group HS2 Action Alliance, is dismissive of the consultation process. He says: “Officials have ignored every suggestion made to them during the process – even minor suggestions for improvements. It is a political project and those at the top of government have an emotional attachment to driving it forward without listening to feedback.”
HS2 AA and other groups have fought the scheme, largely unsuccessfully, through the courts. But Adonis says the idea that upgrading existing lines would have resulted in less opposition is “for the birds”. He told the committee that the most controversial bits of HS2 have been those bits that go through cities, so “if you were using the existing transport corridors, the impact on settled communities would have been very significantly greater”.
Some in the regions praise the approach taken by government and HS2. Waheed Nazir, director of regeneration at Birmingham City Council, is excited about the economic benefits that the new terminus could bring to his city. He says that the government has been supportive of the council’s plans to lever investment into the city on the back of an improved station at Curzon Street.
“What government has done is set up a cross-Whitehall group to make sure the government gives a unified voice to local government through the process,” Nazir says. “There are two representatives from local areas – myself and one from Leeds, along with representatives of all the relevant departments. My view is that the government has embraced the need for a coordinated response to make sure that the regions maximise the benefits from HS2.”
Nazir says that, so far, most of the assurances he has requested from central government have been met. But he is clear that some difficult discussions could remain. “One of our ‘asks’ is that the design of the station has to be of international quality. However, HS2 is mandated to deliver a station to a certain budget so there could be a potential tension there,” he says.
Adonis believes that organisational structures are important, and flow from the quality of those running the project. He told the committee: “The arrival of Sir David Higgins, who is one of the best major project managers in the world, and was the previous chief executive of Network Rail, along with (HS2 chief executive) Simon Kirby, is giving this project the strongest possible leadership.
“To my mind that is the crucial resourcing that it requires. Quite how large the project teams need to be, and at what stage you engage substantial new construction partners, and all of that, is very much a secondary consideration, which Sir David and Mr Kirby will take.”
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