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Improving existing rail network beats HS2 on benefit cost balance

The balance of benefits to costs for upgrading the existing rail network is greater than for building HS2, a new government report has found.

The study published by the Department for Transport found the completed HS2 railway had a benefit-cost ratio of 2.3 which is lower than the equivalent ratio of 3.1 for an alternative package of improvements to the West Coast, East Coast, Midland Mainline and Cross Country services.

The department said the ratios could be expressed as £2.30 of benefits for very pound spent on HS2 and £3.10 of benefits per pound spent on the upgrade package.

The difference was down to the far lower cost of improving the network  –  £19.2bn – compared to the £38.4bn capital cost for HS2 assumed in the calculations.

But the value of the benefits of building HS2 was found to be £71bn, more than double the £30.7bn value ascribed to the improvements to the existing network, according to “The strategic case for HS2” published today.

The £30.7bn value was different to the more frequently quoted £42.6bn budget for the scheme because the former is based on a 50 per cent chance of delivering on budget and the latter uses a 95 per cent chance.

A spokesman for the Department for Transport said the benefit cost ratio did not take into account the larger extra capacity provided by HS2.

He said “The most developed alternative would only deliver half the capacity of HS2 so you can see there is a limit to the benefit cost ratio (BCR). The BCR is important but it is only half of the picture.”

The paper argued that if additional upgrades were made to the existing line beyond those in the paper then the costs would rise relative to the benefits. It also said that Network Rail estimated that the upgrades could results in 14 years of weekend engineering work. It also argued that HS2 increased the capacity and connectivity of the rail network. The report said: “It is clear that a high speed solution offers best value for money and that the best return on tax-payer investment is likely to lie with HS2.”

The report used revised methodology to work out the costs and benefits of HS2 to take into account that advances in mobile technology enabling people to do more work on trains than their calculations had previously assumed.

The benefit to cost ratio of HS2 fell after it was reappraised from £2.50 for every pound spent in the evaluation published in August to £2.30 in the new analysis. The report said the fall was down to increases in costs and a reduction in the value of time saved by business travellers, but it also took into account the extra benefits of released train capacity and expectations that more business travellers would use HS2.

The report said HS2 should create about 24,600 temporary full time construction jobs, excluding those in the supply chain. It said other studies said HS2 should 50,000 jobs at its peak in total.

It said HS2 was expected to create contracts worth over £10bn for civil engineering and tunnelling work such as viaducts, bridge and tracks. It should result in £4bn of deals for railways systems such as signalling and power supply equipment, a further £4bn in station and depot works, and deals worth about £7bn in the design and manufacture of rolling stock.

HS2 and its growth taskforce would produce an industry strategy to ensure British firms were skilled and competitive enough to win contracts, the report said.

The project will use off-site manufacturing wherever possible to save money, time and maintenance costs and reduce disruption to people living near the line.

The study said there would be “incentives” for suppliers to encourage them to keep their costs down and “not just to maximise the benefit out of their individual contract”. The report said the use of building information modelling by HS2 and its suppliers was an example of this.

The government could take advantage of rising private sector  land values on sites near the HS2 to contribute to its costs. The report said: “We are considering the implications of this. Where there is a case for a contribution to the project – whether it is core project support, land, or aligned investment – we would expect those parties to contribute.” It could also make money from commercial opportunities on land acquired for HS2 and in stations.

The government could also sell the concession to run HS2 in future – as it did with the Channel Tunnel rail link – or retain it to benefit anticipated rises in income from the railway.

Construction of HS2 should start in 2016/17 and an industry day for suppliers will take place on 5 November.

Transport secretary Patrick McLoughlin said: “We need a radical solution and HS2 is it. A patch and mend job will not do – the only option is a new north south railway. HS2 brings massive benefits to the north, is great for commuters and the alternatives just don’t stack up. Now is the time to be bold and deliver a world class railway which Britain deserves and can truly be proud of. Future generations will not forgive us if we fail to take this opportunity.”

Penny Gaines, chair of campaign group Stop HS2, said: “We have seen this before, HS2 Ltd are putting in every possible benefit they can include while ignoring so many of the costs of HS2. The government are willing to panic people by saying there is a crisis on the rail network but their so-called solution means road and rail misery for twenty years and no relief at all until the middle of the next decade. Meanwhile they are dismissing rail alternatives which could be implemented immediately.”

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