Value for Money: How does HS2 compare?
HS2 give the Benefit to Cost ratio for the wider project, Phase 1, 2a and 2b West, as 1.2. This means that, according to the modelling and analysis, for every £1 of taxpayers money spent £1.20 of benefits will be realised. The Department for Transportation have a classification system that converts the BCR into a Value for Money (VfM) rating. A BCR of 1.2 is within the ‘Low’ VfM category (1 to 1.5 BCR).
At what Benefit Cost Ratio or Value for Money levels do projects typically get funded?
The Department for Transport published a ‘Value for Money Indicator’ in December 2020. Looking at a sample of projects that received approval this gave the proportion of spending by VfM category. In 2019 80% of spending was for projects which were approved in the High and Very High VfM categories, meaning that they had BCRs greater than 2. Only 7% of spending was for projects in the ‘Low’ and ‘Very Low’ categories. Therefore, HS2 is very much in the minority having such a low rating.
I have not found a revised Value for Money indicator for 2020, the year in which HS2 Phase 1 Full Business Case was given approval (a request has been made to the DfT). The 2019 approvals were for a sample of projects valued at £638 million. HS2 Phase 1 was approved at £44.6 billion (forty four thousand six hundred million). Since HS2 is such high value it will swamp the findings in the ‘Value for Money Indicator’ if included.
Benefit Cost Ratio considers only benefits and costs that can be converted into monetary values. Intangible and unquantifiable costs and benefits may also exist. Generally speaking, it is the BCR that gets a project ‘over the line’ for approval with the intangibles lending weight to the argument. Presented with two projects with similar costs and BCRs a decision to fund the project with greater intangible benefits can be justified.
At the Parliamentary Transport Committee Mark Thurston, then HS2 CEO, was asked about the BCR being so low and replied ‘the Government made the strategic decision to invest in this railway. The Government must believe and Ministers must believe that this project ultimately is value for money in the long run’. In essence the decision to build HS2 is not based on the quantified BCR but on faith in the long term benefits of the project.
It should be noted that the BCRs are those that are provided at the time the project is approved. There can be changes between approval and completion of the project that lead to changes in the BCR. In the case of HS2 there has been removal of the ‘Golbourne Link’ a short section of track intended to improve journey time to Scotland. There has also been deferral of Phase 2a and there will probably be changes to Euston station that might affect the number of trains than can run. And of course there have been increases in cost since Phase 1 of the project was approved.
Links
Value for money indicator 2019 - GOV.UK (www.gov.uk)