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Evaluating Final Business Case for HS2: Demand Forecasting, Pricing Policy, and Cost-Benefit Analysis

This article discusses the key tests that should be applied in evaluating the final business case for HS2, including forecasting demand, pricing policy, valuing costs and benefits, and considering various options. It also explores the long-term trends in rail passenger traffic in Great Britain and the potential economic benefits of high-speed rail.

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Evaluating Final Business Case for HS2: Demand Forecasting, Pricing Policy, and Cost-Benefit Analysis

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  1. HS2 - What tests should be applied in evaluating the final business case ? Chris Nash

  2. Key Issues • Forecasting demand • Pricing policy • Valuing costs and benefits • Options considered

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

  4. Forecasting demand • 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 • 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?

  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

  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. Table 13 Incremental benefits and costs over 51M package (£b2011PV) Incremental benefits and costs compared with 51M proposal 51M incremental costs and benefits of HS2 Benefits 7.108 46-52 Costs to gov 1.173 25-23 BCR 6.06 1.6-2.3 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

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