Channel Tunnel rail link leaves £4.8bn debt
Friday 06 July 2012
Over-optimistic forecasts for passenger demand have left taxpayers “saddled with £4.8 billion of debt” over the HS1 Channel Tunnel rail link, a report by MPs said today.
These "unrealistic estimates" for the London to Folkestone HS1 link must not be repeated when the business case is made for the proposed London to Birmingham HS2 high-speed line, the report said.
Total taxpayer support for the 68-mile HS1 over the period to 2070 is likely to be £10.2 billion, the report from the House of Commons Public Accounts Committee added.
International passenger numbers on HS1 are only a third of the 1995 original forecast and two-thirds of the level the Department for Transport (DfT) forecast in 1998, said the committee.
It went on: "Over-optimistic and unrealised forecasts for passenger demand on HS1 left the taxpayer saddled with £4.8 billion of debt."
The report added that the delivery of regeneration benefits from HS1, on which high-speed Eurostar trains travel, "suffered from a lack of effective leadership from the centre".
The committee said the department "does not have sufficient understanding of the economic impact and regeneration benefits of transport infrastructure, compared with alternatives, so is not able to make fully informed investment decisions".
The report added that the DfT "gives insufficient attention to evaluating its major projects" and should develop evaluation frameworks for all current major projects including the under-construction cross-London Crossrail scheme and HS2.
The LCR company was awarded the contract to build HS1 in 1996. The DfT agreed to restructure the deal in 1998, guaranteeing most of LCR's debt, after Eurostar revenues were substantially below LCR's forecasts.
Commenting on the report today, Public Accounts Committee chairman Margaret Hodge said: "While HS1 provides an efficient service, contributing in an important way to British transport infrastructure, there were costly mistakes in the history of the project. These must not be repeated with HS2.
"HS1 was supposed to pay for itself but instead the taxpayer has had to pay out £4.8 billion so far to cover the debt on the project."
She went on: "The root of the problem is the inaccurate and wildly optimistic forecasts for passenger numbers.
"The DfT failed to take into account the growth of low-cost airlines or the competitive response of the ferry companies.
"This isn't the first time that over-optimistic planning and insufficiently robust testing of planning assumptions has got the department into trouble. My committee's report on the East Coast Mainline raised similar concerns."
Ms Hodge said some of the DfT's assumptions about the benefits of faster travel were "simply untenable".
"For example, the time business travellers save by using high-speed rail is valued at £54 per hour yet the time commuters save getting to and from work is only valued at £7 per hour.
"It is difficult to see how this can be justified. The department also assumes that all time spent on a train is unproductive. And unrealistic assumptions about ticket prices act to exaggerate passenger demand forecasts."
Ms Hodge continued: "The DfT also told us that it had not considered the benefits and costs of alternatives to HS2 such as investment in broadband videoconferencing or investment in alternative, more local train routes.
"It is nonsense that the DfT does not have a full understanding of the wider economic impact and regeneration benefits of transport infrastructure, including HS1, to inform future investment decisions."
"All these things are crucial for proving the case for investment in long-distance travel and demonstrating value for money.
"The department must revisit its assumptions on HS2 and develop a full understanding of the benefits and costs of high-speed travel compared to the alternatives."
A DfT spokesman said: "As this report recognises, HS1 is a successful and central part of our transport infrastructure, carrying millions of passengers a year from a regenerated St Pancras (station in London) to the east of England and the continent.
"It was delivered on time and on budget and this report commends the 'exemplary' way the sale of the line was handled - generating more than £2 billion for the taxpayer, far exceeding market expectations."
The spokesman added: ""Our passenger forecast modelling has improved significantly since the original work for HS1 over 20 years ago, with better understanding of what drives passenger demand, better computer modelling and more computer power to do it.
"Network Rail predicts the West Coast Main Line will be full by the mid-2020s and HS2 presents the most effective solution to this looming capacity crunch facing our rail network. This is in addition to the jobs, regional regeneration and improved connectivity the project will deliver."
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