Open Access

With Royal Assent granted for Phase 1 of HS2, Greengauge 21 Director JIM STEER looks back at the initial projections from 2007, to what extent they still apply today, and how they can be used to drive further support for and development of high-speed rail

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“With Phase 1 Parliamentary powers now secured with a strong political consensus, it is time to proceed to implementation and to progress the next stages of the high-speed programme, broadening its value to serve the whole country.”

WITH last month’s granting of Parliamentary powers for the first phase of HS2, attention now rightly turns to delivery. A decade from first outline conception to a clearly defined and approved plan is surely a rate of progress to be admired and commended.

It was in 2007 that Greengauge 21 published the first suggestion for the idea, naming it High Speed Two ( www.greengauge21.net/ publications/high-speed-two-a-proposition-bygreengauge-21/). The report was a response to a question we had set ourselves: if we are to have a national high speed rail network, where was it best to start? To this the answer was very clear: a line from London to the West Midlands, connected onwards to serve the North and Scotland.

It is worth reflecting on the outbreak of national pride that accompanied the completion of High Speed 1, with its Royal opening at the transformed St Pancras station, which also took place ten years ago this November. It was an astonishing achievement, and personally I am confident that we will feel the same about HS2 in ten years’ time.

Others might be prompted by mention of HS1 to worry about the wisdom of investing in new capacity and services, when the Eurostar ridership levels haven’t lived up to expectations. So it’s worth thinking, at this juncture, about demand forecasting and the outlook for HS2.

For some, the argument is simply that it is impossible to forecast the future with any accuracy. Scepticism runs deep. But the rail industry has tackled this challenge - rail has, after all, experienced levels of growth that were unexpected over the past 20 years.

A good starting point, when considering Phase 1 of HS2, is to look at the West Coast Main Line corridor in which it is situated. To those who doubt the likelihood that there will be enough demand growth for HS2 to accommodate, the experience of the Virgin West Coast franchise is relevant.

The forecast made at the outset of this franchise in 1997 was for an unprecedented tripling of passenger numbers over the 15-year term of the contract. Some of that forecast growth was attributed to the planned transformation in level of service - 20% journey time cuts and doubling of service frequencies.

And the outcome? The 2012 forecast was not achieved until 2013 - a remarkably robust outcome given intervening events: delays with the planned infrastructure upgrade; operations restricted to 125mph rather than 140mph; the global financial collapse and the recession that followed it…

This looks like a reassuring indicator of the kind of market response that transformational service levels are likely to bring - changes that have taken the capacity of the existing line to its limit, and in turn fostered the need for HS2. To which it is worth adding that the capacity that HS2 creates (and the benefit it brings) will be felt not just by those using the new high speed services, but also in the growing commuter markets between Northampton, Milton Keynes and London, in the CoventryBirmingham corridor, and also in rail freight. These are markets that have been growing strongly, and are likely to continue to do so.

“But the past is no guide to the future,” it will be said. Simply extrapolating past trends would clearly be a hopeless way to proceed. Especially when there are macro-level shifts in the economy afoot.

Five years ago, Network Rail looked into these matters. It applied the idea of scenario planning to develop its long-term planning forecasts ( www.networkrail.co.uk/wp-content/ uploads/ 2016/ 11/ Long-distance- marketstudy-2013-1.pdf), identifying the major factors that might have a bearing on the UK economy and hence on the demand for rail travel, including for the longer-distance market.

Its report suggested that: “The economy can either be integrated with other national

economies, trading regularly across all types of goods and services, or be isolated, producing all or most of its goods and services domestically.”

This was taken to imply four candidate longterm outcomes for Great Britain’s economy in Network Rail’s scenario analysis: Strong, global - a strong economy on the global stage which prospers from its integration with the rest of the world. Strong, insular - a strong economy on the global stage which prospers from its selfsufficient nature. Mid-ranking, global - a mid-ranking economy on the global stage which suffers from its integration and trading position with other national economies.

Mid-ranking, insular - a mid-ranking economy on the global stage which suffers from an absence of trade with other countries.

Network Rail saw a further major factor as being how engaged the nation was in embracing technological innovation (see diagram).

With a prospering economy, Network Rail envisaged national income growth at close to its long-term trend rate at 2.25% per annum. But in the cases where the economy struggles, national income growth was expected to be much lower (0.5% per annum - actually a little above the overall performance since 2008, but much less than the 2016 outcome of 1.8%).

Struggling in isolation was characterised by an “absence of both an export market for its high value products and a source of inexpensive [imports]”, and [the nation] taking “little interest in solving social and environmental problems as it has neither the wealth nor technology to achieve this without worsening individuals’ standard of living”.

Struggling in global turmoil was little better: “…as the global supply chain and credit markets are volatile and other countries improve their employee skill levels and resource base”. However, Britain takes “…an active role in addressing social and

environmental problems…”.

The scenarios were applied to a set of major long-distance flows, to show their effect on long-term demand forecasts. So taking London-Leeds, for example, the four projections for base level demand change (that is ignoring supply side changes such as HS2) from 2012 to 2043, matching the four scenarios shown above, were:

These are huge variations. Who knows which of the four scenarios best fits the current much-changed circumstances affecting the outlook for the UK economy?

If Network Rail were to repeat the exercise today, the scenarios would no doubt be respecified in a number of key areas. But NR deserves credit for thinking ‘out of the box’ five years ago. Indeed, it seems now to have been remarkably prescient in its outlook.

It would have seemed plausible to believe in ‘prospering in global stability’ (PGS) in 2007, but this seems less probable in 2017, certainly in the immediate and medium term. ‘Prospering in isolation’ or ‘struggling’ might be a popular current prognosis, and that would show demand forecast growth for LondonLeeds in 2043 down by between a third and two-thirds on the PGS level. And London- Leeds is by no means unusual as a selected city pair. Who said there was little risk transfer in bidding for rail franchises?

While considering the impact of macro-level changes, there are some stabilising factors that strongly influence the demand for longdistance rail travel, come what may. These include:

The effect of fuel (oil) prices. These have risen dramatically in the past three months, and strongly influence demand for car and shorthaul flights because the energy costs of these modes represent a much higher proportion of total costs than for rail. Moreover, as fossil fuel sources dwindle (or become more expensive to use as a result of climate change policy), this effect will become more significant in the future.

Rail’s competing modes are based on motorway and runway capacities that are effectively fixed over the next ten years or more, and neither mode is well placed to accommodate more demand. This has the effect of strongly magnifying the effect on rail of the demand increase that the economy generates.

The dominance of cities in driving jobs and economic growth, and the associated lifestyle choices that include a reluctance to bother with car ownership and a new generation at ease with rail travel as the best choice for travel over distance. London’s population has grown at twice the national rate over the past five years.

Indeed, these are probably three of the factors that led to long-distance (and commuter) rail demand growing so strongly through the recession and the ensuing economic slowdown over the past nine years. Last month petrol prices grew 16.8% year-on-year, the fastest growth rate since 2011.

Scenarios are all well and good, but the overall message is that rail growth has proved to be very resilient in the past. And this includes resilience against macro-economic recession. The stabilisers have smoothed the way for strong rail growth despite the wider economic factors. CONCLUSION So are the high levels of variation between the various scenario-based projections a reason to stall investment in projects such as HS2?

We would say no. With Phase 1 Parliamentary powers now secured with a strong political consensus, it is time to proceed to implementation and to progress the next stages of the high-speed programme, broadening its value to serve the whole country.

When it comes to investment appraisals and business cases, it is right to use scenarios or probabilistic devices. DfT projections of the economic case for HS2 since 2013 have used probability ranges and tried to shift attention away from single point estimates. This is sensible, because there are major macroeconomic factors in play that cannot be ignored.

There is always uncertainty. But as we have shown, rail’s position remains strong. There are sets of factors, it turns out, that are driving rail demand inexorably upwards.