"HS2 will cost a total of £32.7bn"

Department for Transport, 10 January 2012

"The Government is expected to give the formal go-ahead to the £32 billion HS2 route - which passes through picturesque Tory heartlands - some time this week."

The Independent, via Press Association, 10 January 2012

"Opponents also dispute government claims the whole project will cost £32bn and deliver benefits worth £47bn."

BBC News, 10 January 2012

High-Speed rail became a hot topic in the news once again today as the Government gave the go-ahead to phase one of the HS2 plans.

HS2 refers to the Government's project to build a high-speed rail link between London, the Midlands and the North in a 'Y' network, with phase one concerning the London-Birmingham connection. It follows on from 'HS1' - the high-speed link between London and the Continent.

The density of figures provided by both sides of the debate was considerable. One of the most reported figures, however, was the purported cost of £32 billion of the scheme.

Full Fact investigated what was behind the reports.

Analysis

The Department for Transport (DfT) released a large number of documents today detailing the plans of the scheme, including the planned route and analyses of the economic costs and benefits.

The headline cost figures are provided by the DfT's Economic Case for HS2 appraisal, which contains a detailed breakdown of the various estimates, including a cost-benefit analysis of the scheme.

Reviewing the figures, the source of the £32.7 billion claim can be found in the breakdown of capital construction costs:

Tallying up these specific costs therefore yields a total estimate of £32.67 billion.

However, as the DfT point out earlier in the document, the estimated cost of HS2 has three components: the capital construction cost, rolling stock capital costs and operating costs. Only capital construction costs are contained in the above diagram.

Examining the 'rolling stock capital costs' - essentially the cost of trains - additional costs are apparent:

The base costs, combined with risk provisions, total an additional £8.15 billion. Meanwhile the operational costs - which include maintenance, staffing and two years of testing the new network - cost a further £21.7 billion:

All three cost estimate tables contain a provision for 'optimism bias', a peculiar term that refers to the "tendency of project planners to be optimistic about the costs" and how the estimates have accounted for this in their final projections.

Given the figures provided, the £32.7 billion cost estimate is based only on the costs of constructing the network, and does not include the costs of purchasing the necessary trains or the day-to-day costs of maintaining the network. The DfT has confirmed this to Full Fact.

Hence, reports that merely state that HS2 will "cost £32 billion" should not be interpreted as representing the total cost of the scheme. When rolling stock and operating costs are included, the total estimated cost over the 60 year "appraisal period" comes to around £62.5 billion - almost double the construction cost alone.

It is also relevant to note that the DfT methodology of cost and benefit calculation has been questioned by several campaign groups, including the Taxpayer's Alliance and the Institute for Economic Affairs. They both point to caveats including possible additional demand for transport capacity to Euston in London and the impact of competition.

The DfT publish their own rebuttal to these arguments in their wider economic analysis of the scheme.

Conclusion

The widely-reported £32.7 billion cost of HS2 is indeed based on DfT figures, however these only refer to the initial construction costs of the scheme.

However, considering longer term costs such as rolling stock and maintenance, the cost is actually estimated at closer to £65 billion based on these factors alone.

Some of these costs will likely be offset via income and other benefits for the scheme, as the DfT makes clear. This means the cost to the taxpayer will likely be substantially less that the full £65 billion cost, although we cannot say precisely by how much.

It is also worth pointing out that the Government argue the estimated economic benefits outweigh the costs, as a benefit:cost ratio of between 1.8 and 2.5 to 1. However as far as today's reports are concerned, many of the costs themselves have been poorly covered.

UPDATE (10/1/12)

Some of our Twitter followers were concerned that we did not mention the benefits or income estimated by the Government from the scheme. As the DfT have claimed, all the costs are offset by the benefits, with the additional capital costs of HS2 beyond construction payed for by passenger fares. We apologise that these were missed as they clarify that some of the costs are offset by fares and hence not necessarily taxpayer costs, and also provide background to the figures. Appropriate amendments have been made.

As we provided, the full analysis of economic benefits accoring to the DfT is provided in their economic analysis.