Will HS2 help accountants?
The Imprudent Accountant wonders whether HS2 will bring any benefits if it gets the green light and argues that the budgeting process on public projects is deeply flawed.
I am hardly a visionary, but the news that HS2 is now projected to cost at least twice as much as originally estimated comes as no surprise.
In fact, for some time, I have been regarding it as Crossrail 2, since it makes me just as cross as the original.
The writing was on the wall for anybody who has faced dirt and disruption around Farringdon or Bond Street for year after year, while Crossrail foundered. That project has still not been completed a couple of years after the announced date for opening, while the cost has skyrocketed, if you’ll pardon the mixing of travel metaphors.
I sincerely hope that no accountant was involved in the budgeting for HS2, as it would be a severe embarrassment for the profession had this been the case.
It is astonishing how public sector capital projects seem to be predicated on ludicrously low budgets, which are then demonstrated to be incorrect but not until professionals and contractors have vast amounts of money.
The choices are stark. If we go ahead with HS2 it will eventually cost every man, woman and child in the country at least £2,000 and quite possibly much more. If we abandon it, then there will still be significant costs with nothing to show for them other than some very red faces.
It is a long time since I studied anything to do with budgeting but the general principle was to gather all of the facts, stick them together in a kind of mathematical mixer and then, having come up with an answer, introduce a massive amount of headroom, since we accountants love being prudent.
I find it very hard to believe that whoever did the budgeting on this project used any of these procedures. It might sound cynical but perhaps the underlying instruction was to assume that every corner could be cut during the budgeting process in order to ensure that the project might prove acceptable to politicians and the general public.
The sad thing is that we never learn. It isn’t just rail projects where costs escalate ludicrously. The third runway at Heathrow Airport seems destined to be next in line for this treatment.
It is also noticeable that these public sector projects always run way over deadline. That seems to be less of a problem in the private sector, for example when housebuilders can see a chance to make a lot of money as soon as they can sell homes. The same seems to apply to sports stadia, where there may be a little bit of overrun but nothing like the disaster that is Crossrail.
The other question that nobody seems to be considering is the true benefit. It is possible that HS2 will stop at Birmingham. If that is the case, then there will be a reduction in a 90 minute journey time but how great can this be?
For the vast majority of travellers, the benefits of half-hour savings on occasional trips between the Midlands and London can surely not justify the thousands of pounds each of us will be paying for the pleasure.
I can accept that a handful of commuters (including some accountants and our clients) could benefit substantially but even they will pay through the nose for their fares and property prices are bound to shoot up. Even then, very few readers will still be in work when the project is completed after further delays in around 2040.
Should the line eventually extend to (say) Manchester, then we are talking about saving against a two-hour trip, which is once again hardly excessive.
On the other hand, if the genius behind this project could reduce a flight to New York to a couple of hours, that would be great news for those of us who enjoy transatlantic travel for business. However, it still wouldn’t be worth hundreds of billions of pounds.