A House of Lords committee says that the £56bn HS2 high speed rail project needs ‘a major rethink’.

The Lords economic affairs committee says that it has “serious reservations about the cost-benefit analysis used in determining whether High Speed 2 provides value for money”.

It says that the method of appraisal for large infrastructure projects used by the Department for Transport (DfT) is “not fit for purpose”.

And it says the London terminus should be at Old Oak Common, not Euston.

In a report out today called Rethinking High Speed 2*, the committee says: “We do not believe that asking business rail travellers hypothetical questions—about how much they would be willing to pay for quicker journeys—is the most robust evidence base on which to base a calculation of the benefits that a £55.7bn new railway will bring.

“We are concerned particularly that the time saved by long-distance rail business travellers has increased in value for the purposes of appraisal since our 2015 report, on the strength seemingly of a few hundred interviews carried out on station platforms.

“We welcome attempts to update the evidence for travel time savings. But the new values are based on unconvincing data. We note that 60% of the estimated benefits of High Speed 2 (£55bn) relate to business travel.

“The government maintain the demand forecasts for long-distance rail are ‘conservative’. But for some of the routes which the modelling for High Speed 2 anticipates will provide the most benefits, this is not borne out by the observed demand growth in recent years.”

The committee says that DfT’s assessment of benefits places too much emphasis on time savings for travellers, and too little emphasis on the transformative effect railways can have on local economies. This appraisal method has distorted decision-making on the HS2 project in favour of speed.

The former chairman of HS2, Sir Terry Morgan, told the committee that “nobody knows” what the final costs of the project will be. The committee is concerned that the project will run out of money and the northern sections will not be built.

Although the House of Lords has little or no democratic legitimacy, this particular committee of 13 includes some people who know how government works, if not trains. It includes former chancellors of the exchequer Norman Lamont and Alistair Darling, and former senior civil servants Andrew Turnbull, John Kerr and Terry Burns.

It is chaired by Michael Forsyth, a former secretary of state for Scotland, who said: “Commuter services in the north of England are badly overcrowded and reliant on ageing trains. Rail connections between northern cities are poor. As the committee suggested in its 2015 report, rail infrastructure in the north should be the government’s priority for investment, rather than improving north-south links which are already good. The north is being short-changed by the government’s present plans, especially as construction on HS2 is starting in the south. Any overcrowding relief from HS2 will mainly benefit London commuters.

“If costs overrun on the first phase of the project, there could be insufficient funding for the rest of the new railway. The northern sections of High Speed 2 must not be sacrificed to make up for overspending on the railway’s southern sections.”

A spokesperson for HS2 Ltd responded: “We thank the Lords economic affairs committee for its interest in Britain’s new high speed and will consider their recommendations as the project progresses.

“HS2 will generate around £92bn in benefits to the UK economy, with local economic plans forecasting the creation of 500,000 jobs and nearly 90,000 new homes. Work is underway at over 250 locations and the scheme already supports more than 7,000 jobs directly and across our supply chain.

“As stated in the report, HS2 is fundamental to the delivery of Northern Powerhouse Rail. It is also vital to the Midlands Rail Hub, and will transform rail journeys across the Midlands and North, giving passengers thousands of extra seats every day, and taking freight of the roads. As regional leaders across the Midlands and North have repeatedly said, it’s not a case of either or, it’s both.

“We are determined to deliver a railway that is value for money for the taxpayer, and a project that will reshape the economic geography of the country. We have strengthened our controls and are actively applying lessons learnt from recent infrastructure projects to ensure we have the most cost-effective approach.”

* The full report, Rethinking High Speed 2, is available at publications.parliament.uk

Recommendations of the House of Lords economic affairs committee

A new appraisal of the business case for High Speed 2, which takes account of the issues raised in this report, should be published urgently, and before the final decision to proceed with High Speed 2.

Northern Powerhouse Rail and High Speed 2 Phase 2b should be considered as one programme, with sections prioritised according to the needs of the rail network in the north.

Funding for the Northern Powerhouse Rail must be ringfenced and brought forward where possible.

New analysis of High Speed 2, which takes account of the transformative effects that new infrastructure can have, should be published alongside the full business case by the end of 2019.

The government and HS2 Ltd should update and publish analysis of the cost possible saving from lowering the maximum operating speed of the railway.

Old Oak Common should serve as the London terminus for Phase One of High Speed 2. The government should publish its analysis of the cost savings from reducing speed and terminating at Old Oak Common for the full High Speed 2 network alongside the full business case by the end of 2019.

“The plans for Northern Powerhouse Rail should be integrated with the plans for the northern section of HS2, and funding for the project ringfenced. This will allow rail investment in the north to be prioritised where it is most needed.

“The costs of HS2 do not appear to be under control. It is surprising therefore that the government has not carried out a proper assessment of proposals to reduce the cost of HS2—such as lowering the speed of the railway or terminating in west London rather than Euston—which the committee recommended in 2015. A new appraisal of the project is required.