is worthwhile since it provides an overall net benefi t to
the community. An estimate is made of the benefi t:cost
ratio, the net benefi ts as a proportion of the net costs of a
project. Dependent on funding, projects with the highest
benefi t:cost ratios are most likely to get the go ahead.
Th
e four stages in a cost–benefi t analysis provide a
coherent framework for making decisions where the market
mechanism is not fully functional. Any cost–benefi t study
or application should therefore be seen in these terms.
To conclude, it is relevant to recognise that in practice
cost–benefi t analysis is fraught with many diffi
culties.
Some have already been stated such as:
■
which costs and benefits should be included
■
how to put monetary values on them.
Additionally, there are others, particularly when it comes
to the acceptance of the outcome by the community as a
whole. For example:
■
CBA does not always satisfactorily reflect the
distributional consequences of certain decisions,
particularly where public sector investment is involved.
In the case of a new retail development, external costs
are likely to be highly localised, while external benefits, in
terms of employment creation for instance, are likely to be
more widely spread.
■
Many public sector projects can be very controversial
and subject to much local aggravation from pressure
groups. This is especially the case with the UK’s HS2
project (see below). It may be the case that the outcome
of the CBA is rejected for political reasons, with the
consequence that the most expedient decision may
not be the one recommended by economists. Where
this happens, it is easy to dismiss the technique of CBA
as irrelevant. This is not a fair conclusion, not least
as CBA has at least brought out the issues involved
so that a decision can be taken on the basis of all of
the information available. CBA is an aid to and not a
replacement for decision making.
Economic appraisal of High Speed 2 (HS2)
The planned HS2 rail project is one of the most ambitious
infrastructure schemes that has ever been developed in the
UK. In short, it is a high-speed, high-capacity rail system
that requires the construction of completely new rail track
to take trains operating at 225 miles per hour. It is planned
in two phases. Phase 1 is 140 miles between London and
Birmingham and due for completion in 2026. Phase 2 is
in the form of two branches, from Birmingham to Crewe
and Manchester on the west side and the eastern leg from
Birmingham via the East Midlands and Sheff ield to Leeds.
The aim is to be carrying passengers here by 2030 (see map).
Though it has important national benefits, it is fair to say
that the new north-south rail line is not without controversy.
It is backed by the Government, Parliament and city leaders
but there is still considerable opposition from people living
along the line of the route who may be impacted by the
construction and eventual operation of HS2.
Others argue that there is an opportunity cost involved,
claiming that the capital would be better spent on improving
and updating the current rail network. Another key issue
in the debate has been the likely spillover eff ects of HS2 on
London, Birmingham, Manchester and Leeds especially.
Here again, opinion is divided.
Some argue that London will be the principal beneficiary
and that the other cities will relatively lose out. The
opposite view has also prevailed, namely that the biggest
cities outside the capital, such as Leeds and Manchester,
will benefit from much-needed regeneration and business
growth.
Table 6.2
is a summary of the government’s own
cost–benefit analysis. Much of the debate about the project
has centred on this and the extent to which it is a true
statement of what can be expected. The main features of
the cost–benefit analysis are:
■
More than half of the benefits come in the form of
travel time savings for business users. This ‘value of
time’ benefit is quite normal in transport appraisals
and recognises that since less time is spent travelling
then the time saved can be put to more eff ective use.
There are also similar benefits for leisure users of HS2,
although their hourly value of time used in the appraisal
is considerably less than that of business travellers.
The planned routes of HS2
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