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High speed rail
00:28:19
High Speed rail - Tim Harford speaks to railway consultant Chris Stokes and Alison HS2...
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- [00:00]
A
Thank you for downloading the More or Less podcast from the BBC. You can find out more about our programme on our website, BBC.co.uk radio4. But before you do that, here's Tim Harford.
- [00:15]
B
Hello, and welcome to the last in the present series of More Or Less. As always, we'll be taking a look at the numbers flying around the news bulletins, the politicians speeches and the world around us. This week we settle a four year old bet about whether global warming has stopped, at least by one particular metric. And we'll be demystifying executive pay. And after last week's programme, we return to Lotto gate 1, 2, 3 4,
- [00:41]
C
5 6, in that order.
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B
But first, this week the Government approved the High Speed 2 rail link, a line between London and Birmingham by 2026 and later a Y shaped extension to Manchester and Leeds by 2033. High speed one, by the way, was the line linking London and the Channel Tunnel. Most onlookers must be scratching their heads as both politicians and commentators have been switching all week between quoting figures for the first phase of the project and the second. But to give you a flavour, the cost of building and operating the line between Birmingham and London until the 2000s is predicted to be £27.4 billion. But the government expects to take in £13.9 billion from ticket sales. So called economic benefits are less tangible things, such as the value of the 30 minutes saved by travellers going between London and Birmingham. These benefits total 23.1 billion pounds, according to HS2 Limited, the company set up by the Department for Transport to produce the business case for high speed 2. All these numbers, incidentally, are what's called present values. Distant benefits are less valuable than imminent benefits. So to reflect this, HS2 Limited used the standard treasury discount rate, discounting benefits by 3.5% each year. This means that overall, for each one pound that is spent on the link between Birmingham and London, the government expects £1.7 in return. Politicians and supporters often cite the figures for the full Y shape, where the Government expects to get between £1.80 and £2.50 for every pound that it spends. Not everyone's impressed by these numbers. One of the skeptics is Chris Stokes, a rail consultant who's done some number crunching for 51m, a group that campaigns against high speed 2.
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D
So what government is forecasting in its latest evaluation of HS2 is that traffic will double by 2037. And the key question is where these people are going to come from. A lot of it is actually what's called generated travel, where if you provide a better service, more people, world travel. But will that actually happen between Birmingham and London, Manchester and London or Glasgow and London? I'm not convinced of that. And the Parallel is with HS1. It was forecast that Eurostar would carry 25 million passengers a year by 2011, but actually it's 9 to 10 million. That's less than 40% of the forecast.
- [03:06]
B
Well, I put this and other questions to Alison Munro, Chief Executive of HS2 Limited.
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E
Well, clearly you have to make some judgments about how you think things will be in the future because no one can predict with certainty over that time period. So what we do is we look at what has happened in the past. Over the last 15 years, we've seen the number of people travelling making long distance rail trips double. And over the past three years, even during the recession, we've seen the number of passengers making long distance journeys grow by 14%.
- [03:38]
B
Now, the opponents of High Speed 2 though, do questions I think not those numbers, but how sustainable that trend is going to be. So Chris Stokes, for example, he says that switch to rail is not a trend that can be sustained. It's a temporary switch or a one off switch from air travel and from road travel. And you can't just draw a straight line and expect that to continue.
- [04:03]
E
Well, we haven't just drawn a straight line. With our latest updating of the numbers, we're effectively assuming that demand for travel continues to grow until 2037 and then it levels off. Now there are some who say that's a rather pessimistic view and that in fact demand could continue to grow for a much longer period than we are assuming. But we've deliberately taken what we believe is a rather cautious approach.
- [04:27]
B
Well, there is, I think people feel cautious partly because of the experience of the Channel Tunnel where there are very bullish forecasts about passenger numbers and those passengers just are not being carried by Eurostar. So I think it's once bitten, twice shy, isn't it?
- [04:43]
E
I think the experience of Eurostar was really rather different to what we're talking about here. And you were talking there about a relatively new market, rail travel between London and the Continent. Here we're talking about an established market. And the other thing about the Eurostar market was that the reason really why they overestimated the amount of travel on Eurostar was they didn't predict the advent of the low cost airlines. What's interesting actually is that the fall that have been done recently for the fast domestic services on high speed One have actually proved rather accurate.
- [05:15]
B
Alison Munro, Chris Stokes also questions the way the economic benefits were calculated. These are the less tangible benefits to the economy at large derived from having a new fast train service.
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D
50% of the benefits to passengers are related to journey time savings, of which 74% relate to business travellers. Although only 30% of passengers roundly are forecast to be travelling on business, the assumption is that the time of business passengers is very valuable and actually the assumption is they don't work on trains, which I think anyone who travels on trains at business times will know is not the case. So 10 billion pounds of the total benefits of relating to time savings for passengers are, I think, very questionable.
- [06:08]
B
Again, I turned to Alison Munro and asked her where she was getting the estimates of the value of shorter journey times.
- [06:15]
E
The values that you quoted there are the values used for journeys that are made during business time, which, as you correctly say, are based on an average cost to the employer of £75,000. But we use different values. If people are travelling for commuting or if they're travelling for leisure purposes, the values are much lower. So it's £7 if you're commuting and £6 an hour if you're travelling by leisure. Whereas for a business traveler, we value that at £50 an hour. You're right in saying that the way we currently make the calculations, we effectively assume that time is not productive on trains. But what is interesting is that if you actually compare the values that we use with observed behaviour, so we're business travellers, actually make a choice about using a faster mode and paying a higher fare, or choosing a slower mode and a lower fare, the value, this £50 an hour value, does actually reflect the decisions they actually make about how they travel. We're not saying that people can't work on trains, but the other point is that as demand grows and trains become more and more crowded, in those conditions, people can't work on trains.
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B
What happens if you just say saving time is not an economic benefit? Because actually, it's just a case of people working with a laptop on a train or working with a laptop when they get to their destination. Does the business case really depend on that? Save time?
- [07:39]
E
I should point out that of the overall benefits that we've calculated for the Shemes, of the £23 billion benefits I described to you, for example, for London to West Midlands, only about 30 to 40% of that is actually business time savings. So it's not. The whole of the benefits that we're calculating don't depend on this business value of time. But you need to take a consistent approach between how you value business time and how you count the benefits of reducing overcrowding. Because we don't assume that time at the moment is productive, we put a low value on reducing crowding for business travellers. So all I'm saying is you need to be consistent. If, as you're suggesting, you should assume that time on a train is productive, then you also need to adjust that crowding value to be consistent. So when you make both of those adjustments, it's not a fudge, it's just saying you need to be consistent in your assumptions. If you make both of those adjustments, then we find it actually evens out.
- [08:34]
B
Alison Munro of HS2 Ltd. Ultimately, whether the benefits of High Speed 2 are reckoned to outweigh the cost depends hugely on the underlying forecast. The interest rate used to adjust for benefits received sooner rather than later, passenger numbers in 2071 and of course those all important cost overruns.
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F
Or
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B
neither the proponents of High Speed 2 nor the critics have a crystal ball. The other statistical story of the week was on executive pay. One figure that's been widely quoted is that directors pay rose a staggering 49% last year. Pretty astonishing in a time of economic stagnation. This figure comes from Income Data Services, a research company specialising in pay and employment law. But then there's another number that's been quoted, just 12% more of a pay rise than most of us are getting, but substantially less headline worthy. This number is published by Manifest, a research group which supplies information about corporate boards to large institutional shareholders such as pension funds. How can the numbers be so different? We've taken a look and have tried to find out exactly how the two research companies got to these figures. I began by asking Steve Tatton, editor of the report from Income Data Services, how he reached his figure of 49%.
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G
Well, what we do, we take a matched group of directors of the FTSE 100, that is directors who have been full time in post for two years. So we can compare how much they earned in year one compared with how much they earned in year two. And that group of directors are all paid in sterling. So we exclude anybody paid in foreign currency. We also actually exclude directors who've been promoted in the year because they might actually get a large increase just for their extra responsibilities. So we try to make sure we're measuring like for like. We then add up all the components of each individual director, how much they received in each of these two years. That could be salary, benefits, bonus and share based awards which they've actually earned during the year. And then we compare how much Director A for instance received in year one and compare how much that same director at the same company earned in year two and work out the increase in their total earnings during that two year period. We then take all the directors and work out the average figure of that group.
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B
Steve Tatton of Income Data Services now the FTSE 100 are the 100 largest companies with shares listed on the London Stock Exchange, often multinational companies which may or may not have much to do with the British economy. Economy. FTSE 100 directors are quite a select group and Sarah Wilson, the managing director of Manifest, thinks that selectiveness is a problem.
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E
One of the difficulties was as soon as a number goes out into the public domain, the press picks up on it and it goes from FTSE 100 to suddenly all directors. And so everybody is tarred by association with the same number. But when you look at the tiddlers on the stock market, their increases are often quite small. In fact, some small cap companies saw minus 7% increases.
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B
Sarah Wilson of Manifest an alternative is simply to take the median pay rise, the one enjoyed by the director in the middle of the distribution. This is what Manifest have done to get their number of a 12% rise in total remuneration for FTSE 100 directors. The Office for National Statistics also used medians when reporting earnings for the rest of us. I asked Steve Tatten from IDS why they used the mean rather than the median.
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G
Well, the median is equally a distortion of the figures. The question that people have to think about, is it not important that say a Director got a 500% increase and should we therefore ignore it by concentrating on the median and therefore the average is a valid figure.
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B
Now I have to say I was very impressed by the way you laid out very clearly the methodology. You went through all the different kinds of decisions that you made in calculating these numbers and there are a lot of judgment calls here. So do you want to look at the whole pool of directors or do you want to restrict that pool? So you're comparing like with like. Do you want to look at the FTSE 100 or do you want to look more broadly at other directors? Do you want to take the mean or do you want to take the medium? Do you want to do this waiting or not wait? You've explained all the decisions very clearly. However, correct me if I'm wrong, every time you made the decision which had the side effects of making the number
- [13:03]
G
higher, I'm not quite sure what to say, I mean, the numbers are just the numbers. We published them and it came out in a press release. That's correct. And when you're trying to communicate to the wider audience, it is the case that most people don't necessarily quite understand what the figures are telling you. And the thing about a mean average is that that's what most people think by an average, and it's often the one people most understand. That's probably the reason why the average was highlighted.
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B
And if any of you have received a pay rise of 49% or even 12%, write in and tell us about it. On second thoughts, congratulations, but maybe keep the news to yourself. You're listening to More or Less and four years ago, this program was the catalyst for a bet on climate change. The debate still rages about whether global warming is continuing or whether the last 10 years show that the temperature rises seen in the 1980s and 1990s have stopped. the time, we spoke to David Whitehouse, an astrophysicist and former BBC science editor, and James Annan, a climate scientist. They made this bet.
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F
We're not certain to see another record in the next few years, but I think it's more likely than not. Looking at the numbers, I think probably by about 2011 we should see a new record, if not before.
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B
So would you put money on that?
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F
Yes, certainly.
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G
Yes.
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B
Excellent. I'm delighted to be furthering the BBC's duty to promote gambling. And will David Whitehouse take the bet? We've spoken to the climate scientists, James and Anne. He's willing to bet that the peak of 1998 will be exceeded on or by 2011, we'll see a hotter year for average global temperature. Are you willing to take the other side of that bet?
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H
Certainly am. I don't think anybody really knows what's going to happen in the future.
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B
Should we say £100?
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H
That sounds fine to me. I look forward to it and I can't wait to see the outcome.
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B
There's little dispute that in the last hundred years, the globe has warmed by about three quarters of a degree Celsius. But what provoked concern about global warming was a dramatic increase in the last few decades, especially the 1980s and 1990s. The record for average global temperature was broken in 1983-1988-1990-1995 and most recently in 1998. So have we seen another record year since the bet? In 2008, it was agreed that the bet would be based on data from the Met office's Hadley Centre. 2008, 2009 and 2010 didn't break the record by this measure. And the figure for 2011 should be known next week. But it's already clear with 11 months data available, no record will be broken for 2011 either. Well, I called David Whitehouse and James Annan. David, congratulations, you won the beta. What does this tell you?
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H
Thank you very much. I think it shows that we did enter a warm spell 30 years ago. And I think it shows that the rate of warming of that spell is not constant. The 80s and the 90s it was warming, but I think that it is structure in this data that shows for the past 10 years the temperatures remain constant.
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B
And you think that goes beyond just looking at record years? Because I think we could agree it that's not the only way to look at temperature data, right?
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H
Oh yes, that's by far not the only way to look for the temperature data. We live in the warmest decade of the instrumental era. The noughties were warmer than the 90s, which were warmer than the 80s. But that's not to say that you should only look at this just over a long time period, say 30 years, which is the standard time scale for climate change. There is structure within this 30 year period. There is no change in the global average temperature for the past 10 years and possibly longer than that.
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B
So James, you both agree that the most recent decade is the warmest decade on measure, but do you agree with David's analysis that over the last decade there's no sign of warming?
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F
I'd say there's absolutely no sign there's any change in the warming rate. The trend is still upwards. There's obviously some variability. That means that if you look over a very short period of time, you can't tell very precisely what the underlying trend is, but there's no sign of any reduction in trend.
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B
So why did you lose the bet then?
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F
Just bad luck really. I don't think if we'd chosen either of the other two data sets then I'd have won it.
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B
But after you took the bet, James, you did write a blog post that said that according to the models, you were pretty confident that there should be another record year. Is the model wrong?
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F
I'm still fairly confident that we're another record year quite soon. There's some inter annual variability, which means that you can't guarantee that any specific year is going to be warmer than the one before.
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H
But surely, James, we're talking about global warming here and the fundamental parameter of global warming is warming. And if you look at the past 30 years, you have two decades in which the temperature was warming, though not at a great deal in the 1980s. You have the last decade which it hasn't warmed. And I think you made the mistake of drawing a straight line between the beginning and end of that period and projecting it forward.
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B
James made a simple mistake, just drew a straight line through data where you should have been fitting a curve.
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F
The trend is robustly positive. The trend is positive over the last 10 years.
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B
I hesitate to leap in at this point, but there is, of course, an obvious way to resolve this disagreement. We could go double or quits. Will we have a record year in the next four years? James, are you tempted?
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F
I think there's every possibility that will happen, yes.
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B
David, would you be tempted?
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H
There is a possibility, but remember, if we extend the bet to nine or 10 years, then there is a chance due to statistical fluctuations, that one of the years might be high just to fluke. So I would say, yes, I'm up for double or quits, but I would like to see evidence of sustained warming, which means more than one year, more than one standard deviation above the straight line over the past 10 years.
- [19:00]
B
We'll nail you down over email about exactly what you are or are not going to agree to. James, if you lost this bet again, would that start to make you question what you believe about climate change?
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F
I think it would start, yes. If the record temperature in 1998 isn't beaten in the next four years, then it would certainly start to point towards a slightly lower warming trend. It wouldn't, however, change the fundamental fact that carbon dioxide warms the atmosphere, which I think even David Whitehouse would agree.
- [19:32]
H
Yes, even David Whitehouse would agree, because I'm not a skeptic. It's not a question of whether carbon dioxide warms the atmosphere. It's a question of the greenhouse effect in the real world. And the only way you determine that is not by models, but by measurement. And measurement shows that the temperature of the last 10 years is flat. But I'll let the data do the talking.
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B
David Whitehouse there, and James Annan, you're listening to More or Less. Now, how can we fail to mention last week's piece on the lotto draw? And those are tonight's lottery numbers.
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C
1, 2, 3, 4, 5, 6, in that order.
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B
Well, we had many emails like this from David Beasley.
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C
The spoof draw that you had at
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B
the beginning of the piece had the numbers one to six coming out in order. The likelihood of getting six consecutive numbers picked out in order is much lower than the Likelihood of getting six consecutive numbers picked out in a random order. Oh, dear. Thank you to David and everyone else who got in touch about this item. As many of you pointed out, the chance of Getting the numbers 1 to 6 in that order are indeed smaller, 720 times less likely than getting the numbers 1 to 6 in any order. Our illustration of the lottery draw did indeed say in that order. But the question that our listener Julie actually asked was about getting the numbers one to six in any order. That was the question we put to Professor Kevin McConaughey. But given that our amusing lottery sound effect, courtesy of the great Alan Dedicote, gave a very different impression, no wonder so many people wrote in to ask us what on earth we were playing at. Well, that was an error and it should have been checked. Charlotte, Wesley, Ruth, Richard, did any of you check it?
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C
No.
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B
Shame on you. Come to think of it, shame on me, too. Well, we hope that, as our loyal listeners, you'll forgive us for misleading you on this rare occasion. Ah, Eurostats again. And Wesley Stevenson's here. Wes, where are we going this time? Oh, I love this music.
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C
We're going to Spain, where youth unemployment, so that's unemployed people between the ages of 15 and 24 is a whopping 48.9%.
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B
Okay, I feel like I've been in this movie before. Is it really 48.9%?
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C
Well, maybe there have been some criticisms of this figure because some economists have suggested that the reason it's so high is because there's a big shadow economy in Spain.
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B
So young people are working in the shadow economy and they appear to be unemployed, but actually they do have something to do.
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C
Yeah, that's right. There's an interesting chicken and egg scenario here. Which came first, the shadow economy or the unemployment? I put this to Frederick Schneider. He's a professor from the University of Linz in Austria and a leading expert on shadow economies. Now, he says that the unemployment probably caused the growth of the shadow economy, not the other way around. High unemployment results in additional shadow economy activities. But if they don't have a perspective for a job in the official economy, the causality here from my LIM research about Spain. Because no one has a job, he looks around, whether he can do some gardening or cleaning or whatever to earn at least a little bit of extra money due to the unemployment compensation, which is not high in Spain.
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B
So we can assume the 48.9% figure is about right. Now, how does that compare to the uk?
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C
Yeah, let's assume it's right for the Time being, I'll come back to that in a minute. But here, youth unemployment figures last month stood at around 22%.
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B
So why is the problem so much bigger in Spain?
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C
Well, there are some interesting reasons. I spoke to economist Elvira Gonzalez. She told me that the school dropout rate for Spaniards before the age of 18 stands at 30%, which is double the average for the EU 15, the countries that joined the EU before May 2004. And she told me there's a good reason for this.
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E
In these years of the bubble, young people found good earning jobs in the construction sector. That's why they left the school. And when in 2007, 2008, the construction bubble has passed, then unemployment began to rise enormously among these young persons. And now, since they are very low qualified, because they left school earlier than they should have, they found a lot of difficulties in the present labor market to find new jobs.
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C
And now what we're seeing is the flip side of that trend. Young Spaniards are now staying on in education for as long as they can. Which is why that alarming figure of 48.9% youth unemployment might actually be understating the problem.
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B
Yeah, because along with those registered as unemployed, there are other people who would like a job but aren't officially unemployed.
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C
Exactly. And this all comes down to the definition of who is unemployed, which is a standard set by the International Labour Organization. Unemployed persons comprise persons aged 15 to 74 who in a given week are without work, available to start work within a fortnight, and have been actively seeking work in the past four weeks, or had already found a job to start within the next three months.
- [24:59]
B
What about those people who haven't been actively seeking work in the past four weeks? So what if it's five weeks or six weeks since you last looked for work? Or for that matter, what if you're in full time education not because you particularly want to be, but because you feel you don't have any other options.
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C
Well, these people are deemed to be outside of the labour force. And in a lot of countries the number in this group is growing as people are losing interest in searching for work.
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B
So we're not getting the full picture of people who are out of work?
- [25:22]
C
No. And in October last year, the International Labour Organization had a look at this issue and decided to recalculate the figures from 2010. Now, this is when Spain's youth unemployment rate was a little bit lower at 41%. And they calculated if you took into account the people who had looked for work in the last 12 months, then the youth unemployment was around 10 percentage points higher at over 50%.
- [25:47]
B
So why don't they do that normally?
- [25:49]
C
Well, there's some debate over whether these figures really represent the unemployed. The ILO themselves state a number of these people are hiding out in education, which is how they put it. So are these reluctant students really unemployed or not? It's hard to say, but it is clear as the number outside the labour force grows, the unemployment figures start to tell us less and less about the true picture of those out of work.
- [26:13]
B
Well, thanks, Wes. Wes, of course, has for two years been hiding away from any real work here on More or Less, and that's the last in the series of More or Less. But we won't be going away completely. We're starting a run on the BBC World Service this weekend. We'll find out whether it's true that there are more Malawian doctors in Manchester than there are in Malawi. And we'll find out whether President Hugo Chavez of Venezuela was right to identify a cancer cluster in Latin American leaders as defying the laws of probability. So if you subscribe to the podcast via BBC.co.uk More or less, you'll hear all of it until we reappear on Radio 4 in the spring. We'll leave you with this A Number of the Year from listener Carlene Hillebrink
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A
Dear More or Less in your programme of 2nd December, you asked for our numbers of the year. I'd like to share one with you. My father introduced me to More or less a few years ago and we often discussed it. This year he listened to 17 of your shows. I told him about the interesting discussion about placebos in the 18th at his bedside a few days before he died. I would like you to know that he always really enjoyed your programme, in particular the critical nature of it, the great care you take to find out all the relevant details, and the way you can dismantle political misuse of numbers. I really miss discussing your show with him, but still enjoy listening to it despite that, and I'm glad I didn't forget to thank him heartily for the great tip. Best wishes, Carlene Hillebrink, the Netherlands that
- [27:58]
B
was a More or Less podcast from the BBC. The presenter was me, Tim Harford of the Financial Times. The programme was produced by Charlotte Macdonald and Wesley Stevenson and the series producer was Ruth Alexander. The editor was Richard Varden. For more information and for our terms and conditions, please go to BBC.co.uk more or less.