1
Revised transcript of evidence taken before
The Select Committee on Economic Affairs
Evidence Session No. 11 Heard in Public Questions 122 - 132
Members present
Baroness Blackstone
Lord Carrington of Fulham
Lord Lawson of Blaby
Lord May of Oxford
Lord McFall of Alcluith
Lord Monks
Lord Rowe-Beddoe
Lord Shipley
Lord Skidelsky
Lord Smith of Clifton
Baroness Wheatcroft
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Emile Quinet, Expert on French High-Speed Trains
Q122 The Chairman: Welcome to this session of the Economic Affairs Committee. Can you hear me clearly?
Emile Quinet: Yes, I do. Thank you very much, my Lord Chairman.
The Chairman: Thank you very much for joining us. It would be helpful to the Committee if you could just make a few remarks to tell us a little about your involvement with the French railways, and your current activities and engagements with it.
Emile Quinet: Yes, of course, thank you. My name is Emile Quinet. I am emeritus professor at the École des Ponts et Chaussées and a member of the Paris School of Economics’ research centre. During my professional life I was part-time in charge in the Ministry of Transport, essentially on economic affairs, and a part‑time academic. Following my retirement from the Ministry of Transport, I am working only on the academic side, doing research, teaching and expertise. Currently, I work mainly on cost-benefit analysis. For instance, recently I chaired a working team appointed by the government in order to update the cost-benefit analysis procedure in France, a report that is referenced in your questions. My other topics are in transport economics. I worked mainly on rail transport, but also on inland waterway transport and intermodal transport, as well as road transport.
Q123 The Chairman: Thank you very much for that. Could I start off with a fairly general question, which is how successful has high-speed rail been in France? As you answer that, could you perhaps indicate to us lines that have been less successful, and why they have been less successful?
Emile Quinet: It is a very wide question, which can be assessed through several points of view. Generally speaking, high-speed lines had a very large impact, first inside the railway system. It induced an increase in market share for the railway. It led to an important increase of traffic, beyond what was kept from other modes. The growth of high-speed line traffic was larger than the normal growth of rail traffic. The high-speed system had also an impact on French railway productivity, as was shown by several studies. Furthermore, more visible from a customer point of view, it induced a reshuffling of services through matching connections between high-speed lines, TGV, and normal services. It was a way to change the management and the operation. It also had an important impact on air traffic, a negative one, of course. In France, it changed the whole geography of the country, inducing important decreases in travel times for many journeys. For instance the travel time from Paris to Lyon has been reduced from 4 and a half hours to two hours and Marseille can now be reached from Paris within three hours, instead of six or seven hours before. It was a big change in geography and in mobility patterns.
Last but not least, cost-benefit analyses, both ex ante and ex post, proved that the overall return on the whole set of presently implemented lines is fairly good, though probably some particular links do not pass the criterion. . The impact was very large, and was roughly very successful. What is more difficult to assess, but we will probably come back to this point later on, is the impact on the overall economic growth of the country. So as a whole, the French HS policy was up to now successful, though it could have been more successful if some parts of the programme had not been implemented so early.
That was the first part of the question—has it been successful—so should I come to the other part of the question about what lines have been less successful?
The Chairman: It would be helpful to know which lines have been unsuccessful and why.
Emile Quinet: Among the lines presently implemented, two have been unsuccessful in my view. They are the high-speed track east from Paris to Strasbourg, and also probably the high speed track from Besançon Mulhouse, which we call the Rhin-Rhône link. For the first one we have in depth ex post studies, which show that the traffic was insufficient to justify the high building cost. The ratio of traffic to cost is rather lower than for other lines. We have not yet such study for Besançon Mulhouse line, but there many reasons why it should be the same: the ex ante cost benefit analysis gave a low rate of return, and generally speaking the ex post returns are lower than the ex ante ones; the two cities at each of the extremities of the link are rather small in the hierarchy of French agglomerations. For the high speed east, the end of the line in the agglomeration of Strasbourg is large, but not that large compared, for instance, with Lyon, which has been also connected to Paris but has a very much larger population and economic weight. That is the main reason I can see for the lack of success of those lines.
Perhaps I may add that, beyond the track itself, some dispositions concerning the service raise questions and can lower the profitability of the project. It is the case for instance when, some services that are not profitable are imposed as public service obligations, such as calling at small cities between the origin and the destination, or running services at too high a frequency during off peak hours. In those cases, the profitability is much lowered.
The Chairman: We will explore those points in other questions.
Q124 Baroness Blackstone: What were the original objectives, when it was first established, of high-speed rail in France?
Emile Quinet: In fact, there was not a single objective, and during the time the objective has changed. If you allow me, I will to do a bit of history. For the first line, which was implemented in 1981, Paris‑Lyon, it came from technical research on high speed, which were run by different research centres. Several devices were tested, and at the end the choice was made for the TGV system, the high speed of SNCF. This allowed a radical change between Paris and Lyon, and provided a good competition with air transport. The distance between Paris and Lyon is the minimal one for air transport to be viable, and a high-speed train could gain a large market share, which happened. That was the beginning.
The second line, in 1992—this is the high-speed train in the west, TGV Atlantique—was built perhaps a bit for industrial concerns, but mainly for territorial equity needs as a balance to the Paris‑Lyon line, which was in the eastern part of France. Furthermore, the cost benefit studies showed that it was profitable. So, the beginning of the HS process was technical –a kind of new mode- and the second was industrial, the exploitation of the new technique. After that, with the Channel Tunnel we had a third wave of implementation, the aim was to build profitable links, and also links that aimed at avoiding the central position of Paris. In the third wave you have, for instance, L’interconnexion Nord-Sud, the south interconnection, south of Paris. We have also a network in the Rhône area, near Lyon. This was a third wave, with the objective of spreading widely the benefit of high speed, and avoiding the centrality of Paris.
In 2010, another wave came, linked to what we call the “Grenelle de l'Environnement”, which is a special French political momentum. This, through a consultation between central government, local authorities, trade unions and environmental associations, gave us an outcome on several decisions, especially on infrastructure planning. They were aimed at combating global warming and ensuring sustainable development, and at restricting the destruction of the countryside and to be in favour of biodiversity. In this framework, a huge programme of public transport was approved, among it an important programme of high-speed trains. The hope was that this high-speed train would foster public transport and induce a diversion from road transport and road traffic on highways. However, this programme proved difficult to sustain for financial reasons, as it was very costly, and a recent decision downsized it by around 30%,
So, you see that the objectives of the high-speed programme have changed over the years. The objective of developing a new technical device has been achieved, competition with air transport has been met, but the objective of developing modal split in favour of rail probably not, because, in fact, the shift from road to rail, from air to rail, is rather limited. For instance, road congestion has not been highly reduced by high-speed trains; appeared clearly that the effect of such program on global warming and modal shift would be very limited... However, this is the situation in France, and I am not sure at all that this conclusion and assessment would be valid for the UK.
Baroness Blackstone: I take it from what you say that some of the objectives have been achieved, and you have just listed them, but not all of them have. One of the ones that have not been achieved is that all these lines should be profitable and commercially viable, and it is for that reason, presumably, that you have cut the network back by 20%. Is that correct?
Emile Quinet: Yes that is exactly what I meant; the programme that was decided by the government in 2009, coming from the Grenelle de l'Environnement, has been downsized for the future, of course, by 30%. We have now a bit more than 2,000 kilometres of high-speed lines. From the present forecast and present decisions, it will increase also by about 2,000 kilometres by 2030, in the long term; and in my opinion, it is still rather large. Did I answer your question correctly?
Baroness Blackstone: Yes, you did. Thank you very much.
Q125 Lord Lawson of Blaby: Monsieur Quinet, the Cour des Comptes has recently published a review of the TGV system, which is highly critical. Do you accept their criticisms? If you accept some but not others, which of their criticisms do you accept and which do you not accept?
Emile Quinet: The Cour des Comptes has criticised the TGV system on several grounds. The first one—I already quoted it—is the fact that many services are not profitable and should be cancelled, especially for calling at small cities. Another criticism, which is true too, relates to the ex ante assessments of the financial rate: they are especially difficult to make.[1] Those criticisms are valuable. Generally speaking, I am rather in line with the Cour des Comptes judgments, but I think that what they said about, for instance, traffic forecasting or cost overtaking are general phenomena which happen in most countries, if not all.
Q126 Lord Skidelsky: I would like to ask you what role cost-benefit analysis plays in a decision to build a high-speed rail line? I ask that question as one of our witnesses said that there was, I quote, a “political promise” in France to provide every region with a high-speed rail connection to Paris. My question is: does political benefit count as a benefit in cost-benefit analysis, or is it an independent objective?
Emile Quinet: I would quote a few enlightening points on the role of cost-benefit analysis. The first one is that when you look ex post, a few years after the implementation of the project, to the rate of return of the lines that have been implemented, you find that they are almost all beneficial, and that they have been implemented according to the order given by cost-benefit analysis. This point is not fully surprising, because all projects have been and are subject to a cost-benefit analysis. Even if it is not compulsory, it is a guide, a moral reference, for the decision‑makers, though cost-benefit analysis has two flaws. The first one is the optimism bias, which I implicitly quoted previously, and the second one is that cost-benefit analysis, as presently operated, does not provide ideas on the economic development, but perhaps we will come back later on this point.
The other point is that on top of socioeconomic analysis, high-speed line projects are subject to a financial analysis and to a constraint from this point of view. This is that the rail infrastructure manager, RFF, has to break even with infrastructure charges, in that it cannot spend more on projects than what infrastructure charges will provide it as revenue. It is a rather severe constraint, which obliges the public authority that wants new lines that are not financially profitable to provide subsidies. It is a constraint, and a large constraint that may prevent the state from engaging in a too expensive programme. That is the reason why the programme presented in 2009 has been downsized, because it was too costly for the public budget.
As an answer to your second question, political benefits, which are often difficult to distinguish from benefits hopefully gained from local economic development of the infrastructure, are not explicitly taken into account, but they are measured and in some way, paid by those who trust in them. If a region wants a non‑profitable high-speed train to be built, hoping that it will bring some form of economic development, it has to pay for it. That is why some lines, such as the high-speed Paris-Strasbourg Est, have been highly funded by the region. The political benefits are paid by those who are supposed to benefit from them—political benefit in a wide sense, of course.
Q127 Lord Smith of Clifton: You recently chaired a commission that recommended adjusting the values placed on time savings for the purposes of assessing transport projects in France. Can you explain how your commission arrived at the values it came up with, and whether your recommendations have, in fact, been accepted?
Emile Quinet: In fact, we made a survey of studies on value of time that have been done by academics and are used by other countries. In this survey we put, of course, a special emphasis on French‑originated studies, but we looked also to all other European countries, and especially the UK, of course. From this survey, we decided the value of times we proposed in my report. There are two specificities for this survey and our recommendations. First, the values of time that come from French studies are mainly revealed value of time, which comes from our experience drawn from toll motorways and also past high-speed trains. We have a lot of toll motorways; we have a lot of past high-speed trains. From this experience we can infer the real trade-offs between price and time. In comparison, many of the foreign studies are based on what is called stated preference. they come from surveys where you ask the users questions of the kind: “Would you choose such a mode that is more costly but faster than another one?”
Lord Smith of Clifton: Does that mean the two methodologies, yours and the methodologies used in the UK, are really not compatible or comparable?
Emile Quinet: Yes, they are. In fact, it appears that they are quite comparable. I have made a small comparison of the figures, and it appears that the figures are not that different. More precisely, for intercity travel, our professional value of time is, let us say, 10% to 20% lower than yours, and for urban trips it is roughly the same.
Lord Smith of Clifton: Do you take account of the fact that the time spent travelling on a train can be productive?
Emile Quinet: Yes, in a sense we do. On this point, I come back to my first assessment. As we use mainly revealed values of time, based on the real choices made by users when they have to pay for time, in fact, implicitly, we take this point into account. This is because businessmen, when they have to choose between high-speed train and air transport or road transport, take into account the fact that in rail they can do some productive work. So, in a sense, I consider that we take into account this factor.
Lord Smith of Clifton: Thank you very much.
Emile Quinet: However, we have seen that the value of time did not increase over the years as quickly as it could have been expected. We thought that this point was due to the fact that, with the smartphone and other devices, more and more time in travel time can be used to do something.
Q128 Lord May of Oxford: My question is question five: what proportion of passengers using the TGV are travelling for business reasons? The question is prompted by the report last month from the Cour des Comptes that only about a third of the passengers travelling on the high-speed trains were doing it for business reasons. As I understand it, this calls into question the justification for high speed: namely, that working people lose less time. I would value your comment on that.
Emile Quinet: In fact, working people are only a limited part of all the users. I have in mind a percentage a bit higher than 30%, or one-third. I have in mind a percentage of 40%, because we must take into account the difference between trips and passenger kilometres. The difference depends on the length of travel. That shows that the high-speed trains are not used by workers in the majority. However, as the value of time of businessmen, of professional travel, is higher than the value of time of leisure, non‑professional travellers, it comes to the fact that a bit less than half the total travel time saved in euro or pounds is coming from professional trips. Furthermore, the value of travel time savings represents about half the total benefit, the other benefit being benefit to the environment, which is a very small part, and also benefit to rail operators.
Lord May of Oxford: It seems to me that those issues complicate the evaluation of time saving. Admittedly, I have a rather peculiar view because I like slow trips on trains, because I can get work done without all the interference that is inflicted on me when I am in the office. That was not in the notes of the question I was supposed to ask.
Emile Quinet: I agree with you, I too like trips which take, let us say, between two and three hours, not too short trips. But there is a difference in geography between France and the UK. I give lectures in Lausanne, which is not in France but quite near the border of France. Even in a mid-high-speed train, it takes a bit more than four hours for more than 500 kilometres. At a rather high speed, it takes more than three hours. I am very happy to have time to read, to look out and so on, and to work, but before the high-speed line, the travel to Lausanne took a bit less than six hours. Three hours, three and a half hours, is a very good duration, but six hours is beginning to be long. I think that the situation of travel times between London and Birmingham is a bit different as the travel times and distance are much smaller. In France, due to the distance, due also to the density between London and Birmingham, it would be considered almost as urban travel.
Q129 Lord Rowe-Beddoe: Monsieur Quinet, we turn to question 6, and that is to do with the costs. With your experience of the TGV network in France, are you surprised at the anticipated cost of our HS2 project?
Emile Quinet: I am surprised, but I am also an engineer. I worked as an engineer at the beginning of my career, and even now not working as an engineer, I know that the cost comparisons are very difficult between countries. This is because the ground is not the same, the topography is not the same and furthermore, for the present point, the surroundings are not the same. In France, our price per kilometre is around £20 million. That is a bit more in euros, due to the exchange rate, but it comes to £20 million. However, that is for a high-speed line in rural areas. When we have high-speed lines in urban areas, or semi-urban areas, in agglomerations, the cost can jump to very high levels. I do not know exactly what the surroundings of the line are. Near Euston and near the departure station, it is very urbanised. It would be necessary to look more precisely at what the surroundings are and the technical difficulties.
Lord Rowe-Beddoe: Thank you. The price differences, as we understand them, are considerable on a kilometre basis. You have achieved €25 billion for 2,000 kilometres, and we are looking at somewhere between £20 billion to £25 billion for 225 kilometres, so we clearly need an awful lot of infrastructure that you have not had to do, such as tunnels I suppose. Anyway, a little supplementary: what has been the significance of having a single contractor carrying out the necessary work in France in terms of keeping the costs down?
Emile Quinet: I am a bit embarrassed to give a clear answer to this question, which is a very difficult one. In France, we have no experience of working with many contractors. The way RFF is working is quite common in France, and so I have no point of comparison. I think that having a single contractor gains savings in co‑ordination, leading to smoother working and so on. On the contrary, dealing with a single contractor can induce a less competitive auction. Apart from this point, which can be solved by various means, I would be in favour of a single contractor.
Q130 Lord McFall of Alcluith: To what extent does ex post analysis in France provide evidence that investment in transport infrastructure generates economic growth? I am mindful of your commission report in 2013, which stated that there were hardly any results robust enough to conclude that investments in infrastructure have a positive effect on growth.
Emile Quinet: Yes. And perhaps your question put me in front of a possible misunderstanding of my report, on an issue which is especially difficult.
Lord McFall of Alcluith: Sorry. It was just an innocent question.
Emile Quinet: And a very important one. We have done a lot of ex post surveys and statistics on high-speed lines in France, and I must say that the conclusions are very hesitant. First, we observe a general increase in mobility, as I already quoted. The second point: is that, very often, there an increase in business trips? Yes, often, but it depends on the conjuncture. If, for instance, a high-speed line is put in operation just during a period of bad conjuncture—during a decrease of economic growth— business trips will be reduced. Another source of information comes from surveys at the level of firms. There are several surveys on that point, where firms were asked what high-speed lines have changed in their behaviour. What appeared is that high-speed lines changed the mobility patterns inside the firms, and between one firm and the other firms it was in contact with. For instance, there have been more one-day trips. There has been some internal reorganisation inside the firms. However, when asked whether the HS line has caused an increase in economic activity, the firms did not give a clear answer. It is not surprising, because the impact of high speed on economic activity, we tried to say, is very tiny. [2]
We are a developed country where all parts of the territory have a good accessibility to all other parts. What we can expect as an effect on economic activity is a very small increase compared with what would have happened without this infrastructure. We are not in the far west; it is not a void territory to develop. On top of that, the change in infrastructure is only one part of the change that happens along the years. A lot of other changes happen concommitently, for example macroeconomic or demographic change, so it is very difficult to assess a very small change that can hopefully be gained from the infrastructure.
Lord McFall of Alcluith: Do you think the link between transport infrastructure and productivity is just as inconclusive and as mixed a picture?
Emile Quinet: No. It is difficult to assess such a link, especially asking firms or just observing what happens to them.[3] In my view, the links between transport infrastructure and productivity are quite clear at the agglomeration level. In the UK, a lot of studies have been done by Professor Dan Graham, for instance. In France, similar studies have been done by Pierre‑Philippe Combes and Miren Lafourcade. It is clear that we have several relations between transport infrastructure and accessibility, and between accessibility and productivity. At the level of agglomeration, this point is clearer, which is less of it. In fact, what we observe is that the high-speed train has led to a polarisation of activity in the centre city and in the city around the station. There is an effect of polarisation, which, through the effect of density, leads to increased productivity.
A more difficult point is about what happens in intercity links—what happens when you improve the link between two cities. Good studies in this field are scarce; what appears from them, and also from theoretical analysis, but not specifically from France, is that when you increase the accessibility between two cities, the bigger one benefits more than the smaller one. However, in fact, we are rarely just in a situation of two cities, but we face a whole network, in France and certainly also in the UK too. When you have a third city, which is apart from the link that has improved, this third city probably will not benefit but be worsened by the new infrastructure. I think that these conclusions are not that different from the conclusions of other academics.
Q131 Lord Monks: In the same area, the biggest city in France is Paris, and the biggest city in the UK is London. The explicit objective of High Speed 2 in the UK is to benefit the north of England, eventually, and to regenerate and rebalance the economy, which is more prosperous in the south-east and around London than it is in the Midlands and the north. From your analysis, it is clear that you think that Paris has been the biggest beneficiary of this, rather than the outlying, smaller cities that are serviced. Would you just confirm that, perhaps by mentioning some of the cities that might have done quite well, Lyon, for example, and others that seem to have perhaps got rather little from a TGV connection?
Emile Quinet: My view is that with a very high probability, Paris benefited more than Lyon, for instance.[4] However, Lyon probably also benefitted from the TGV, to a lesser degree. The point is about small cities along small agglomerations. For instance, let us take the small agglomerations along the line Paris‑Lyon, such as Mâcon, or in another way Dole. They did not benefit, because they did not have sufficient size to benefit. It is difficult to say, but at least I must say that the hope that has been given to the people from Mâcon or Dole has been deceived.
Lord Monks: Have you got a view on whether the location of the station makes a big difference? For example, it has been put to us that in the case of Avignon, who did not really want a TGV line through the middle of their historic city, the station is pushed away on the outskirts of the town. Does that make a big difference, in comparison with, say, Lille, where there is a centre-ville location for the town? We think Lille looks like a winner and maybe Avignon looks like one of your small cities like Mâcon.
Emile Quinet: The location of a station has an important impact. As you recalled, it has been the case in a historical period. For instance, there is no station inside Orléans. We have to change trains near Orléans and take another train to go to the centre of the city. It is the same for the high-speed train in Tours. If I take this point as an example, the high-speed train passes about 10 kilometres from the centre of Tours. It stops at St Pierre des Corps. Tours has not benefited as much from the high-speed train as would have been possible if it had gone into the center. Furthermore, at St Pierre des Corps, which is a small city in the suburbs of Tours, there has been a large parking place, and people come by car to St Pierre des Corps. The effect of density and of accessibility has been much reduced by this dichotomy between the centre of the city of Tours and the high-speed station of St Pierre des Corps. They did not benefit from the increase in that city that could have been hoped for in another situation.
The Chairman: Could we come, in the last couple of minutes, to the final question?
Q132 Lord Shipley: Could I ask you to say something about how high-speed rail in France has been funded, and how that funding has related to decision-making on the structure and level of fares, and also on whether investment in TGV has displaced funding for other rail and road projects in France?
Emile Quinet: Your question is very important. If we look at the rate of funding of the share of public subsidies on high-speed trains, we see that the public subsidies of the presently implemented lines has been very low, except for the LGV Est, the high-speed line east, and the high-speed line Rhin-Rhône, which I quoted at the beginning. It is a result of the mechanism I explained at the beginning: RFF, the infrastructure manager, has to break even and has to get subsidies when infrastructure charges cannot give sufficient revenue to match the expenses. The point is that it is very difficult ex ante for a project to assess what will be the right infrastructure charge. That is a point that is stressed by the Cour des Comptes, in that those calculations are very difficult to achieve. The result of this mechanism has been a kind of struggle between RFF and SNCF about the level of the infrastructure charges, RFF wanting high infrastructure charges and SNCF, of course, wanting the opposite. It seems to me that the infrastructure charges of RFF, and I think I am not the one with that opinion, are at the maximum level that is sustainable for SNCF. Right now, with the lower growth of traffic and of revenue for both SNCF and RFF, with the burden of the debt for RFF, we are at the threshold for the equilibrium of infrastructure charges between the two firms and for the sustainability of the whole rail system
The Chairman: Mr Quinet, that brings us to the end of this session. Thank you very much for joining us. Thank you very much for your illuminating answers. You have been most helpful. Thank you.
Emile Quinet: Thank you very much for your attention, my Lord Chairman.