29 Feb 2012

Talking Point: is High Speed 2 a waste of public funds?

Two experts debate the pros and cons of the proposed HS2 high-speed rail link. Tell us which side you agree with

Yes: Douglas McWilliams, Chief executive, Centre for Economics and Business Research (CEBR)

You can imagine that a programme that involves spending £36bn will find a large number of vested interests supporting it. And indeed supporters of high-speed rail have been vociferous in their support for the proposed HS2 high-speed rail link.

But looking at the economics issues dispassionately, the sums don’t add up. Cebr has checked the demand forecasts, the economic case and the financial sums carefully. We are not opposed to high-speed rail in principle and prepared the economic case for the European Parliament for the PBKAL project (Paris Brussels Cologne Amsterdam London). But our analysis shows three things.  

The financial deficit is likely to be £18bn rather than the official claim of £14bn.

Douglas McWilliams

Most importantly, the idea that the alternatives won’t provide enough capacity only holds up on the outdated economic forecasts that the Office for Budget Responsibility prepared before the autumn statement last year. Given realistic economic and rail demand forecasts, that claim is complete nonsense.

Secondly, on realistic growth projections most of the economic case disappears and the financial deficit from the business case becomes much larger.

Thirdly, there are many elements in the official economic case that look dubious. The main economic case is dependent on business time savings. But modern rail, with the ability to plug in computers and increasing WiFi and mobile connectivity, is much more like a substitute office than the rail of the time when the official estimates were made. And by the mid-2030s when HS2 comes in, high-tech teleconferencing will make much business travel unnecessary. If you have never seen telepresence, have a look at it before you think HS2 is necessary.

Our analysis is that the benefit cost ratio is only 0.5 rather than the official and implausible 2.0. The financial deficit, which will require a government subsidy, is likely to be £18bn rather than the official claim of £14bn. This seems a major waste of money when public spending is cut and taxes raised.

If the project goes ahead it will be a triumph for spin and vested interests over economic good sense.


No: Lucy James, Spokesperson for the Campaign for High Speed Rail

The main argument for HS2 comes from rail capacity.  Long-distance, inter-city travel has grown at 5% a year, with passenger numbers more than doubling between 1994/1995 and 2009/2010. The number of journeys in the London and the south east area rose by 70% in the five years to 2010. Freight grew by 45% in the 10 years to 2007.

Sections of the East Coast Main Line are already blocked and the West Coast Main Line is predicted to be full by 2024. The Government case for HS2 assumes 1.5% annual growth in long-distance rail travel – clearly a conservative estimate. 

There are many ways in which a high-speed rail network could aid the economy

Lucy James

Many forecasts suggest increases in passenger numbers  will continue: the increased popularity of rail, population increases, a wealthier population, the transition to a knowledge economy, and the increasing costs and congestion of the roads and air. Indeed, the Association of Train Operating Companies announced that 2011 would see the busiest peacetime year for railways since the 1920s.

Only a new line can provide enough capacity to meet demand, and keep our economy moving. There are many ways in which a high-speed rail network could aid the economy.

It would be easier for companies and individuals to access a wider range of labour markets, customers and suppliers, and be easier for companies and individuals to interact, creating “knowledge spillovers”.

It releases capacity for increased services on existing lines, particularly for commuter services, which will support housing growth and promotes Britain’s long term competitiveness for international business.

Extending the line up to Manchester and Leeds in a Y-shape has net benefits worth at least £43.7bn in comparison to £17.1bn in net present costs in addition to significant unforseen benefits. The construction of the line will create 9,000 jobs, and a further 1,500 permanent jobs for maintenance and operation, and support the growth of 30,000 jobs.

It is not about whether we can afford to build HS2; it is about whether we can afford not to build it.