HS2 will cost £80bn controversial IEA report claims

The cost of HS2 could double to £80bn, a controversial new report claims. The High-Speed Gravy Train: Special Interests, Transport Policy & Government Spending has been published by the ‘free-market’ think tank, The Institute of Economic Affairs (IEA). Author Dr Richard Wellings says HS2 is a being built for political reasons, and is promoted by powerful and influential vested interest groups which stand to benefit from its construction.

Wellings maintains that the business case for is poor and based on flawed assumptions. He contends it represents poor value for money and has a low BCR (benefit: cost ratio) compared to other transport infrastructure projects. He estimates the additional  £30bn will come from adding on linking schemes like Crossrail 2, the Heathrow spur and a possible Liverpool connection, etc. (A number of these are listed in his report but not costed).

Official cost estimates for HS2 currently stand at £42.6bn (including the recently granted £14.4bn for unplanned contingencies). However, this figure does not include rolling stock, which will cost another £7.5bn.

Wellings further supports his case against HS2 by citing the cost overruns with High Speed 1 (HS1) and the Jubilee Line Extension (JLE), which he believes set ominous precedents.

“HS1 would never have been built if the decision had been made on commercial criteria, or on rational economic grounds. In fact, it was a financial failure, marked by costs increases, repeated bailouts, disappointing passenger numbers and failed objectives.”

He asserts that political considerations and non economic factors resulted in the cost ballooning eleven-fold from the original BR preferred scheme of 1985 to the one eventually adopted. Also, that HS1 is indirectly subsidised by the government as 60% of its income comes from domestic operator Southeastern trains, and that other services in Kent were adversely altered to improve its feasibility.

Of the JLE, Welling says the DfT and London Transport scuppered an alternative privately backed Waterloo & Greenwich venture for their own scheme which turned out to be four times more expensive.  Political considerations and special interest lobbying created specification changes which massively inflated the final cost.

He fears HS2 will go the same way as HS1 and the JLE.

Citing the Eddington Report (2006), Wellings quotes the following BCR ratios beginning with the most favourable: strategic roads (4.7); local roads (4.2); rail (2.8); and local public transport (1.7).  HS2 phase 1 (London- West Midlands), he says, is lower than any of these and scrapes in at 1.4. From this he deduces that, “returns from investment in the strategic road network are particularly high, whereas returns from investment in public transport infrastructure tend to be relatively low.”

On this basis, Welling regards HS2 as a misapplication of scarce resources and says it should be cancelled. Funding should go to projects generating higher BCRs instead (i.e. roads basically).

Welling is no stranger to controversy: In the past he has called for road privatisation, higher speed limits and questioned the usefulness of cycle priority measures. He concludes his report by calling for ‘a freed transport market’, where private investors, not politicians, determine transport investment and argues that new infrastructure projects should be planned on a ‘more economically rational basis.’

Responses

Is there a co-ordinated campaign to derail HS2?

The day after publication the Financial Times (FT) reported (20th August) that Treasury officials were privately warning that HS2 could cost £73bn, a figure eagerly seized upon by its detractors. A week later, the Institute of Directors (IoD) chimed in with the findings of a survey of 1,300 members. Most were unconvinced about the economic benefits of the new high speed line, and only 27% thought the scheme represented value for money.

Business opinion is divided: The British Chambers of Commerce generally remains supportive, but only if the costs are contained.

HS2 enjoyed all party support until quite recently. However, Labour politicians appear to be back-tracking: Former Business Secretary, Peter Mandelson, no longer supports the scheme, and he has now been joined by former Chancellor of the Exchequer, Alastair Darling, who declares: “What’s changed my mind is the cost, which has increased from £30bn to £50bn. My principal concern is that if you spend this money on one railway line, then we will not have any for maintaining and upgrading existing ones.”

Darling’s comments came only days after publication of the IEA report.  On top of this, the Sunday Times reports (25th August) that Shadow Transport Secretary, Maria Eagle, has now imposed a £50bn cap on the project (its current cost), and may insist on design changes to the route.

However, former Labour Transport Secretary, Andrew Adonis, has leapt to HS2’s defence and rounded on its critics. Writing in the New Statesman he asserts, “Its key justification is capacity, not speed.  There will be an acute shortage of this from 2020 onwards.  Upgrading existing (mostly Victorian) lines is hugely expensive and yields far less capacity than building new ones. The West Coast Main Line upgrade, for example, cost £10bn, took a decade of disruption to complete, and only yielded a fraction of the capacity improvements HS2 will bring.”

Adonis says cancellation would be an ‘act of national self-mutilation’ and castigates British short term thinking on transport infrastructure projects generally, citing abandonment of the Channel Tunnel and Maplin airport schemes by previous Labour governments. Such short sightedness inevitably costs more in the long term, he argues. He also believes the £14bn contingency reserve might not be needed if the project is properly managed.

HS2 Ltd has attacked the IEA report as ‘extremely speculative and completely lacking in concrete facts,’ adding that some of the connecting schemes listed by Welling are miles away from HS2 and may never be built at all.

Other critics, responding to the report’s criticisms and recommendations, point out that, generally, the BCR (benefit: cost ratio) can only be a blunt instrument for making investment decisions, and that purely private infrastructure providers, like Eurotunnel and the M6 Toll, have not been particularly successful.

The most damning criticism of all, however, is that Wellings fails to mention, let alone address, the capacity issues HS2 raises, or what the cost to the rest network will be (in terms of congestion) if the line is not built.

Latest news (1st September) is that George Osborne, Chancellor of the Exchequer, has come out firmly in support: “I’m passionate about this project. HS2 is about changing the economic geography of this country, making sure the North and the Midlands benefit will as well.”

630/Sep 13

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