In its report ‘Great Britain: connected or not?’ the High Speed Rail Industry Leaders Group shares its view of the country’s future if plans to roll out HS2 are scrapped
Those looking to form their own view on HS2 – the planned North-South high-speed railway line – can read any number of worries and assertions across the media. While there has been strong parliamentary and judicial support for HS2, there is always a risk that its implementation could fail at some stage. We consider it important to contemplate this possibility, to help understand what would be lost.
As Parliament comes to consider the first phase of the project, it is important not to lose sight of what HS2 will mean for millions of people up and down the country, in terms of jobs, cutting edge skills, the economy and the benefits of a stronger transport network.
This report looks at a reality of Britain without HS2, assessing the impact scrapping the project would have on ordinary people. First we consider what would happen to the capital budget allocated to the project if it were cancelled. Where would it go, how would spending be rebalanced and crucially, how much funding would go to other transport improvements, in particular our rail network?
Next we consider the consequences of cancellation on the national transport system, for our railways and the national road network in particular. Finally, we look to the economy and what cancellation would mean for inward investment to the UK.
Precedents tell us that a range of outcomes are possible when projects are abandoned, including: the same investment is made but many years later – at higher cost; no alternatives are put in place; and the country falls behind developments taking place as a matter of routine elsewhere.
HS2 is about capacity and our ability to deal with the expected addition of 10 million to our population over the next 20 years, and about bringing eight of our 10 largest cities closer together, making Britain a more appealing place to live and do business.
The consequences for funding
As of summer 2013, HS2 Ltd had spent £260 million on design, property compensation and work in preparation for the hybrid Bill process. The expenditure rate is due to increase sharply, up to £832 million for the year 2015/16, continuing to rise to £4 billion by 2019-20. Depending on when abandonment happened, the abortive costs might be assumed to be somewhere in the range of £0.5 billion-£5 billion. These costs could not be recouped.
Overall, HM Treasury has allocated £42.6 billion for the construction of HS2 and a further £7.5 billion is nominated for capital investment in rolling stock, though in practice rolling stock is generally finder by the private sector in Britain. So, what would happen to the roughly £40 billion that might be ‘unspent’ if HS2 were abandoned?
The use or redeployment of the £40 billion capital would be a matter for the Chancellor or Government as a whole, not the department for Transport. As national debt remains a matter of major concern, one option for the Chancellor would be to use the windfall to reduce government debt. Alternatively, and consistent with a more balanced view, a Chancellor might seek to re-deploy the capital spend on infrastructure investment.
Interestingly in the case of HS2, there are no other transport schemes under consideration with the same scale of economic benefit – and transport is the department with the largest capital programme in 2015-16, roughly 20 per cent of the government’s spending programme. So, our view is that Government would use the saving to service the national debt. We estimate a 75:25 split, meaning that there would be £10 billion to re-allocate for capital spending. A reasonable assumption would be that DfT would obtain a proportion of this amount consistent with its current share of capital spending (20 per cent), with the remainder going to other government departments. Of the £2 billion made available to DfT, it is reasonable to assume that it would be divided along current lines, broadly a third on the national highway network, a third on local and London transport and a theirs on the national railways.
This means that there would be just £0.67 billion to be added to the national rail spend over the period of close to 20 years of expected expenditure on HS2. Some £8 billion would be re-allocated to other kinds of capital programme, including £1.3 billion elsewhere in the transport field. These sums may be contrasted with the £2.5 billion suggested as being needed to fund a further upgrade in the West Coast corridor, put up as an alternative to Phase 1 of HS2 (but delivering far fewer benefits). The additional allocation the highways budget is modest too.
This scenario doesn’t imply any substantial release of funds to address the challenges HS2 is designed to meet. The outcome described above is judged the most likely, but clearly others are possible. Our examination of other possible spending scenarios is shown in the diagram above.
A future chancellor might elect to allocate less than 75 per cent of the £40 billion to debt write-off. At 50 per cent debt write-off, for example, there would be £1.3 billion additional funds available to spend on the national rail network. If there was no debt write-down at all, assuming current departmental spending allocations still apply, the amount made available to the rail capital account would still only amount to around £130 million per annum. In practice, expenditure between transport modes could be re-balanced away from rail and towards roads, although the sums involved are insufficient to embark on major additional road expenditure
There is also the prospect of the Exchequer cashing in on its outlay, just as has happened with HS1. When this £5.6 billion project was completed, the decision was made to sell it through a long-term concession. If the equivalent process were followed for HS2, we could see cash returns to the Exchequer of £8 billion in 2027 and a further £8 billion in 2035. Without HS2, these earnings are lost.
An important point is that most alternative uses of government investment funds do not create assets with intrinsic commercial value. There is no equivalent concept for highways expenditure for instance, because of continuing reluctance to toll motorways. So spending on HS2 can earn a cash return for government while most alternative uses of the budget do not.
Impacts on national transport
The national transport networks face various pressures – renewals backlogs, the need to add resilience – as well as ambitions to reduce accidents, mitigate noise and air quality impacts, improve journey time reliability and to increase capacity and reduce congestion.
One of the benefits of high speed rail is its proven ability to attract people away from short haul aviation. HS2 would be most effective in reducing the demand for flights from Edinburgh and Glasgow to London (and also from Manchester). It can be connected directly to Heathrow airport to provide a replacement facility even for those with onward flight connections, which would strengthen our national airlines.
Network rail would not be able to look towards the relief that HS2 would bring to the West Coast Main Line in the mid 2020s. It would, however, seek to re-allocate additional expenditure to these, its busiest routes for freight and intercity passenger traffic. This would mean cutting back on spending elsewhere, so projects on more remote parts of the network would be scrapped.
In the West Coast corridor, investment would quite likely be allocated to parallel routes since little can be done further to the West Coast infrastructure. Schemes such as four‑tracking of the Coventry-Birmingham route would be disruptive and expensive, and would only be feasible if other schemes are deferred. Other investments that are to some degree dependent on HS2 will also be deferred or abandoned, such as London’s Crossrail 2.
The replacement investment in the corridors that HS2 would have relieved would be most likely spent on squeezing more capacity out of the existing system. Passenger numbers would still rise, though by less in the longer term. Trying to fit in longer trains and a few extra trains onto an already crowded network is likely to mean a worsening in performance reliability. With just 36 per cent extra capacity achievable on the West Coast Main Line by all of the available measures, including further train lengthening, overcrowding will worsen. The technical and operational reliability of the route would have to be strengthened to offset the greater intensity of asset use, likely leading to an increase in disruption.
With regard to maintenance, the conventional operation of more train services would result in an increased level of wear to track and OLE infrastructure. As a result, additional maintenance provisions would be required beyond those currently in place, but the increase in services would reduce the access available to maintain the network, making a proof of maintainability an even more challenging proposition. This means that people will look where possible to find alternative ways to travel – or indeed not travel in peak periods.
Some may switch to using their cars, adding to road congesting and worsening air quality. In so far as permitted, there will be a further policy temptation to allow increased fares at peak times to try to help to manage demand. Overall journey times are likely to be extended, and short-haul airlines will no doubt pick up the demand on offer, which means increased carbon emissions.
It probably won’t be possible to accommodate any significant growth in rail freight traffic. This might affect the expected flows of container traffic from the new London Gateway port for example. The implication is many more container lorries operating over long distances on the M25/M1/M6/M74 corridor, which could make it difficult to remain within legally enforceable air quality standards.
In terms of weather reliance, the HS2 project is designed and constructed to be able to withstand extreme weather conditions, and remain operational during a one in 1,000-year flood event. This capability will be lost without it.
Impacts on the wider economy
Abandoning a major government commitment would harm national reputation, and will make the UK less appealing to international investors. Confidence in Britain being a country that can make things happen well – as was shown with ventures like the Olympics and HS1 – will be lost. What would then be the prospects for investment in projects to renew our energy infrastructure, for example, which face some of the same hurdles as HS2?
The UK has great strengths in London, but the contrast with the regions outside the south east continues to grow. London’s economy rests on many factors, but one of the most essential is its labour market, which is larger than that of any other European city. To continue London’s expansion, the commuter networks need to be expanded, and disproportionately so if people are to find more affordable housing. HS2 takes the pressure off the three main railway lines to the north of London, allowing this expansion of the labour market. If the rail network cannot grow, London will not be able to expand and housing choices will be retraced.
Expanding the population of the south east where there is greatest market demand is challenging enough, but the scale of the ONS projections, with a further 10 million people by the time HS2 is completed, suggest a more balanced approach to development would be more sensible. The regions and devolved nations have an appetite for housing development and regeneration that is lacking is the established wider London commuter belt.
The challenge of re-balancing the economy, regionally as well as across business sectors, has been recognised by Government and its sees HS2 as a key means of achieving this. The way this would work is through the transformation in development values in the city regions that HS2 serves. Right now, the development market in the Midlands and North is sluggish. Experience from France’s TGV network suggests that HS2 will change investor appetites and that private sector investment will start as soon as an absolute commitment is made.
The value of the accessibility changes that HS2 would bring is greater in the North and the Midlands than in London and the South East. There are two reasons for this: the impact of HS2 is proportionately greater for cities such as Leeds as Manchester than for London, and the cost advantages (lower rents and staff costs) in the cities of the North and MIdlands become effective and appealing if they are provided the connectivity gains HS2 offers.
Other sectors of the economy will struggle. The aim of spreading tourist visits beyond the capital has long been a policy aim, and international tourists are increasingly familiar with using high-speed rail as a means of visiting dispersed attractions. No HS2 means that regional attractions will struggle to get their share of visitors, who will face using congested transport systems (road, rail and airports).
HSR and the wider rail network it supports create accessibility gains for urban areas; highway investment tends to have the opposite effect, adding value most readily to development sites at the edges of existing urban areas, at key intersections and in areas that are not yet built upon. Abandoning HS2 and the strengthened national rail network that comes with it would mean less growth in towns and cities and more encroachment into greenfield and rural areas. It would be a path to a less sustainable pattern of development as the country seeks to accommodate another 10 million people.
Right now, rail is an important and growing sector of employment, with for example, a new plant created for Hitachi in North East England. HS2 not only creates a market for equipment, systems and rolling stock for the new line, by freeing up capacity on the existing network it creates the capacity that means further new train orders. Abandonment of HS2 would see these prospects wither, and the loss of 22,000 full time jobs per year (across a 13‑year period). Ongoing analysis by the National Skills Academy for Railway Engineering (NSARE) looking at defining skills shortages within the railway industry would cease as programmes supporting collaboration between the industry and educational establishments to encourage more students to take STEM subjects would no longer be relevant.
If HS2 is abandoned, some of the money will have to be spent on other infrastructure projects. Road and rail are already at overcapacity – the UK simply can’t afford to keep going as it stands. But our calculations clearly demonstrate that only a small fraction of the overall HS2 budget will be given back to the Department for Transport. Short-term fixes such as lengthening of trains will not be able to keep pace with the long term increase in demand for rail, and that our cities would not benefit from becoming more connected.
Walking away from HS2 also means walking away from a jobs boost – as many as 89,000 direct jobs and 100,000 jobs supported in the supply chain. Hundreds of British companies of all shapes and sizes will lose out on the opportunity to help build one of the world’s most technologically advanced railways.
Can the UK ignore the benefits of HS2? Abandoning the project now will mean we have to revisit the same problems and implement a similar solution at a later date and at a much higher cost. No-one can want to see this happen. Join us in standing fully behind HS2 and supporting the building of one of the most exciting, ambitious and important projects in this country since Victorian times.