The HS2 rail link is controversial – but what’s the real story? In my previous article I outlined the arguments for why HS2 is so important when it comes to freeing up capacity and rethinking service patterns on our rail network. But many arguments have been put forward against the construction of HS2, and it’s worth considering these in turn. For now, let’s set aside the environmental concerns and look purely at some of the funding and cost arguments.
HS2 cost escalation…
The increasing cost of HS2 is certainly regrettable but this is not entirely the project’s fault. Some aspects such as underestimating the cost of acquiring property can certainly be laid at the door of HS2 Ltd. Others, such as the Treasury’s assumption that there would be 20% efficiency savings in the construction industry or loading the long-term risk of structures such as embankments onto the private sector with consequent ‘gold plating’ effects, cannot be.
This is not to say that offloading structure stability risk onto contractors is necessarily a wrong or unusual strategy – but it represents some of the reason for the cost increases. Other cost increase aspects are common to many projects in the Covid era such as increased biosecurity and socially distanced working practices.
…and the myth of £100bn
Very often seen bandied about for the cost of HS2 is a figure of £100bn or even higher. Yet it is difficult to find a reliable primary source for this figure. It seems highly likely that this value was ‘plucked from thin air’ by an opponent of HS2 and then ‘laundered’ by others opposing the project.
The Oakervee Review published by the government in February 2020 is the best available authoritative source for HS2 costs. It cites a cost of some £80bn for the entire HS2 network, including the now-scrapped Leeds leg. Authoritative sources with experience of rail industry projects were involved in the calculations, adding significant weight to the conclusions.
Finally, it’s useful to understand that figures of £80–£100bn might be the budget for HS2 but they do not necessarily represent the cost of building HS2. The published figures include a large contingency budget (£10bn in 2019 prices for Phase 1) and that these contingency budgets have not been spent – in evidence to a House of Commons Public Accounts Committee hearing published in September 2021, HS2 Ltd had completed 20% of the Phase 1 work but only spent 5% of its contingency budget.
Doesn’t Covid render HS2 obsolete?
However, the levels remained roughly constant compared to the year ending September 2020. Rail passenger numbers were up to 248 million in the second quarter of financial year 2021–22 which represented an 85% increase over the same quarter for the period 2020–21 but still only 55% of the journeys made in the same quarter for 2019–20.
The problem is that despite this drop in passenger numbers, our rail network is still extremely busy with the southern end of the West Coast Main Line (the primary rail route between the North West and both London and the south coast ports) being officially declared “congested” and “at capacity”.
Whilst the number of season tickets being used for rail travel is currently only around 25% of the level in 2019–20 it’s important to consider that the Department for Transport expects leisure travel to account for 70% of HS2 journeys and that by very definition leisure industry jobs cannot be done from home. Some estimates have it that at most 37% of jobs could be done from home whilst the Office of National Statistics estimated that at most 30% of adults worked from home during the height of the pandemic in July 2020.
It remains to be seen how the recent lifting of all Covid restrictions in England and Wales will impact rail travel. However, the upward trend in passenger numbers strongly suggests that Covid is a blip and that if we don’t massively increase our rail capacity now, we will find ourselves facing the same problems in 2030 and beyond of a full and congested rail network unable to accommodate the demand for services, both passenger and freight.
The fares will be so high that nobody will use HS2
The fare structure for HS2 hasn’t been released yet. Given that the first phase of the line is not due to open for several years, as of the time of writing this is hardly surprising. However, as we discussed at the start of this article series, high fares are a symptom of lack of capacity on our rail network.
An HS2 train is expected to carry 1,100 passengers – approximately double the number of a Class 390 ‘Pendolino’ set, as currently employed by Avanti West Coast, with plans for up to 18 trains per hour to and from London by 2033. To have this many seats unoccupied after such an expensive construction process would be politically embarrassing to say the least.
The entire point of HS2 is to accommodate diverted services from the likes of Manchester, Liverpool and points further north west, and subsequently Scotland to London freeing up space on the existing network – so the number of express trains on that existing network will be drastically reduced, aiming just to retain direct rail services to London for towns and cities not on the route of HS2. All this suggests that bargain fares will be available to sell seats and make use of the full capacity of the line, a scenario which HS2 officials have hinted at.
HS2 is intended to be an integral part of the national rail network, as opposed to a premium add-on which HS1 (aka Channel Tunnel Rail Link) is. It’s more akin to the M1/M6 relieving the A1 and A6 than the M6 Toll Road relieving the M6.
Fund the NHS not HS2
An oft-heard cry from those opposed to HS2 is that the money would be better spent on funding the NHS. This is misguided for several reasons. Firstly, we must distinguish between the accountancy concepts of ‘capital expenditure’ (CapEx) and ‘operational expenditure’(OpEx) – briefly, these are the costs respectively of building or acquiring an asset and the ongoing costs of using and operating that asset such as energy costs, insurance, staff wages and marketing.
They are treated very differently from a business accounting perspective. HS2 is a national asset with an indefinite lifespan and the cost of building it is therefore treated as CapEx. CapEx by very definition is designed to create assets which will generate revenue in future – in the case of HS2 not just direct revenue such as fares but tax revenues from the jobs it creates.
Secondly, the NHS operational budget in one year (2021) was £192bn – compared to the £80bn cost of building the entire HS2 network including the eastern leg over a period of a decade or more according to the Oakervee Review. Thirdly, HS2 is being funded by borrowing money against future farebox income at a time when government borrowing has up until recently been very cheap – cancelling HS2 wouldn’t free up a pot of money to spend on the NHS. In a well-run economy there is no need for binary choices between OpEx and CapEx such as building a major new transportation route or funding health and social care.
Up to now I’ve set aside the issues raised by environmentalists when it comes to HS2. Their voices are among the loudest, and the arguments are the most impassioned. In the final part of this series, I will tackle these points and attempt to address some of the many concerns raised.