The Hitman and his high-speed train

Extraordinary debate between pro-and anti-HS2 campaigners. I wasn’t aware that Pete Waterman (producer of Kylie Minogue’s seminal pop hit “The Locomotion”) was quite so passionate about trains and high speed rail. The Stop HS2 campaigner Joe Rukin seemed to give as good as he got, [It’s a must watch] but I think there was some light as well as heat in this debate.

And it is this: the strict numbers behind the economic case for HS2 are rather uncertain.

HS2 might stand for High Speed Two, but for the Government it could just as well stand for High-risk Solution too.

Let me put aside my Mancunian tendencies and try to analyse this with the dispassionate microscope of economics.

In numbers terms, it’s not a no-brainer.

Here is the Government’s case for the full Y-network, chopping the London-Birmingham travel time to 49 minutes, and connections to Manchester (73 mins) and Leeds (80 mins) and Heathrow. It will cost £44bn, minus £27bn in projected ticket revenues, giving a total cost of £17bn. Against this, the Government estimates £44bn of economic benefits, mainly in saved passenger time over 60 years. The majority of that is from business travel. So the Government’s case is that the benefits outweigh the costs by a factor of 2.6: 1. The normal threshold is 1.5: 1.

All well and good, unless you say that projecting numbers on a line that doesn’t exist between 2026 and the 2080s is about as robust as an Icelandic bank in 2008. Dan Byles, an anti-Hs2 Tory MP has made this point here.

Basically small, plausible changes to the toppish passenger numbers could quite quickly make this scheme look like poor value for money. And guess what? The experience of the Channel Tunnel and HS1, from London to Kent, is that train companies and governments do tend to overstate the demand for these services. Only this month in Spain, a completed €3.5 billion high speed line had its trains all pulled because only 9 passengers per day used the line.

However, the main benefit is totally intangible, and again can be seen in microcosm on HS1. These megaprojects do change the geography of our economy. That logic works within metropolitan London through the Jubillee and East London Lines. Does it really fail utterly across the country? Britain, once the home of rail, has just 68 miles of high speed line, versus 3,500 miles across continental Europe and thousands more track being laid in Asia. If there was anywhere in the world where this argument should work then Britain, like Japan should be it. A long, thin island, with its major conurbations about 100 miles apart, and economic specialisms in service sector.

You cannot put a price on this benefit, and there are a few that dispute its existence. I could not prove it to you ex ante. There are some in the rail industry who suggested to me that it was a mistake to even try to prove a business case. There is a widespread acceptance that the cost benefit analysis only even begins to work for the full Y-network, not London-Birmingham alone.

As for the people who face blight and capital loss from their properties being impacted by HS2. As I reported on tonight’s C4News, the Government is looking at a new scheme, a compensatory bond, where homeowners can transfer the promise of compensation to people that buy their house. In theory it could underpin house prices in the affected areas.

But in essence this decision, which needs to be made in December now that the consultation is about to close, is a political decision. And a decision with winners and losers in different places and at different times.