The recently announced postponement of a decision on the controversial HS2 project, ostensibly on environmental grounds, raises various questions. The Government claims to have found a spare c£500 million, which would enable additional tunnelling to be built in the Chiltern Hills area, where opposition to HS2 is particularly strong. To be fair, £500 million of additional investment – when compared with the £45.5 billion invested in the Royal Bank of Scotland – may not seem a vast amount.
However, as the ASI’s recent publication High Speed Fail pointed out, the financial case for HS2 is already very weak, even before further tunnelling expenditure. Put simply, the numbers do not ‘stack up’. Indeed, assuming that HS2 eventually reaches Scotland, over £50 billion will have been spent. Given that the recent Autumn Statement revealed that the UK’s already horrendous public debt – now close to £1 trillion – continues to rise well ahead of expectations, the case for pushing HS2 into the siding gets stronger.
After all, like virtually all high-speed lines, HS2 will probably be loss-making, even with the pay-as-you-go funding model proposed by the Department of Transport. Between now and mid-January, expect the Treasury to crawl over the numbers, especially those relating to the capital cost and the projected size of the fare-box once Phase 1, between London Euston and the West Midlands, is operational. By Treasury standards, the projected Benefit Cost Ratio (BCR), which was sharply downgraded earlier this year to just 2x (including wider economic impacts), is very modest.
There is, though, considerable momentum behind the HS2 project, especially from those believing – rather optimistically – that it will sharply narrow the north/south divide. Of course, there is no certainty that the Government’s decision next month on HS2 will be final. The focus, though, will be on the financial analysis within the Treasury who will be very hard-pushed to claim the numbers really do ‘stack up’.