Despite owing around £1 trillion in public sector net debt (PSND), the Government seems determined to plough ahead with the HS2 (High Speed Rail 2) project, which seeks eventually to build a new high-speed rail route between London and Scotland. Its three Phases are projected to cost at least £50 billion. Most focus currently lies on Phase 1, which aims to provide a high-speed route between London Euston and the West Midlands. The length will be c128 miles and the estimated cost c£17 billion. Whilst there is a consultation process underway, no public enquiry is planned: Royal Assent for the Hybrid Bill is anticipated in early 2015.
The economic justification for HS2 is weak – very weak. Even assuming the aggressive passenger growth projections until 2033 of the project’s promoters, it is very difficult to see how a commercial return can be generated. After all, HS2’s projected capital costs per mile of Phase 1 greatly exceed that of other EU countries – the Financial Times has calculated a multiple of some 4x. And, of course, cost and time over-runs are very likely.
By 2032/33, the construction of Phase 2 is due for completion. This segment of the high-speed rail extends the line from the West Midlands in a Y-configured shape to take in both Manchester and Leeds.
So weak is HS2’s commercial case that the government’s recent consultation document sought to emphasise its non-commercial benefits, such as narrowing the North/South divide. The DfT stated ‘It is those non-monetised benefits which underpin the strategic case for high-speed rail’. The environmental case is even weaker. No material carbon emission benefits can be expected until the Scottish section – if it is ever built – is commissioned, perhaps in three decades time.
In driving ahead HS2, the Government should publish a full financial model, with cost of capital assumptions and revenue sensitivities, so that the real costs – and risks – of HS2 become clearer.