Why HS2 needs to be built

A government review into the HS2 project has suggested that it should be built, even though it might cost more than the $88 billion currently budgeted for the project. Is this the best use of money? In a word, yes, and here’s why.

Of course we know the inclusion of the word ‘governmnent’ in any project means costs will blow out further, and the plan to connect London to Birmingham by 2028 will extend further. The prospect of extensions further north to Scotland won’t emerge in my lifetime, which is a shame because the step-by-step approach being taken with HS2 risks becoming a half-pregnant cow scenario, where most of the benefits won’t be realised until its all finished.

To explain, lets consider why the HS2 should be done at all. Why not focus on trans-Pennine routes and improve rail infrastructure in the north?

Well, it’s all to do with economic complexity. This is the argument that the more varied the products, services and knowledge within an economy, the greater the opportunity to grow, export and to ensure income equality. Japan, Switzerland, South Korea and Germany lead the table of economic complexity, whilst the UK trails in 14th place. To boost our ranking we need to increase the connectivity between businesses, so they can work together more efficiently and come up with innovative new products that we can export and dominate the supply of.

For example, think of Silicon Valley. Hi tech companies base themselves there because there are suppliers close by, and an expert workforce who can move between businesses. Our hi-tech space is emerging as the Oxford-Cambridge corridor, but the skilled workforce could be anywhere in the UK and the companies that these businesses work with are likely to be focused on the southeast.

Greater transport connectivity gives the opportunity for companies to work together more effectively, wherever they are based in the UK. It gives a start-up the opportunity to grow in the north, whilst working with companies in the south.

That can happen now, of course, because north-south rail services are fairly fast, but they’re also costly and packed to the rafters. There’s a capacity problem.

HS2 will fix the capacity issue because it will enable the splitting of fast and slow rail services. Right now, a slow train running along a section of track holds up the potential to schedule more fast trains. Fast trains running along the same section mean you have to hold off running more slow trains. With a slow network and a fast network, with trains on each running at the same speed, capacity can multiply manyfold. You could run a fast train every few minutes if you wanted – just as slow tube trains run regularly because they are all going the same speed.

Greater capacity should mean more customers. More trains should mean the fixed cost of the network is spread amongst more farepayers, so prices should go down. And price, I’d argue, is one of the main constraints on encouraging more train travel within the country.

Imagine how many people would transfer from cars to rail if it was cheaper, more comfortable and faster. Nobody really wants to sit in a queue on the M6, but often it’s the cheapest way of getting up north. Think of the reduction in carbon emissions – a car journey for one person emits four times more than a rail passenger covering the same distance.

China has seen the advantage of fast rail to help boost its economy.   Twenty years ago their trains were trundling along at 30mph. But for the last decade they have been building up a network covering thousands of miles, with trains travelling up to 350km/hr. The government spent the money to try and develop the economy and remove the reliance on air travel. It’s all been done with government created money, through the China State Railway Corporation. The services are popular and turn a profit, with the most popular route, from Beijing to Shanghai set for an IPO with a listing on the Shanghai Stock Exchange.

We’ll never build networks here as quickly as they have in China. For a start, we treasure our countryside and historic towns. Secondly, I suspect our labour standards are somewhat more stringent.

But we should be considering the whole project and building it simultaneously, if we truly believe it will boost the country’s productivity. The piecemeal approach achieves very little.

It is a gamble though. China built railways along routes that were already popular with air travellers. That’s not the case in the UK. The busiest air routes in Europe are not UK domestic flights – they are flights from London to Dublin, Frankfurt and Amsterdam. We’d be building a network in the hope of stimulating demand – the ‘build it and they will come’ scenario.

Although that’s a risk, surely the bigger risk is leaving the north out to dry. If the UK wants its economy to grow, we need to think about an economic complexity model that embraces the whole of Britain. That means, a business in York should be able to go to meetings in London without thinking twice about it. It should mean a specialist in Liverpool should be able to service clients in Newcastle, Brighton and Glasgow with ease.

Britain’s gross domestic product is £2.1 trillion a year. If HS2, the full-blown experience (from London to Edinburgh and many points in between) was to cost, say, $300 billion, spread over 20 years that’s just 0.75% of GDP. So the real question is, do we expect, in its first two decades, HS2+ will add more than 0.75% to the British economy?  If the answer to that is ‘no’, then we will are assuming that there’s no such thing as a northern powerhouse. Otherwise, lets get the thing built – and let’s build it with steel from Scunthorpe.

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