Is the expenditure on the ‘HS2’ rail route to Birmingham justified? To see more of our products visit our website at Mark Evetts, Cheltenham College

HS2 stands for ‘High Speed 2’ and is the proposed high-speed rail line initially between London and Birmingham, but to be extended to Manchester and Leeds in phase 2. C The initial journey time to Birmingham will be 49 minutes, a reduction of 35 minutes on the current time. C The project will support around 40,000 jobs directly. C HS2 vital statistics But, over 3,000 properties will experience a noticeable rise in noise levels. C Benefit to cost ratio is estimated at around £ 2 for every £ 1 spent. C

HS2 is designed to take the pressure off the West Coast main line which is forecast to reach full capacity by C Train tickets are already increasing well above the rate of inflation. C But this is not entirely due to the inability of the current rail network to cope with rising demand. C Why does the UK need high-speed rail? If continued fare inflation is avoided and a comfortable and efficient service developed, then this increased investment in HS2 is perhaps justifiable. C But will ticket prices actually rise to recoup the estimated £32.7bn of investment required? C

It will create spare capacity on the existing network that can be used for new commuter, regional and freight services. C Faster rail journeys offer an alternative to many domestic aviation and car journeys. C Further benefits of HS2 It will offer better rail links between regional cities. C Improved links for business travellers will provide access to wider markets and enable productivity growth. C Tens of thousands of new jobs will be created. C

To make an informed judgement economists look at cost-benefit analysis (CBA). C CBA is a project appraisal technique involving considering not just the costs and benefits to those directly involved, but to third parties as well. C Some critics of HS2 cite the environmental impact, but the government is claiming the project to be carbon neutral. C What are the criticisms of HS2 (1)? A government report indicates that 58% of UK transport emissions are from cars, but 93% of car journeys (64% of car emissions) are less than 25 miles. C If high-speed rail is not a suitable substitute for these shorter car journeys it is going to do little to reduce car emissions. C

One of the difficulties is that every cost and benefit has to be quantified in monetary terms. C Many costs and benefits have market prices and thus they are relatively easy to calculate, such as fare revenue. C But, not every cost and benefit has a market price and shadow prices have to be calculated. C It can be extremely difficult to identify a cost or benefit to society that has no previous market value. C The government admits that it is hard to quantify some values such as the ‘wider economic benefits’. C It is difficult to justify a project when the financial benefits are so difficult to project. C What are the criticisms of HS2 (2)?

David Cameron has backed HS2 as a way of narrowing the north-south divide. C The government claims that an improved transport infrastructure will help in generating local economies in the north. C But if we look at similar infrastructure projects around the world the benefits have usually favoured the capital at the expense of the regional city. C The North-South divide Some critics believe that cities not on the new high-speed line may in fact see a decline in development opportunities as they become reliant on fewer and slower trains. C

e There are a number of developed countries that have used regional development as justification for expensive infrastructure projects. C But London to Birmingham is only 101 miles and compares with the Paris to Marseille high-speed line which is 410 miles. C So, is a high-speed line justified in a country where people travel comparatively short distances? C It is likely that the HS2 project will benefit cities at which it stops, but the wider ‘north’ is unlikely to see much development from its investment. C Is the UK big enough?

Opportunity cost allows us to understand the true value of decisions rather than just the monetary cost. C £32bn is a huge amount of money in the context of a struggling economy. C The government has said that the return on investment in HS2 will be more than £1 for every £1 spent. C But what about the opportunity cost of every £1 spent on HS2 which could be spent on more nurses or teachers or other resources. C Plus within the rail industry there is the potential opportunity cost of the new project absorbing all the spare cash for rail investment for the next couple of decades. C Opportunity cost

At £160m per mile it is going to be the most expensive line in the world. C If the government spent £32bn on it this would constitute around 4.3% of total government expenditure this year. C This level of investment against a backdrop of austerity can be hard to swallow. C Assessing the costs and benefits is a far from an exact science. C It is hard to resist the view that the government is being overly optimistic and looking to jump on the ‘high- speed bandwagon’. C Is HS2 justifiable?