HOUSE OF LORDS Economic Affairs Committee 1st Report of Session 2014‒15 The Economics of High Speed 2 Ordered to be printed 10 March 2015 and published 25 March 2015 Published by the Authority of the House of Lords London : The Stationery Office Limited £price HL Paper 134 Select Committee on Economic Affairs The Economic Affairs Committee is appointed by the House of Lords in each session “to consider economic affairs”. Membership The Members of the Select Committee on Economic Affairs are: Baroness Blackstone Lord Carrington of Fulham Lord Griffiths of Fforestfach Lord Hollick (Chairman) Lord Lawson of Blaby Lord May of Oxford Lord McFall of Alcluith Lord Monks Lord Rowe-Beddoe Lord Shipley Lord Skidelsky Lord Smith of Clifton Baroness Wheatcroft Declaration of interests See Appendix 1 A full list of Members’ interests can be found in the Register of Lords’ Interests: http://www.parliament.uk/mps-lords-and-offices/standards-and-interests/register-of-lords-interests Publications All publications of the Committee are available at: http://www.parliament.uk/hleconomicaffairs Parliament Live Live coverage of debates and public sessions of the Committee’s meetings are available at: http://www.parliamentlive.tv Further information Further information about the House of Lords and its Committees, including guidance to witnesses, details of current inquiries and forthcoming meetings is available at: http://www.parliament.uk/business/lords Committee staff The staff who worked on this inquiry were Robert Whiteway (Clerk), Ben McNamee (Policy Analyst), Stephanie Johnson (Committee Assistant) and Oswin Taylor (Committee Assistant). Contact details All correspondence should be addressed to the Clerk of the Economic Affairs Committee, Committee Office, House of Lords, London SW1A 0PW. Telephone 020 7219 5358. Email [email protected] CONTENTS Page Summary 5 Our main conclusions and recommendations 6 Chapter 1: An introduction to High Speed 2 9 “This is the age of the train” 9 What is High Speed 2? 10 The reasons for building HS2 10 Should HS2 be part of a wider plan? 12 Chapter 2: The cost of HS2 15 Cost of construction 15 Cost of complementary projects 20 The effect of speed on the cost 21 Cost of disruption 23 Expected net cost of HS2 to the Government 24 Chapter 2: Conclusions and recommendations 27 Chapter 3: Demand and fares modelling 28 How demand is modelled 28 Forecast demand—‘without HS2 scenario’ 29 Forecast demand—‘with HS2 scenario’ 36 Demand forecasts for other high speed railways 37 Level of fares on HS2 38 Chapter 3: Conclusions and recommendations 41 Chapter 4: Capacity 42 Explanation of the capacity problem in the Strategic Case 42 Overcrowding on long-distance services 45 Overcrowding on commuter services 54 Space for commuter and freight train paths 58 Chapter 4: Conclusions and recommendations 60 Chapter 5: Alternatives to provide capacity 61 The Government’s assessment of other ways to increase capacity 61 Other alternative solutions to the capacity problem 68 Have the Government considered all the options? 71 Has the Government properly considered the alternatives to provide additional capacity? 72 Chapter 5: Conclusions and recommendations 73 Chapter 6: Will HS2 stimulate economic growth? 74 How is the economic impact of HS2 assessed in the Economic Case? 74 Does transport infrastructure stimulate growth? 75 How will HS2 affect economic activity in the UK? 77 How can the benefits of HS2 be maximised? 85 The effect of HS2 on freight 89 Chapter 6: Conclusions and recommendations 92 Chapter 7: Is HS2 the best way to stimulate economic growth in the north of England? 93 Improving regional connectivity 93 Building HS2 from north to south? 98 The importance of investment in infrastructure outside London 98 Chapter 7: Conclusions and recommendations 99 Chapter 8: Estimating the benefits of HS2 100 Cost-benefit analysis of HS2 100 The transport user benefits of HS2 105 Values of travel time savings 105 Business travel on HS2 112 Chapter 8: Conclusions and recommendations 119 Chapter 9: The questions for Government 120 Appendix 1: List of Members and declarations of interest 122 Appendix 2: List of witnesses 123 Appendix 3: Call for evidence 129 Appendix 4: List of correspondence 131 Evidence is published online at http://www.parliament.uk/hleconomicaffairs and available for inspection at the Parliamentary Archives (020 7219 3074). Q in footnotes refers to a question in oral evidence. THE ECONOMICS OF HIGH SPEED 2 5 SUMMARY The construction of High Speed 2—a railway estimated to cost £50 billion—will be one of the most expensive infrastructure projects ever undertaken in the UK. The Government has yet to make a convincing case for proceeding with the project. We fully support investment in rail infrastructure and welcome the Government’s commitment to it. But the project has to be developed against a background of financial restraint and it is not at all clear that HS2 represents the best, most cost- effective solution to the problems it is intended to solve. The Government’s two declared objectives for the project are to increase capacity on the railway to meet long-term demand and to rebalance the economy by stimulating growth in the north of England. But the scale of the alleged capacity problem is unclear and the Government has not demonstrated that HS2 is the most effective way of achieving the desired rebalancing of the economy. On capacity, published statistics on current rail usage do not suggest that there is an overcrowding problem on long-distance trains, either now or in the near future. On stimulating growth, the Government has not considered whether this could be better achieved by investing in improving regional links between northern cities. The Government claims that the biggest beneficiaries of the project will be business travellers, yet the evidence used to calculate the magnitude of this benefit (an estimated £40.5 billion) is out-of-date and unconvincing. Neither are we convinced why, if business travellers were the biggest beneficiaries from the project, they should not contribute more to the cost by paying higher fares. Before spending more taxpayers’ money on this project, we believe that Government should answer the questions raised in this report. It needs to demonstrate that HS2 is the most effective way of achieving the declared objectives of the project and, if it is not, then the plan needs to change. The lengthy passage of the enabling legislation for the first phase of the construction provides an opportunity to examine the case for HS2. There should be no embarrassment in being prepared to revise the project: the objectives and cost are too important. 6 THE ECONOMICS OF HIGH SPEED 2 OUR MAIN CONCLUSIONS AND RECOMMENDATIONS National transport plan 1. An investment decision on the scale of HS2 should have been made with reference to a co-ordinated transport plan for passenger and freight traffic across all modes of transport. Such a plan could have given full consideration to how all areas of Great Britain and all transport users would be affected by the project. The cost of HS2 2. HS2 is an expensive project. The construction of the railway and purchase of rolling stock is estimated to cost up to £50 billion at 2011 prices, including contingency. The net cost to the taxpayer is expected to be £31.5 billion at 2011 prices over 60 years. If complementary projects to connect HS2 to existing transport networks are taken into account, the final cost would be even higher. 3. If a new railway is required, the costs could be reduced, for example by constructing it to run at a slower speed—say at the same speed as the French TGV—and by reducing the cost of construction closer to French levels. Who will pay for HS2? 4. Business travellers are forecast to derive the most benefit from the project (70 per cent of the net transport benefits). Passengers could be charged higher fares for travelling on HS2 to recoup more of the costs and reduce the burden on the taxpayer, especially since many taxpayers would derive no benefit from the project. Demand and capacity 5. The Government’s principal justification for building HS2 is to provide capacity to meet long-term rail demand. Inadequate information on rail usage and demand modelling makes it difficult to determine whether this is correct. Overcrowding appears to be caused by commuter traffic, not long- distance traffic, and is exacerbated by inflexible pricing. Lack of consideration of alternative rail investment 6. It is impossible to agree with the Government that HS2 is the only solution to increase capacity on the rail network. Additional capacity could be provided by incremental improvements to the existing network, a new conventional railway line, or a new high-speed line (of which HS2 is only one option). These options have not been assessed equally, with only HS2 receiving serious consideration by the Government. Effect on the UK economy 7. We do not believe that the Government has shown that HS2 is the best way of stimulating growth in the country. While investment outside London is long overdue, evidence and experience from other countries has suggested that London would be the biggest beneficiary of a project such as HS2. THE ECONOMICS OF HIGH SPEED 2 7 8. Nor has the Government considered the opportunity cost of spending £50 billion at 2011 prices on this single railway. How much could be achieved if that money were invested differently? Prioritisation 9. The evidence we have heard suggests that investment in regional transport links between cities outside London could be more likely to generate significant growth in the north than HS2. The Government should consider whether improving trans-Pennine links, or building the northern legs of HS2 first, are higher priorities than the southern leg of HS2.