The analysis of HS2: Waiting for the Holy Grail

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Professor Michael Luger, Director of the Centre for Infrastructure Development, Manchester Business School

The soundings I take from business people about HS2 indicate a growing cynicism, not about the project per se, but about the debate about the project. The claims being made about the costs and benefits are wildly inconsistent -opponents conclude the project is a white elephant, while proponents find significant net benefits, especially for the North. These disparate judgments come not from obscure academics, but from individuals and organisations with high visibility and credibility in other realms: Lord Mandelson, Lord Adonis, the Transport Secretary, the Public Accounts Committee, KPMG, the IoD, the British Chambers of Commerce, to name a few. Who to believe?

The confusion arises because of the technical challenge of calculating costs and benefits of such a large, complex, and long-lived project. Even the most brilliant and unbiased analysts are unable to calculate the net (dis)benefit of HS2 with any degree of accuracy. There simply is too much uncertainty about the future.

To have a definitive answer to the net (dis)benefit question we need to agree on what the relevant time frame is: how long will the trains and track last? How rapid will physical deterioration be? What will be the cost of land acquisition? How much tunnelling will be required? Since ridership levels are critical to factor-in, we need to know the rate of population growth by region over the next many decades, as well as income levels – since that affects the ability to pay higher fares. But ridership will also depend on the alternatives – roads for passenger cars and trucks, and the desirability of those modes depends on fuel prices and the rate of road expansion and maintenance. The conversion of future flows of benefits and costs to a net number today also depends on what inflation and interest rates will look like over the relevant life span of the project. Of course, the central premise of HS2 is that it will expand capacity not only for long-haul passenger service, but also for commuting service and rail freight. What will intra-metropolitan residential location patterns look like over the next fifty years, and how will changes in industry in the UK and international trade over the next half century translate into the movement of goods via containers? Finally, a complete analysis will have monetised not just the direct and tangible costs and benefits, but those that are indirect and intangible, as well. For example, on the benefits side, how much will a shift from cars and trucks to trains allow us to avoid CO2-based environmental costs? What value do we put on national pride from having built a world-class project? What symbolic value might this have for attracting foreign investment? What spin-off technologies might materialise as a by-product of the engineering work? What value do we place on the skill development that would occur?

These are just some of the difficult questions that make ex ante analysis difficult. This problem is not unique to HS2; we saw it for other similar large-scale, long-lived infrastructure projects around the world, including the development of rapid transit in the San Francisco Bay Area, the Big Dig in Boston, the Channel Tunnel and Cross-Rail in London, among others.

When there is not a reliable bottom line, individuals and groups are more likely to base their judgements about the desirability of the project more on emotional reasons. For detractors that includes: I don’t want construction and noise in my back yard, I don’t want pristine forests being destroyed, or I can’t support a service that will benefit wealthier riders and businesses more than me. And there is a natural tendency for the public to resist any large commitment of their tax monies, especially in a protracted recession. Just in the past few years there were public furores when the costs for the Olympics, the trident submarine programme, and the aircraft carrier replacement initiative were unveiled. For protagonists, support tends to be expressed as: this is necessary to ensure adequate capacity for my grandchildren, we have to keep up with the rest of the world that has this kind of infrastructure, or we have to integrate the country north to south more than it is. Given the wide range of ax ante (dis)benefit analyses, everyone can find substantiation for their predilections.

I am not saying that the analyses that have been done are useless. The proliferation of reports provides a basis for informed discussion from which a consensus can emerge. But there is no Holy Grail that will make the answer easy.

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About Author

Michael is a Professor and Director of our Centre for Infrastructure Development. Michael’s chief research interests are in the application of science & technology to regional economic development, infrastructure planning & finance, & entrepreneurship & new enterprise development. He also has published widely in environmental impact and public policy. Michael is interviewed regularly by broadcast and print media as an authority on all of these matters.

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