Written evidence from the Taxpayers' Alliance
TaxPayers' Alliance (TPA) strongly believes that the Government's
proposed new high speed rail line (HS2) represents poor value
for money and the project should be cancelled. Our position is
that incremental investments in transport infrastructure, particularly
in roads and commuter rail, would be a better priority for scarce
resources. At the same time, with long term pressures on the
public finances it is difficult to justify spending so much on
a project that will predominantly benefit high earners.
business case is based on assumptions that are hard to justify
and subject to three key flaws. Despite these flawed assumptions,
the cost benefit produced still does not match the usual standard
required for road projects, for example:
for growth in demand are almost certainly overstated.
passenger productivity during a journey is assumed.
unrealistic comparator is used that ignores likely improvements
on the West Coast Main Line if HS2 does not go ahead.
towns and cities will receive a worse service if HS2 goes ahead
on the basis planned. Avoiding that would require additional
subsidies and further weaken the business case.
that the programme will create jobs are, in context, unimpressive
for the scale of the spending planned.
This document will set out the TPA position on this
project and then look at the business case; towns and cities likely
to see worse capacity as a result of the project; and claims on
jobs. It will then conclude by discussing other countries and
why "me too HS2" has a poor financial record.
The TaxPayers' Alliance is not hostile to infrastructure
investment in itself. In our report with the Institute of Directors
- How to save £50 billion: Reducing spending for sustainable
public finances - we largely avoided cuts in investment expenditure,
and instead focused on government consumption. We did so because
the Government had "already set out plans radically to reduce
net investment" and "transport and energy infrastructure
should be the last items to cut".
Our view is that the priority for scarce resources
should be maximising additional capacity for every pound spent,
to ease overcrowding with scarce resources. Opinion polling suggests
that reducing cost, congestion and overcrowding is the public's
priority for investment in the transport network.
In our Manifesto ahead of the last election - intended
to be a benchmark whoever formed the next Government - we included
"Refocus transport spending on high use commuter
rail and roads.
Despite motorists facing excessive taxation, far
more is spent on railways per passenger kilometre. Resources
should be focused where they will do the most to ease congestion.
Approve a third runway at Heathrow."
While there is a need for greater capacity on the
West Coast Main Line, that can be addressed more effectively through
incremental improvements. The case for high speed rail inherently
depends upon prioritising greater speed, and the case for HS2
depends upon prioritising greater speed on the already fast West
Coast Main Line. We do not think that is appropriate. While
RP2 is not a perfect alternative, something along those lines
would offer better value in our view.
The business case for high speed rail relies upon
business passengers in particular having a high income, as that
increases the value of time saved with quicker journeys. More
broadly, research shows that nearly half (47%) of long distance
rail journeys in Britain are made by people from households in
the top income quintile:
With long term pressures on the public finances,
spending so much on a project benefitting a relatively small number
of fortunate passengers is hard to justify.
The business case for high speed rail is problematic
on a number of grounds, which have been explored in a TPA report
by senior railway executive Chris Stokes, High Speed Rail.
The issues have subsequently been updated
on our website and in research by other groups like the HS2 Action
after the updated business case was published for the Department
for Transport consultation, so only a basic summary will be provided
here. There are three principle issues:
for growth in demand are almost certainly overstated. While the
assumed rate of growth is more moderate in the consultation business
case it is projected even further into the future. That is clearly
unreliable with a fixed elasticity model.
passenger productivity during a journey is assumed. The consultation
document claims that the business case is robust to this issue
as the new line will reduce overcrowding. With a more realistic
comparator that is not the case though, as alternatives like RP2
will do more to reduce overcrowding.
unrealistic comparator is used that ignores likely improvements
if HS2 does not go ahead. It assumes there are no improvements
for 30 years, even ignoring developments already planned by operators.
It is important to compare to practical alternatives that can
double capacity over time and deliver alternatives before 2026,
rather than assuming that without HS2 the network is left in stasis.
Overestimating future demand, in particular, is endemic
for major rail projects both in Britain and elsewhere in the world.
Research by Danish academics in 2006
"for nine out of 10 rail projects, passenger
forecasts are overestimated; average overestimation is 106%."
Eurostar has captured the lion's share of London
- Paris passenger journeys but the market is near saturation,
and its passenger numbers in 2009 where 37% of the forecast for
2006. Manchester - London can be expected to show a similar pattern;
there has been rapid growth since the dramatic service improvements
in 2008, mostly at the expense of air. But this is a step change
over three/four years, not a straight line ever upwards. Rail
is also already dominant in the markets from Leeds and Birmingham
to central London, so DfT's forecasts are only credible if there
is evidence that there will be a step change growth in the demand
for travel on these corridors; this has not happened for London
DfT told the Public Accounts Committee that they
would not repeat those mistakes, made with HS1:
"next time it considered undertaking a major
transport project, it would factor more severe downside assumptions
into its business case analysis".
But it is clear that this has not been done for HS2.
In April 2010, the rating agency Fitch looked at
high speed rail projects. To quote from the report:
"Historically, the agency has observed that
the assessment of rail demand has displayed a significant optimism
bias, particularly for Greenfield projects"; and
"Rail projects are often high profile. This
exposes them to "political entrepreneur syndrome" where
the public authorities overestimate the benefits of the project
to get it approved for the purpose of political gain".
Despite these assumptions HS2 still produces a cost-benefit
ratio below that required for other transport projects, particularly
Another research note for the TPA by Chris Stokes
looked at the towns and cities that would see a worse service.
Here is a summary of some that lose out in the first phase.
IMPACT OF HS2 PHASE 1
|Milton Keynes, Northampton||Potential doubling of commuter capacity from around 2016 not taken forward in advance of HS2
|Coventry||Frequency reduced from three to one train per hour from 2026, with journey times extended by 10 minutes, as trains stop at Rugby, Milton Keynes and Watford Junction
|West Midlands suburban network via Birmingham New Street
||Implications for connections with the West Midlands suburban network - Frequency reduced from three to one train per hour from 2026, with journey times extended by 10 minutes, as trains stop at Rugby, Milton Keynes and Watford Junction.
|Sandwell, Dudley and Wolverhampton||Journey times extended by 10 minutes
|Shrewsbury, Wrexham and mid Wales||Journey time for connecting services from Wolverhampton and Birmingham New street increased by 10 minutes, and Frequency from Birmingham New Street reduced from three to one trains an hour.
|Stoke-on Trent||No high speed service proposed. Frequency reduced from two to one train per hour. Average journey time lengthened slightly
|Manchester, Stockport||A reduction in overall capacity on the route, from 1,767 seats to 1,650 seats per hour, despite Network Rail's forecasts that this route would have the highest growth.
And those that lose out in the second phase: the construction
of the "Y".
IMPACT OF HS2 PHASE 2
|Wellingborough, Kettering, Corby, Market Harborough
||Electrification, journey time reductions and increased capacity not taken forward in advance of HS2 (2032-33 at the earliest)
|Leicester||Electrification, journey time reductions and increased capacity not taken forward in advance of HS2 (2032-33 at the earliest)
Service frequency and journey times likely to deteriorate on completion of Phase 2 - Leicester currently has four trains an hour, two non-stop
|Loughborough||Electrification, journey time reductions and increased capacity not taken forward in advance of HS2 |
Service frequency and journey times likely to deteriorate on completion of Phase 2 - Loughborough currently has two trains an hour, one non-stop from Leicester
|Nottingham, Derby, Sheffield||Electrification, journey time reductions and increased capacity not taken forward in advance of HS2|
Reduced frequency and increased journey times for existing city centre stations
Loss of local transport interchange
|Chesterfield||Electrification, journey time reductions and increased capacity not taken forward in advance of HS2|
Service frequency and journey times likely to deteriorate on completion of Phase 2 - Chesterfield currently has two trains an hour, non-stop between Leicester and London
|Peterborough||Service frequency likely to deteriorate on completion of Phase 2 - Peterborough typically has three/four fast trains an hour.
|Doncaster, Wakefield||Service frequency and journey times likely to deteriorate on completion of Phase 2
|York, Durham, Darlington and Newcastle
||HS2 documentation shows two High Speed trains an hour - no capacity increase on the present service
|Berwick on Tweed||HS2 documentation shows no High Speed trains North of Newcastle
|Edinburgh||HS2 documentation shows no High Speed trains to Edinburgh via Carlisle or Newcastle
It is also worth noting that the new line will put significant
pressure on certain existing choke points in the network. For
example, far more passengers will terminate in Euston and its
connections to the London Underground are likely to be unable
to cope with the additional demand. Even with upgrades to the
station, it is unlikely that the London transport network will
be able to cope with the amount of traffic being directed to Euston.
Southbound Victoria line trains are already particularly overcrowded.
The Government have responded to our report, but their claims
have been misleading. In a Westminster Hall debate on 31 March
2011, Theresa Villiers effectively promised that there would be
no service cuts on the existing network once HS2 is built. In
response to a speech by Dan Byles MP, in which he said Coventry
would see its fast trains to London cut from three to one an hour,
"This is simply not true. There are some indicative forecasts
in the HS2 analysis about how services might be configured in
the future. The reality is that Coventry is going to enjoy frequent
But the documentation is clear.
The HS2 Business Case is based on an assumption that Coventry
will only have one train an hour, which will be slower because
of additional stops. If all the Birmingham passengers are on HS2,
it would be extraordinary if the present 20 minute frequency continued,
just for Coventry passengers. The HS2 business case includes a
total saving of £5.4 billion for reductions to existing services.
Philip Hammond told the Daily Telegraph on 1st April that:
"Our proposed new high speed rail network would free up
a huge amount of space on the current railways for more trains
to operate. Building a whole new line would create scope for people
who live on the current lines to have more frequent services that
are less crowded - I would also hope that this additional competition
could mean cheaper fares as well"
This is apparently very attractive. But the existing services
are generally good, so faced with a choice of using HS2 to get
to Birmingham in 49 minutes or paying half price to go on the
existing trains in 82 minutes, many people will save money and
take a bit longer, especially when they arrive at a station in
the heart of the city, with good public transport connections.
They already do this in Kent, where the "Javelin" high
speed services to towns like Chatham are embarrassingly empty,
and passengers continue to use the cheaper, slower alternatives.
These "promises" from Theresa Villiers and Phillip Hammond
would have a major impact on the already poor financial case for
HS2. Extra capacity and competition would certainly drive fares
right down. But the published financial details assume no competition
on routes served by HS2, and fares going up at RPI + 3% for the
next three years and RPI + 1% for every subsequent year until
2033, a 36% increase above inflation. The overall additional revenue
included in the HS2 business case
is £27.2 billion (Net Present Value over 60 years). Unfettered
competition will undoubtedly halve this, probably more, so we
can assume it drops to £13.6 billion. And promises of "no
service cuts" wipe out a £5.4 billion cost saving. Adjusting
the total evaluation for these changes increases the net cost
of the project to the taxpayer to £36.1 billion, much higher
than the £30.4 billion capital cost.
If this really happened, it might be good news for the minority
of the population who use rail and travel on this route, enjoying
overcapacity and cheap fares. But it would represent an appalling
cost to the taxpayer. A much more likely outcome is that existing
services will be cut; fares on HS2 will be priced at a premium;
and, as with Kent, fares across large parts of the network will
be raised as well to plug the financial black hole created by
An increasing number of major projects are promoted on the basis
that they will create jobs. The number of jobs claimed can be
impressive, such as the purported 40,000 jobs that will be created
by a new high speed rail line - cited in the Department for Transport
But they can be very misleading. There are two issues:
estimate of jobs created may be inaccurate in itself. For example,
the estimate of jobs created by HS2 may be based on overly optimistic
demand assumptions, like the wider estimate of costs and benefits.
are opportunity costs to any major investment, in the form of
foregone opportunities to make other investments. Any investment
on the scale of the £17 billion the Government plans to spend
on the London to Birmingham high speed link would create jobs.
But if that investment is not made, other investments, elsewhere
in the public or private sectors, could lead to greater gains
In our research note on jobs, we assumed that the
40,000 jobs estimate is accurate. There are a number of reservations
about that figure though:
of the jobs are in construction, and therefore likely to prove
benefits may well come primarily from shifting economic activity
around the country. Jobs created may therefore not represent
higher employment, but come at the expense of fewer jobs elsewhere.
The second concern is particularly critical, as the
Financial Times put it in a leader, 28 February 2011:
"To govern is to choose. Would the benefits
of a shiny new high-speed line outweigh the less visible but valuable
things that could be done with the limited funds available?"
To test whether high speed rail is an efficient way
of promoting employment, we can use a method deployed by two recent
studies, which assessed the opportunity costs of major investments
in the energy sector.
The paper Study of the effects on employment of
public aid to renewable energy sources,
produced by a team led by Dr. Gabriel Calzada Álvarez at
the Universidad Rey Juan Carlos in Spain, pioneered an attempt
to understand this issue by comparing the capital stock per worker
across the broader economy with the cost per worker of investment
in renewable energy sources.
There has been criticism of that paper, but that
criticism has mostly argued either that the estimate of jobs created
by renewable energy support was wrong (Dr. Calzada used an estimate
produced by a European Commission initiative) or that a better
measure would be to look at the amount of employment produced
for every dollar of investment in different sources of energy
(which is obviously inappropriate when projects entail significantly
increasing investment in a sector not previously promoted primarily
as a source of employment). In the case of HS2, the estimate
of jobs created comes from the Department for Transport.
It was followed up by a study by Luciano Lavecchia
and Carlo Stagnaro for the Istituto Bruno Leoni in Italy.
The researchers in that study summed up what the results imply:
"The only scope, and we dare to say the only
result, of our study is to show that green investments are an
ineffective policy for job creation."
To produce a similar estimate for HS2, the first
step is to calculate capital stock per worker in the broader economy.
The Office for National Statistics put the total net capital
stock of the UK - the total cost (at current prices) of replacing
all capital assets in their current condition - at £3.182
trillion in 2009.
They also recorded the total number of workforce jobs at nearly
That implies net capital stock per worker of £102,655.
By contrast, the proposed high speed rail line from
London to Birmingham is expected to cost £17.8 billion and
create 40,500 jobs - 9,000 in construction; 1,500 in operations
and maintenance; and 30,000 from wider economic regeneration.
That is nearly £440,000 per worker.
|A||Net capital stock, 2009
|C (A/B)||Capital stock per job
|HS2 - London to Birmingham
|E||Jobs created claim
|F (D/E)||Cost per job
|G (D/C)||HS2 opportunity cost, jobs
|H (G/E)||Ratio, opportunity cost/jobs created
For every one job supposedly created by HS2, we could expect four
jobs to be created in the wider economy for the same amount of
The fact that the wider economy generates more than four times
as many jobs for every pound in capital stock suggests high speed
rail is a deeply inefficient generator of new employment, and
there is a significant opportunity cost to investing in it. High
speed rail is capital intensive, not labour intensive, and for
the Government to promote it as a means to increase employment
In conclusion, the case for the new high speed rail line has not
been made and, given constraints on spending and the likely distributional
impact, HS2 should be cancelled.
It is often argued that Britain needs to adopt high speed rail
to compete with other countries making similar investments. However
there are increasing signs that countries investing in HS2 have
seen poor value:
taken forward as PPP projects such as in Taiwan and the Netherlands
risk bankruptcy and have required government bailouts.
speed rail has been largely abandoned in the United States as
state governors were concerned about the long term costs.
Lane recently wrote in the Washington Post that the Ministry responsible
for high speed rail in China has $271 billion in debt and the
Minister has been arrested for embezzling on a substantial scale.
It is increasingly clear that international adoption
of high speed rail constitutes "me too HS2". Taken
up as a visible signal of political commitment to growth and development,
it substitutes for more effective but less prestigious investments
and proves extremely poor value. Britain should avoid making
the same mistake and focus on incremental infrastructure improvements.
355 http://www.taxpayersalliance.com/50bil.pdf Back
Inaccuracy in Traffic Forecasts. Bent Flyvbjerg, Mette K Skamris
Holm and Søren L Buhl, Department of Development of Planning,
Aalborg University Back
This assumes 550 seats for HS2 units, as set out in the consultation
documentation, and 589 seats for 11 car Pendolino sets. Back
HS2 Technical Appendix, March 2010. Appendix 2, Page 23 http://webarchive.nationalarchives.gov.uk/20110131042819/http://www.dft.gov.uk/pgr/rail/pi/highspeedrail/hs2ltd/technicalappendix/pdf/report.pdf
Economic Case for HS2 February 2011 Page 12 Back
Available here: http://highspeedrail.dft.gov.uk/sites/highspeedrail.dft.gov.uk/files/hsr-consultation.pdf
Available in English here: http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf
Available in English here: http://brunoleonimedia.servingfreedom.net/WP/WP-Green_Jobs-May2010.pdf
Office for National Statistics Capital Stocks, Capital Consumption
and Non-Financial Balance Sheets, 2 August 2010 Back
Office for National Statistics DYDC: UK Workforce Jobs SA :
Total (thousands) Back