Will HS2 fast-track business north?

Will HS2 fast-track business north?

The second instalment of the UK’s high speed rail network has already caused uproar over its £55 billion projected charge to the British tax payer. But overlooking that cost, will HS2 provide a return on investment?

The high speed rail line which will run from thef heart of London, Euston Station, to the midland city of Birmingham, would transport passengers in nearly half the time of the current train line and put them within walking distance of the Eurostar service.

The hefty cost of the project, and the limited concrete evidence of the future economic benefit, means that the country’s second instalment of high speed rail (HS2) is proving to be the most controversial infrastructure development since the Channel Tunnel.

“The cost is colossal, with the latest government figure being estimated at £55 billion. But understand that £55 billion is the baseline. If you look at other big projects the government has undertaken, they almost always go over budget” said Nigel Hawkins, Investment Analyst and Senior Fellow of, think tank, ASI.

The question we have to ask ourselves is what do you actually get for this colossal figure? A series of train networks that will take years to build. This is not a cheap railway. It is an exclusive railway.”

The government has come under strong criticism over the projected cost of the project, from opposing political parties and from their own Members of Parliament.

Parliamentary Backbench Business Committee member Phillip Hollobone spoke to Euroscope on behalf of his constituency stating, “I voted against HS2 as I see little benefit whilst the cost of construction is astronomic. If this money were spent on the traditional rail network, it could drastically improve rail services for all.”

The Business Committee are not on their own, as the Chancellor of the Exchequer, George Osborne, was also questioned on the cost before the Economic Affairs Committee last year, in which he unwaveringly defended the government’s plans. “I am a strong believer in the economic benefits of HS2. I think it will help change the economic geography of our country. In the end, governments always find infrastructure decisions highly controversial.

“In the context of a government budget of £750 billion a year, I think spending £50 billion, over the next 20 years, to improve the Nation’s infrastructure is something we can afford.

Regarding the business benefits of HS2, Osborne said, “I also think it will help address the regional disparities we have in our economy which is one of the biggest challenges the UK faces.”

It is no secret that the the UK’s economy is fuelled by the World Financial Capital. With a Financial Times estimate of £1 trillion transferring through London every day from business and trade, HS2 will be built to benefit London commerce and create competition from the cities it connects with.

“A well-functioning rail network will not only support London’s economy but also provide benefits to the UK as it will enable northern cities easier access to the engine-room of the UK economy,” said Chief Executive Baroness Jo Valentine, speaking to The Telegraph on behalf of business lobby group London First.

How could a railway attract business?

In questioning the company responsible for developing the new high speed rail network, Lead Spokesperson for HS2 Limited Ben Ruse suggested to Euroscope, “the practical question you have to ask is, what is the rental commercial space in London?

“If you’re a European company that wants to set up a HQ in London, it would cost you monthly £800 per square foot for primary real estate. In Birmingham, it would cost £100 per square foot.

“The idea is that if you build a new railway- you relieve pressure on London, whether that be commercial or residential rents because there is a bias of commerce in London.

“In the UK very few out of the top 50 companies are not situated in the capital, and though some of it is attracting business there, there is a balance. London can gain as much from HS2 as cities outside”.

HS2 Regional Economic Impact 2037, from 2013 prices, Source: Ordinance Survey 2013
HS2 Regional Economic Impact 2037, from 2013 prices (Source: Ordinance Survey 2013)

 

In a report conducted by the Department for Transport on HS2’s regional economic impact, forecasts suggest that once production is complete, “investment in HS2 could generate £15 billion a year in productivity gains for the British economy. This can change the competitive position of different areas and potentially lead to shifts in the geographic patterns of trade and economic activity.”

However, there are still ardent political sceptics who question the viability of the future economic forecasts the high speed infrastructure would bring after completion. Particularly when the first phase of HS2, connecting London to Birmingham, won’t be usable until 2026.

Where can we compare to?

Comparisons have been made with other European countries, which have seen the economies of major cities substantially strengthened by high speed rail.

In discussing recommendations made to the government in a House of Lords production, Lord Hollick suggested that “evidence from other countries is that high speed rail links tend to benefit the capital city, and that’s been the case in France and other European countries. It will be London that will be the main beneficiary of this.”

There is no dispute that HS2 will benefit the Capital, which is necessary when taking into account the issue of London underground overcrowding.

A 2014 study conducted by the Transport for London subsidiary, LUL, found that underground usage had increased 32% since 2002, with weekday usage totalling six million passengers. HS2 could alleviate that strain, but can benefits outside of the capital be as strong?

Comparisons to other European countries are limited, further hindering the case against HS2. “The High Speed infrastructure in France and Spain is clearly different to the UK because of our island situation”, said Nigel Hawkins.

“France is a country dominated by its capital city, so we see the comparison of London and Paris. France has searched to get out of that [domination], as we have seen with the TGV high speed rail which has benefitted the growth of Lille.”

The impact that France’s TGV high speed line has had on developing the regional economy around Lille is the type of impact the Department of Transport (DfT) hopes HS2 will bring to Birmingham and beyond.

But the DfT cannot specifically indicate where or when these benefits are going to be felt, which is just adding more fuel to the sceptic fire. Even the governmental file defending the Economic Case for HS2, reported by The Guardian, states, “It is difficult to analyse exactly where, geographically, the benefits of HS2 would accrue.”

Though the study did indicate that “business passengers would derive around 60% of the benefits, despite accounting for around a third of total estimated trips,” many argue this and other studies lack sufficient proof.

The criticism has not fazed the government in carrying out their high speed transport plans despite disapproval from challengers. As BBC Politics reported from the DfT’s High Speed Rail Consultation Document, “the Government believes that Britain cannot afford to be left behind; it cannot afford to ignore the benefits offered by high-speed rail.”

Though it will be a slow wait until the regional economic benefits are seen, Britain will eventually have another high speed rail.

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