David Begg retreats into fantasy land on HS2

June 22, 2011 5:03 PM

Following my article for the Spectator Coffee House about how the Government's proposal for a new high speed rail line is a waste of money and will mean ordinary people paying billions for a rich man's train.  David Begg responds with a series of fictions.

These “promises” would have a major impact on the already dreadful financial case for HS2. Extra capacity and competition would certainly drive fares right down. But

He argues that the line represents economic opportunity, while studies suggest the economic benefits from faster trains will be minimal; that the extra capacity on the line will mean falling rail fares, when the business case for the line is premised on rising fares; that it is misleading to quote the cost of the scheme; and that there won't be large towns getting a worse service, when the Government's plans show they will.  Clearly the proponents of the new high speed line are getting desperate.  They know the public are turning against their vanity project and are seeing it for the white elephant it is.

Let's take his arguments in turn, first on the potential economic benefits of high speed rail:

"I cannot recognise the world lived in by Matt Sinclair and the campaign against HS2. In the Midlands and the North, high-speed rail represents opportunity. Opportunities for business people to reach new markets, quickly, cheaply and with minimal hassle."

He presents no evidence at all that those opportunities are significant enough to justify the huge cost of the scheme which will mean curtailing other opportunities.  When someone actually bothered to look at the evidence they found the benefits of faster trains were pretty minor.  Here is the report from Oxera, commissioned by the House of Commons Transport Select Committee and released yesterday:

"The agglomeration benefits identified in the Economic Case account for £3 billion of the £4 billion of WEIs. [...] The assessment of agglomeration impacts was informed by a report by Daniel Graham and Patricia Melo, economists at Imperial College London. The report focused on the agglomeration benefits from improved travel times of high-speed rail itself and found that these benefits would be ‘very small indeed’."

He says that it won't be a rich man's train but the business case is premised on a large share of the passengers being business travellers on high incomes.  Existing long distance trains are overwhelmingly used by people in the highest income quintiles as you can see from the graph to the right.  And the business case relies on rising fares. If fares fall instead then taxpayers will have to pick up an even bigger bill for the new line!

His argument that places like Coventry won't get a worse service has the same problem.  The existing Government plan prices in reducing existing services, not spending more money subsidising them.  Chris Stokes addresses this argument, defending his research on the towns and cities losing out with high speed rail:

"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."

Chris has gone on to work out what it would mean to actually deliver on a promise to protect existing services and let competition reduce fares, at the same time as spending a fortune on HS2.  As he says, it isn't very realistic:

"These “promises” would have a major impact on the already dreadful 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 + 1% every year until 2033, a 27% 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 let’s 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 – way 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, who would have over-capacity 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 for Kent, fares across large parts of the network will be raised as well to plug the financial black hole created by HS2."

This is particularly ironic given the bizarre charge that it is misleading to quote the expected cost of the line, because some of it will be paid by passengers not just through general taxation.  In the plan David Begg has dreamed up for his blog taxpayers could pay significantly more than the cost of the line, and much more than the Government has budgeted for.  He is making major new financial commitments, someone tell George Osborne!

Bruce Weston, Director of the HS2 Action Alliance, also finds David Begg's response unimpressive.  He sent us this reply:

Professor Begg says that he ‘cannot recognise the world lived in by Matt Sinclair and the campaign against HS2.’  His misfortune is that it is the real world.

Professor Begg says that ‘the idea that high-speed travel is somehow for rich business people is unfounded by the experience of overseas operators, and by simple laws of economics.’  But the stark fact that in the UK long distance business and leisure rail journeys in the UK are predominantly made by the affluent.  47% of rail journeys are made by people in the top quintile of household income.  And he says that surplus capacity will drive prices down.  Many disagree, saying that HS2 will have premium fares.  But perhaps he is right, although this would hardly be good news: lower ticket revenues mean costs will need to be met by an on-going subsidy.  Do we really want to pay more tax so that the affluent few can have cheaper long distance rail fares?

He also says ‘the idea that the scheme will “cost £1,000 per family” is simply not true.’, because it doesn’t take account of the benefits.  But the £1,000 per family is simply arithmetic, whereas the supposed benefits are a pipe dream based on false assumptions like no one works on trains so shortening the journey length improves productivity, and exaggerated demand estimates from an out of date demand model.  Far from there being ‘significant financial returns’ we may well be faced with needing to find – on top of the capital cost of over £1,000 per family – even more money to cover its operating losses.

Professor Begg also rejects the fact that HS2 would disbenefit many in the Midlands and North.  Putting aside those in towns bypassed by HS2 and suffering a reduced train service as a result, HS2’s benefits are most likely to go to London, not the Midlands and North.  But you don’t have to believe us, the consultants who independently reviewed the case for HS2 for the Transport Select Committee concluded ‘London is thus very likely to benefit, possibly at the expense of less service-oriented cities on the line.’

Professor Begg thinks that London has already had its share of infrastructure investment, and that ‘We need to plan infrastructure that binds our country together not pulls it apart.’.  Most people – particularly in the Midlands and North think that our economy is already over-concentrated in London.  And yet Professor Begg advocates a railway that is likely to further strengthen London’s dominance.  As Professor Tomaney says in his evidence to the Transport Select Committee on the effects of HSR, ‘…in countries with dominant capital cities net benefits tend to accrue to these.’

Professor Begg may try to deride Matt Sinclair as living in the South, but it is he – not Sinclair – who is trying to dupe people in the Midlands and North into supporting a white elephant of a project with spurious promises of economic benefits when he should know full well that if anywhere benefits it will be London.



These “promises” would have a major impact on the already dreadful financial case for HS2. Extra capacity and competition would certainly drive fares right down. But

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