George Muir dismisses the key objections to HS2 as ‘bad arguments’. Here’s why I think he is wrong

In his article in the last issue of Passenger Transport, George Muir sought to knock down a list of “key objections” to HS2 – as he describes it, “eight bad arguments against the project”.  I’m afraid his arguments are that of the zealot, and don’t stand up to critical analysis. To respond to his points in the order in the original article:

 

Objection 1: That rail demand won’t grow fast enough and the trains will be empty.

George’s piece starts out with an admission that total transport demand has fallen in recent years, and argues this is due to increasing petrol prices and road congestion. He makes the strong point that rail demand has increased strongly over the past 15 years, then, like the government, unthinkingly projects that forward. However, nothing goes on forever, and there is emerging evidence that long distance rail demand may be flattening out.
A number of key indicators suggest this:

Recent ORR data shows flat long distance demand for over a year, although London and South East demand is still growing strongly;

Virgin’s passenger miles showed rapid growth after completion of the upgrade, but growth has now virtually ceased (Figure 1).

This is similar to the experience on the West Coast at the time of electrification in the 1960s;

The Department for Transport’s own statistics, obtained under the Freedom of Information Act, show a decline in peak passenger numbers to and from Euston from 2011 to 2012.

So we need to understand what’s really happening before committing £50bn of our money to HS2.

There are some obvious factors which have driven long distance rail demand. Increasing company car taxation has dramatically reduced company car use, and there has been significant modal shift from air to rail between Manchester and London following the West Coast Main Line upgrade – but these are one-off changes, and aren’t the basis for assuming perpetual, compound growth. Perhaps the most important factor has been service improvements on all the main InterCity routes – frequencies from London to Leeds, Sheffield, Bristol, and Cardiff have doubled; Manchester has improved from one train an hour to three, Birmingham from two to three; and journey times have been cut, particularly on the West Coast Main Line, and the Cross Country network has improved dramatically. It would be very surprising if passenger volumes hadn’t grown, but I suspect that much of this is a one-off effect, with rail now the dominant mode for middle and long distance demand to central London, so further growth to London is dependent on structural growth in the market, not increased modal share. East Coast and Eurostar are already demonstrating this; the Eureka timetable on East Coast, with more trains and some faster journey times, has produced little or no additional revenue – East Coast passenger miles grew by only 0.5% in 2012/13, and Eurostar is increasingly looking to markets beyond Paris and Brussels, where it already has something like an 80% market share, and low growth.

Lastly, there is at least anecdotal evidence that business travel is declining as smart technology increasingly substitutes for face to face meetings. I travel to Manchester several times a year, and my own counts, together with the official numbers for peak trains to and from Euston, suggest a gradual reduction in business travel (Figure 2). Yet the claimed economic benefits for HS2 relate overwhelmingly to business travel.

In summary, there is clear evidence that the boom times may well be coming to an end for InterCity rail travel. To quote John Maynard Keynes: “When the facts change, I change my mind. What do you do, sir?”

 

Objection 2: That we don’t need HS2’s capacity because Virgin WCML trains are running with plenty empty seats in the peak.

George acknowledges that Virgin’s current load factors are low, but doesn’t recognise that most services could be lengthened to 12 cars (three first, nine standard) giving a total of 693 seats, more than three times the average peak loading of 229, without the need to run more trains. Yet he asserts that “It is extremely unlikely that the spare capacity, plus any extra which can be added, would not be fully used up by growth well before the Y of HS2 is finished” – back to endless growth. In reality, long distance services to Waterloo, Liverpool Street and Victoria are full now (Figure 3), with no prospect of significant extra capacity, and London and South East volumes are still growing. Rationally, how can HS2 be a priority?

 

Objection 3: That the environmental damage to the Chilterns and the disruption to residents around Euston are so bad that we should abandon this project.

There is clearly a balance to be struck between environmental impact and the wider good. But if the case for HS2 is fundamentally weak, then the impact on Camden, the Chilterns and every affected location all the way along the route to Church Fenton south of York is unforgiveable and unacceptable.

 

Objection 4: HS2 won’t release much useful rail service capacity around Birmingham, Manchester or Leeds.

George claims this is a “bad argument – not true” but writes that he will return to this.

It’s actually a compelling argument. Take Leeds as an example: there are eight main rail corridors into the city, and HS2 only relieves one of them, the route from Doncaster via Wakefield. In the morning peak, East Coast operate just two trains arriving in Leeds before 0900, both of which are well loaded with commuters from Doncaster and Wakefield. So the trains would need to run anyway, at least from Doncaster, and the total of “extra capacity” released by HS2 equates to the number of passengers on these trains from London who would transfer to HS2; the trains leave Kings Cross at 0550 and 0630, so it won’t be a great number. The impacts in Birmingham and Manchester are similar – early morning Virgin services from Euston are packed with commuters from Coventry to Birmingham.

 

Objection 5: That HS2 won’t benefit  the North.

George dismisses the comparison with the lack of economic impact of HS1 domestic services on Ebbsfleet and Ashford in Olympian fashion: “you should not have expected HS1 to have helped very much” and then goes on to develop a novel argument that HS2 is different from other European high speed lines because the population served is so much greater. This is simply a scale effect: if high speed rail has favoured Madrid rather than Seville, than we can expect it to favour London rather than Manchester.

I don’t claim to be an expert in spatial economics, but those who are – academics such as Henry Overman and John Tomaney – appear very sceptical about the benefits to the Midlands and the North and the cost effectiveness of HS2 as a means of reducing the North-South divide. George seeks to counter their views by inventing his own back-of-an-envelope economic theory.

 

Objection 6: That there are better ways to improve transport in the North than HS2.

There are certainly better, cheaper and more cost effective ways to improve public transport in the Midlands and the North, and all the benefits, both in terms of the construction work and the improvements delivered, would be wholly contained in the regions, not siphoned away to the overheated and richer London and the South East.

 

Objection 7: The Business Case is weak.

George writes: “You can chip away at the edges if you want, but a benefit cost ratio of 2.3 … for a large project is good.” It isn’t a matter of “chipping away at the edges”; the business case is deeply flawed, and still critically dependent on discredited values of time for business passengers, even though this has been cleverly disguised in its latest formulation. There are also a number of other significant errors and heroic assumptions, and if the business case is corrected for these, it would struggle to get a benefit cost ratio above 1.0.

HS2 is not value for money.

 

Objection 8: That, in the words of the HS2 Action Alliance, there is a “desperate attempt by the government to spin the report by KPMG which claimed HS2 would generate £15bn a year of wider economic benefits. Its conclusions were widely mocked by academics and commentators as lacking credibility with it being pointed out that if the report’s figures were correct there would be £1,000 worth of benefit to the economy for every extra journey created by HS2.”

George simply asserts that HS2 Action Alliance is “talking tosh”. But the £15bn a year figure is based on an assumption – implicitly acknowledged in small print in the KPMG report – that “connectivity”, as measured by a model of the rail services assumed in the HS2 business case, is the only driver of economic performance; not the availability and skill of the labour force, nor connectivity by road, despite the fact that 90% of journeys are made by road.

The KPMG report was considered in some detail by the House of Commons Treasury Select Committee on November 5 last year. It’s pretty clear from the evidence of professors Graham and Overman that the KPMG work is fundamentally flawed, the benefits are massively overstated, and are double counted with the wider economic benefits already factored into the business case.

 

The big picture on investment

George writes: “HS2 is the latest in a line of major – and essential – transport projects”, but signally fails to demonstrate that it is either essential or a priority. Investment in infrastructure projects is undoubtedly critically important for the future economic prosperity of Britain, but the chosen projects need to be rigorously assessed and prioritised. This has not applied to HS2, which from Day 1 has been a solution in search of a problem.

 

About the author:

Chris Stokes is a partner at First Class Partnerships, and previously advised local authorities opposed to the HS2 project

 


This article, and many others, appears in the latest issue of Passenger Transport.

DON’T MISS OUT – GET YOUR COPY! – click here to subscribe!