The uncertain fate of HS2 – the case for and against

The prime minister is due to decide whether to go ahead with the controversial high-speed rail link from London to the north. What is he likely to decide, and why? Simon Wilson reports

What has happened with HS2?

In the coming days, the prime minister must decide whether the UK will go ahead with High Speed Two, on which construction is (at last) supposed to start this spring. HS2, a project conceived under Labour and carried forward under the Cameron and May governments, was given the go-ahead by the transport department back in 2012. The first phase links London to Birmingham; the second phase continues the line on in a Y-shape to Manchester and Leeds. Trains will carry 1,100 passengers a time, up to 14 times an hour, at speeds of up to 250mph. But right from the off, the economic rationale for HS2 has looked thin. And given two recent official reviews of the project, it looks thinner than ever.  

What did the reviews find?

That the costs have ballooned out of control and no one can say what the final spend will be. HS2 Ltd, the government-owned firm overseeing the project, has spent £8bn since 2010, at which point the budget was £30bn. That has steadily grown, due to a combination of unforeseen complications, miscalculated land values, poor governance and the slipping timetable. By last summer, the official projected cost was £56bn. Then a new chairman, Allan Cook, warned that it would be £88bn, and this month new figures suggested it could be £107bn. Ominously, the 68-page report by the National Audit Office, published last week, found that it’s basically impossible to predict the final cost, that the latest 2040 target for completion probably won’t be met, and that HS2 and government had “not adequately managed risks to taxpayers’ money”.  

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

And the other review?

When he came to office, Boris Johnson commissioned a review of the project from Doug Oakervee, a former chairman of HS2, and last week his report was leaked to the FT. Oakervee recommends going ahead, but his support is lukewarm and his report loaded with caveats. He says “further work” is needed to assess the scheme’s impact on regional growth and that the economic benefits are unclear. He says the costs could rise well beyond £100bn. And most ominously of all, he writes that “the review has not seen convincing evidence that HS2 Ltd, especially the phase one construction team, have the level of control and management of the construction normally associated with big projects”.

What’s the case for scrapping HS2?

The core argument against HS2 is that it’s a wildly expensive and inefficient way of achieving very little. The project was conceived as a way of transforming the economy of the north of England. Yet the evidence from France and Spain is that the already dominant hub city (Paris, Madrid) benefits far more from the high-speed links than the regional city (Lyon, Seville). One of the UK’s big economic problems is geographical imbalances: HS2 would make them worse by helping London suck in more talent than ever. The project was supposed to boost business by cutting journey times. Yet England is a relatively small country, where the modest time savings involved mean the economic case is non-existent. And anyway people can already work on existing trains, and the technology letting them do so will only improve. 

Advertisement - Article continues below

What’s the case in favour?

The core argument is increased capacity – not just by providing more trains between London, Birmingham and northern England, but by freeing up capacity on the existing lines. It’s true that the case in favour has “never been properly made”, argues Chris Blackhurst in The Independent. But UK rail demand has doubled in the past 15 years (though growth has slowed notably since 2015). Surely a fast rail service that can transport 85 million people a year between England’s four biggest conurbations is a “no-brainer”? Supporters say HS2 is a key part of plans to upgrade links between northern cities – not an alternative to them. And (unlike those plans) it’s “shovel-ready”. The key benefit of HS2, says Matthew Parris in The Times, is the opening up of a new publicly-owned transport “corridor” from London to the north – the first since the Victorian era except for the M1 (which took 35 years from proposal to completion). It’s expensive, yes – but benefits will last, potentially, for centuries. We should feel the fear and do it anyway.

Who else is in favour?

The Confederation of British Industry is in favour, as are key regional politicians, such as Andy Burnham in Greater Manchester and Andy Street in the West Midlands (who are Labour and Tory respectively). This week Street warned that HS2 is “mission-critical to the revival of the West Midlands economy” and that investments are “already happening on the basis of HS2 being a key part of it”. As such, he reckons it is “unthinkable and utterly inconsistent with the government’s declared intent of levelling up” to step back from HS2. That’s similar to the language used by Stephen Barclay MP in a TV interview last weekend. His view that HS2 plays “an important part” in “levelling up” was seen as laying the groundwork for a decision in favour.

What will happen?

If he decides on a total cancellation (unlikely) or a partial cancellation (quite possible) Johnson’s task is to “thread” his decision into a narrative that sounds positive for the Tories’ new northern supporters, says Christian Wolmar in The Guardian. That, for example, could include announcements about massive upgrades to suburban rail around Leeds, Manchester and Birmingham. Alternatively, Johnson could go all in by promising funding for Northern Powerhouse Rail, a trans-Pennine link, unofficially dubbed HS3, that would take average speeds from 46pmh to 140mph, reckons The Economist. For political reasons, the government could both go for HS2 and prioritise HS2’s northern phase. “As with the trains themselves, speed will be of the essence.”




How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
UK Economy

How the BBC can survive the end of the TV licence

Th TV licence that funds the BBC is looking way past its sell-by date, says Matthew Lynn. Here's how it could survive without it
16 Feb 2020
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020

Most Popular

UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019