High Speed 2 and the value for money illusion

High Speed 1: originally intended to be built with private finance and a private sector risk, instead it relied almost entirley on government support in the end (Pic: matt3775, flickr)

High Speed 1: originally intended to be built with private finance and a private sector risk, instead it relied almost entirely on government support in the end (Pic: matt3775, flickr

In the run-up to yesterday’s parliamentary vote on the UK’s High Speed 2 rail megaproject, old arguments for and against building a high-speed rail network in this country were being dusted down and wheeled into battle.  One argument against HS2 that has been trotted out, including by Labour ex-cabinet minister Lord Mandelson, is that it’s not worth spending so much public money on it.

Mandelson – who returned to his anti-HS2 theme only last week – made headlines all over the media this summer, when he belittled the last Labour government’s support for the project and said that there’d been an expectation that it would attract private finance. As the project stands (and I’ll discuss this in greater detail later), all the upfront costs of building the line and related works will be met with public funding.

Earlier this month, the value for money issue was raised again by Parliament’s Commons Treasury Select Committee, who in a report expressed concern at the total budget for HS2 rising by about £10 billion to £42.6 billion earlier this year. They were informed in part by Professor Douglas McWilliams of the CEBR consultancy, who told the MPs of a “funding gap” for the project. By a funding gap he meant the difference between the cost of building the line and the money the line would make over its useful life (At least as far as I can tell – he didn’t answer my email seeking clarification).

But if the railway line does not pay for itself, and if the government is unable to get the private sector to finance it, does that mean that it isn’t value for money? Main line railways and private finance make uncomfortable bedfellows; their high cost, complexity, and institutional and interface issues mean that such projects either run into difficulties and need restructuring*, or require so much government support (in the form of direct revenue payments from government which dwarf the construction cost of the project** or large capital grants to subsidise the construction cost***) that people question whether they shouldn’t have been built on the public balance sheet in the first place.

In fact, Mandelson may recall that High Speed 1, the relatively short railway linking the Channel Tunnel to London’s St Pancras station, was originally to be built mostly with private finance and repaid using revenue from train traffic. The government of which he was a senior member decided in the late 1990s to take on some of the financial risk of building the line, by using a mixture of government-guaranteed bonds and other finance borrowed against revenue payments which were themselves guaranteed by government (as explained here). This is a long way from leaving it all to the private sector, and the reason for doing so was that the private sector simply couldn’t raise the money by itself. Even before restructuring, HS1, which eventually cost about £5.8 billion to build, was set to get over £1.7 billion in government subsidy because the government knew the cost of construction was too much to be recouped in revenues.

Beyond the rail sector, enthusiasts for a new London airport such as London mayor Boris Johnson admit that it would need to be built with public money, as I blogged about last month. And Boris’ airport plans are a lot more expensive than even the revised budget for HS2.

*examples: HSL-Zuid in the Netherlands, High Speed 1 in the UK, the Taiwan high-speed railway

**examples: the Brittany-Loire Valley and Nimes-Montpellier high-speed rail projects in France

*** example: the Tours-Bordeaux high-speed rail concession in France

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About René Lavanchy

You can contact me at rene dot lavanchy at googlemail dot com.
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3 Responses to High Speed 2 and the value for money illusion

  1. Railway Modeller says:

    The answer to the question you ask would seem to be a matter of personal opinion… or even just preference. In which case, mine is ‘yes’. Interestingly, you expose Lord Mandelson’s comments as contradictory to his own [Government’s] actions. No surprise perhaps… his is a Political history of u-turning (aren’t hey all?).

    On Today (the other day) I heard tell of high speed rail in France costing nine billion (Euros I assume) per mile, in Germany 20-odd, and in the UK, one hundred plus. Can this be true? Merdre!

    And given there is a similar HS debate in California right now, we should perhaps be taking careful note of the argument for Hyperpod Alpha, “a cross between a rail gun, the concord (sic), and an air hockey table”, as an alternative way, anachronistic as it may sound, of travelling to Yorkshire?

  2. Railway Modeller says:

    Sorry… here’s the link http://www.teslamotors.com/blog/hyperloop

  3. René Lavanchy says:

    The M25 has not paid for itself. Many Victoriam railways didn’t pay for themselves. Hardly any public infrastructure in this country has. Here’s what I said about the Hyperloop: http://www.theguardian.com/commentisfree/2013/aug/16/elon-musk-hyperloop-going-nowhere

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