Buried deep in the financial case document for the UK’s High Speed 2 project is a curious figure. It will probably be overlooked in today’s parliamentary debate, where MPs are expected to give their support to the project in the most important make-or-break test of its political support. That is a shame, because right or wrong, it is very important.
When HS2 is fully built, up and running (which the government hopes will happen by the early 2030s), like all transport projects it will go through a ‘ramp-up’ phase where traffic gradually grows from zero and then stabilises.
Once this happens, the financial case document says, HS2 will cost the taxpayer an extra £2.5 billion in subsidies to train companies. Why? Because they forecast that HS2 will attract passengers off existing ‘classic’ train services, reducing the revenue they receive and causing the train operating companies to require more subsidy.
£2.5 billion is a big number on the railway. It is in fact over half a billion pounds more than the total amount of subsidies paid by the Department for Transport to train operators last year (£1.98 billion; see here). Minus train operator payments to DfT, that resulted in a net payment from the taxpayer of £40 million. Even if passenger revenues go up by 50 per cent in the next 20 years, a £2.5 billion increase in subsidy would wipe that out. However, in the same breath, the document says that HS2 would generate an operating surplus of £2.8 billion – so overall, HS2 would not increase the cost of train services to the taxpayer.
But of course this number means a lot more than cost. If it is accurate, it somewhat undermines the case for HS2 by suggesting that a lot of its passenger traffic is not going to be the new traffic generated by the rising trends we hear so much about, but cannibalised from existing services.
However, caution needs to be exercised here. HS2 is surely likely to generate a lot of additional travel because it will create a new high-speed way of getting around the biggest cities in England that didn’t previously exist. The financial case document is trying to look ahead to a period when HS2 has been fully built and operational for several years. That means at least 25 years into the future. We really don’t know what the rail passenger market will look like then, although we can try to extrapolate from where we are now and bear in mind that in recent years, it’s grown faster than expected.
I do not think this figure undermines the case for HS2; if anything it is too precise for a period so far into the future and highlights the dangers of long-term forecasting.