Is HS2 a very expensive mistake?

On Wednesday, Lord Mandelson made an about-turn on his previous support for HS2 and warned Labour to “think twice before binding themselves irrevocably to it”.

The Shadow Transport team’s twitter account has since restated a commitment to a “new north-south rail line” but has noticeably avoided referencing HS2 specifically. Leaving some wiggle-room for a change in policy.

Mandelson says that the initial cost estimates for the high speed rail link drawn up by the last Labour government were “almost entirely speculative”, with an expectation the City, rather than the taxpayer would foot the bill, and the enthusiasm put behind the project was driven by a desire to present an optimistic vision of the future for the 2010 election. Now, the former Business Secretary says the cost-benefit analysis just doesn’t add up.

Only last week we learnt that the budget for HS2 had been bumped up by £10bn, that’s before a single metre of track has even been laid. With more overspends inevitable, the already small return for the huge investment (its fallen from the 2010 estimate of £2.60 for every £1 spent to just £1.40) begins to look less and less favourable. It would take just another £5bn of unaccounted for costs to bring the current budget of £42bn up to the £47bn anticipated economic benefit – a big chunk of which is predicated on the assumption that time spent travelling is unproductive.

As Mandelson points out “the most glaring gap in the analysis presented to us at the time were the alternative ways of spending £30bn” and whether these would be more beneficial. Thankfully, the New Economics Foundation has done some work and concluded that the money, the largest investment in transport in UK history, could in fact be spent on different projects which would produce greater economic benefits whilst still meeting the scheme’s objectives. They’ve highlighted 88 individual projects which would deliver upgrades to the West and East Coast Mainlines, invest in intra-regional rail connections, improve bus and tram networks in the Midlands and the North, inject meaningful investment into walking and cycling infrastructure and roll-out superfast broadband connections.

This focused investment on transport links in the Midlands and the North would reduce the current inequality where transport spending per person in the West Midlands is £269, in the North West its £134 and in the North East just £5, but in the South-East its £792 a head and in London it stands at £2,731. High Speed 2 would continue to cement this divide as it “perversely represents a shifting of rail resources away from the north to the southeast commuter belt”, Mandelson says.

More broadly, HS2’s objective of rebalancing the economy and healing the North-South divide by creating greater connectivity looks increasingly dubious. A publication from LSE’s Centre for Economic Productivity says there is a growing view among economists that “reducing transport costs between ‘core’ (the South) and ‘periphery’ (the North) may actually increase disparities, not reduce them. Certainly the evidence on the direct benefits suggests that these flow disproportionately to London and the South East.” The NEF’s solution to rebalancing the British economy is to look at alternatives which are “targeted towards bringing the infrastructure relied on by businesses and people outside the capital city up to scratch”.

With the scheme based on an assumption that time spent on a train is unproductive, costs mounting before work has even started and increasing doubt about whether HS2 will help to heal the economic gap between North and South (or even bring any considerable economic benefits at all), it seems fitting for Labour’s transport team to look again at the project, and consider the alternatives, to avoid making a very expensive mistake indeed.