Recently, my friend Josefina entered the Fitzwilliam essay competition with this essay on the HS2. This, for me, was such an interesting read due to its political relevance. Therefore, the only correct move for me was to share it with all of you! - Annika
At its inception, proponents of the HS2 program proclaimed that it would unlock ‘potential, drive growth and transform communities’ (GOV.UK, 2023. 10 23, PM redirects HS2 funding to revolutionize transport across the North and Midlands’ [Press release]). The program was conceived as ‘a scheme to build a high-speed railway between London and the north east of England, providing a catalyst for regional economic regeneration and growth’ (Tetlow and Pattison, 2023).
Britain has one of the most extensive rail networks in Europe, adjusted for landmass, yet it has been slower than its European neighbors to adopt a high-speed rail.
The HS2 project showed investments in transport infrastructures that would benefit the economy, both in the short and long term. They supported this argument with the notion that this would be ‘a fix for Britain's geographic income gap’ (Schomberg, Reuters, 2023). The project was to be developed in two stages: Phase 1 (2017) connecting London to Birmingham and Phase 2 comprising a ‘Y’ shaped route from Birmingham to Manchester and Crewe (McNaughton and Banks, p.1).
In October 2023 this plan was abruptly canceled. The Prime Minister, Rishi Sunak, claimed that spiraling construction costs made the progression of the project economically unsustainable. Whilst this immediately halted government spending on the project, it also brought with it negative consequences for the economy: costs incurred by uncompleted and defaulted contracts, private and public investment losses, and future economic losses to the areas where HS2 would no longer be of service.
This essay explores why this change will have negative remunerative consequences in both the long and short-term economic health of the nation. The decision seems to have been poorly analyzed and worse explained. The alternative use of funds appears to be pork barrel, burdening taxpayers with no concrete payback.
Errors in planning have plagued the Project but the hasty decision to cancel the second branch further burdens the economic benefit that could have been achieved. A clear financial trajectory was formulated and ‘HS2 Ltd’s report was presented to the government at the end of December 2009’ (Adonis, 2009, p.8), albeit misjudged. This proposed an initial spend of c. £36 billion (Tetlow and Pattingson, 2023, p.2). As of 2023, this spiraled to ‘c. £56 billion. HS2’s chairman, Allan Cook, suggested that the final costs would be between £72.1 and £78.4 billion’ (Tetlow and Pattison, 2023, p.2). Evidently, critical financial mismanagement has led to an absence of economic due diligence. It can be shown that between 2011 and 2013, the cost of HS2 rose by 12.6 billion in cash terms. This cost includes 7.5 billion for rolling stock not previously cost and an additional 5.1 billion on construction of the line’ (Tetlow and Pattison, 2023 p. 3). In December 2009, Gordon Brown proclaimed an investment of £20 billion into the interconnection of both the north and south of the UK. However, as the new coalition government and transport secretary began planning the route of the connecting railway service, the costs rose by ‘£12.7 billion’ (Tetlow and Pattison, p.3). This is essentially showing a lack of strategic pre-planning and transparency in relation to the constituents residing in the areas affected by the route, and the adverse economic ramifications of which extend to the UK as a whole.
In June 2013, the government admitted that the costs would be almost £50 billion and the construction would begin seven years later (Topham, 2019, ‘How far has work got, and why might it be scrapped’, 21.8.) This increase in the price of the construction of a railway line not only caused economic turmoil but created a range of social problems. The project itself had the social scope to unify the North and the South; a policy that Boris Johnson called ‘leveling up’ (Conservative Manifesto, 2019, p. 34). The aspiration was to make the two parts of the UK more financially ‘fair’ or supported. Phase 1, only connects two of the highest income regions in the country (Manchester and London), failing, before being canceled.
The issue with chronic financial overspending is that it brings collateral damage; it should be noted that the then chancellor– now Prime Minister– Rishi Sunak, accepted these additional costs and eventually supported them. The reversal of the plan has significant repercussions both for nationwide growth and growth per area (per capita) in both the short and long term through the increase of tax and the loss of amenities. As of February 2024 the UK has entered recession (Abdulla and Bruce, 2024, ‘UK economy falls into recession, adding to Sunak’s election challenge’, Reuters, 15/2) underscoring the negative effects of financial mismanagement and the cessation of part of the route. As Tetlow and Pattison concur, ‘the non-departmental public body set up to manage the project, fellow below 2015 and 2017 on the basis of assured efficiencies, including reducing the costs of property acquisition, getting contractors to deliver more effectively and reducing overhead costs – these efficiencies were not found’ (2023). Furthermore, ‘Alan Cook, suggested that final costs would be between £72.1 billion and £78.4 billion (in 2015 prices, reflecting the “scale and complexity of the programme” and admitting early estimates were “overly optimistic”’ (Tetlow and Pattison, 2023). There is a range of economic issues regarding such significant expenditure on a scheme like HS2.
Firstly, there is an opportunity cost presented. The £50 billion used in the construction of HS2 could have been used in different sectors such as healthcare or education as another means to improve overall benefit. This would have provided both short-term accessibility to the services and long-term benefits of investment in the livelihood of the population and by extent the economic ability of the country as a whole. Secondly, by having canceled the second section, the government essentially denies the population in the North (on the affected stretch of the route) the chance to have an improved amenity that would have quantitative (increased capacity and economic growth) and qualitative benefits– such as social inclusion and enhanced connectivity. Thirdly, it is public information that the money reserved for government spending is financed by five different outlets: taxes, inter-governmental borrowing, leases/sales of nation bound resources, fees/custom duties controlling imports and exports. By raising the sum of money being put towards the train line, there must be an equally proportional increase of money being paid or taken: both having a range of problems by extent. In increasing taxation, the government perpetuates social instability, even more so when the plan set in motion is canceled or deferred. This consequentially presents both short and long-term economic issues for the nation.
It is unquestionable that the South has frequently received further investment in terms of business, trade, and infrastructure. In an attempt to bridge the gap between the two halves of the United Kingdom, the inception of HS2 began to address these disparities and offered hope for advancements in the North. Not only would this have strengthened social cohesion, it would have brought a more rigid economy into place. The recent cancellation of the link between Manchester and Crewe, poses severe economic questions on the development of the region. The election manifesto that was signed off by Boris Johnson in 2019 pledged a ‘3.6 billion boost for deprived towns’ (Murphy, 2019, The Guardian, 27/7), promising to extend the high-speed rail links between Manchester and Leeds. This offered hope to people in the region and promised to ‘turbocharge’ the economy (Murphy, 2019, The Guardian, 27/7).
The u-turn taken by Sunak, in 2023, marks a stark departure from such promises, revealing an economic black hole which reduces the strength of the region due to abandoned future economic developments and arguably, the UK as a whole. Without high-speed rail transportation, it seems unlikely that major businesses will relocate to the North. HS2 offered £13.2 billion pounds of growth and it was cited that ‘bringing people together drives economic growth’. It was also anticipated that it would ‘rebalance the economy’. This leads to three key areas of economic growth that, without the expansion of HS2 will be absent: (a) it would enable businesses to employ workers from a larger labor market, (b) it would allow businesses to access specialized services located in other cities and (c) it would help specialized services access their customers more easily and expand the markets that they can potentially serve.
Rosewell and Venables have suggested that, with the HS2, cities would effectively have become 'closer' to each other, which makes it easier for businesses and people to interact and coordinate activities across cities. This opens up opportunities for better integration and trade, with the potential for each city to develop its own specialism. More significant trade and specialization could have offered the potential for benefits beyond those captured within our economic appraisal, through increased productivity. (‘High Speed Rail, Transport Investment and Economic Impact, 2013, p. 27).
Therefore, the decision by Rishi Sunak to cancel the remainder of the project means that these economic opportunities are lost. In a report commissioned by the Wildlife Trust and reported by Jane Durney (2019), they have noted that: The impact HS2 has had on green belt land and the plowing through of rural spaces specifically has enormous economic, as well as environmental, repercussions. In the UK today, 13% of the land is designated as a green belt space. The proposed route of HS2 presents a significant risk to five internationally designated protected wildlife sites, including three Special Areas of Conservation and two Ramsar sites (wetland sites designated to be of international importance), which support internationally significant habitats and species assemblages. The proposed route also presents significant risk to many other wildlife sites protected by law, comprising 33 Sites of Special Scientific Interest (of which two are also designated as National Nature Reserves) and 21 Local Nature Reserves. ( HS2 professed a clear, positive environmental agenda revolving around the increased use of electric trains and the reduction of petrol vehicles by commuters (HS2, ‘Climate Resilience, 2023, n.p).
The improvements to air quality and the positive effect that this would have on the communities' health, and more broadly the air quality of the nation, were posited. From an economic perspective improving air quality would have been advantageous as it would have reduced health spending (Department for Transport, 2017, p.19).
A healthier nation places less burden on taxpayers and provides evident economic stability in both the short and long term. With the premature conclusion of the line none of these benefits will be felt now, or for future generations. Abandoning this route does not just have an effect on the loss of the green belt land and green spaces more broadly.it has an effect on the future economy of the nation, specifically for the health and social care spending.
The loss of green spaces due to the HS2 initial construction stage also produced another issue: an increase in construction in the Green Belt area. Although this generated job opportunities and increased available properties in the housing market, there have been economic ramifications caused by the premature end of the project. For example, there are questions as to whether the price that has been paid for these properties has been inflated, given the once anticipated price increase once the line had opened. In anticipation of the arrival of HS2 this witnessed existing property prices escalate, in direct relation to the line’s progression. Now, home purchasers may find themselves over-stretched financially and without personal or national economic rewards. This has an effect on countrywide economics as people have less disposable income and lower levels of support for their futures. This then has an effect on their retirement packages. Such knock-on effects to personal wealth bear future implications for the UK wide wealth.
This analysis as a whole provides a clear indication of the ways in which this can be seen as a poor economic decision in both the short and long term.
HS2 as a project was ambitious; it had the scope to revolutionize travel and the state of the United Kingdom’s economy. By curtailing the route and halting the developments, this essay has sought to show the ways in which Rishi Sunak’s decision to curtail the project has left the nation with an incomplete high speed rail network, a poorly thought truncation and just a debt burden as proof. This essay argues, therefore, that this is short sighted and will leave the nation behind its European counterparts in logistics, environmental credentials and planning incompetence and all with negative economic impact. Limited analysis is available on the tradeoff between incremental spending in Phase 2 and its economic benefits, but based on available information we will be worse off.
By Josefina Calo
Bibliography:
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Patrick Barkham, P.B. (4 October 2023) ‘ Negative environmental impacts of HS2 could worsen with scaling back’, “The Guardian”. Available at: https://www.theguardian.com/uk-news/2023/oct/04/negative-environmental-impa ct-of-hs2-could-worsen-with-scaling-back#:~:text=Negative%20environmental%2 0impact%20of%20HS2%20could%20worsen%20with%20scaling%20back,-This %20article%20is&text=The%20scrapping%20of%20HS2%20from,intensify%20wi th%20Rishi%20Sunak%27s%20decision.. (Accessed: 14 February 2024)
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at:https://assets.publishing.service.gov.uk/media/5a7c2b6ded915d1d1741c8d6 /hs2-economic-case.pdf . (Accessed: 19 February 2024)
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Great essay Josefina!