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January 10, 2012

HS2

You can imagine that a programme that involves spending £36 billion will find a large number of vested interests supporting it. And indeed supporters of high speed rail have been vociferous in their support for the proposed HS2 high speed rail link.

 

But looking at the economics issues dispassionately, the sums don’t add up. Cebr has checked the demand forecasts, the economic case and the financial sums carefully. We have considerable credibility here. We have been the most accurate GDP forecasters not only for 2011 but also on average since 2004 according to Citiwire. We were the first transport forecasters to predict the surge in rail demand (and predicted it before it happened!). We are not opposed to high speed rail in principle and indeed prepared the economic case for the European Parliament for the PBKAL project (Paris Brussels Cologne Amsterdam London).

 

Our analysis shows three things.

 

Most importantly, the ideas that the alternatives won’t provide enough capacity only holds up on the outdated economic forecasts that the OBR prepared before the Autumn Statement last year. Given realistic economic and rail demand forecasts, that claim is complete nonsense.

 

Secondly, on realistic growth projections most of the economic case disappears and the financial deficit from the business case gets much larger.

 

Thirdly, there are many elements in the official economic case that look dubious. The main economic case is dependent on business time savings. But modern rail, with the ability to plug in computers and increasing wifi and mobile connectivity, is much more like a substitute office than the rail of the time when the official estimates were made. And by the mid 2030s when HS2 comes in, high tech teleconferencing will make much business travel unnecessary. If you have never seen telepresence, have a look at it before you think HS2 is necessary.

 

Our analysis is that the benefit cost ratio is only 0.5 rather than the official and implausible 2.0. The financial deficit which will require a government subsidy is likely to be £18 billion rather than the official claim of £14 billion. This seems a major waste of money when spending is being cut and taxes raised.

 

If the project goes ahead it will be a triumph for spin and vested Interests over economic good sense.

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