The UK Prime Minister is considering cancelling or delaying northern sections of HS2. This has been motivated by rising costs, with the scheme now potentially costing upwards of £100bn. These rising costs are not a surprise – it has long been clear that it is hard to justify HS2 on value for money grounds alone, with there being uncertainty as to whether benefits will exceed costs.[i] As with most major government projects, once momentum has been established it is terribly difficult to put a halt to things. Nevertheless, it seems that the government is in the mood to bring about cost control, not only in relation to transport infrastructure but also in relation to the less visible costs associated with environmental regulation.
The challenge of justifying HS2 based on traditional value for money metrics has contributed to the emergence of the idea that a chief purpose of HS2 is to increase capacity across the rail network. Whilst it will likely achieve this, there remain deeper challenges related to providing rail infrastructure that better connects northern cities. Transport is generally considered to be a derived demand, where this demand is primarily driven by commuting needs of workers. However, to justify investment in the North, it must be assumed that the proverbial tail can wag the dog. The hope is that the infrastructure will generate the requisite economic activity to justify the initial investment. This is not easy to prove. For instance, the DfT’s 2022 Strategic Outline Business Case[ii] for Phase 2b Western Leg for Crewe to Manchester estimates a GDP impact of the scheme of up to £9.6bn (in 2022 prices) over a 60-year appraisal period. For context, this is just 0.39% of 2022 UK GDP and 11.6% of the GVA of Greater Manchester.
Moreover, with increased numbers of people working from home, there has been a de facto increase in capacity across the rail network. This has been enabled by improved digital connectivity. For instance, a Cebr report for Virgin Media O2[iii] found that, on average, Covid-19 accelerated the deployment of technology in the UK by three years, with organisations boosting their IT spend by an average of 18%. This has lowered demand for rail travel. ORR figures[iv] for June 2023 show that whilst 389 million rail passenger journeys were recorded in Great Britain in the latest quarter. This is 88% of the 443 million journeys in the same quarter four years ago. Moreover, ONS figures[v] show that among working adults who have worked in the last seven days, 16% reported working from home only and 28% reported both working from home and travelling to work over the period of September 2022 to January 2023.
This implies that it would likely be more cost effective to lean into the potential for greater use of digital connectivity, where the costs are borne directly by individual businesses and workers. So, whilst HS2 has been a long time in the making, it may be time to go back to the future.
[i] DfT OBC for Phase 2b Western Leg for Crewe to Manchester
[ii] DfT OBC for Phase 2b Western Leg for Crewe to Manchester
[v] ONS characteristics of homeworkers, Great Britain: September 2022 to January 2023
For more information, please contact:
Rowlando Morgan, Head of Environment, Infrastructure & Local Growth
Email: rmorgan@cebr.com, Phone: +44 (0)20 7324 2861
Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.