Elite Business Magazine: The high-speed dilemma: Do we really need the HS2 corridor?

Categories: Salford Business School

Authored by University of Salford Business School’s Dr Zeeshan Syed, Lecturer in Finance, for Elite Business Magazine

Cost overruns in mega projects are an accepted fact; the rule is that 90% of projects go over budget

a man in glasses

For any standard Rail Project, McKinsey estimates that costs may overrun by 44.7% and rail demand may be over-forecasted by 51.4%. These estimates do not account for time overruns.

Therefore, if one wonders why we should be so skeptical about HS2, especially its northern leg, then the answer is not in the cost-benefit analysis, though it is important. 

HS2’s financial pitfalls

The core problem with HS2 is three-faceted: poor estimates of its value for money, overestimating its demand, and exaggerated implications on our economy and society. Let’s evaluate the problem of HS2. 

Firstly, forecasts by Lord Berkeley suggest that for every £1 of taxpayers’ money, we may not earn more than £0.66. It’s valid to question that even if everything goes according to plan, we may not recover the initial investment. Then why pursue such a waste of money when the UK is entering a prolonged era of higher interest rates, inflation, and demographic shift? 

Secondly, the biggest challenge in making public-oriented mega projects such as rails and roads is not building them. But it’s enabling the public to use these projects or getting people to use the rail network. UK data suggest that annual rail passenger revenue is 28% lower than in 2020, so, not even recovered back to pre-pandemic levels. Similarly, in 2023, Office of Rail and Road recorded 53.3 billion passenger kilometres vs 66.8 billion, a declining trend of rail usage. 

Rising rail costs

In addition, we’re expecting a 12.3% increase in fares this year. If the UK may have an average inflation of 2.8% for the next 10 years, the rail fare may jump at least 32% in 2033. Our rail users are working-class people who are very price sensitive. Therefore, a business mind wants to know if sufficient demand will be in 2033 to cover the basic costs. It is unwise for the UK to follow in the footsteps of third-world countries, which tend to develop economically unviable mega projects and then borrow to run those projects. Fiscal discipline in the aftermath of Covid extravagance is imperative, not an option. 

Lastly, the argued implications of HS2 are nothing more than a fantasy; HS2 dreamers are living in a utopia. For example, the project aims to deliver a novel life, work, and travel combination. A world in which one may Live in Manchester and be able to travel to work in London daily basis, or vice versa. However, no matter how interesting this idea sounds, it’s flawed because it ignores four simple aspects of our contemporary lifestyles:

We are digital nomads and would prefer working remotely to taking the pains of train travel to see London or Manchester.

We like spending time in our homes rather than on a train and would only use them out of necessity, not as a lifestyle choice.

The UK faces a skill shortage and a tight labour market nationwide. Therefore, enabling mass talent mobility means places like London over-attract talent, and places like the North struggle to attract and retain talent.

Lastly, as of March 2023, there are 33.27 million cars in the UK. This means that almost anyone who is an adult and of driving age has a car. What would happen to those cars and future car sales if we shift everyone to rails? 

Impacts of COVID-19

Therefore, I understand that after COVID-19, the British people have changed forever. They may appreciate a fancy thing such as the “fastest train in the world”, but they are not ready to afford it. 

Given the poor economics of HS2, one may wonder why everybody is so much in favour of HS2, especially the northern part. The simple answer is that we view megaprojects as a panacea to many problems, such as levelling up, creating local jobs, injecting cash into local cities, and, above all, political support. Economic history tells us that if there was a drought in the sub-continent, Mughal emperors employed people to dig canals to keep the economy going. Lately, the UK has been doing this through quantitative easing. However, I must admit that megaprojects are the best of all stimuli as they involve the electorate directly.

Now, what’s the alternative? I argue that instead of having the fastest possible rail, why don’t we try to have an “HS Corridor”? A corridor where we improve our rail times, introduce better quality locomotives, and provide fast internet to everywhere in the north, invest in digital infrastructure, remove digital poverty, and kickstart a digital revolution in the north. Instead of forcing people to find an office-based job, let’s equip people to become freelancers like millions of Indians providing services in the UK while lining up in India. 

Redefining megaprojects

Any government wishing to pursue HS2 ideas as originally conceived must assess it carefully. It’s a project that has already failed economically. Its starting price was £37.5bn, now standing at £110bn (2019 price, as reviewed by Lord Berkeley). These estimates are not adjusted for inflation; hence, the increment is fully susceptible to cost overruns and inefficiencies. 

In a world where economic development is changing, we must redefine megaprojects in our context. We must understand that travel connectivity is important, not the travel speed. Furthermore, enabling larger cities like London to attract talent from the north poses a risk to the future of Manchester. North needs its intelligent brains here rather than finding a job in London. Anything otherwise would be a great disservice to our Manchester. I am not anti-London, but people usually find it hard to resist the temptation to be part of metro city lifestyles. 

If we want a prosperous north and help our local towns and economies, let us help people stay where they are but better. Let’s improve local buses, deliver internet to everyone at affordable prices, and support a freelancing culture. HS2 completion may give one party a general election win, but HS Corridor will provide a win for everyone in the north and the south for generations to come. 

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