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Is the expenditure on the ‘HS2’ rail route to Birmingham justified? To see more of our products visit our website at Mark Evetts, Cheltenham.

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Presentation on theme: "Is the expenditure on the ‘HS2’ rail route to Birmingham justified? To see more of our products visit our website at Mark Evetts, Cheltenham."— Presentation transcript:

1 Is the expenditure on the ‘HS2’ rail route to Birmingham justified? To see more of our products visit our website at Mark Evetts, Cheltenham College

2 HS2 stands for ‘High Speed 2’ and is the proposed high-speed rail line initially between London and Birmingham, but to be extended to Manchester and Leeds in phase 2. C The initial journey time to Birmingham will be 49 minutes, a reduction of 35 minutes on the current time. C The project will support around 40,000 jobs directly. C HS2 vital statistics But, over 3,000 properties will experience a noticeable rise in noise levels. C Benefit to cost ratio is estimated at around £ 2 for every £ 1 spent. C

3 HS2 is designed to take the pressure off the West Coast main line which is forecast to reach full capacity by 2030. C Train tickets are already increasing well above the rate of inflation. C But this is not entirely due to the inability of the current rail network to cope with rising demand. C Why does the UK need high-speed rail? If continued fare inflation is avoided and a comfortable and efficient service developed, then this increased investment in HS2 is perhaps justifiable. C But will ticket prices actually rise to recoup the estimated £32.7bn of investment required? C

4 It will create spare capacity on the existing network that can be used for new commuter, regional and freight services. C Faster rail journeys offer an alternative to many domestic aviation and car journeys. C Further benefits of HS2 It will offer better rail links between regional cities. C Improved links for business travellers will provide access to wider markets and enable productivity growth. C Tens of thousands of new jobs will be created. C

5 To make an informed judgement economists look at cost-benefit analysis (CBA). C CBA is a project appraisal technique involving considering not just the costs and benefits to those directly involved, but to third parties as well. C Some critics of HS2 cite the environmental impact, but the government is claiming the project to be carbon neutral. C What are the criticisms of HS2 (1)? A government report indicates that 58% of UK transport emissions are from cars, but 93% of car journeys (64% of car emissions) are less than 25 miles. C If high-speed rail is not a suitable substitute for these shorter car journeys it is going to do little to reduce car emissions. C

6 One of the difficulties is that every cost and benefit has to be quantified in monetary terms. C Many costs and benefits have market prices and thus they are relatively easy to calculate, such as fare revenue. C But, not every cost and benefit has a market price and shadow prices have to be calculated. C It can be extremely difficult to identify a cost or benefit to society that has no previous market value. C The government admits that it is hard to quantify some values such as the ‘wider economic benefits’. C It is difficult to justify a project when the financial benefits are so difficult to project. C What are the criticisms of HS2 (2)?

7 David Cameron has backed HS2 as a way of narrowing the north-south divide. C The government claims that an improved transport infrastructure will help in generating local economies in the north. C But if we look at similar infrastructure projects around the world the benefits have usually favoured the capital at the expense of the regional city. C The North-South divide Some critics believe that cities not on the new high-speed line may in fact see a decline in development opportunities as they become reliant on fewer and slower trains. C

8 e There are a number of developed countries that have used regional development as justification for expensive infrastructure projects. C But London to Birmingham is only 101 miles and compares with the Paris to Marseille high-speed line which is 410 miles. C So, is a high-speed line justified in a country where people travel comparatively short distances? C It is likely that the HS2 project will benefit cities at which it stops, but the wider ‘north’ is unlikely to see much development from its investment. C Is the UK big enough?

9 Opportunity cost allows us to understand the true value of decisions rather than just the monetary cost. C £32bn is a huge amount of money in the context of a struggling economy. C The government has said that the return on investment in HS2 will be more than £1 for every £1 spent. C But what about the opportunity cost of every £1 spent on HS2 which could be spent on more nurses or teachers or other resources. C Plus within the rail industry there is the potential opportunity cost of the new project absorbing all the spare cash for rail investment for the next couple of decades. C Opportunity cost

10 At £160m per mile it is going to be the most expensive line in the world. C If the government spent £32bn on it this would constitute around 4.3% of total government expenditure this year. C This level of investment against a backdrop of austerity can be hard to swallow. C Assessing the costs and benefits is a far from an exact science. C It is hard to resist the view that the government is being overly optimistic and looking to jump on the ‘high- speed bandwagon’. C Is HS2 justifiable?

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