A historical perspective on British railways
The railway network has been at the centre of the political debate on transport for decades. In the wake of WW2 the government nationalised the dilapidated network as a prelude to a significant investment programme to phase out steam. In the 1960s, the (in)famous Beeching Report advocated slashing the network to eliminate the least profitable lines in the face of rising competition from road transport. This was duly acted upon and the UK rail network today is less than half the length of 60 years ago (incidentally, the cuts did nothing to restore the network to profitability). The UK is not alone, of course, in slashing its rail network: The track length in Germany, France and Italy is currently between 60% and 70% of its historical peak. Arguably, however, the UK went too far.
I have long believed that the Beeching approach to managing the rail network was a huge forecasting mistake since it assumed that then-current trends would continue indefinitely (before anyone wants to talk about the shortcomings of economic forecasting I should point out that Beeching was a physicist not an economist). To illustrate the folly of extrapolation, by 2019 the annual number of UK railway passenger journeys had surged to its highest level since 1923, representing a figure almost three times the modern-day low recorded in 1982 (chart 1). Anyone who regularly travelled by train prior to March 2020 will be aware of the extent to which trains were frequently overcrowded. On an international comparative basis the UK rail network is the most intensely used in Europe. Although the total number of passengers carried on German railways in 2019 was 60% higher than that of the UK, the German network is more than twice the size. On a passenger miles per km basis the UK figure is 78% higher (chart 2).
Assessing the pros and cons of extending the network
The consensus of academic opinion is that railways contribute considerable benefits to the economy’s productive potential, including alleviating congestion on the road network and facilitating the development of clusters of economic activity. They also cut CO2 emissions and reduce the number of casualties on the transport network relative to what would happen were the journeys to be made by road. Congestion reduces the efficiency of the network which has an associated economic cost and there are studies which attempt to put a price on it (see this study, which looks at London). Whilst we can be sceptical of the exact numbers, inefficient networks undoubtedly have an impact at the margin by adversely affecting productivity and business location decisions.
When making the case for HS2 it is therefore important to assess the costs of the investment against the benefits. To get a handle on the financial costs, it was initially suggested in 2010 that to build a high-speed line between the cities of London and Birmingham (a distance of 215 km) would cost around £20bn. More than a decade on, and after considerable political and economic wrangling, the cost of this phase is estimated to have doubled to around £45bn. It was further proposed to extend the network northwards in two phases: one running a further 114km north-west to Manchester and the other an additional 190km towards Leeds (this is the part that has been shelved). Costs have spiralled accordingly.
The previous estimate put the cost of building the network at £55.7bn: the latest official estimate is a cost between £72bn and £98bn. Even after allowing for inflation, that represents an increase of up to 60%. The cost-benefit ratio has already halved to around 1.2 - a figure that classifies the project as low value for money on the Treasury's classification scale - implying that a 20% rise in costs will make this a marginal project at best. The benefits of HS2 are dominated by time savings. Around half of the transport benefits (and over 40% of the total network benefits) are derived from time savings. It is expected that HS2 will cut the journey time between London and Birmingham from 81 to around 52 minutes when (if) the line opens between 2029 and 2033 (as projected) and reduce the London to Manchester journey time from 127 to 67 minutes. In the view of many laypeople, these are relatively small time savings compared to the costs.
The respected transport economist Stephen Glaister, who I first heard dismiss the economics of HS2 in a lecture almost a decade ago, recently wrote a report which sounded a sceptical note. He wrote that “it will inevitably be a financial loss-making enterprise, with the taxpayer filling the funding gap, with those resources having to forgo alternative uses.” That is not necessarily a reason for not undertaking the investment but he further noted that “an appraisal of the likely effects of the Covid-19 pandemic on the demands for travel and hence on the finances or economic benefits of the scheme has not been published.” In addition, he was a lot more cautious regarding the assumptions on carbon emissions than the project’s proponents. Glaister also referenced the 2006 Eddington Transport Study which concluded that economic returns from high-speed rail in the UK are unlikely to be as large as for investment in some alternative projects. In Glaister’s words, “in England, unlike in some parts of the European mainland or China, the revenue and other benefits of high speed are limited because the major cities are relatively close to one another and … there has been strong competition from established, medium speed and high frequency railways.”
With the costs of the first stage of the project having spiralled, it is hardly surprising that the government has suddenly got cold feet about further extending HS2. It is equally unsurprising that political leaders in the north feel that they have been short-changed by a government that promised not to ignore the provinces. Indeed, if the government had been serious about levelling up in the first place, it should have followed the recommendation of the National Infrastructure Commission which suggested that connectivity between the northern cities was a higher priority than HS2.
High-speed can work - the Italian example
It is sometimes hard to escape the view that British politicians want a high-speed network because other countries have successfully introduced them and the French TGV system is often cited as a model for Britain to copy. But Italy provides a better role model where last month Alitalia ceased flight operations after years of financial underperformance, driven in large part by the fact that its domestic business was being undercut by the rail network. According to a 2019 report by Trenitalia, passenger numbers on its high-speed trains soared from 6.5 million in 2008 to 40 million in 2018. On the lucrative route between Rome and Milan, 69% of those travelling between the two cities went by train whilst the share of those travelling by air fell from 26% in 2015 to below 20% in 2018.
The distance between Rome and Milan is 570km which means that a fast train can compete with air travel. This is double the distance between London and Birmingham which nobody in their right mind would ever want to fly. However, London to Edinburgh is a distance of 650km where a fast rail service would be competitive vis-à-vis flying. Whilst time savings will be derived on the first half of the journey to Manchester, these are insufficient to do in the UK what was achieved in Italy. The key takeaway in my view is that building a long distance high-speed network that can compete with air travel, thus leading to a reduction in carbon emissions, would have positive social benefits. However, there are better ways to spend £98bn than a relatively short stretch of high-speed rail that looks increasingly like a vanity project. These funds could provide up to 150 new hospitals, for example, or be invested in green electricity options. The message is thus extend north, or not at all.
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