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What HS2’s £50bn could really buy us – we do the maths

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I will see your HS2 and raise you six London Olympics, three Heathrow runways and a nuclear fusion reactor

Ask a group of people about the controversial HS2 plans and chances are at least one person will utter the joke about the high-speed rail route regularly bandied about. It would be cheaper to raze every building in Birmingham to the ground, the joke goes, and build the city back up from scratch closer to London, than it would be to build HS2. (Cue laughter.)

At a jaw-dropping £50bn construction cost, the comics may well have a point. The LibDems swear we can’t do without the project but Labour now likely want to ditch it. And while the Conservatives are still officially backing it, the party is divided. UKIP can’t even bear to utter HS2 in a sentence that doesn’t feature the words scrap, bin or heap.

The line, which would connect London to Birmingham, has been labelled an unnecessary and unworkable cash guzzler by critics, who insist the money would be better spent elsewhere.

After all, British infrastructure projects do have a tendency to run over-budget and current HS2 projections have already risen by £10bn, with London Mayor Boris Johnson and others warning that the total spend could exceed £70bn.

And this is even before we factor in the bill for Crossrail 2, which Transport for London has said will have to be built to allow London to cope with the passenger influx of HS2. That could bring the total up by a further £18bn.

Without weighing in on the debate too much (there is still a lot more consulting on both sides that needs to be done before the right decision is made), we thought we would look at what other long-term infrastructure and investment projects £50bn could give us and has given us.

HS2: £50bn

Estimated cost: £50bn

Estimated reward: £48.2bn in user and businesses benefits & £15.4bn in wider economic benefits

Reward / spend ratio: 1.262

On HS2’s website, planners insist that “the latest available estimates suggest that HS2 will return around £2 worth of benefit for every £1 invested” although it is not quite clear how and over the course of how long such a payout would be achieved.

HS1 (£7.3bn) x 6.8 = HS2

The line connecting London to Kent and the Channel Tunnel and operated by Eurostar fully opened in 2010. It required a government bailout package agreed at £1.8bn and also had additional operating costs of £1.6bn

Estimated cost: £7.3bn

Estimated reward: Total £17.6bn – of which £10bn regeneration, £3.8bn transport, £3.8 wider economic benefits

Reward / spend ratio: 2.4

Crossrail (£14.8bn) x 3.4 = HS2

The high-speed commuter route will connect London from east to west and drastically reduce travel times while growing London’s overall transport capacity by an estimated 10%. We could build at least three more Crossrails for the price of HS2.

Estimated cost: £14.8bn

Estimated reward: £42bn

Reward / spend ratio: 2.83

The London Olympics (£8.9bn) x 5.6 = HS2

The Olympics are officially estimated to have cost £9bn, which means we could have hosted the Games five-and-a-half times for the HS2 price tag.

Estimated cost: £8.9bn

Estimated reward: £9.9bn

Reward / spend ratio: 1.11

Third Heathrow runway (£16bn) x 3.1 = HS2

Estimated costs: £14bn to £18bn

Estimated reward: £100bn (although his is an estimate from Heathrow bosses, so should be taken with a pinch of salt. The Davies Commission rules on the matter after the next election)

Reward / spend ratio: 5.5 to 7.14

Boris Island (£80bn) = HS2 + £30bn

Boris Johnson’s pet project in the Thames Estuary would see London’s airport hub completely relocated onto reclaimed land. The Mayor has not fully abandoned the project but has since said he is also considering the slightly less ostentatious options of expanding Stansted or building on an alternative site in the Thames Estuary.

Estimated cost: £80bn

Estimated reward: £742bn added to total value of goods and services (although again this is an estimate from the Mayor’s office and should be looked at with caution)

Reward / spend ratio: 5.9

Gatwick expansion (£9bn) x 5.6 = HS2

Building a second runway in Gatwick has been touted as another alternative to the two mega-hub airport ideas. Gatwick owners have said they could have the runway ready by 2025 and could fund the whole project without any taxpayer assistance.

Estimated cost: £9bn

Estimated reward: £56bn (again, airport bosses’ estimates)

Reward / spend ratio: 6.2

Nuclear Fusion (£60bn) = HS2 + £10bn

Nuclear fusion – the fusion of two atoms that creates an excess of clean, radiation-free energy – may seem like the stuff of science fiction but it seems that we are actually not light-years away. UK scientists estimate that we are just £60bn-worth of investment away from perfecting the technology.

Estimated cost: £60bn

Estimated reward: As yet unknown but would help reduce Co2 emissions, reduce energy prices, work to eliminate dependence on expensive foreign energy and generally revolutionise the world.

Reward / spend: Potentially infinite

High-speed broadband expansion (£3.7bn) x 13.5 = HS2

In 2011 the government made a pledge to get 90% of the UK, including those in rural areas, hooked up to fast-speed broadband by 2015. The scheme is woefully behind schedule – in February only 65% of households were connected at broadband speeds.  However, the government has since said it has a renewed target to connect 95% of UK homes by 2017. The cost estimates vary wildly according to what kind of technology would be used to connect the homes, with funding thought to come from government, local authorities and businesses.

Estimated costs for 90% high-speed broadband and 100% coverage: £3.7bn (estimates from London School of Economics)

Estimated reward: Exceedingly hard to calculate as based on which areas are connected and at which guaranteed speeds. But according to the Broadband Commission, every 10% increase in broadband penetration results in additional 1.3% growth GDP. Also a study by Regeneris consultancy found that every £1 a business invests in fibre broadband in rural areas would create some £15 in additional gross value added for the UK economy.

Non-infrastructure spending

To look at just a couple of fields that have a long-term impact on economic growth: HS2 spending is almost as much as our total annual education spending for 2015-16, set at £53bn. It is also five times what it will cost to upgrade the UK’s 261 worst schools and more than 10 times what we spend annually on research and development – £4.6bn.

 

So expect the debate about the future of UK infrastructure and HS2 spendin
g in particular to keep heating up. The economic argument in cash-strapped times remains far from clear.

 




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