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HS2 economic case fundamentally flawed: report in summary

High Speed 2 will be the “latest in a long series of government big-project disasters”, a report by an influential economic think tank has found.

The Institute of Economic Affairs (IEA) said in its report titled ‘High Speed 2: the next government project disaster?’ that HS2 is not commercially viable and taxpayers will bear a very high proportion of the financial risks.

“The wasteful allocation of resources is demonstrated by the ‘gold-plating’ of the HS2 route,” the report said.

“The first 8km from Euston to Old Oak Common, for example, will add almost 25% (about £4 billion) to the cost of the first phase but deliver negligible time savings.”

It also found that the government’s economic case for HS2 depends on estimates of demand growth that are very high compared with a range of previous forecasts for long-distance rail travel and that this approach was taken in forecasting passenger numbers for HS1.

“High Speed 2 is another political vanity project – like Concorde and the Millennium Dome – being ploughed ahead with with complete disregard for properly thought-through commercial prospects or the mounting opposition to it,” said report author and IEA deputy editorial director Richard Wellings.

“Its environmental credentials are questionable, its projected passenger figures suspect, and its proposed regenerative effects highly dubious.

“Proceeding with HS2 plans is a recipe for disaster and, as always, it will be the forever-embattled British taxpayer who will end up footing the bill for this latest white elephant.”

The report in summary

The research claims that policymakers in favour of HS2 are making their case on the basis of bogus assumptions:

Flawed economics

Huge government subsidies on the existing rail network mean that prices and demand levels are severely distorted.

Estimates made by the government of demand growth are very optimistic. The long timescale involved also adds to the uncertainty.

The Department for Transport’s (DfT’s) Command Paper said demand for HS2 would be 267% higher by 2033. However, in the more recent Economic Case, it was said that this demand level would be reached by 2043 - 10 years later.

The effect of competition from other rail lines has been ignored when projecting future HS2 ticket prices and passenger numbers. Lower prices would make the project even less viable.

Competition from the West Coast Main Line or from the Chiltern Line could lead to the lowering of HS2 ticket prices in order to attract and retain customers.

The cost of HS2 will require a contribution of £1,000 per income tax payer

The project has been ‘gold-plated’, leading to grossly wasteful allocation of resources. The first five miles of the route, from Euston to Old Oak Common, for example, will add almost 25% (c. £4bn) to the cost of the first phase but deliver negligible time savings.

Additionally, the decision to route the line through the Chilterns will require major tunnelling work; this 29km long stretch accounting for 17% of the construction costs

Significant environmental and social costs are not included in the assessment of the economic case, with several areas likely to be affected by ‘planning blight’.

HS2 is likely to create demand for additional high-cost, taxpayer-funded transport capacity. Terminating the line at Euston may require a new Underground line or Crossrail 2 link to cope with extra passenger numbers.

Exaggerated time savings

The case for HS2 assumes that time on board a train is wasted for business travellers. However, many business people are able to undertake productive work during part of their journeys. HS2’s claims are therefore greatly exaggerated.

Further, the decision to build a new station on the outskirts of Birmingham city centre, as opposed to HS2 travelling direct to Birmingham New Street (the major transport hub of the West Midlands) will wipe out much of the time savings claimed.

Fraudulent ‘green’ credentials

The ‘green’ credentials of the scheme are highly questionable. At 360km/hr, the trains will be the fastest in Europe and will consume disproportionate levels of power via the National Grid.

HS2 simply constitutes a strategy of increasing public subsidy to enable more, CO2-consuming journeys

False regeneration claims

Claims that HS2 will bridge the north-south divide and bring regeneration should be treated with scepticism as the evidence is largely speculative. Alleged benefits must be set against the wider economic losses from the additional taxation required to fund HS2.

Readers' comments (12)

  • I am hoping the NCE will publish a fuller report of the IEA's findings. In the meantime the following link will take you to the BBC's article.

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  • Barry Walton

    Stick 'High Speed 2: the next government project disaster?' in your web browser and it will take you via the IEA to a free PDF of the report.

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  • Lionel jones

    History tells us that bean-counters don't like mega-projects: The Olympics, HS1, Wembley, Crossrail and Jubilee Line Extension to name a few recent projects. Even Bazelgette had to wait for years and 'The Great Stink' to get his sewer project funded. I'm sick of reading Facebook and Twitter posts from over-emotional NIMBY's clinging onto such reports as a valid reason to scrap HS2. The simple question is: with rising oil prices and climate change, a more transient population, a breaking down of the centralised urban employment hotspots, the north-south divide widening and Europe rolling out the high speed network - can the UK afford not to have a fully integrated HS grid? I don't think so.

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  • Lionel jones

    One of authors behind IEA's "research" lives close proposed line and is active in apposing

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  • Lionel jones

    One of the authors behind IEA's "research" lives close to the proposed line and is active in opposing it

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  • Another of the authors lives "several miles from the proposed line" and in a previous report called for an end to all rail subsidies. This is a dodgy piece of propaganda.

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  • I agree with Lionel Jones and D Harvey, but the IEA argumentation needs to be dismantled point after point... And it's totally possible!
    On the economics (economic benefits => see France or Spain, bad faith with the £1000 per income tax payer when this can be divided into so many years...), on the time savings (even when working, people won't be as productive in a train that takes hours to reach a destination), on sustainability, if we take into account the new generation of nuclear power plants and on regeneration (again, just have a look at France...).
    Let's hope the various governments keep the momentum till the Construction starts. Britain certainly needs it!

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  • IEA are not the only organisation stating that the economic case for HS2 doesn't stack up to proper scrutiny. why do those for the project have to resort to the nimby argument and refer to other countries ignoring the lack of relevance to Britain?

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  • This report echoes what I have been saying for quite some time now. In addition it is probably a government plot to help divert attention from the total failure to tackle the the crises we face - the economy, debt, the EU, inadequate education, uncontrolled immigration, lack of leadership, banking, law and order (plus confidence in policing), incompetent/fraudulent MPs, family breakdown..........what about these (and others) in the priority order?
    Jim Barrack

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  • My understanding is that the main economic argument is capacity based, i.e. the existing infrastructure cannot physically run anymore trains. To meet demand we require an new route. The "high speed" bit is simply an add on, i.e. if you are building a new railway its nearly as cheap to build it high speed as normal speed. No one who travells by train can deny the infrastructure is overcrowded. Simply look at the figures. Whilst i dont think it is correct to imply a motive to the authors, i think thier opinions just like everyone elses should be taken into consideration, and then we should build it anyway!

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