Wake up call for the Department for Transport: Do the proper sums on HS2

Paul Ormerod
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THE High Speed 2 (HS2) rail project is under fire on many fronts. Nimby protests in the affluent Home Counties have been augmented by more weighty criticism from the National Audit Office (NAO). At least, this is how the NAO’s work has been reported in the press.

But the NAO’s review of the HS2 project is in many ways more a criticism of the Department of Transport than it is of the high speed rail link itself. According to the report, “the Department’s methodology for appraising the project puts a high emphasis on journey-time savings, from faster and more reliable journeys”. Surely this is a sensible thing to do? Faster means less journey time. It seems obvious.

The problem is that this is a mere fraction of the whole story. It is a purely static way of trying to measure the benefits of a major transport infrastructure project. Immensely complicated models of rail networks exist, in which every single journey can be mapped. Infrastructure investments reduce journey times. So the total time saved can be calculated from the models. Economists have hammered out a consensus on how to put a value on these savings.

The problem is not in how time is valued, it goes to the very heart of the approach to which transport planners are wedded. The journeys which are made after the investment are assumed to be the same as the ones which were made before. This completely misses the point. Major infrastructure projects have the capacity to transform areas, to make new economic activities possible. Their benefits are dynamic, not static. Successful projects dramatically alter previously existing journey patterns.

Exactly the same problem was encountered in the long struggle to get approval for Crossrail. The purely static benefits of time savings generated by the massive, conventional transport models were never enough to justify the cost of Crossrail. But the dynamic benefits of building it are huge. London could not survive as a world city for long with a transport system creaking at the seams and bursting to capacity. Eventually, after a lengthy intellectual battle, the Treasury prevailed on the Department of Transport to take into account these dynamic benefits, which justify the costs of Crossrail many times over.

But it looks as if, with HS2, the Department has slipped back into its old comfort zone. The NAO’s criticism is precisely that it has “poorly articulated the strategic need for a transformation in rail capacity and how High Speed 2 will help generate regional economic growth”. In other words, the dynamic effects created by transforming the network.

The North faces many economic challenges. One of these is that it just does not have enough connections – it is not networked strongly enough with the prosperous and dynamic South. The North needs to generate more exports to London and the South. HS2 makes it more connected, and gives it the dynamic potential to meet this task.

Paul Ormerod is an economist at Volterra Partners, a director of the think-tank Synthesis and author of Positive Linking: How Networks Can Revolutionise the World.