Why HS2 won't cost £80bn

The Institute for Economic Affairs has a report out this morning on the High Speed 2 (HS2) railway that claims the real cost of the project will be "more than £80bn" – around double the government's current estimate.

But even if you think HS2 is a costly white elephant, don't be taken in by these figures. Edge beyond the executive summary of the report and you'll find they rely on wild speculation and fag-packet estimates.

So how does the report's author manage to double the existing £43bn budget? By adding in anything that has been proposed along the route and claiming it's an integral part of the system.

The most expensive proposals are likely to be Crossrail 2, high-speed spurs to a national hub airport and Liverpool, and various other heavy-rail projects to link to HS2. The cost of these schemes alone could exceed £30 billion.

This is bunkum. The cost of building HS2 does not involve building Crossrail 2, in the same way that building an airport in London does not include the cost of building another airport for the planes to fly to. Even then, none of these projects have been confirmed or given the go-ahead – and Crossrail 2 has a lot more to do with alleviating the pressure on London Underground services than it does with the cost of building a railway to Manchester and Leeds.

High-speed spurs to a national hub airport are even more speculative, since we have no idea whether and where it will be built – and if Britain sticks with developing Heathrow it's very likely that already-under-construction Crossrail 1 will be the main route out of the airport. Meanwhile, the author claims that we should factor in a direct HS2 connection from Crewe to Liverpool, with the only citation being a statement from Liverpool's Local Enterprise Partnership declaring that they're "lobbying hard" for the link. Yes, that's just the sort of press release that these business groups exist to issue. It isn't going to happen.

Meanwhile the IEA suggests Yorkshire will require "various heavy rail projects" due to HS2. These consist of measures required to keep commuter services between York, Leeds and Manchester from keeling over. Hundreds of commuter trains in the north are 1980s Leyland buses stuck on railway wheels that have to be replaced to comply with disability laws – the investment required to do this has nothing to do with High Speed 2.

So the government's £42.6bn high-end estimate for building the physical HS2 route (£29.9bn, plus a £12.7bn contingency fund to cover over-runs) is combined with the official £7.5bn figure for building the trains to run on the route to give an official total of £50.1bn.

The IEA report takes this, ignores the positive effect of revenue from paying customers and adds £30bn for various other projects that are either at the early stages of development or completely unconnected. It then hits the "more than £80bn" figure by accounting for the author's belief that there will have to be additional lengthy tunnels on the second phase (even though deep cuttings are less of an issue in the north than tightly-packed London commuter belt) and towns that are missed off the route will demand regeneration cash as a bribe.

That said, while the figures may be dubious, HS2 is looking doddery. Senior political backers of the project have told City A.M. that the project desperately needs a well-funded pro-HS2 lobby campaign to be a success, with the fortune of the entire railway now depending on getting the bill through this parliament before the 2015 general election starts to loom. Although the project retains the support of the three major party leaders the IEA's report has at least achieved its objective of winding up backbenchers and making the bill's passage even harder.