The decision to go head with HS2 makes little economic sense

Dr Richard Wellings writes for PublicServiceEurope

Even the British government's own figures suggest the economic case for High Speed 2 is weak. The scheme is loss making in commercial terms and involves huge financial risks that will be borne by the taxpayer. If passenger numbers are significantly below forecast – perhaps, as a result of new technology reducing the need for business travel – taxpayers could even end up subsidising the train services, in addition to the infrastructure costs. The decision to proceed with the project, therefore, makes little economic sense. So, why does HS2 enjoy such strong support within the main political parties?

Crude electoral calculation is almost certainly part of the explanation. The last general election produced disappointing results for the Conservative Party in both the West Midlands and the north of England. The party leadership sees HS2 as a useful way of demonstrating its commitment to the regeneration of these regions. It remains to be seen whether this strategy will be successful. However, positive perceptions about the impact of the project can be manufactured by stories fed to the media. Far-fetched claims that the scheme will create one million or, even, three million jobs have circulated in the local and regional press in the Midlands and the North. By the time the new line opens and such benefits fail to materialise, many of today's political leaders will have retired. 

There is also a very powerful lobby behind HS2. It includes elements of the rail industry, as well as local councils and MPs in areas that hope to benefit from the line. This tallies with what economic theory tells us about government spending decisions. It suggests that concentrated interests that stand to gain the most from state expenditure will have very strong incentives to engage in lobbying activity in an attempt to influence policy. And so it is unsurprising that high-speed-train manufacturers, for example, have been major backers of the pro-HS2 campaign.

Read the rest of the article on the PublicServiceEurope website.

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