High Speed 2 (Economic Affairs Committee Report)

Baroness Vere of Norbiton Excerpts

Thursday 23rd January 2020 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Transport (Baroness Vere of Norbiton) (Con)]

My Lords, what an excellent debate. I thank all noble Lords for their thoughtful contributions and give special thanks to my noble friend Lord Forsyth, who I understand is not feeling too well—I wish him all the best in his recovery—and his committee for their thorough and detailed report.

As many noble Lords have pointed out, HS2 is a very significant investment. If it proceeds, it will probably be the largest infrastructure project in Europe. There are pros, cons and a multitude of other considerations. Many noble Lords have cited the advantages and benefits of the project. It will unlock much-needed rail capacity, particularly for commuters as trains shift from the express lines and free up commuter capacity. It will improve connectivity between big cities and locally, as I will come on to. It will support housing growth and provide 30,000 jobs and 2,000 apprenticeships. But I was heartened to hear many noble Lords today focus on the skills side of these projects. It is essential that we continue to revitalise and regenerate our workforce, and these sorts of skills will be absolutely essential as we move forward.

Other noble Lords have voiced their concerns. It is a substantial investment; we need to make sure that the returns justify the financial commitment. What are the forecast costs? They have been subject to intense scrutiny and revision. Construction of HS2 will affect many home owners and landowners all along the route for many years and, despite significant planned mitigation, it will inevitably have an impact on habitats and woodland along the route.

The decision of whether and how to proceed with HS2 is not an easy one, but it must be made. Unfortunately, the noble Baroness, Lady Randerson, will be disappointed to hear that I am not going to make it today. I would love to. Noble Lords have made powerful arguments on both sides of the debate and now the Government will decide: does the project go ahead or does it not? If it does, should there be changes to the existing plan? That is why the debate today on my noble friend’s report is particularly timely.

We will make the decision in February. In doing so, the Government will consider the independent advice, commissioned in August last year, provided by Doug Oakervee and his panel. The department received the draft report before Christmas, and we will publish the full report. The Government will also consider reports such as the one that is being debated today, and the personal views of the noble Lord, Lord Berkeley, alongside other voices from the independent panel, such as the Mayor of the West Midlands, Andy Street.

The Economic Affairs Committee’s report offers a detailed analysis of the project and highlights some opportunities for rethinking HS2. It has been pointed out that there are opportunities for rethinking major projects, and they must not be dismissed. The report is based on evidence from a considerable number of experienced witnesses, and it makes clear recommendations to the Government. I will try to focus on some of the issues that it raises.

The first issue I will turn to is Northern Powerhouse Rail, which is a really long title so I will call it NPR, and rail investment in the north. This has been noted of course by my noble friend Lord Forsyth, but also by many other contributors. The report reiterates the importance of NPR and the Government wholeheartedly agree. Indeed, we committed to it in our manifesto. We have also been clear—indeed, the noble Lord, Lord Faulkner, quoted me—that it is not a case of either/or when it comes to HS2 and NPR. There are many advantages to the connectivity offered by both.

We agree that there is an urgent need for rail investment to improve connectivity, journey times and frequency between northern towns and cities. In summer 2019 it was agreed that the first stage of NPR would be a new line between Leeds and Manchester. The Government are now working at pace with Transport for the North—TfN—on the detailed next steps that we need to get done. We will announce them in partnership with TfN in due course. NPR is of course in addition to the Great North Rail Project, which is already under way, and increasing the network’s capacity and supporting additional services.

I have heard quite frequently today noble Lords saying, “Hurry up. Get it done. Why can’t you just get it done?” I would have said exactly the same thing had I not become a Transport Minister. Many noble Lords know as well as I do that designing, planning, constructing, consulting and surveying for a railway takes a very long time. To a certain extent, construction is the easy bit; it is the bit that can be done towards the end. That is certainly the case with roads, where the road will take seven or eight years, but you can build it in about 18 months. It is everything that goes before it that takes the time.

I wish we could hurry up through this, but I do not think that the noble Baroness, Lady Bennett, would be happy, because we would be rushing our environmental surveys, and that would be no good at all. We would not be talking to local stakeholders, and that would be no good at all. So we have to go through the process. NPR, much as many of us would wish that it was not, is at a very early stage in the process. It is currently no more than a Sharpie line on a map. We have to move it forward and we are working at pace to do so, but I am not going to lie; it will be quite some time before the first customers can board an NPR train.

The committee suggested that construction of HS2 should begin in the north rather the south. The original rationale for beginning building in the south was one of capacity. The capacity constraints are currently most keenly felt on that stretch of line. I have been on that line quite a few times recently, and certainly the 8.05 to Birmingham is a little cramped. In fact, it is very cramped. We are now at a stage where the new capacity will not come online for quite some time. That is why we started in the south. Parliament has already provided the powers to build the railway between London and Birmingham—so, if this project is going ahead, we might as well crack on with that. The process for the northern sections of the current proposals is a little behind that of the southern section because the legislation, in the shape of a hybrid Bill, is not yet before your Lordships’ House or the other place.

Several noble Lords made comments about hybrid Bills. It is probably beyond the scope of today’s debate, but I would be happy to hear ideas on whether hybrid Bills are suitable ways to take projects such as this forward, and what alternatives we might consider in the future for major infrastructure projects. To change the phasing of HS2 might cause delay, and I am not sure that is a good idea. It could cause additional costs and leave quite a number of property owners in limbo.

Despite the report being thorough and detailed, there is one notable omission, as noted early in the debate by the noble Lord, Lord Hunt of Kings Heath; the Midlands have been forgotten and are not included. I am sure this was not intentional; the Midlands are incredibly important and benefit from HS2. We are also committed to progressing other investment in the Midlands, such as the Midlands rail hub, which will improve connectivity for passengers and freight, this time going east to west. East-west connectivity is essential, as was noted by the noble Baroness, Lady Randerson, and the hub will benefit places such as Leicester, Nottingham, Derby and Coventry.

That is not all. Noble Lords will have heard me say before that we are investing £48 billion in our existing rail network between now and 2024. We are looking at rail connectivity between Oxford and Cambridge, for example, and we have committed £500 million to restoring train lines and reopening stations, in a programme of so-called Beeching reversals which will help reconnect smaller towns, improving local economies and accessibility to jobs.

Several noble Lords made the point about upgrading the existing network to deliver some capacity release. Unfortunately, other noble Lords mentioned the enormous disruption that maintenance and enhancement of the existing network can lead to. Sometimes it is deemed worth while, but it is very difficult, and historically, particularly around HS2, we have looked to new builds rather than upgrading existing lines.

I turn to the analysis of the costs and benefits of HS2. The report is critical of the methodology supporting the HS2 cost-benefit analysis. I have listened very carefully to noble Lords. The Department for Transport is proud of the guidance that we use to model and appraise economic and strategic cases, which is widely respected internationally. We can hold our head high when talking about our skills in that area. However, we remain eager to test new appraisal methods. Again, I am happy to be pointed to any papers that noble Lords may have read recently on how the department could improve its appraisal system. Our benefits appraisal focuses on those benefits that can be easily and robustly monetised. The results must then go through the checking process, so the whole insurance process sits above the appraisal process. It is conservative, and some of the long-term benefits are not taken into account because they are very difficult to monetise. You are between a rock and a hard place; if you try to monetise them and are wrong, you will get into trouble, but also if you do not monetise them, you are going to get into trouble. However, I understand that we need to look at increasing the benefits that we try to monetise. More information will be published in due course. Should the project go ahead, I would expect a full business case to be published, which would contain quite a bit of other information.

Points were raised by the noble Lord, Lord Adonis, around the stop-start nature of infrastructure projects. I completely agree. As the Roads Minister, I am very pleased that we have long-term funding now. We can see where our infrastructure is going to go, particularly on our strategic road network. That means that we can plan more effectively. We are beginning to do that with rail as well. Certainly, having reviews that stop a project is sometimes not hugely helpful.

However, I want to comment on the benefit-cost ratio. It would be easy as a Transport Minister to ask for all projects to be sorted by benefit-cost ratio and just pick the top one. That would make my life really easy but of course, life does not work like that; other considerations need to be taken into account. Historically, as I am certainly finding, investment begets investment. You get greater benefits in higher productivity areas, so they will get more investment. Does that mean that you ignore the places with lower productivity? Of course not, but how do you make the decision about where you put that investment? It is not as simple as straight BCR. We recognise that and we take other considerations into account.

On the costs and the schedule for HS2, my right honourable friend the Transport Secretary, Grant Shapps, said that there is no future in obscuring the costs, benefits and timetable of HS2. As noble Lords will know, on the first day back in Parliament after the Summer Recess, he published the independent stock-take from the chairman of HS2. The chairman stated that he does not believe that the scheme can be delivered within the budget of £55.7 billion at 2015 prices; he estimated a range of £72 billion to £78 billion at 2015 prices. But he also said that the benefits had been substantially undervalued.

It is worth noting that all the figures I quoted are in 2015 prices and therefore compare apples with apples. Some in the HS2 commentating space do not follow that convention, which is sometimes not very helpful. But of course, they are not trying to be helpful. I tend to try to talk about things in consistent prices, so we know whether things are comparable. Regarding the schedule, the chairman said that, in line with other major transport infrastructure projects, he proposes a range of start dates rather than a specific one. He is looking at 2028 to 2031 for phase 1, and 2035 to 2040 for the section between Manchester and Leeds.

It is worth pausing for a moment to consider the quantum of the numbers being bandied around and the duration, and perhaps do some rough and ready maths. I know that at this point some noble Lords may say, “It is capital, not revenue”. I get that, but if we consider the highest cost and the longest construction period from the chairman’s stock-take—£78 billion over 20 years—that is an average investment of just under £4 billion a year, which equates to about half a percentage point of annual government spending.

So, where are we now? The Department for Transport has provided the latest estimates on costs, and the schedule, to the National Audit Office as part of its review. I understand that the NAO will publish a report tomorrow. The Secretary of State remains committed to transparency and will provide further information once the Government have concluded their decision-making process on whether and how to proceed with HS2.

A number of noble Lords mentioned cost savings and what we might do, and I will try to touch on a couple if time allows. Of course, we must control our costs, but we must also consider that sometimes, when a cost is reduced the benefit is reduced, and not all cost reductions are neutral. I very much appreciated the contributions from all noble Lords, but especially that of my noble friend Lord Howell—I will ensure that the HS2 Minister is aware of his advice—and of the noble Lord, Lord Mair, who spoke about using innovation in HS2 to reduce costs.

Many noble Lords mentioned reducing the operating speed of the scheme, and I agree that the emphasis on speed has been utterly misplaced. I have said before in your Lordships’ House that the project might benefit from a rebrand. Its name has detracted from wider intended benefits—capacity, connectivity, getting capacity out into the constrained network. We know that the west coast main line is almost closed to new peak-time train paths. Unfortunately, the west coast main line is currently operating at beyond its design capacity, and that leads to maintenance and reliability issues. If we are to reduce our carbon footprint, we must encourage modal shift; yet, if we do not have the capacity, we cannot do that. Therefore, it is right to question speed and it must not be done in isolation, without considering the disbenefits. We must also be aware that it could offer worse value for money. The debate on reducing the speed is not new. It is an area about which we have asked the Oakervee review to advise the Government.

Another area of challenge has been the number of trains per hour, mentioned by the noble Lords, Lord Hollick and Lord Berkeley. The project is being designed and built for a high frequency from the start, with track and station layouts that support this level of service. Other high-speed railways—for example, in France—now operate at a higher frequency than they were originally designed for, and the ability to increase their service levels further is being constrained by legacies of the original design. HS2 will have an advanced signalling system that allows trains to more safely travel closer together.

My noble friend Lord Forsyth mentioned the Old Oak Common terminus. I must be truthful in that, although I know where Euston station is, I had to google Old Oak Common. It is perfectly well located. It is a little far out from the centre of town—let us be honest—but it must be considered, along with the reduction of costs and whether there are any disbenefits in going there. Previous analyses have warned of the pressure on the Elizabeth line and the lack of resilience should the Elizabeth line be closed for whatever reason. Passenger modelling shows that a third of HS2 passengers would get out at Old Oak Common.

My noble friend Lady Neville-Rolfe mentioned the UK construction industry. It is absolutely critical and I agree with her. The UK construction industry has a reputation for being fragmented and prone to contractual dispute, and it also suffers from low productivity compared with Europe and other engineering sectors. Those are the two reasons why major infrastructure projects are traditionally more expensive in the UK than in Europe. We have to increase our productivity but we also have to retain the skills within the system.

I will write with answers to a few other questions but, in drawing to a close, I add a final thought which perhaps builds on the comment from the noble Lord, Lord Grocott. Thinking back nearly 200 years to the 1830s, our predecessors were here debating not one, two or three but four new major train lines. Over a period of nine years, four of the lines that form the vast part of our national railway today opened for traffic. I have no doubt that at that time there were challengers, critics and naysayers, but I doubt that they had any idea of the impact that their determination and courage would have on their children’s generation and many generations thereafter. So perhaps we build railways for our children and our children’s children. I, for one, am grateful to those Victorian pioneers for giving us the routes that we have today.