Economic Case for HS2 (Economic Affairs Committee Report)

Lord Desai Excerpts

Wednesday 16th September 2015 Lords Chamber

[Lord Desai (Lab)]

My Lords, I come into this debate very much as an amateur. My noble friend Lord Hollick said that I should read the report and maybe speak on it. I would say immediately that I am very much for HS2 and HS3, and I agree with my noble friend Lord Prescott that delay is not a good idea. As soon as we can build HS3 or HS2, wherever we can build it, we ought to get on with it.

Cost-benefit analysis seems to be the major ground of debate in this report. In my career as an economist, I do not think I have ever seen a cost-benefit analysis where you could not say, “No, we could do a better job: we should have more and better estimates and surveys”, and so on. The way I read the report, it says, “Yes, get some better numbers”, but it does not say that we should not do this. But maybe I have misread the report. My view is that HS2 is still a good idea, and that HS3 is an even better idea, and that we need to make the decision using animal spirits rather than detailed calculation.

Let me give one example. The classic study of cost-benefit analysis for transport economics was the Foster and Beesley paper which led to the Victoria line. It was published in the Journal of the Royal Statistical Society way back in 1964. It totally underestimated the complete impact of the Victoria line on the London economy. Islington would have been impossible without the Victoria line, and the prosperity of that bit of north London is very much because of it. The calculation was entirely about time saved in commuting. Here, the argument is that the time saved in commuting is not sufficient to justify the position but, as my noble friend Lord Adonis said, there are other benefits that we have to take on board. Those other benefits may also require some additional costs, but that kind of calculation does not seem to have been made or examined by anyone. It would be very important for the Government, when they give a better reply to the report than they have already given, to be able to make a much better case for the HS2 and HS3 lines based on the total benefit of constructing them, not merely on the time saved by businessmen because they will get to London x minutes faster.

What we need, not just now but for future big investment decisions, is a different slide rule—a different kind of calculation that considers the narrow costs and benefits of the particular project but then also calculates what I would call the other externalities that result from these sorts of investments. The character of large investments, most of whose good effects are larger than the narrow effects of the investment as such, is very often undercalculated. People should not forget that some of the extra business and revenue generated will come back as tax revenues for the Government, not just from the businessmen travelling but from the overall impact on property prices, businesses built, jobs created and so on. The Government need to examine this, perhaps within a new “Office of Animal Spirits”, as I will call it, which would do these sorts of calculations for large investments.

It is quite clear, when you travel in France or Germany, that since the 1970s we have not had the sufficiently large level of investment in our transport system that other countries have had. I do not know whether they went into detailed calculations and debates about cost-benefit analyses, but they made those decisions and have benefited from them. It is about time that we made some big investment decisions and implemented them as soon as possible. I hope that the Minister will tell the various Conservative MPs along the route that they should stop complaining about HS2 going through their constituencies and just enjoy the benefits that it will bring to those constituencies when it is done. The sooner that we get on with this, the better.