Transport Funding: Wales and HS2

Jonathan Edwards Excerpts

Tuesday 26th October 2021 Westminster Hall

[Dr Jamie Wallis (Bridgend) (Con)]

It is a pleasure to serve under your chairmanship, Sir Edward. I congratulate the hon. Member for Swansea West (Geraint Davies) on securing this debate. He and I serve on the Welsh Affairs Committee and he alluded to its recent report on rail investment in Wales, which had a section on HS2. He will remember, from the fierce debates that we had during those private meetings, that he and I disagree very much on the essence of HS2 and its benefits to the people and the economy of Wales, but I admire his passion and I believe that we as Welsh MPs should fight for as much money for Wales as possible. There is absolutely nothing wrong with that.

I firmly believe that HS2 presents an opportunity for us to build back better not just for England, but for the United Kingdom as a whole. I welcome the hon. Member’s comments that investment in the main spine down the United Kingdom benefits the whole United Kingdom. My hon. Friend the Member for Montgomeryshire (Craig Williams) highlighted how his constituents and those in north Wales will benefit with respect to the east-west nature of their day-to-day travel, with journey times to London from Birmingham, their closest main hub, being significantly reduced. This investment will therefore benefit them.

To turn to areas such as my Bridgend constituency, in the past 20-odd months of being an MP, I have seen a huge number of small and medium-sized enterprises that are heavily involved in Government infrastructure projects, whether that is Hinkley Point C or HS2. I actually surveyed all of the businesses on one of our industrial estates. There were only a few dozen and not all of them replied, but over half of them were currently either servicing or considering tendering for a UK Government infrastructure project, most notably Hinkley Point C and HS2. There are currently 2,000 businesses involved in the development of HS2, with 9,000 people working on the line, and many of those businesses are based in south Wales. The whole of the United Kingdom gets to bid and tender for this work. That money and investment provides job security and opportunities for people across the whole of the UK.

The Select Committee report was slightly unfair and contains some inaccuracies. It suggested that the Welsh Government had not received a single penny from the Department for Transport spending on HS2. I would like to highlight that between 2015 and 2019 the Welsh Government received about £755 million in Barnett consequentials. I appreciate that the hon. Member for Swansea West is referring to future Barnett consequentials, but it is not the case that the Welsh Government have received nothing. They have received Barnett consequentials to date.

[Jonathan Edwards (Carmarthen East and Dinefwr) (Ind)]

I do not think anybody is discounting the fact that increasing Department for Transport expenditure leads to overall consequentials for Wales. The question is on the impact of the HS2 element. Having mentioned the £755 million for Wales, what are the figures for Scotland and Northern Ireland, considering that they get 100% Barnett consequentials? That is the issue at hand.

[Dr Wallis]

I thank the hon. Member for his intervention. I represent a constituency in south Wales. Much has been made of the benefit to mid and north Wales, and I am trying to highlight some of the benefits to south Wales. If there is a benefit to people and businesses in Wales, with investment in infrastructure in the United Kingdom benefiting the UK and Welsh economy, surely we have to accept that to ask for 100% Barnett consequentials on the project is simply not right. We have to accept that Wales will get a benefit, so asking for a 100% comparison is simply not right.

Many of my constituents are very concerned about environmental factors, and achieving net zero is important.

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[Jonathan Edwards (Carmarthen East and Dinefwr) (Ind)]

Diolch. It is a pleasure to serve under your chairmanship again, Sir Edward. I congratulate the hon. Member for Swansea West (Geraint Davies) on securing this timely debate on the eve of the Budget and the comprehensive spending review.

How Wales has been treated in relation to HS2 is a scandal of epic proportions, and it highlights why the British state does not, and never will, work for Wales. HS2 has been funded purely and totally by public investment, which means that Welsh taxes that have been paid into the general Treasury pot are being utilised. That is different from HS1, which was financed completely via private means. If anyone thinks that I am arguing against public investment in rail, that is not the case. I am arguing that if public investment is used to fund a major rail infrastructure project, the allocation of public funds becomes an important political topic.

Despite the confusion about future phases of HS2, with news reports this weekend indicating that future phases might run on existing routes north of Birmingham, the reality is that the HS2 project dominates UK rail infrastructure spending and will do so for many years. It is likely that the whole project will not be completed until the middle of the next decade.

When the last Labour Government promoted HS2, the projected costs were nearly £40 billion. As my right hon. Friend the Member for Dwyfor Meirionnydd (Liz Saville Roberts) said, the costs are now estimated at well over £100 billion by the independent Oakervee review, despite the Treasury’s desperate attempts to cut costs. Lord Berkeley, the review’s deputy chair, put the costs at more than £170 billion. Regardless of HS2’s finished costs, the key question for the debate and for Welsh transport is its impact on Welsh funding.

Rail infrastructure is not devolved in Wales as it is in Scotland and Northern Ireland. The cross-party Silk commission, set up by the Cameron Government in 2010 to look into the constitutional settlement, advocated equalising railway powers in the Welsh settlement with those of the other constituent parts of the UK. Even before HS2 came online, the commission understood full well the financial implications for Wales of those powers being retained in Westminster.

[Liz Saville Roberts]

My hon. Friend makes an interesting point. There has been one significant material change since the original costing for HS2, in that since last year, Transport for Wales—Wales’ transport network—has been in public ownership under the operator of last resort. Given that the train system is in public ownership, surely Network Rail should also be devolved to align public spending most effectively in Wales, along with the proper funding. There is a staggeringly obvious discrepancy and inconsistency between those two things.

[Jonathan Edwards]

As always, my right hon. Friend makes a pertinent point. It does not make any sense that the responsibility for operating the railways in Wales is devolved to the Welsh Government but the responsibility for the infrastructure remains in the hands of another Government.

To return to my point, the Silk commission recognised that the devolution of those powers and the equalisation of powers for Wales, Scotland and Northern Ireland, was right not only for operational reasons, but because of the financial implications and the historical underfunding of the Welsh railways that resulted from the powers being retained in Westminster.

[Geraint Davies]

The hon. Gentleman is being generous in giving way. Does he agree that one has to differentiate, as I do not think the hon. Member for Montgomeryshire (Craig Williams) did, between the amount of money we get for Wales and who spends it? There was a lot of talk about UK money—“The Government spends this. Don’t give the money to the Welsh Government.”—but the basic point is that we should get our fair share. Of the £48 billion that Network Rail spends, about £1 billion is spent in Wales, which certainly is not the 5% that we deserve.

[Jonathan Edwards]

Absolutely; that is the financial reality. We do not even get a population share, which would be 5% of rail investment. People might argue that 11% of the rail network is in Wales, so we should be getting more than our population share. Historical underfunding is a huge problem for us in Wales in terms of developing our economy and moving our country forward. I will return to some of those themes later.

[Craig Williams]

The hon. Gentleman is indeed being very generous. Will he reflect on the fact that a good chunk of the Welsh railway network is in England? We have already alluded to the fact that Shrewsbury station, which I can assure the Chamber is in England, is an important Welsh station. Going from north to south Wales, a large chunk of that trunk railway is in England.

[Jonathan Edwards]

I listened to the hon. Gentleman’s speech advocating the benefits of HS2 with great interest, but he needs to reflect on the full business case for HS2 produced by HS2 Ltd in 2020. According to Professor Mark Barry’s submission to the Welsh Affairs Committee, there is no passenger benefit to Wales at all from HS2.

Returning to my point, the political process in Westminster following the Silk commission was a hatchet job of the worst kind, in which representatives of the two main Unionist parties drew red lines through the commission’s recommendations. Regrettably, the report was torpedoed below the water line. One recommendation taken out of the report was the devolution of rail powers, which meant that the Wales Act 2014, which followed that process, retained the status quo on that vital issue. The financial implications of that decision are sobering in the context of a domineering project like HS2, due to its impact on Welsh Barnett allocations. It has been catastrophic for Welsh funding.

While Scotland and Northern Ireland get a 100% allocation from HS2, Wales gets a 0% rating because the British Government deemed it an England and Wales project. However, the last time I looked at a map—I made this point in a question to the Prime Minister some time ago—all the HS2 destinations are in England. It says everything about how the British state works that a decision of this nature, with such far-reaching consequences, can be made without challenge. In this post-Brexit world, due to the inequity of the financial settlements across the UK, I have advocated the creation of a body apart from the Treasury to allow the various Governments of the UK to challenge financial decisions. At the moment, Westminster is judge and jury; in this case, that is very much to the loss of Wales. As a result, I have voted against HS2 at every opportunity.

The reality is that as spending on HS2 increases, Welsh Barnett allocations plummet. Now that construction has begun on phase 1, the financial impact has become clear. According to the Wales Governance Centre’s analysis, the statement of funding policy accompanying the last comprehensive spending review indicated that Wales would receive 36.6% of its population share of transport funding, while Scotland and Northern Ireland’s shares remain above 90% due to their full entitlements from HS2, compounding the historical underfunding of the Welsh railways. In 2013, the British Government’s own analysis indicated that HS2 would injure the south Wales economy by more than £200 million per annum; given that that analysis was done eight or nine years ago, I suspect the injury to the Welsh economy will be far more severe than what was revealed at the time.

Underfunding has always been a major issue for Wales. In the way the Department for Transport allocates funding, as our railways become less efficient the case for investment is undermined; meanwhile, investment is ploughed into London and the south-east, leading to a conveyor belt of investment which makes the case for further investment. Indeed, when the Prime Minister was Mayor of London, he argued in the Evening Standard that transport spending in London would need to increase by £1 trillion—if I remember correctly—once HS2 was completed, due to the extra passengers arriving from the north of England. Put simply, the current system does not work for Wales, and we need urgent and rapid change.

The hon. Member for Swansea West made an important point about productivity. Even from the Treasury’s perspective, one of the major issues within the British state is the geographical imbalance in productivity. Transport infrastructure investment is a key economic driver, so if all investment is utilised in and allocated to the most high-performing areas, productivity gaps are worsened. The simplest way to address productivity gaps is to invest in the poorer performing parts of the state, as the German Government realised following reunification—and there was a wall between East and West Germany for half a century. Alas, in the UK, all the money is spent in one small corner. Pre-Budget soundings suggest that an extra £7 billion or so will be allocated for expenditure outside London and the south-east, but the key question is how much of that is new money. It may be less than £2 billion. We wait to hear what the Chancellor has to say tomorrow.

To emphasise the point I made to the hon. Member for Montgomeryshire (Craig Williams), in a submission to the Welsh Affairs Committee’s recent inquiry into this issue, transport expert Professor Mark Barry stated that the full business case for HS2 produced in 2020 proved that HS2 had no transport user benefit for Wales. How the British Government can maintain that this is an England and Wales project is beyond rational understanding, so fairness is at the heart of this debate. Welsh taxes are being used to fund an England-only project that will also have a negative impact on our economy, with no recompense via the Barnett formula. Some might say it was ever thus, but to use the phrase of the moment, this is not levelling up; this is levelling down.

If Wales received fairness in real investment, we could be looking at exciting projects such as a comprehensive metro system for the west based on the one in Swansea—a project that I very much support—a north-south line along the western seaboard, opening up the western half of our economy for further economic development; enhancements across the north Wales and Heart of Wales lines; and electrification of the main line to Swansea.

[Dr Wallis]

The hon. Gentleman talks about these fantastic projects, but given the Welsh Government’s signalling their reluctance to make significant investment in infrastructure with their recent decision not to build the M4 relief road, are they not just further fantasy?

[Jonathan Edwards]

That is a very interesting intervention. I am not defending the Welsh Government’s policy in its totality, but they want to move away from road and towards public transport. If we will not be using road, we have to invest in rail. This is the fundamental question facing us as Welsh representatives: given that the UK Government have shown clearly that they have no intention of investing in Welsh rail transport infrastructure, what are we going to do about it? The only way to address that is to take responsibility for ourselves.

[Geraint Davies]

Does the hon. Gentleman accept that the Welsh Government are not abandoning all investment in roads? They are doing a roads review, looking at how they can balance transport between road, rail and active transport in a sustainable way, which will inevitably—hopefully—lead to a bit more public transport and rail, including electrified buses and public transport on roads. We will have more roads, but we will not necessarily need the M4 relief road if on one in five days people are on a Zoom call instead of sitting in their car.

[Jonathan Edwards]

My understanding of the Welsh Government’s policy is no new extra roads. That does not mean that there will not be investment in road maintenance. However, the reality is that, if we are going down that road, there has to be investment in alternative modes of transport, which again furthers the case for us in Wales to receive the powers, so that we can get investment and make the decisions ourselves. That is fundamentally at the heart of this debate.

On one side of the argument are those of us who argue that Westminster will never invest in Wales, so we need rail powers in Wales that will bring the investment and allow the Welsh Government to make decisions on investing in our own country. On the other side are those arguing that the UK Government will eventually come good and start investing in Wales. That will not happen, so the only solution is for rail powers to be devolved to Wales and for the Barnett consequentials to flow to Wales from England-only projects, as happens in Scotland and Northern Ireland, which will enable Welsh Government Ministers to pursue the transport priorities of our own country.

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[The Minister of State, Department for Transport (Andrew Stephenson)]

It is a pleasure to serve under your chairmanship, Sir Edward. I thank the hon. Member for Swansea West (Geraint Davies) and right hon. and hon. Members for their contributions. We all understand the great importance of transport and levelling up the United Kingdom. All the Members spoke eloquently about the need for more transport investment in Wales, an issue that the Welsh Affairs Committee looked at recently.

Let me assure Members that a key focus of the Government is to ensure we have a transport network that is not only fit for purpose but, above all, able to deliver a better and more prosperous future for all those we represent. HS2 is one of the many schemes that the Department for Transport is pursuing. It will free up capacity on the conventional rail network and support a shift of passengers and freight from road to rail. I stand here as the HS2 Minister, convinced that HS2 will play a vital role in levelling up all parts of the United Kingdom. However, as we have heard, HS2 is not the only matter at hand, so I will first focus on rail funding more generally in Wales and other points raised, before turning the HS2.

Let me be clear: we are investing in Wales. The current control period has seen a record £2 billion revenue settlement for Network Rail in Wales. Of that settlement, almost £1 billion will be spent on renewing and upgrading infrastructure to meet the current and future needs of all passengers, such as the complete restoration of the iconic Barmouth viaduct in Gwynedd. Investments in new stations are being made apace, such as at Bow Street in Ceredigion; line enhancements are being made in north, south and mid-Wales; major upgrades are being made to Cardiff Central station; and level crossing upgrades are being made to the Wrexham-Bidston line. That work is happening now, but a lot more is coming down the pipeline, including the opening-up of opportunities for work, travel and leisure for Wales and across the UK.

Members will of course be aware that the interim report of Sir Peter Hendy’s Union connectivity review was published earlier this year. It identified that rail capacity and connectivity issues need to be addressed in north and south Wales. In response, the Prime Minister made £20 million available to assess options on the road and rail schemes, which the review has identified as crucial for cross-border connectivity. I am glad to say that my officials are working closely and collaboratively with the Welsh Government and delivery bodies to identify potential projects to be supported, in line with our continued support for the Welsh Government in their ambition to have greater control over Welsh rail infrastructure. That is evident in our collaborative approach to working with our partners to divest the core valley lines to the Welsh Government. We expect the final Union connectivity review report to be published in the autumn, when the Government will consider Sir Peter’s recommendations to improve connectivity across the UK.

I will touch on a few of the investments that are currently under way. As we speak, important work is going on to transform Cardiff Central station. The rail network enhancements pipeline has allocated funding of £5.8 million to Transport for Wales for that work, supported by funding of £4 million from the Cardiff city deal. The design and business case work is expected to be completed next year, and it is an example of the strong collaboration in place between the UK and Welsh Governments.

The Cambrian line upgrade will bring the line’s digital signalling up to date. That much-needed upgrade will in turn enable the introduction of new trains and allow the system to work seamlessly with other digital signalling schemes. Further funding for that upgrade has been allocated to deliver the work by May 2022. A third example of a recent project is the Conwy valley line, which includes the longest single-track railway tunnel in the UK. Some £17 million was spent to repair and restore it, making it fit for passengers again after multiple floods in the past five years.

Such projects have an enormous effect on communities, and I know that there will be many more enhancements in the years to come. The north Wales metro strategy board has been established by Transport for Wales to integrate the proposals for transport improvements in the region, building on the exciting opportunities highlighted by those at Growth Track 360, for example, whom my hon. Friend the Member for Vale of Clwyd (Dr Davies) and I met last year, to transform north Wales and deliver 70,000 new jobs over the next 20 years.

The Department for Transport and Network rail are supporting the work of the board in providing advice on progression of the programme. There are plans to reduce journey times on the north Wales coastline between Crewe and Holyhead. The outline business case proposes an increase in line speeds, with the goal of improving journey times between north Wales, the north-west of England and other major UK centres.

Transport for Wales has recently commissioned a further strategic study into timetable optimisation and connectivity into northern powerhouse rail and HS2. It will also consider the case for further infrastructure enhancements including decarbonisation options for the line. Finally, in March, the Chancellor of the Exchequer confirmed funding of £30 million for the establishment of a global centre for rail excellence in Wales.

[Jonathan Edwards]

All the schemes that the Minister has mentioned are extremely noble, but what is the total percentage allocated to Wales in the control period? Is the reality not that, compared with investments across the rest of the UK, especially in HS2, Wales is being offered crumbs under the table?

[Andrew Stephenson]

I thank the hon. Gentleman for bringing me to that point. [Interruption.] I have a nosebleed; I will try to power through, but I apologise for any sniffing, Sir Edward.