Economic Case for HS2 (Economic Affairs Committee Report)

Lord Ahmad of Wimbledon Excerpts

Wednesday 16th September 2015 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Transport and Home Office (Lord Ahmad of Wimbledon) (Con)]

My Lords, I take this opportunity to thank the Economic Affairs Committee, and particularly the noble Lord, Lord Hollick, for its work, which is the basis of today’s debate. I also thank all noble Lords for their contributions this afternoon.

It has been a stimulating and interesting debate, and one that has made us cast our memories back through history. I must admit that, when I heard my noble friend Lord Wolfson talk about NPVs and IRRs, I did cast my mind back to the many seminars I attended on investment analysis during my degree. Nevertheless, he raised some points that I will come on to.

We also heard views, and rightly so, from a scientific, economic and, with the right reverend Prelate’s comments, biblical basis. We can agree on one thing above all else: it has been a very absorbing debate, for over three hours now, and important issues have been raised. I will seek to address most, if not all, the questions with the caveat that, if there are certain questions that I do not cover, we will review those and write to noble Lords in that respect.

The noble Baroness, Lady Blackstone, put it aptly when she said we can all agree that high-quality transport infrastructure is essential for our future prosperity.

I previously quoted the noble Lord, Lord Prescott, as saying that we should, “Get on with it”—which the noble Lord, Lord Rosser, just paraphrased—but I was a bit perturbed when he said that people in Yorkshire hate members of the Government. I am a member of the Government who has many family members in Yorkshire and have visited there, both before my membership of the House of Lords—and pre my ministerial experience and responsibility—and also during it. I have always found the people of Yorkshire to be particularly warm towards me. Maybe there are exceptions to every rule.

[Lord Prescott]

Ask the Prime Minister.

[Lord Ahmad of Wimbledon]

The Prime Minister has great regard for people from Yorkshire. Great cricketers come from that area as well. I am sure we can have a debate on cricket in due course, but I will move on to transport.

It was almost 200 years ago that the early canals and railways helped make Britain the most powerful economy in the world. The fundamentals are the same. Good freight transport, as was mentioned by the noble Lord, Lord Berkeley, and the noble Baroness, Lady Randerson, gives manufacturers a competitive edge by cutting the cost of deliveries and distribution. Good passenger transport links businesses with customers and links people with jobs, friends and family—from London to Yorkshire, indeed. Rail remains an essential part of the solution to the country’s transport needs today, but not to the detriment of other elements of transport.

The noble Lords, Lord Berkeley, Lord Greaves and Lord Monks, made particular mention of a national transport plan. I assure all noble Lords that the Government have set out how HS2 fits within the wider transport policy. The Strategic Case for HS2, published in 2013, explained in detail how HS2 fits with investment in the existing rail network and the wider government strategic aims of supporting growth and addressing the productivity gap between the north and south of the country. Several noble Lords mentioned the northern transport strategy, which was published earlier this year. It sets out the transport role in creating that northern powerhouse, of which HS2 is key. In July this year, the Government published Fixing the Foundations, setting out our plans to address the UK’s long-term productivity problem. All parts of the Government will contribute to that, including HS2. Let me assure noble Lords, including my noble friend Lord Wolfson, that investment in rail is just one part of it. For example, we have committed through our roads strategy to invest £15 billion in our roads network over this Parliament.

Investing in rail is every bit as important today as it was in the pioneering Victorian era. For the last half century, we have allowed our infrastructure to fall well behind that of our competitors. Instead of building new capacity and modernising the network, and despite soaring passenger numbers, we have tried to patch and mend our ageing railway.

Central to the case for HS2 are data that reveal the true extent of the capacity crunch facing the UK rail network. Even with over £50 billion of planned transport investment over the next six years, the railways will be overwhelmed. As several noble Lords said, we are not just planning for today; this is about planning for the future. Overall, demand for rail travel has more than doubled since privatisation to 1.7 billion journeys a year. Intercity lines have experienced even faster growth, with journeys between London, Birmingham and Manchester trebling in the last 20 years. This is putting acute pressure on the infrastructure. The west coast line, for example, is now the busiest mixed-use rail line in Europe. Despite an extensive £9 billion upgrade programme completed in 2008, as the noble Lord, Lord Adonis, pointed out, train paths on this line are effectively full.

Today we have the power to deliver the transformation in rail capacity that we so desperately need. HS2 is a once-in-a-generation opportunity to put the years of underinvestment and neglect behind us. Therefore, I welcome the support from the noble Lord, Lord Rosser, and the noble Baroness, Lady Randerson—support from both parties—on how we move forward with HS2. HS2 will bind Britain together and provide the space that we need to grow. As the noble Lord, Lord Adonis, articulated, without HS2 we would end up spending more money.

The project was always going to attract critics. Anything this ambitious will be controversial, particularly in a country that has seen no major new national transport infrastructure built since the coming of the motorways. The original railway was controversial; the Channel Tunnel was controversial, and some would argue that it still is; and the M25 remains, at times, a source of controversy and debate—anyone who has travelled on it will understand why. However, nobody questions the case for these schemes today. Frankly, the easy option for any Government would be to do nothing and leave the problem for some future generation to tackle. But the fact is that, if we do not take action now, major routes are going to be overwhelmed, as was so eloquently summarised by the noble Baroness, Lady Kramer.

The benefits of HS2 are something that the Government, the Opposition and all major contributors have talked about before. It is about improving connectivity. HS2 will deliver the step change in capacity that we need to keep our vital arteries flowing. Compared with today, HS2 could triple the number of seats out of Euston. It will also unlock the capacity for freight on the west coast main line, as the noble Lord, Lord Berkeley, mentioned. It will link eight of Britain’s 10 largest cities, directly serving one in five of the UK population, a point well made by the noble Baroness, Lady Kramer, and the noble Lord, Lord Adonis. It will benefit places not directly on the HS2 route by freeing up much-needed capacity on the existing railway.

The noble Baroness, Lady Blackstone, and the noble Lord, Lord Truscott, suggested that HS2 would suck investment into London and away from other cities. HS2 is designed to improve the connectivity of the north more than London, which has good transport links. More than 70% of the jobs supported by HS2 are expected to be outside London. A study by Network Rail has shown that over 100 towns and cities across the country could benefit from extra commuter and intercity services on existing lines, with capacity being liberated by the development of HS2. It will be particularly beneficial in the north and the Midlands, helping to rebalance the economy.

The legacy of HS2 will be felt well beyond those who use our transport networks. It will inspire a generation, providing new skills and jobs across a wide range of disciplines. The noble Baroness, Lady Blackstone, talked passionately about the need to invest in skills beyond just looking at infrastructure. This provides just that initiative. Recently, 11 September was the opening day of a programme of visits that I am making as the Skills Minister in the Department for Transport, one of which will be HS2 themed. Currently, only 5% of our children aspire to a career in transport and only 8% of Britain’s engineering workforce is female—the lowest rate in Europe. That is something we need to change, and the National College for High Speed Rail will be an integral part of the Government’s strategy for delivering a national high-speed rail network for Britain as well as designing and delivering the high-level technical skills needed for the industry more generally. HS2 is part of the Government’s growth strategy.

Of course, HS2 is a key strand of the Government’s commitment to support economic prosperity across the UK, but it is not the only one. In July 2015, the Chancellor of the Exchequer launched Fixing the Foundations, setting out our plan to address the UK’s long-term productivity problem—every part of government will contribute. For example, the HS2 growth strategies set out ambitious goals for regeneration and development on the back of HS2.

Our economic case is robust and shows HS2 represents good value for money. If anything our methodology is quite conservative. The benefit-to-cost ratio, which was mentioned by several noble Lords, is valued at 2.3 —or providing £2-worth of benefits for every £1 spent. The BCR could be even higher, reaching 4.5 if rail demand continues to rise until 2049.

We are committed to maximising benefits while keeping a firm grip on costs. We have established a robust framework of delegations and approvals. There is a joint HM Treasury, DfT and HS2 Ltd cost and risk group to ensure that there is a shared and continued drive down on costs. The spending round in 2013 set a clear funding envelope of £50.1 billion for HS2.

The noble Baroness, Lady Blackstone, raised the issue of fares and why the Government do not increase fares for business passengers to cover costs. The actual decision on fare structures will be taken by future Governments. However, our underlying assumption is that it is more important to maximise usage for the wider benefit of citizens and the economy than charge premium fares. The Government have also committed to keeping fares down, which is clearly illustrated by our commitment to cap fares at RPI for the term of the Parliament.

The right reverend Prelate the Bishop of Chester, the noble Lord, Lord Desai, and my noble friend Lord Caithness, among others, raised the issue of the economic case, and clearly the committee was looking at HS2 on that basis. Our appraisal techniques are regarded by the DFT as being world class, and a number of experts provided evidence to the Lords committee that showed that the economic case was robust. Some have been mentioned already but, for example, Professor Venables noted that our quantification of user benefits and wider economic impacts was,

“done very well and very professionally”,

and Professor Graham, who is a transport economist, also commended our use of sensitivity testing.

The issue of transparency was raised about assessments of the HS2 case. In March 2010, we established the case for the high-speed rail network serving London and the West Midlands. In February 2011, we announced the consultation into the Government’s high-speed rail strategy and the preferred route for phase 1 of the scheme. In January 2012, there was the Government’s decision to proceed with phase 1 of HS2. There has been full transparency in that regard.

The right reverend Prelate raised the issue of the impact of HS2 on Chester. Phase 1 of HS2 generates significant journey-time savings to the north-west of the country and Network Rail estimates that up to 100 cities could benefit. I assure the right reverend Prelate that no decisions have yet been taken on rail services that will run when HS2 is complete, but the Government aim to ensure that those currently served by direct services will continue to be so.

Suggestions have also been made over the overall spending package, but as the Chancellor of the Exchequer explained to the noble Lord, Lord Hollick, last week, in the context of an annual government budget of £750 billion, the cost of £50 billion for HS2 over 20 years to improve the nation’s infrastructure, I can assure my noble friend Lord Wolfson, is something that the Chancellor believes we can afford.

The Government have also considered a range of alternatives to HS2 and published a series of substantial reports that weighed up the options, including upgrades to the existing rail network, the use of alternative modes and a conventional-speed line. The truth is that none of these alternatives would provide the big increase in capacity that several noble Lords referred to, and, more importantly, the connectivity that we need to meet future demand. Nor do they address the issue of reliability.

I shall seek to answer some of the other questions raised by noble Lords. The right reverend Prelate the Bishop of Chester raised the issue of wanting the fastest railway in the world. Sir David Higgins has been clear that we must build a railway that stands the test of time. We have undertaken extensive assessment of alternatives including slower speeds, but none of them offers the same scale of benefits as HS2.

The noble Lord, Lord Shipley, the noble Baroness, Lady Randerson, and the noble Earl, Lord Glasgow, also raised the issue of extending HS2 to Scotland. HS2 delivers significant connectivity improvements to Scotland. The full Y network reduces rail journey times to Glasgow by 30 minutes and Edinburgh by 45 minutes. I assure noble Lords that the UK Government are considering with the Scottish Government opportunities to improve links further between HS2 and Scotland.

The noble Lords, Lord Shipley and Lord Lea, raised the issue of HS3 linked to HS2. The Government are moving forward with plans for the east-west high-speed rail links and will invest £13 billion in this Parliament for better connecting the region, so that northern towns and cities can pool their strengths to create a single economy. The DfT is working jointly with Transport for the North to develop and prioritise the rail options for the first tranches ready for consideration and construction in the next rail investment period.

The noble Lords, Lord Prescott, Lord Snape and Lord Greaves, and the noble Earl, Lord Glasgow, raised the issue of spending on transport beyond HS2. I assure all noble Lords that this is in addition to the other £38 billion that the Government have already confirmed as spending in this Parliament. This is broken down with various schemes and I will seek to write to noble Lords listing some of the schemes and expenditure included in that £38 billion.

The noble Earl, Lord Glasgow, and my noble friend Lord Wolfson also wanted an assurance that HS2 is not at the expense of other investment. I assure them that HS2 will not be at the expense of other transport investment. Overall, there is £73 billion of transport spending between 2015-16 and 2020-21.

The noble Baroness, Lady Mallalieu, talked about platforms at Euston. I assure noble Lords that HS2 will not reduce the number of platforms at Euston. The noble Lord, Lord Truscott, said that it would. It will not; it will deliver 11 new high-speed platforms and 11 for the existing network. That is a total of 22 platforms, which is four higher than the current 18 platforms.

[Lord Berkeley]

Will the noble Lord clarify that? There are 18 platforms at Euston at the moment and if they will be reduced to 11 or 12 for the west coast main line, surely that is a reduction.

[Lord Ahmad of Wimbledon]

That is also part of what will be the structure serving the intercity network, and some of that burden will be eased by the opening of the HS2 platforms. The overall capacity will rise to 22 platforms, but the noble Lord is quite right to point out that the current 18 platforms serve both the commuter network and the existing intercity network.

The noble Lord, Lord Rowe-Beddoe, talked about ministerial direction and the value-for-money case for HS2. I have already alluded to the benefit-cost ratio and I have also talked about the number of experts who provided evidence to the committee in this respect. The noble Lord, Lord Rodgers, asked about the pause mentioned in relation to Network Rail on the appointment of Sir Peter Hendy. Sir Peter has a proven track record in delivering on major transport challenges. He will develop proposals for the rail upgrade programme and, as I have said before from this Dispatch Box, he will report to the Secretary of State in the autumn and we will come back to that. The noble Lord also asked about confidence in Sir David Higgins. The short answer to that is, yes, we have full confidence in his ability.

The noble Lord, Lord Turnbull, the noble Baroness, Lady Randerson, and other Peers asked about terminating at Old Oak Common. The vast majority of passengers coming into London want to travel on to other parts of the capital, so by having a stop at Old Oak Common, the links that will be provided by Crossrail will be available to all those using HS2. The noble Lord, Lord Mitchell, talked about ignoring the impact of technology. I believe he said that he will be 92 by the time HS2 comes live. I hope to join him in that carriage. I will be a tad younger, but nevertheless we will hook up at that time. But let me assure him that the Government are committed to the extension of broadband, as I am sure he is aware. The previous Government invested heavily in it and broadband remains a priority. But technology should not be used to the detriment of other investments. We can see that passenger rail journeys have increased at an incredible rate up to the current figures that I quoted earlier, and there is no evidence to suggest that technology such as videoconferencing will significantly reduce future rail demand or the spread of the internet. Time will tell, but thus far the evidence is not in support of that.

The environmental impact of HS2 was mentioned by the noble Lord, Lord Truscott, and my noble friend Lord Framlingham. Among others, I believe that the noble Lord, Lord Stevenson, also touched on it in terms of the Chilterns. Let me assure noble Lords by giving examples of the steps being taken to avoid or significantly reduce the effects in the phase 1 environmental mitigation. These include some 127 kilometres of tunnels and cuttings to reduce noise and visual effects, as well as providing 102 kilometres of noise barriers along the surface sections to reduce the effect on communities.

I am coming to the end of my comments because I can see that the clock has run down on me. However, I will certainly respond to other questions which I have not had a chance to cover. Perhaps I may turn briefly to the question put by my noble friend Lord Framlingham about the Chilterns. Since the scheme was announced, we have introduced major changes to the proposed route through the areas of outstanding natural beauty. As recommended by the Select Committee, we are promoting a further extension to the Chilterns tunnel, which will offer broadly the same environmental benefits as the longer tunnel proposed by the residents’ environmental group. I will come back specifically on where we are with the Select Committee, which I believe has taken evidence from most of the witnesses. However, we are still awaiting the final comments of the committee in this respect. As I have said, if I have missed any points, I will return to them.

We believe, and the Government are clear, that there is a case for HS2. We have a 19th-century rail infrastructure that is trying to support a 21st-century economy, as the noble Lord, Lord Lea, put it so eloquently. Many of our main intercity routes are reaching capacity at busy times. As the passenger crowding statistics released last week clearly show, demand is growing rapidly and will continue to do so as our economy recovers. HS2 will have a transformational effect. It will improve connectivity, transform capacity, and free up space on our crowded rail network. It is important that the Government of the day should invest, and that is what we are seeking to do. We welcome the support of many noble Lords. This is our chance to do what the Victorian rail pioneers did all those years ago. We want to leave an infrastructure legacy that is fit for generations to come.