High Speed 2 (Economic Affairs Committee Report)

Lord Hunt of Kings Heath Excerpts

Thursday 23rd January 2020 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, I congratulate my noble friend Lord Goldsmith on a superb maiden speech. We very much look forward to his contributions to the House in the future.

I apologise, as I am suffering from a cold; my noble friend Lord Ridley told us yesterday that Darwinian principles meant that his cold would find another host, and I fear that he has been proved correct in that respect.

Five years ago, the Economic Affairs Committee, under the excellent chairmanship of the noble Lord, Lord Hollick, raised serious questions about the cost of HS2, the methods used to appraise the project and other priorities for rail investment in its 2015 report The Economics of High Speed 2. In January 2019, the committee followed up this inquiry and published a new report in May last year. Sadly, we found that the Government were still no nearer to providing satisfactory answers. We therefore concluded that HS2 required a major rethink. Before I explain our conclusions, I thank the committee staff who produced the report: Sam Newhouse, Ben McNamee and Lucy Molloy.

I begin with the question of how urgently we need HS2 in relation to other rail investment priorities. In 2015, the committee suggested that rail infrastructure in the north of England should be the priority. We asked the Government to consider whether investment in northern rail infrastructure should be prioritised over HS2. Beyond a business case for Northern Powerhouse Rail, no such assessment of the relative merits of doing so was ever carried out. Five years on, commuter services in the north of England remain badly overcrowded, unreliable and reliant on ageing Pacer trains built on the cheap using frames from Leyland National buses.

[Lord Hunt of Kings Heath (Lab)]

My Lords, I am sorry to intervene on the noble Lord—I will not do it again—but I cannot understand why his committee does not seem to have looked at the West Midlands and the issues there.

[Lord Forsyth of Drumlean]

If the noble Lord allows me to make my speech, he will perhaps get an answer to that.

The Government’s response to our report stresses that the Northern and TransPennine Express franchises will deliver over 500 brand new vehicles and retire all the existing Pacer trains. Yet, in spite of the Government’s confidence, Pacer trains remain in widespread use today. Allow me to stress that Pacers were initially given a lifespan of 20 years when they were introduced as a stop-gap in the 1980s. Forty years later, many are still with us.

Overcrowding continues to be far more severe on commuter services than long-distance services. We heard evidence that fast long-distance services are among the least crowded trains that serve the cities on the HS2 line. For example, just 4% of passengers stand on the Virgin Trains West Coast to Manchester, whereas there has been a doubling of demand for local services into central Manchester in the last 15 years but only a 50% increase in passenger capacity. HS2 will do very little to help these long-neglected commuters travelling into cities in the north. In fact, the main beneficiaries of overcrowding relief from HS2, when it is finished, will be London commuters who use the west coast main line. Chris Stokes, an independent rail consultant, described HS2 as

“a very expensive way of dealing with the Milton Keynes-Euston commuter peak.”

Simply put, the HS2 project is a poor reflection of the UK’s rail investment needs—I hope that addresses the noble Lord’s question.

[Lord Hunt of Kings Heath]

Do not tempt me.

[Lord Forsyth of Drumlean]

There is, fortunately, a programme in place to help these commuters: Northern Powerhouse Rail would create faster and more frequent lines between Liverpool and Manchester, Manchester and Leeds, Sheffield and Manchester, Leeds and Sheffield, and Leeds and Newcastle. It would reduce journey times between northern cities substantially. To give just two examples, the journey time from Liverpool to Manchester would reduce from a maximum of 57 minutes to just 26 minutes; likewise, Newcastle to Leeds would be reduced from 95 to 58 minutes. Such improvements to journey times would increase access to a wider jobs market between northern cities that are currently very poorly connected.

Representatives from northern regions who gave evidence to our inquiry generally agreed that both HS2 and the Northern Powerhouse Rail programme were absolutely crucial to the north. Since the publication of our report, there has been fierce debate—to put it mildly—on whether both programmes are needed. First, the Government, under the previous Prime Minister, stated in their response to our report that HS2 needs to be in place first. In August, the new Government commissioned a review into the viability of HS2, chaired by Doug Oakervee. New details from a leaked version of his report—apparently delivered before Christmas but still unpublished by the Department for Transport—were revealed this week and appeared to indicate only qualified support for the project.

The recently published dissenting report from the noble Lord, Lord Berkeley, argued that HS2 is the “wrong and expensive solution” and that priority should be afforded to Northern Powerhouse Rail and Midlands Connect instead. Stakeholders from the Midlands and the north of England, however, have made clear in their response, once again, that both programmes are needed. We urge the Government to provide clarity on this matter. The noble Lord, Lord Berkeley, made it clear: if the Government have £150 billion, they can do both; if they have only £50 billion, they need to choose.

In the view of the Economic Affairs Committee, HS2 phase 2b and Northern Powerhouse Rail should be combined into a single programme to allow investment to be prioritised where it is needed most, and funding for the northern powerhouse needs to be ring-fenced and brought forward where possible, otherwise the north of England will continue to be short-changed by the Government’s plans. The Government stated in their response that they would “carefully consider this recommendation”. We hope they do so.

Our report also considered the planned costs of HS2 and examined the method by which the Department for Transport determines whether the project provides value for money. The leaked version of the Oakervee report found that more work is needed to assess the scheme’s impacts on regional growth and that it is “hard” to say what economic benefits will result from building it. Suffice it to say that providing clarity on the costs of HS2 has never been one of the Government’s strengths. The first estimates for the costs of HS2 were published in February 2011 by the department under the then Secretary of State for Transport, Philip Hammond. The estimated cost for the full network was given as £37.5 billion. Then the department, under the following Secretaries of State, Justine Greening and Patrick McLoughlin, put forward two updated economic cases in January 2012 and October 2013. The estimated cost rose first to £40.8 billion and then to £50.1 billion.

Moving forward, the department’s 2015 spending review set the funding envelope for HS2 at £55.7 billion, in 2015 prices. Adjusting for construction price inflation since 2015, this funding envelope increases to £59 billion today. The estimated costs, however, were shown to have increased to £65.2 billion. Yet fear not; in 2017 the department, now under Secretary of State Chris Grayling, published a financial case with all assumed efficiency savings calculated into the model, estimating that the full cost of HS2 would be £52.6 billion. The committee was told that spending to date on the project was £4.3 billion.

Since the publication of our report, there have been even more conflicting estimates of the costing range for the project. In August 2019 HS2 chairman Allan Cook published an official stock-take of the current status of the programme, in which the total funding range for all costs and risk was estimated at between £72.1 billion and £78.4 billion. Yet following this the Secretary of State for Transport, Grant Shapps, clarified these costs to Parliament in a Written Statement on 3 September 2019:

“Adjusting by construction cost inflation, the range set out in Allan Cook’s report is equivalent to £81 to £88 billion in 2019 prices”.—[Official Report, Commons, 3/9/19; col. 7WS.]


Now, according to the leaked Oakervee report, the cost of the project could rise to as much as £106 billion. Adding to the confusion, the noble Lord, Lord Berkeley, suggests in his dissenting report that the total cost will in fact be £115.8 billion.

This confusion absolutely tallies with what the committee heard from Sir Terry Morgan, the former chairman of HS2 Ltd, who told us that “nobody knows yet” what the actual cost of HS2 will be. Most pointedly, the noble Lord, Lord Berkeley, concluded that

“Parliament has been seriously misled”


about the costs of HS2. The committee also had serious reservations about the cost-benefit analysis used in determining whether HS2 provides value for money. The results of the latest cost-benefit analysis for HS2, published in July 2017, show net benefits of £92.2 billion and net costs to the Government of £39.8 billion. Following the familiar theme of confusion that has arisen throughout the project so far, the leaked Oakervee review suggests that the cost-benefit ratio has fallen from £2.30 to £1.50 for every pound spent. The committee did not find the methodology used credible for either the project’s costs or its benefits. The model does not account for the transformative effects on employment and population that new infra- structure can provide, because it assumes that land use in the surrounding area is fixed. The Government’s response to our critique was disappointing. They accepted the limitations relating to the treatment of land-use changes but offered no indication that they would carry out new analysis.

Our second reservation concerns the methodology and evidence used to calculate the value of travel time. These measurements have improved since their first iteration—when they forgot that people can, and quite regularly do, work on trains—but they are still questionable. They used surveys asking business rail travellers hypothetical questions about how much they would be willing to pay for quicker journeys. The committee did not believe that a few hundred interviews carried out on station platforms were a robust evidence base on which to base a calculation of the benefits that a potentially £80 billion new railway will bring.

Finally, our report shows that the estimated benefits of HS2 are highly dependent on forecast numbers of business travellers using long-distance rail. Our central concern on this point is that the evidence used to forecast the number of business travellers using HS2 is based on data that is 15 to 20 years old. Not only do the numbers not correspond to the most recent data from the national travel survey and the national passenger survey, but relying on out-of-date data is neither a robust nor rigorous basis for evidence-based policy-making. We therefore recommended that new analysis of the project is needed. This must take into account the transformative effects of new infrastructure on the benefits of the project. It should revise the assumptions behind the values of travel time, and the demand forecasts should be revised ahead of this new analysis. We recommended that this analysis be published in full alongside the business case by the end of last year. The Government have accepted that the data is out of date and stated that updating it is part of the department’s latest research priorities. We strongly urge its publication as soon as possible.

In 2015 we recommended that the Government should review the cost saving from lowering the maximum speed of the railway and terminating the line at Old Oak Common rather than Euston. Yet again, the Government failed to consider our very reasonable recommendations. Our follow-up examined the two ideas again in detail. HS2 is being built to accommodate trains that run at a maximum of 400 kilometres per hour, with trains initially expected to run at a maximum of 360 kilometres per hour. Trains that can travel at that speed do not exist. When we asked why the railway was being designed to that specification we were told it was in order to make it future-proof. We heard evidence that strongly questioned the design speed, including one piece of evidence that described the maximum speed as “an engineer’s pipe dream” and “close to ludicrous”.

Allow me to stress, on this point, that in phase 1 trains can operate at 360 kilometres per hour on a mere 68-mile stretch between Amersham and Birmingham. Reducing the maximum operating speed to 300 kilometres per hour would add an extra 10 minutes to a journey between London and Manchester, but the cost savings for the whole project could represent up to £1.25 billion once longer-term operational and energy costs are accounted for. Based on this evidence, we see no reason for HS2 to be built to operate at 400 kilometres per hour.

Once again, we are disappointed that the Government have ignored our recommendation to assess the cost saving that could be made by terminating the HS2 line at Old Oak Common rather than Euston. The Government and HS2 Ltd cite a 2011 report from Atkins as the evidence base for rejecting our proposal. Notwithstanding the fact that it was written at the start of the last decade, that report assessed only the reduction in benefits and made no estimate of the possible cost saving. The Government must consider both. We argue that what matters for the termination point is not the single point in central London, but the connections that enable passengers to quickly arrive at their destination. The evidence we saw shows that onward journey times to final destinations using the Elizabeth line from Old Oak Common appear to be comparable to, or better than, continuing from Old Oak Common on HS2 to Euston. Euston is not “central London”.

We have therefore recommended that the redevelopment of Euston station be removed from the scope of phase 1 of HS2 and that Old Oak Common should operate as the London terminus for phases 1 and 2a. Doing so will allow time to determine whether Old Oak Common could operate as the London terminus for the entire HS2 network, and the potential costs or savings that that would involve relative to a terminus at Euston. Our report is an appeal to the Government to conduct a major rethink of the full HS2 project. A new appraisal of the project is urgently required. The Government must act to ensure that the benefits of HS2 are not geographically uneven and do not entrench the uneven economic divide between north and south that already exists.

I was very struck, in our discussions in the committee, by the words of the former Chancellor and Transport Secretary the noble Lord, Lord Darling. He said, “These projects are all the same: they run over budget and in the end the bit at the end gets cancelled.” The bit at the end is the east-west rail structure which is so desperately needed now in the north of England. I beg to move.

--- Later in debate ---

[Lord Hunt of Kings Heath]

My Lords, I am delighted to take part in this debate. I will be looking at this from a West Midlands perspective but I should perhaps declare myself as a friend of Euston station—not, I hasten to reassure the noble Lord, Lord Kerr, that I think it is architecturally of any merit whatever; it is just that I have a flat very close to it. I confess that I thought that the WC1 postcode signified that I lived in central London, which I think is where Euston station is.

[Lord Berkeley]

Come on.

[Lord Hunt of Kings Heath]

It depends where you look at it from.

We have heard from the noble Lord, Lord Framlingham, who has certainly been consistent over the years. He talked about despair, but I want to reflect to him the despair that would be felt in the West Midlands if HS2 were cancelled. It would have an absolutely devastating impact on our economic well-being. We are very vulnerable. With Brexit, the motor car industry is hugely vulnerable. Cancelling HS2 at the same time as there is economic uncertainty would be devastating for a region that, over the last two years, has grown more than any other apart from London.

My noble friend and the noble Lord’s committee have produced some very salient points about the HS2 budget and the appraisal system. There is no getting away from that. The question is: is that enough to cancel HS2 as a whole? To be fair to both noble Lords, that is not what they are saying. They are raising issues that need to be answered, and that is fair.

The noble Lord’s committee also focused on the north. It focused on the railway connections and referred to the 90 minutes that it takes to travel the 75 miles between Liverpool and Leeds. I do not dissent at all from what the committee has said about issues in the north, but I am disappointed that so little attention was given to similar issues in the Midlands. For instance, it takes 57 minutes to travel to Leicester from Birmingham, which are 46 miles apart, while the 51-mile trip to Nottingham takes 76 minutes. There is a large flow of people and work but it could be much, much bigger. There is no question but that road congestion—journeys take ages by road—and the very poor railway connections are impeding the development of a Midlands-type economy.

[Lord Berkeley]

I am grateful to my noble friend for giving way. How does HS2 improve the railway journey time between Birmingham and Leicester? It does not go anywhere near Leicester.

[Lord Hunt of Kings Heath]

My Lords, I am not a railway expert but I do know a little about railway maps. The point I was going to make is that this is part of an appalling railway system in the West Midlands—something with which I know my noble friend agrees. We have a local service operator called West Midlands Trains. Its record of 44.8% of services arriving on time between October and November last year is a symptom of our hugely overcrowded and cancelled trains. That is a feature of commuting life in the West Midlands. Part of the reason why we need HS2 is that our line is absolutely chock-a-block. Creating extra capacity is essential. I know that my noble friend does not disagree with that because it is what he said in his minority report.

Let us turn to the comments made by a number of noble Lords, which are, essentially: “If you cancel HS2, don’t worry because the money will be available, we can sort out the capacity issues both in the north and in the Midlands, and all our troubles will go away.” My noble friend’s report is very interesting because he took the trouble to look at what the alternatives might be. For instance, I do not believe that we could deal with the capacity issue in the West Midlands without four-tracking the line from Rugby to Wolverhampton, but that would be hugely disruptive. I do not know how many bridges there are; I suspect my noble friend knows—

[Lord Berkeley]

No.

[Lord Hunt of Kings Heath]

But there are quite a lot. There is a lot of housing, the NEC, the airport—a host of difficulties for four-tracking. But if you do not four-track, you will not solve our major congestion problem.

The other option pointed out by my noble friend is the Chiltern line, a good line which many of us use when going to a different part of London. As he says, it would have to be four-tracked in certain places and would need to be electrified. My noble friend is doubtful about my railway geography, but the one thing I do know is that a lot of the Chiltern line goes through Buckinghamshire. Can you imagine what would happen if the Government announced that the alternative to increase capacity is four-tracking and electrifying the Chiltern line? All noble Lords who come from Buckinghamshire would rise in protest. The Chiltern line is saturated—

[Lord Randall of Uxbridge]

I do not come from Buckinghamshire—although very close to it—but I point out that HS2 goes through Buckinghamshire already.

[Baroness Young of Old Scone]

Before my noble friend resumes, I point out that we are in the midst of electrifying the Midlands route. It is not pleasant but it is not the end of the world. It is happening while trains run.

[Lord Hunt of Kings Heath]

It does not go through Buckinghamshire though, does it? The point I am trying to make, to anyone who says that it would be easy to increase capacity in the ways suggested—my noble friend did not say that—is that it would not be easy at all. It would also cost a lot of resource.

Finally, my noble friend estimated, I think, £39 billion for the local rail development in the north and the Midlands. It is a round figure. Does anyone seriously think that the Treasury will agree to spend that money in substitute for HS2? We all know what happens: you cancel a project, you say that you are going to do all sorts of things to substitute for it, but it never comes. We have all too many examples of major projects being cancelled. There is no doubt that there are serious questions, which both noble Lords have raised, but I think it would be a disaster to cancel the project.