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Michael Heseltine and HS2, part two

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Part one

Michael Heseltine’s speech to the Royal Town Planning Institute on November 12th 2013 was published in full, on the Andrew Adonis website.

[Mr Heseltine’s speech]

I am a strong advocate of HS2 but the public relations campaign launched by the promoters of Hs2 has quite failed in its purpose to promote the most imaginative transport project in this country in my lifetime.  I find it unbelievable that what should have been a vision for much of England has been caricatured as simply clipping a handful of minutes off the journey time between London and Birmingham.

Tonight I want to start again, restore the appropriate context and probe the assumptions of time and cost.

That is why I start where my interest in regeneration began all those years ago in 1979.  I was staring at 6,000 acres of derelict land. London’s former docklands.

I had a plan for regeneration.

My senior Cabinet colleagues, the permanent secretary of my department, and all the leaders of the London Boroughs involved were opposed.  I appealed over their heads to the Prime Minister who backed me.

If I had made a speech then predicting the consequences of that decision.  I would never have forecast –

–    Canary Wharf – one of the world’s leading financial centres

–    A new city airport

–    ExCel – a major exhibition centre

If I had gone on to say that another Prime Minister would once again back me against the Department of Transport when I argued for HS1 and the regeneration of Stratford against British Rail’s preference for the Channel Tunnel to hit the buffers at Waterloo and exclude the rest of the UK.

If I had predicted the Olympic triumph to boost Stratford.

If I had promised that Greenwich would host 02, Europe’s most popular entertainment venue, and would be built at relatively no cost to the public purse.

If I had said all those things 40 years ago, I would have been carried off by men in white coats.

All of these things happened.

And now – for the first time since the medieval period – it is said that the majority of Londoners live east of Blackfriars Bridge.

The public sector can create opportunities.  Often the most exciting potential is to allow the creative genius of the entrepreneurial world to exploit what public vision makes possible.

We set out to create the renaissance of East London.

We faced down very similar arguments used against HS2 today.

They gave me a Docklands Light Railway – a toy town railway – in 1981.  It fitted the penny pinching approach that characterises so much of Britain’s attitude to long term competitiveness and infrastructure.  Indeed, it has been said that by the time the DLR opened, the 1,500-passenger-per-hour capacity was already stretched.

HS2 is about our country’s competitiveness for a half century or more.  It is about so many more people sharing growth that has, for too long, been concentrated on London and the South East.  It’s all about drawing together our economy as a whole as well as improving our access to the enlarged, and enlarging, home market of Europe.

It is not about 30 minutes off London to Birmingham.

It will take 1 hour 8 minutes from Manchester to London as opposed to 2 hours 8 minutes now.  Liverpool to London 1:36 vs 2:08, Leeds to London 1:23 vs 2:12.

Two thirds of the population of northern England will be within two hours of London.

It is an hour off the journey time from Manchester and other Northern Cities to Paris and European capitals, thus providing substantial and environmentally attractive alternatives for city centre to city centre travel by air.

It is not just about times. We need extra rail capacity. Look at the figures.

In the past 16 years (1997 – 2013) passenger journeys on intercity trains have doubled to 128 million a year.

Over much the same period (1995 – 2012) all rail journeys have doubled from 750 million a year to 1.5 billion.

…and the UK population is predicted to grow by 11 million people from 2010 to 2035.

Any responsible judgement must urge government to act now.  Parliament has overwhelmingly agreed to allow spending in preparation for the whole line, sending  the clearest signal about our determination to build in this country infrastructure that will match in quality (not exceed) what the rest of the world is, or will be, doing

Of course there is an option.  We could build the new capacity with today’s technology.  Another Docklands Light Railway!  Fortunately we woke up to the need for Crossrail and the Jubilee Line extension.  The costs of building for existing technology, on the same alignment of HS2, would also be very substantial – just 10% below that of building HS2 and without much of the benefits.  And the ‘patch and mend’ option –  extensive incremental improvements to the network – might take as long as HS2 to build; would cost at least £20 bn, and would require closures for more than 2,500 weekends to allow for construction works.

Let me now turn to the cost.

The budget for HS2 is £42.6 bn over 20 years.

You do not need to be a rocket scientist to calculate that this averages out at just two billion a year.  £2bn a year to benefit much of the North and Midlands.

I hear people say we can’t afford this. But we are – quite rightly – spending just such a sum every year on the construction of Crossrail for the benefit of London. Funding for the Crossrail project runs out after 2018/19, just as HS2 funding ramps up.  If we can afford one we can afford the other, and HS2 benefits the whole nation – over 100 towns and cities could benefit from new or improved services as a result of released capacity on the existing rail network.

Profile of expenditure for both Crossrail and HS2

£m

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

Crossrail

1904

2247

2002

1481

549

22

54

HS2

0

0

0

832

1729

1693

3300

But here again the public relations lets us down. Opponents have represented the figures to show massive costs increasing one alternative costing exceeds £70bn.

First you add £7.5 bn for the trains.  These should be paid for by the private sector operators and incidentally, there would be significant extra train costs just to meet demand on conventional rail.

Second you add £10 bn VAT which would of course go straight back to the Treasury.

Third you add in £12.9 bn for inflation at 1.7% per annum to 2033.  The total costs £73 bn.

A politician who uses calculations of this sort to show how much bigger our incomes would be in 20 years time would be last to scorn. All transport projects are measured in constant money.

But the arguments actually go the other way.

Some of the costs involved in building the railway are revealing.

Item £ bn
Contracts and delivery team 3.11
Construction
Tunnels 3.94
Civil Engineering 7.56
Stations 3.09
Depots and stabling 0.85
Railway systems 3.75
On network works 0.48
Land and Property 3.03
Corporate overheads 2.31
Total Construction costs 28.125
QRA Derived construction risk 10.99
Additional scheme risk provision 3.485
Total: 42.595
Rolling Stock (trains) 7.4

What possible case is there for the public purse to carry the cost of the stations?  The property development involved can only be imagined by a quick glance at today’s Kings Cross and St Pancras, with plans for 35,000 jobs and nearly 2,000 new homes

The government should immediately declare Urban Development  Corporations in the appropriate areas thus not only capturing the planning gain for the taxpayer in order to further reduce the cost but also to transfer the costs of stations to the private sector.

But there is something else. Why does the government need to hang onto the track? We have a clear precedent. This government sold a 30 year concession in 2011 for HS1 to a Canadian Pension Fund for £2.1 bn.

I understand that at the same ratio, something in the order of £10 bn could be realised for a similar concession on HS2.

Sir David Higgins, the incoming Chair of HS2, has been asked to report on how to reduce the £42.6 bn cost. Here are two suggestions for his early consideration. He should consult appropriate institutions about the financing of the project in part during construction in order to ensure their participation in the long term concession.

He should also explore the possibility of accelerating the whole project thus offering further savings.

A more unusual possibility would be to sell a franchise for the tunnels. Toll tunnels with electronic monitoring systems to charge operators on usage thus transferring the costs to the travellers.  Airports charge landing fees.  Toll roads charge cars. Why not?

I have one further aspect regarding the lack of success of the public relations campaign I wish to explore.

It is encapsulated in the statements “the project is unviable. It doesn’t pay. The economics are all wrong”.

The other day we were solemnly told that the cost ratio had slipped from 2.5 : 1 to 2.3 : 1.  These figures are based on calculations of cost and demand up to 2036 – 23 years ahead.

Opponents had a field day.

I make no attempt to impute the motives of those who produce such calculations.  If you ask daft questions you can’t blame people who produce daft answers.

But let me say something about the daft questions. Department for Transport rules lay down that after 20 years all assumptions of growth in demand for rail must be frozen. Put simply, statisticians are permitted to calculate demand in growth at 2.2% pa (it has been 5.2% pa from 2002 and 2012) but in 2036 – just three years after the service is fully operational – they have to assume that growth stops!  Another set of figures that show that if growth simply went on after 2036 at the same rate as before it to 2049 then the ratio could move as high as 4.5 : 1.

You takes your pick!

Let me leave the ladies and gentlemen of the slide rules.  They know no more and no less than you and me.  They are excused from the one calculation that really matters on the ground.

No one is asking as what might happen as a result of such an investment. I tell you frankly, I don’t know either.  I didn’t know in East London in 1979, but I believed. All over the world governments are making decisions about a future which they cannot predict but in which they believe. I tell you another thing I didn’t foresee in London Docklands in 1990.  I couldn’t know that HS1 would attract £10 billion of private development around the new station sites at Ebbsfleet, Stratford and Kings Cross.

So, yes, we have to keep the cost down. But we must also consider carefully the cost of not acting. The cost of dither, doubt and delay. The cost of standing still while our competitors move ahead.

If we hadn’t built Canary Wharf, how many of the jobs there would be in Frankfurt instead?

I find it incredible that we are solemnly judging HS2 without any calculation of the potential investment that might flow as a consequence of its construction.  And with no fear of how that investment would flow elsewhere if we were to lose our nerve and abandon it.  But that is the basis on which the debate is being consulted.

It is 120 years since we built a new railway north of London.

Now we have a chance.

Government investment in capital projects is £50 bn a year. The HS2 project is spread over 20 years so equates to just 10 months of that budget.

We can commit a small portion of the figures already included in the forward public expenditure profiles (£16 bn out of a transport budget of £70 bn over 2015 – 2021) to this imaginative investment in our countries’ wealth-creating infrastructure.

Not many of those in power to make decisions will be around to judge the world of the HS2 but others of younger generations will judge us.  Will they look around and praise our vision, the investment we made, the competitiveness they intended or will they make a harsher, less charitable judgement. Are we the generation that slipped behind and let it happen?

As can be seen, the Heseltine view of high speed rail seems to be formed by some rather confused thought processes.

“Another set of figures that show that if growth simply went on after 2036 at the same rate as before it to 2049 then the [HS2 benefit cost] ratio could move as high as 4.5 : 1”

If the growth cap is removed for HS2, it should also be removed for alternative projects (which are lower cost, lower risk, and have a superior starting benefit-cost ratio).

Contrary to the impression given by Jim Steer, it’s likely that the modelled uncapped BCR of upgrade-based alternatives would grow faster than that of HS2; the latter’s ultimate capacity is restricted by its design choices (the 400 km/h speeds and long one-track-each-way trunk between Bickenhill and London).

There is not even enough Y network capacity to operate its Day One ’19 to 21 trains on one track’. Nor is there sufficient released capacity from HS2 to meet potential freight demand.

“Why does the government need to hang onto the track? We have a clear precedent. This government sold a 30 year concession in 2011 for HS1 to a Canadian Pension Fund for £2.1 bn”

It’s quite likely that a future government would be looking to involve the private sector in running HS2, and that could involve a HS1-style lease arrangement. There is no getting around the fact that the government would have to shell out, and keep shelling out, for any trains to run.

“[Sir David Higgins, the incoming Chair of HS2,] should also explore the possibility of accelerating the whole project thus offering further savings”

According to HS2 Ltd, the effect of bringing forward HS2 construction is to reduce the benefit-cost ratio.

The issues:

(i) how the present value of costs and benefits change with the revised timetable; and
(ii) the balance of bargaining power between government and suppliers, as the construction timetable is compressed.

“Two thirds of the population of northern England will be within two hours of London”

Where is the evidence?

Anyway, over two thirds of the population of northern England hardly ever travel to London by rail.

“It is 120 years since we built a new railway north of London”

Is the Selby diversion 120 years old? But how long it is since we built a new railway north of London, is completely irrelevant.

“the UK population is predicted to grow by 11 million people from 2010 to 2035”

The UK population is already factored into the demand forecasts (unlike items such as the disruption from constructing HS2).

“Government investment in capital projects is £50 bn a year.The HS2 project is spread over 20 years so equates to just 10 months of that budget”

The issue is the opportunity cost of building loss-making infrastructure, for no good reason.

“Sir David Higgins, the incoming Chair of HS2, has been asked to report on how to reduce the £42.6 bn cost. Here are two suggestions for his early consideration. He should consult appropriate institutions about the financing of the project in part during construction in order to ensure their participation in the long term concession.

A more unusual possibility would be to sell a franchise for the tunnels. Toll tunnels with electronic monitoring systems to charge operators on usage thus transferring the costs to the travellers. Airports charge landing fees. Toll roads charge cars. Why not?”

Infrastructure use charges would increase the price of tickets, so they would be more expensive than those of classic rail. Premium fares would reduce demand, and the benefit-cost ratio.

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Written by beleben

November 14, 2013 at 8:09 pm

Posted in High speed rail, HS2

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One Response

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  1. Firstly, you expect us to wade through his lordship’s claptrap and the grossly grammatical errors, his or yours?

    How about: “Let me leave the ladies and gentlemen of the slide rules. They know no more and no less than you and me”.
    And I thought this guy was (or is it ‘were’) educated in the old (public) school ethos!

    And then we must accept his innovative idea of leasing the line to the private sector (“I’ll buy that!”) and even tells the world what he thinks what it might be worth. I’d happily pay his £10bn (leveraged of course of course) and a penny for a 30 year lease to print money.
    Or: “the most imaginative transport project in this country in my lifetime” – how about Beeching and where was Michael then?
    “It is 120 years since we built a new railway north of London”.
    Guess what, Michael,you WERE there then (now I remember) when the only intent of government was to destroy the railways.

    Or: “over 100 towns and cities could benefit from new or improved services as a result of released capacity on the existing rail network” ie take a shuttle every hour to Crewe – you might not get an immediate connection but the once an hour Liverpool trains and Preston trains might stop there – seat reservation is essential because —– there might not be enough seats; relax and hang to the strap.

    McMichael

    November 15, 2013 at 10:57 pm


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