Wednesday, 15 January 2014

The Manchurian Candidate

The case for HS2 has been somewhat less than robust since day one, but it has now entered the realm of the fantastic with this report in the Guardian: "The arrival of the HS2 north-south railway could help bring down soaring property prices in London and the south-east, according to David Higgins, the former Olympics boss and new chairman of the project". The champions of the New Metropolitan Line are surely getting desperate if they are driven to claiming that it will bring down house prices in London. Next we'll be told that it will help limit increases in electricity and gas bills.

According to the new project boss, "The existing pressure on housing, commercial property prices and transport in London and the south east has become a vicious circle which is counter-productive for both the economy in general and for individuals and their families. By creating extra capacity for commuter trains in the south, and making it easier for businesses to establish themselves in the Midlands and North, HS2 can both reduce that pressure, and spread prosperity, and jobs, more evenly across the country".

This is nonsense, by which I mean not that you might disagree with it, but that it doesn't actually make semantic sense. A "vicious circle" implies some sort of negative feedback: A leads to B which causes more A. Does he mean that supply insufficient to meet increased demand causes demand to increase even higher? What is the mechanism for that? The implication of the non sequitor second sentence is that "extra capacity for commuter trains in the south" will reduce house and commercial property prices (hence the Guardian's interpretation), but this only makes sense if you believe that HS2 will not increase the population of London (and nor will anything else) but will simultaneously expand the commuter belt and thus the avilable stock of housing for London workers (which in turn assumes a buyer's market in Solihull). The fundamental justification for transport is that it increases economic activity, which has the effect of increasing the population and thus "pressure on housing". The idea that HS2 will reduce the price of a two-bedroom flat in Battersea is preposterous.

Higgins isn't putting all his eggs in one basket, so he continues to push the traditional justifications, such as jobs and industrial regeneration ("spreading jobs more evenly", like Nutella on toast). I particularly love "making it easier for businesses to establish themselves in the Midlands and North", as if they were hitherto inaccessible regions: here be dragons. There is, of course, no explanation of the "ease" for Brummie startups that HS2 would provide (in practice, more London wages spent in the West Midlands will boost some local services, but depress others dependent on business activity that then moves to London). As the 2010 report to Parliament by Professor John Tomaney concluded, following a meta-study of high-speed railways around the world, "the impacts of high speed rail investments on local and regional development are ambiguous at best and negative at worst". This is largely because "in countries with dominant capital cities net benefits tend to accrue to these". Given that HS2 phase 1 is essentially a commuter line into London, it is hard to believe that the UK experience will be any different.

In related news, the government plan to spend £20m on a new FE college, somewhere along the route between London and Birmingham, to train railway engineers. This is optimistically slated to open in 2017, in time for the start of phase 1 construction. Of course, this means it will have missed a lot of the actual engineering work, which takes place during design and planning - i.e. ahead of construction - which suggests that the focus of graduates will actually be on inspection and maintenance. According to David Higgins, "by creating a demand for engineering skills over a prolonged period, HS2 can also train a new generation of engineers who can look forward to a career at the cutting edge of technology in this country - something that isn't possible at the moment because of the stop/start nature of projects". A better way to read this is that the government realise they must invest in the skills needed to avoid another Potters Bar or Hatfield tragedy.

Parallel to this talk of speculative benefits, there seems to be a difference of opinion between Higgins and the government in respect of cost control. Whereas the latter appears confident in his abilities - "Sir David Higgins to drive down cost of HS2" - Higgins himself is being understandably cautious, though the wooliness of his language (see above) leaves this open to interpretation, hence the FT say he "dashes hopes of big HS2 savings" while the BBC reckon he "pledges to make savings". What isn't yet clear is whether his caution is simply tactical (i.e. under-promise and over-deliver) or if he is trying to manage expectations down ahead of his initial report in March. It is hard to believe that he can identify any reliable and significant savings at this stage, short of compromises on route (e.g. less tunnelling) or outsourcing the work to the Chinese. Given the political risks of the former, the latter may turn out to be quite attractive.

There has certainly been a head of steam (ahem) building for this option. Boris Johnson commended the uber-state-planning Chinese in contrast to wobbly Labour back in November, Andrew Adonis played the safety card shortly afterwards (i.e. a qualified yes), and the Chinese government are now upping their bid to include local feeder lines. In one sense this is a marriage made in heaven. The pace of infrastructure investment in China is slowing down from its historic peak, and they need to boost high-value exports as their economy shifts to greater domestic consumption, while the UK does not have the skills in depth and would struggle to overtake the competition in France and Germany for the European market. Had we invested in high-speed rail (and engineering education) in the early 90s, instead of privatisation, we might have been in a different position today.

As it is, our FE college suggests a future role as caretakers and regulators, which will at least keep Andrew Adonis happy. The real winners will be the bankers who will handle the flow of Chinese funds through the City. Some will no doubt consider it their patriotic duty to recycle part of their gains into a HS2 season ticket, as they upgrade from a Tudorbethan mansion in Chesham to an original Elizabethan mansion in the Forest of Arden.

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