Since becoming Prime Minister, Theresa May has admirably taken a second look at a number of party policies, and not been afraid to slaughter a couple of sacred cows. One of them ought to be HS2: a project that was held up as a panacea for the North under Cameron, but is clearly anything but.
With that in mind, I spoke on the panel at the joint anti-HS2 fringe event at Conservative Party Conference yesterday. As a Amersham boy turned Camden man, I am affronted by the devastation that HS2 does to the communities I care about. I could frankly talk the hind legs off a horse when it comes to the local impact of HS2.
As an economist, I might be expected to say this, but I think the most under-discussed issue is the economics of HS2, so I focused on that.
I don’t mean the waste of taxpayers’ money – £70bn+ – or the fact that time in transit will become more valuable as wi-fi improves and driverless cars are deployed. I mean HS2 doesn’t actually meets its economic objective.
The biggest macroeconomic problem the UK has is its low labour productivity, which has long been lower than our major competitors. This matters, as medium- or long-term, wages in the private sector cannot exceed labour productivity. Want higher wages? Then you either need higher labour productivity.
In particular, labour productivity outside London and a few other areas is terrible. Outside the south-east, worker productivity is as little as a third as high as in the most productive areas (such as Camden). If we want a country that works for everyone, we have to bridge that.
Productivity is often given as the economic rationale for HS2, and the KPMG report on which HS2’s business case rests assumes that transport connectivity is the only barrier to labour productivity.
However, this is flawed – productivity is basically unrelated to how easy it is to get to London. Derby is 50% more productive than Nottingham, despite Nottingham having faster trains to London. Solihull produces a quarter more per head than Birmingham, despite having only slow trains to Marylebone and not fast trains to Euston.
What does matter is labour market agglomeration. I won’t be boring, but basically, local economies need the ability to bring together people with lots of different skillsets, so people can find jobs that match their skills.
Transport improvements best do that by creating larger ‘Travel To Work’ areas – the areas within which people commute – and thus enlarged pools of people with different skillsets.
Does connecting central Birmingham to central London allow that? No – the vast majority of commuters will not use HS2, and the business case assumes that the average user has an income of £70,000.
But improving suburban rail networks, removing road bottlenecks, and better connecting the cities and towns of the North and the Midlands will. That’s how transport investment can improve labour productivity. It also opens up new sites to home-building, which – again – inter-city rail does not.
I hear a lot of people say it’s not an ‘either/or’ choice, but I’m afraid it is. According to Network Rail’s annual accounts, the entire combined UK rail network is worth £55bn: less than the amount even HS2 Ltd optimistically claims that HS2 will cost. And with the budget deficit still far too high, it’s really one or the other – and of them, HS2 does not meet the objectives set out for it.
In many ways, by failing to close the productivity gap, by harming connections in the Midlands, and spending money we don’t have, HS2 is the opposite of everything that Theresa May stands for. It acquired the aura of a silver bullet under the last government, but May has the ability to start with a blank slate.
If we want a Northern Powerhouse, a Midlands Engine, and a country that works for everyone, we should scrap HS2. It’s time for it to hit the buffers.