Out-Law News 4 min. read

Government should abandon HS2 "grand folly", says Institute of Directors

The proposed national high speed rail link lacks the support of business leaders, who do not think that the project will be good value for money, according to the Institute of Directors (IoD).

The IoD is the first large business group to call for the £43 billion High Speed 2 (HS2) line from London to Birmingham and the north of England to be abandoned. The Government has said that the project will drive job creation and boost economic growth.

Simon Walker, Director General of the IoD, said that only 27% of the body's members thought that the proposed line was good vale for money and 70% thought that the project would have no impact on the productivity of their businesses. In addition, the number of IoD members who thought that the plans were important to their businesses had fallen to 41% from 54% two years ago, he said.

"Businesses up and down the country know value for money when they see it, and our research shows that they don't see it in the Government's case for HS2," he said. "Some of the specific claims that the Government has used to support its economic case for the project have been challenged by our members, who by and large do not feel that their business will benefit."

"We agree with the need for key infrastructure spending, but the business case for HS2 simply is not there. The money would be far better spent elsewhere and in a way that will benefit much more of the country. Investment in the West and East Coast main lines combined with a variety of other infrastructure projects would be a far more sensible option," he said.

However, the company set up to deliver the project said that although the smaller schemes called for by the IoD appeared to have a greater ratio of benefits to costs, "by their very nature" they would only "make small improvements to capacity" or "move the bottleneck elsewhere on the network".

The initial London to Birmingham phase of HS2 is scheduled for completion in 2026. It will cut journey times between the two cities to 45 minutes, with trains running at up to 250 miles per hour, according to the Government. A proposed second phase of the project envisages the construction of an onward 'y network' connecting the line to Manchester and Leeds, as well as a spur to Heathrow Airport, by 2033.

New legislation is due to be introduced to Parliament later this year which will allow development and construction work to begin in 2017. If approved, the proposed High Speed Rail (Preparation) Bill will allow for quicker construction and design expenditure, and give Parliamentary authority for ecological surveys and other preparatory work to take place. The Bill would also allow for compensation payments to property owners living along the route.

According to the latest estimates, the project is expected to cost £42.6bn with an additional £7.5bn for rolling stock. Earlier this month, the Institute of Economic Affairs said that the cost of design changes and additional infrastructure to appease opponents of the line could add up to £30bn to the final costs of the project.

Projects expert Jonathan Hart of Pinsent Masons, the law firm behind Out-Law.com, said that the "range of numbers and claims being bandied about by both supporters and opponents" of the scheme were unhelpful.

"The latest announcement from IoD follows a number of similar negative pronouncements from other sources in relation to the viability or otherwise of HS2," he said. "It is a reminder – if any were needed – that if the project is to go ahead the price tag associated with HS2 is likely to be the largest item of capital investment undertaken in this country for the foreseeable future."

"Going into the parliamentary conference season, it is worth remembering from a legal and contractual perspective what it is that still needs to be done in terms of enabling legislation and definition of the appropriate contractual structure. It is also worth applying a degree of rigour to what the numbers are intended to include and exclude - civil works, rolling stock procurement, transport interchanges, other enabling works, landowner compensation etc - and, above all, clarity as to what the project is intended to achieve and how the economic value for this is determined. Comparing the wrong kinds of apples and oranges can lead to a pretty unpalatable fruit salad," he said.

The IoD surveyed more than 1,300 of its members, based across the UK, in August. According to its research, no more than 35% of respondents in any part of the UK think that HS2 represents good value for money. Most regions thought that London would benefit most from the new line, although respondents in the East of England and the South thought that the North West would be the biggest beneficiary.

"We recognise that some of our members are in favour of this project, and there is a plurality of opinion amongst the business community," said the IoD's Simon Walker. "But overall there appears to be little enthusiasm amongst IoD members, not even in the regions where the benefits are supposed to be strongest."

"Our members support increased investment in other aspects of our road and rail network, citing this as more important than investment in HS2. 80% feel that investment in existing intercity rail services should be a priority, with just 41% saying the same for investment in HS2. 63% believe the money should be spent on other transport projects. Station upgrades, inter-city improvements, tunnels, electrification and capacity improvements should all be considered alternatives," he said.

However Alison Munro, chief executive of HS2 Ltd, said that it would not be possible to provide the capacity upgrades that IoD members were calling for through "piecemeal upgrades to the existing network".

"IoD have not yet released their polling data but it is clear that their members are strongly in favour of increasing capacity with 80% supporting investment in long distance trains and 41% supporting HS2," she said.

"There is no other alternative that delivers the benefits of HS2. Through building a world class 21st century high speed rail network that will link our great cities both north and south as never before, we are focused on delivering within our budget of £42.6bn to provide the capacity we need on those routes and free up space to expand commuter services and freight," she said.

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