Report: HS2 could generate £15 billion of annual productivity growth

Out-Law News | 11 Sep 2013 | 2:49 pm | 3 min. read

A new high speed rail line linking London with the North could generate £15 billion of annual productivity growth in the UK, according to a new report commissioned by the organisation tasked with developing the network.

Regional areas of England and not just London would benefit from the boost to the economy provided by the High Speed 2 (HS2) rail link that is envisaged, the report published by accountancy firm KPMG on behalf of HS2 Ltd said.

"Investment in HS2 could generate £15 billion of additional output a year for the British economy in 2037 (2013 prices)," KPMG's 'HS2: The Regional Economic Impact' report (95-page / 2MB PDF) said. "These productivity benefits accrue to all regions, with the strong gains in the Midlands and the North. Though Greater London does well, it is not at the expense of everywhere else."

"The improvement in productivity would be expected to persist in the years following the opening of HS2, and may increase as the economy grows," it said.

HS2 is a planned high speed railway between London, the Midlands and the north of England. The initial London to Birmingham phase of the line is scheduled for completion in 2026, and is intended to cut journey times between the two cities to 45 minutes with trains running at up to 250 miles per hour. 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 would allow development and construction work to begin in 2017.

The £50bn budget for the HS2 project has been criticised by environmental campaigners, business group the Institute of Directors and Parliament's public spending watchdog the Public Accounts Committee.

However, infrastructure law expert Patrick Twist said that the KPMG report showed HS2 Ltd was hitting back in the row about whether such significant investment in a new rail network was justified.

"HS2 has become a numbers game and rightly so," Twist said. "There has always been an imbalance in the way that the benefits and costs of infrastructure investment are measured in the UK. Costs, such as the price of building a mile of track are easy to identify but the benefits in terms of increases in the level of commerce are more difficult to quantify. This has led to a long term bias against investment in infrastructure as the Government's methodology has consistently understated the wider economic benefits that would flow from a particular investment."

"It is the approach that allowed HM Treasury to oppose the building of the M25 and resulted in the UK's 33rd place in the OECD ranking for infrastructure investment. KPMG's report is a welcome contribution to illustrating the real level of the benefits that would flow from building a new North-South railway line," he added.

According to the KPMG report, the creation of the HS2 network would free-up capacity on existing rail lines and better enable "rail connectivity" in the "business-to-business markets".

"Reduced transport costs following infrastructure investments will: enable businesses to serve markets further afield and be more competitive in markets that they currently serve; enable businesses to more easily connect with potential suppliers, allowing them to access inputs of higher quality and/or lower cost; provide consumers with improved access to a wider range of suppliers, offering quality improvements and/or lower prices; and improve the functioning of the labour market, increasing the effective size of the market and allowing skills to be better matched to employment opportunities," the report said.

"The reduced transport costs reduce barriers to trade, enabling markets to function more efficiently, stimulating competition and driving improvements in productivity. Those areas that are better connected will benefit from larger ‘effective market sizes’, leading to economies of agglomeration and increased specialisation, which in turn generate productivity gains over and above the transport cost efficiencies," it said.

In a speech delivered on Wednesday, Transport Secretary Patrick McLoughlin said HS2 was needed "as a heart bypass for the clogged arteries of our transport system".

"[HS2] will lift the burden from our overcrowded system," he said. "Because the point about High Speed Two is that you won’t have to travel on it to gain from the better transport system and economic growth it will support."

"People who may never use the new line will still gain from more services for towns and cities up and down Britain. More room for local trains. More space for direct services to London from places that can’t get them today. More space for freight trains – to free up our motorways," he added.