French lessons? Is HS2 a cost effective tool for regional regeneration?

Ian Waddell
Public Transport and Regeneration Consultant

Nearly 30 years ago France became the first European country to invest in a high speed rail network – the TGV. HS2 is, at £33bn, the largest single infrastructure investment in the UK’s history. It is therefore very appropriate to objectively examine the French experience in order to draw lessons about HS2.

Our Government’s case in favour of HS2 includes claims that it will hugely reduce regional disparities within the UK, and they make frequent references to the regenerative impact which the TGV has apparently had on Lille and Lyon.

When considering Lille it is firstly crucial to remember that it is located at the cross roads of the European high speed rail network. It therefore benefits from high levels of accessibility and frequency of service.

Leading transport expert Roger Vickerman of Kent University observes:
“…. the biggest gains in accessibility accrue to the major access points to the network. These are first, the major metropolitan areas such as London or Paris, and secondly major interchange points, such as Lille or Lyon.”

Lille has certainly seen a significant growth in jobs particularly as a result of the large EuroLille development. But has this had any significant impact in terms of reducing the persistently high levels of poverty and unemployment in the Lille conurbation, Nord Department and region? The evidence (from the French National Institute of Statistics – INSEE) shows that it has not:

• Between 1999 and 2009 the rate of unemployment in the Lille conurbation has actually increased relative to the rest of France
• The same applies to the Nord Department and the Nord Pas de Calais Region within which Lille is located. Unemployment in the Nord region, for example, has increased since the arrival of the TGV in the early 1980s (from an average of 10.7% 1982-6 to 11.9% 2006-10), resulting in a further widening of disparities when compared to the rest of France.

Turning to the case of Lyon, this is an area which has traditionally been amongst the more prosperous parts of France. It has not suffered the depredations of the decline of traditional industries on anything like the same scale as the North East of France.

Nevertheless, if claims for the wider regenerative benefits of the TGV are to be believed, some further decline in absolute and relative levels of unemployment might be expected within the Rhone Department, over 75% of the population of which live within the Lyon area.

In fact the reverse is true: unemployment in the Rhone department has increased by nearly 1.5% since the arrival of the TGV (from an average of 6.3% 1982-6 to 7.8% 2006-10). It has also increased in relative terms compared to France as a whole by 1.24%.

The picture for the region of Rhone Alps within which Lyon is located is similar: its prosperity relative to the rest of France measured in terms of unemployment rates has actually declined since the arrival of the TGV in the early 1980s.

In summary it seems clear from the French experience and using our Government’s own examples, that high speed rail has had virtually no impact whatsoever in reducing regional and departmental unemployment disparities. The only ‘benefits’ have been limited numbers of additional jobs at key nodal locations.

Putting this in the context of HS2, whereas London might be considered a ‘node’ in European terms, places like Birmingham, Leeds and Manchester are not. This is even more so for cities like Coventry, Leicester, Bristol, Cardiff, Southampton and so on. If the French experience is valid, all these places seriously risk losing more jobs and investment than they may gain.

HS2 – Questions from all parts of the country

The questions about HS2 keep coming, from all parts of the country.
From the south of England, the chairman of Gatwick Airport, Sir David Rowlands, recently dismissed as ‘total nonsense’ the government’s claim that HS2 eliminates the need for a third runway at Heathrow. Sir David, the former chairman of the high speed project, is quoted as saying that ”a link to Heathrow does little for the high speed network, and the network doesn’t do much either for Heathrow”.
Meanwhile, at the other end of the country, Network Rail’s newly-appointed chief executive has been explicit about what the top rail investment priority is for the North. It isn’t HS2, but rather the ‘Northern Hub’ proposals to improve connections between Manchester, Leeds, Sheffield and Bradford. These improvements, he considers, are far more significant for the economic prosperity of the North than HS2. At the same time, there are claims that improvements to the East Coast main line to Newcastle can deliver similar journey times to HS2.
From Wales, the Cardiff Business Partnership argues for something similar to the Northern Hub. For them, the crucial rail investment for South Wales is improving the infrastructure within the region and connection to the electrified Great Western main line.
Even more damaging for HS2 are the results of an opinion poll undertaken by the Birmingham Post. Unsurprisingly, the results show that in Birmingham itself, the numbers are in favour of HS2. However, nearly everywhere else in the surrounding region, opinion runs strongly against the proposal. The newspaper comments that the case for HS2 appears to have run out of steam, and the economic benefits appear inflated.
These views show that opposition to HS2 is not confined to those living along the route. Moreover, the revised case presented by government at the opening of the public consultation seems to have done nothing to allay widespread concerns.

HS2 -The North versus the NIMBYs?

The Secretary of State for Transport is fond of casting the debate about HS2 in terms of the reactionary NIMBYs along the route versus the progressive citizens (especially business people) in the North who can see how high speed rail will benefit the country.

But where do criticisms of HS2 actually come from?
What is increasingly evident is the broad spread of opinion critical of HS2. This ranges from the Taxpayers Alliance, worried about the cost to the taxpayer, and the Adam Smith Institute, concerned about the economics of HSR, to the Smith Institute, voicing fears that HS2 is not the main priority for the North in terms of transport infrastructure. Further reputable institutions are now joining in. The Sustainable Development Commission, in its new report, Fairness in a Car Dependent Society, says that ‘high speed rail could divert funds away from investment in local rail services’, repeats concerns that HS2 could further imbalance the economy towards London, and criticises the fact that it will primarily be used by those on high incomes.

And now even the Americans are joining in. Wendell Cox, from the St Louis public policy consultancy Demographia, in an article entitled The High Speed Battle of Britain, notes the common tendency for infrastructure projects to cost far more than budgeted and for revenues to fail to match forecasts, as has been the case with HS1.

Much more than NIMBYs
What is so noticeable is the diversity of these institutions. The Adam Smith Institute is identified with the political right, as one imagines are many supporters of the Taxpayers Alliance. This is in sharp contrast to the politics of the Smith Institute report and the ideas one would associate with the Sustainable Development Commission. Wendell Cox from the USA is concerned about the costs of high speed rail to those on middle incomes. It is impossible to cast such a broadly-based group of commentators as NIMBYS. So why does Philip Hammond continue to do so? Does he have no better arguments?

Is HS2 a fair deal for the North?

A recent report by the Smith Institute with PwC and Newcastle University questions whether HS2 is a priority for the North of England.

The report confirms the serious and long-term nature of the North-South divide, and says it is likely to widen. Controversially for the government, this is in large part due to an analysis of the regional consequences of the recent Spending Review, conducted by Price Waterhouse Cooper. This suggests that the North will suffer disproportionately from public spending cuts and job losses, and questions whether the private sector will be able to plug the gap. It concludes that there are neither robust institutional arrangements or sufficient resources being devoted to closing the North-South gap.

If this is correct, it is easy to see why the government is keen to present HS2 as a way of bridging the North-South divide.

However the Smith Institute questions whether HS2 is what the North needs. It asks ‘whether the HS2 investment programme is really the right one?’. It concludes that ‘what is really needed is an integrated transport plan for the North’ in which access to London is only one of several criteria to be considered.
The report, Rebalancing the Economy: Prospects for the North, is the outcome of a ‘fair deal for the North’ enquiry involving 150 key public and private stakeholders.

The government has made it clear that it expects voices from the North to be strongly supportive of HS2. Does this report indicate that this is far from certain?

Will HS2 actually widen the North-South divide?

The information which the government has produced for the public consultation on HS2 provides new evidence on its impact on the North-South divide.

Philip Hammond is still adamant that high speed rail will reshape our economic geography, regenerate our urban centres and help bridge the north-south divide. He claims ‘the first phase (London to Birmingham) alone would support the creation of more than 40,000 jobs’.

When we look at the detail, this is made up as follows:
• 9000 construction (ie temporary) jobs
• 1500 operational jobs of which 340 are in London and 420 in Birmingham
• 30,300 from regeneration around the stations, of which 22,000 in London (Euston and Old Oak Common), and 8,300 in Birmingham (Curzon St and Birmingham Interchange).
So 70% of the ‘permanent’ jobs will be in London. Moreover, as the government admits, many of these will not actually be new jobs, but relocations from elsewhere.

What does this tell us about the impact on the north-south divide?

In the first place, the impact is very marginal indeed. Recent data from Cambridge Econometrics suggests that the north-south divide is currently widening by about 77,000 jobs a year, while the projected new jobs from HS2 are spread over a 12-15 year period. So even if they were all in the Midlands or North, their impact on the divide would be minimal. But of course they are mostly in London, so the impact will actually serve to widen the divide.

Of course, the government might argue that the major impact on regional disparities will only come when the line is extended further north to Manchester, Leeds and Newcastle. Even then there is absolutely no guarantee that many of any possible further new jobs will not be in London and the South East. In any case, the likely numbers could still be so small that even if they were mostly in the north the impact on the divide would be hardly noticeable.

So what are we to make of the large claims which government continues to make for HS2?

If the Secretary of State really believes them, we surely need to see some hard evidence very quickly. Or, if such claims are as misleading as they seem, are they no more than an attempted sleight of hand to persuade decision makers in the North that HS2 offers them something worth their while?

High speed rail in other countries

As the high speed rail debate heats up, there is a lot of interest in what regional impact other countries have experienced with high speed rail (HSR).

As an example, we have recently heard that some high speed services in France may be withdrawn because of limited demand. The line from Amsterdam to Brussels is also under threat after only one year open. In the USA, there are numerous critics of the expansion of HSR being proposed by President Obama.

On the other hand, we hear some positive stories, too. Only a few days ago, a Transport Department minister quoted Lille in northern France. Lille is said to have gained from its position astride the route from London to Paris and Brussels, although it is not clear that other towns in the Nord-Pas de Calais region have benefited similarly. Publicity for a research report on the Cologne-Frankfurt line announced that ‘new research shows that high-speed rail does deliver economic growth’ and so ‘supports arguments for high speed rail networks which are already being planned in the UK’. On closer inspection, though, the research seems to show that benefits were restricted to towns with stations. This could be problematic as the UK HS2 proposals envisage very few stations, which could limit regional benefits.

Given these sometimes contradictory stories, what broader conclusions can we draw from overseas experience?

Here it is relevant to consider the views of two prestigious international organisations. The European Union, in its recent publication High Speed Europe, makes many assertions about the benefits of extending the HSR network in the EU, but none of these are about cutting regional disparities. The OECD, representing a large group of advanced industrial countries, is sceptical about the impact of transport infrastructure on regional disparities.

Its report, The Impact of transport infrastructure investment on regional development, notes:
“a lack of information which could provide a firm, quantitative basis for claims about the impact of transport infrastructure investment on regional economies and regeneration”
and cautions that “improved infrastructure can not only attract investment into an area, it can also draw it out”.

So is it the case that, while individual cities may benefit, wider claims about the positive impact of high speed rail on regional disparities are more difficult to sustain?

Which will it be – HS2 or local transport investment in the regions?

It is increasingly argued that HS2 will be ‘in the national interest’ because it will have a ‘transformational effect’ on collapsing the economic divide between ‘the north and the south’. This is an astonishing argument. Why would one rail line solve a problem that has not been solved by previous rail lines, motorways, cheap airfares, and a massive amount of regional policy over 60 years? Surely we look for evidence based arguments from government, hard and fast facts, especially when they are proposing to spend £34bn? Yet most of the serious research is clear that such a rail line will bring very little additional economic growth.

But the further question is about what the opportunity cost of spending £34bn on taking HS2 up to Leeds and Manchester may be in terms of money available for other transport investment.

The government have just announced its programme of local major transport schemes that it will invest in up to 2014/15. The 9 schemes that now have their funding approved have had to shave 14% off their costs to DfT and in a new arrangement, the local promoters will now have to absorb all risks – DfT will not pay anymore than has been set out in the final bids. Forty five further schemes will have to compete in a Pool for a share of £630 Million (compare this to the £750 million being spent by the current Parliament just on planning HS2). Around 32 of the 45 schemes are for areas that HS2 will not be near. DfT assumes that the needs of this Pool are more like £945 million (averaging at £21m each) so possibly 15 schemes will fall by the wayside. Twenty three schemes were only allowed into this competitive pool on the basis that they have offered to shave 42% off their costs to DfT so even the schemes that are given the go ahead will be greatly curtailed. No other schemes will be considered between now and 2014/15.

To these can be added the 11 schemes – 9 of which are in areas that will not have a HSR station – on which a decision has been taken that they will not be funded. So that gives us 26 schemes that – despite being needed right now (or else they would not be in these Pools) will not be funded, and the vast majority of them are in regions that will be by-passed by HS2. This doesn’t even include the many local and regional rail schemes needed to address upgrading and capacity issues.

ALL of these urgent transport schemes and many, many more could be fully realised with just a proportion of the £34 Billion that will be invested in one HS2 scheme. Far from addressing the regional divide, HS2 will greatly increase them by investing in a project that will further serve the strongest economies. There are far better ways to serve “the national interest” than one rail link designed to turn Birmingham into an additional ‘London’ airport. Money for infrastructure IS available – it is a political choice that this government is making to spend it on a divisive and socially and economically regressive scheme – favouring the London economy over that of the rest of the UK. Does this feel like ‘addressing regional imbalances’? Does it feel fair?

How will high speed rail impact on the West Midlands economy?

High speed rail (HSR) and specifically the current government proposal for an initial line running from London to Birmingham and Staffordshire (HS2) will, so it is claimed, have a major impact on the economy of the West Midlands.

The Chancellor George Osborne has stated that around 8,000 jobs will be created in and around Birmingham. A study carried out for CENTRO, the West Midlands Passenger Transport Authority, claims that HS2 and supporting investments will create up to 22,000 new jobs.

How realistic are these estimates?

How would any benefits be likely to be distributed across the region? And how would this influence existing patterns of economic investment and employment?

The following analysis is based upon a study of the body of independent research on the wider economic impacts of High Speed Rail (HSR), based on experience in Europe and elsewhere.

A good starting point for considering these issues is the understanding that, unlike UK motorways, HS2 will have a very limited number of stations. Therefore it will not promote a ‘growth corridor’, but rather separate growth ‘nodes’ based around the stations. In the East and West Midlands regions there are currently just three projected stations in total – at Curzon Street in Birmingham and approximately half a mile to the east of the existing Birmingham International Station, and a further station serving the East Midlands which, speculatively, may be located somewhere in the proximity of East Midlands Airport.

The theory is that economic activities located at or near these nodes derive economic benefits as a result of improved ‘business connectivity’ resulting from shorter journey times, together with what is called the ‘agglomeration’ effect. These are efficiencies resulting from geographical proximity of firms to each other, labour market effects, network economies and environmental externalities.

However, the economic benefit ‘spillover’ effects from growth nodes into their wider ‘hinterland’ is very significantly constrained by the quality of the local transport system. Significant economic benefit only occurs when high speed rail (HSR) investment is accompanied by major investments in local infrastructure. There is no indication that this is likely to be the case with HS2.

Indeed, many rail passengers may be required to change stations and trains in order to access Birmingham City Centre, thus negating time saved through HSR. Car users will need to drive to and from the new stations, many of them utilising a Midlands motorway system already subject to major congestion problems.

Moreover, the danger is that economic growth becomes focussed on these two nodes at the expense of economic activity elsewhere in the region. Businesses will relocate from more peripheral areas or establish themselves at the node as a first preference. Serious concerns about HS2 currently being expressed by organisations such as Coventry and Warwickshire Chamber of Commerce and Coventry City Council becauseCoventry is effectively ‘by-passed’ by current proposals and the quantity and quality of its existing rail services are threatened. We can foresee further disinvestment in similar rail connections in locations ‘peripheral’ to HSR.

Finally, there is a strong research consensus that the South East Region would be the key beneficiary of a UK high speed network.

Current claims for numbers of jobs created in the West Midlands as a result of HSR could be considered exaggerations, as they fail to take into account the numbers of jobs that will be lost to the South East and as a result of the disinvestment in local transport networks that will occur as a consequence. CENTRO’s estimate of 22,000 new jobs is based upon the assumption of a major upgrading of local transport services alongside investment in HS2, when in fact the reverse is happening. Even if George Osborne’s estimate of 8000 new jobs is accepted, this works out at over £2M per job based on the £17bn cost of HS2. In contrast, the Government’s own value for money guidelines on job creation quote a figure of £27,500 per job.

To sum up, as far as the West Midland region is concerned, the evidence strongly suggests that:

(i) HS2 will lose the region vital service employment to London and the South East
(ii) indigenous economic growth will be attracted to areas in the vicinity of the two new Birmingham stations, at the expense of many important centres, including Coventry, the Black Country, Stoke on Trent, Telford and Shrewsbury , as well as many smaller towns and rural areas.
(iii) locations such as these will also see their economic competitiveness worsened as a result of further deteriorations in local rail services.

Ian Waddell MRTPI (Rtd.)

High speed rail and the North-South divide

The national interest?

The government asserts that high speed rail (HSR) is in the national interest. What this means is not entirely clear. Transport Secretary Philip Hammond says the high speed rail network will “change the social and economic geography of Britain; connecting our great population centres and international gateways”.
Hammond further suggests that linking England’s main cities via high speed rail, with further links to Scotland, could help break down the north-south divide. “Bringing those economies in closer reach of London, allowing them to benefit from London’s magnet effect in the world, is going to help solve some of the most intractable postwar social and economic problems Britain has faced.”
This echoes a number of influential public and private voices, especially the pro-HSR group Greengauge 21. They argue that high speed rail will create jobs, improve the competitiveness of regional economies and promote regeneration.

What is the basis for such claims?

Research by KPMG for Greengauge 21suggests HSR could create 25-42,000 new jobs and higher wages with most impact in the North and Midlands, especially in the core cities. The government itself in the High Speed Rail Command Paper said there would be substantial economic benefits to the major city regions of the North and Midlands. This may be influenced by the data from KPMG. Business lobbies in the regions are also quoting that data.
Unfortunately this data appears to be highly unreliable. It projects benefits over very long periods, beyond most reputable economic forecasting horizon. They also run counter to much research, as summarised, for example, in the Eddington Transport Study undertaken for government , in the Leeds University Institute of Transport Studies’ recent review for The Northern Way, or in expert academic evidence to the recent Transport Select Committee hearings. This strongly suggests that:
• There is no firm evidence basis for claims about the potential impact of infrastructural investment on regional economies and regeneration.
• Transport investment on its own is not a sufficient condition for economic development and there are other more cost effective ways of promoting economic development than investing in transport.

Deceiving the regions?

Research also tells us that:

• While the new ‘connectivity’ between cities which High Speed Rail might bring is likely to create little new development, it may have a substantial impact in redistributing existing economic activity and jobs. This is a clear conclusion of the KPMG study for Greengauge 21.
• But this redistributive effect is likely to benefit the biggest and strongest cities and regions most. The biggest beneficiary of HS2 and the wider HSR network is likely to be London and the South East – not the Midlands, North and Scotland.
• Other places which may gain are the nodes around the small number of proposed stations. Thus in the Midlands, Birmingham might benefit, but many other cities, towns and rural areas away from the very few stations could lose out. In the North West, Manchester might see some benefits, but these could be at the expense of the rest of the region.

Thus, some claims for the impact of HSR on jobs and regeneration could possibly mislead many in the regions who so far may have taken them at face value.

National interest or narrow interest?

Claims that HS2 and the wider proposed HSR network are in the national interest appear to be unproven. The beneficiaries could be limited to London and nodes around the very few stations. Another beneficiary would be businesses involved in construction and operation, and in developments around the ‘station nodes’. However this might still exaggerate the benefits of HSR, because other forms of transport investment, could be frozen out by the vast outlay of public investment on High Speed Rail. Such alternative investment could also create jobs and also spread the benefits more widely.

HS2 and High Speed Rail may thus serve only narrow geographical and sectoral interests, and accentuate, not break down, the North-South divide.