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High Speed 2 project 'very expensive' route to growth

The High Speed 2 rail project is a “very expensive way of promoting economic growth”, a senior economist has told a committee of MPs.

Centre for Economic and Business Research executive chairman Douglas McWilliams told the Treasury select committee that spending on skills, technology and local transport, could have a bigger impact on regional economies.

He said: “It [HS2] is a very expensive way of promoting regional growth. A study we did two years ago showed that because demand was way overstated, if you [used] realistic demand numbers the costs would way outweigh the benefits and there would be a very large funding gap. I see that the latest spending review has started to support our conclusions on the funding gap.”

He said research by Daniel Graham, reader in transport and statistics at Imperial College, concluded that 20 per cent of the economic benefit from HS2 would go to the regions and the rest to London and the south east.

He added: “Skills and technology look a lot better as candidates [for investments to create regional economic growth] than a high speed rail project but urban transport in these regional economies is also important.”

On the subject of infrastructure investment, he said: “We have invested in infrastructure much less than other comparable countries; even countries with a low level of public spending as a share of GDP seem to manage to invest more in infrastructure than we do. We have not been very clever in finding solutions to the conundrum of how to get infrastructure spending in a time of public sector austerity.”

The Confederation of Business and Industry’s director general John Cridland said: “The increased costs of HS2 are a matter of concern.” He added: “To date the CBI has supported investment in HS2 on the previous costing. We have to face choices about whether that money could be spent on other infrastructure or priorities.”

He added that the ringfence protecting budgets in areas like health and international development would make it difficult for a future chancellor to ensure sufficient capital investment after the election.

He said: “As we move into the next parliament, it will be increasingly difficult for the chancellor of the day to protect the sort of capital investment and growth-enhancing current expenditure projects that CBI needs to see protected in the interest of economy while the ringfences to protect spending continue as they are.

“I think it is likely the ringfences will need to be revisited.”

Conservative South Northamptonshire MP Andrea Leadsom criticised the project’s value to the taxpayer after its contingency budget was increased.

In response, Treasury chief secretary Danny Alexander said there would be “robust incentives for those delivering it to deliver to time and under budget” and added that the chief executive of the London 2012 organising committee Lord Deighton would take on a “similar role in ensuring delivery of this project” at HS2.

Mr Alexander also said the project would be “transformational” for the UK, and that he had been looking at how the cost of infrastructure construction could be reduced.

“I have been engaged in a piece of work with the construction sector to look at the cost of infrastructure projects compared with other parts of Europe and take steps to bring those costs down.”

Meanwhile, Labour MP Pat McFadden said figures from the Office for Budget Responsibility showed the government had spent £5bn less on capital projects between 2010/11 and 2012/13 than former Labour chancellor Alistair Darling had planned to spend in that period.

He said that the capital spending was flat in cash terms at £50.4bn for 2014/15 and 2015/16 which was a 1.7 per cent real terms cut. 

In response, Mr Alexander said he had not seen the OBR’s report, but said: “Over the four years from 2011/12 to 2014/15 we are spending or planning to spend £9.5bn more than the plans we inherited from the previous government.”

He also said his government had cut underspending and a difference in underspend assumptions could have contributed to the difference in the figures.

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