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HS2 'will boost UK economy by £15bn a year', say KPMG

The government is stepping up its defence of High Speed 2, with the transport secretary claiming it will be “a heart bypass for the clogged arteries of our transport system”.

Patrick McLoughlin is to highlight research published by KPMG suggesting that by 2037 the high-speed rail project would add an additional £15bn to the economy each year as people found it easier to travel to work and do business.

The cabinet minister will today welcome KPMG’s report, which was commissioned by HS2 itself, saying: “You can’t count the cost of a lost future, of the jobs that didn’t happen, of the cities and regions that found themselves left behind.”

His comments come on the heels of mounting criticism from politicians including Boris Johnson and Alistair Darling.

KPMG’s report, which deals with the benefits rather than the costs of the scheme, said the project would benefit both the north and south of England, as well as areas not directly served by the new line.

Critics have said the £42.6bn train line is too expensive, will benefit London at the expense of the regions and the money could be better spent on other transport schemes.

Construction News Summit 2013

Ex-chancellor and transport secretary Alistair Darling and HS2 Ltd chairman Doug Oakervee are among 30 politicians, clients and contractors lined up to speak at the inaugural Construction News Summit on 24 October. For the full programme and to book your place, click here.

The economic assumptions behind the scheme have also been questioned, particularly whether time spent on trains is more productive than had been assumed because of advances in laptops and mobile phones, and that growth in passenger numbers may not be as high as expected.

The estimated annual economic gains for the regions from 2037 included £2.5bn to £2.8bn in Greater London, £1.5bn to £3.1bn in the West Midlands and £5bn to £7bn in areas of Britain that are not on the new line.

KPMG head of infrastructure, building and construction Richard Threlfall said: “This shows there are benefits spread across the country.

“Of that £15bn, nearly half is accrued by neither Greater London or the economies on the route but to the wider economy of Britain.

“That is because it frees up capacity on the existing network and that drives benefits across the whole country.”

The report halved the value of time saved through faster journey times from that originally estimated by the Department for Transport, because as people now do more work on trains than had previously been assumed, faster train times will not necessarily increase productivity by as much as previously calculated. 

This scenario would take the annual gain to the economy from HS2 down from £15bn to £12bn, the report said.

The fall was not larger because of gains from working on trains and increased productivity through more frequent trains to more destinations.

KPMG lead on infrastructure strategy Lewis Atter said: “Being able to bring the mobile office offer to more places, more frequently, brings benefits.”

KPMG said growth from HS2 would also raise an extra £5bn a year in tax from 2037.

The report said construction and manufacturing would be jointly responsible for only 5 per cent of the £15bn extra economic growth because construction jobs and projects would not relocate once the new line was built.

However, expanding businesses in the services sector were likely to spend on construction projects, but this secondary spending was not included in the £15bn figure.

Additionally, the model did not include the jobs and output that construction would gain from building HS2.

Speaking on Wednesday morning at the Institution of Civil Engineers, transport secretary Patrick McLoughlin said he had brought in project managers from Saïd Business School at Oxford University to investigate the scope for reducing HS2’s £14.4bn contingency budget.

He argued that HS2 was needed “as a heart bypass for the clogged arteries of our transport system” so that existing main lines could provide more local and freight trains rather than long-distance travel.

He added that the KPMG report showed HS2 would benefit the regions. He said: “HS2 will make Liverpool stronger, Manchester stronger, Leeds stronger, Britain stronger, and provide a £15bn annual boost to the economy, with the North and Midlands gaining at least double the benefit of the South.”

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