2
Revised transcript of evidence taken before
The Select Committee on Economic Affairs
Evidence Session No. 1 Heard in Public Questions 1 – 12
Witnesses: Professor Peter Mackie, Dr Matthew Niblett and Professor Roger Vickerman
Lord Hollick (Chairman)
Baroness Blackstone
Lord Carrington of Fulham
Lord Griffiths of Fforestfach
Lord Lawson of Blaby
Lord McFall of Alcluith
Lord Rowe‑Beddoe
Lord Shipley
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Professor Peter Mackie, Emeritus Professor, Institute for Transport Studies, University of Leeds, Dr Matthew Niblett, Senior Visiting Research Associate, Transport Studies Unit, University of Oxford, and Professor Roger Vickerman, Professor of European Economics, University of Kent
Q1 The Chairman: Welcome to the Committee and thank you very much for joining us today. We are being televised and I would be grateful if you could speak loudly and clearly for the benefit of viewers, the stenographer and the rest of us. We have quite a lot of ground to cover, but if any of you would like to make an opening statement, now is the time. If not, then can I also say that if you agree with what the previous speaker or speakers have said about the particular matter under discussion, a nod will suffice?
Perhaps I can start off. The October 2013 report by the Department for Transport sets out a cost‑benefit analysis, which suggested that the overall value for money for HS2 was 2.3 times and that phase one would be 1.7 times. Do you find that economic case persuasive? Who would like to start?
Professor Mackie: I will go first, Chairman. If you take the narrow view that this is a transport project and you are relying on estimating the transport benefits and costs only with some wider economic impacts and you do not go beyond those bounds, then the entire Y network offers reasonable value for money to society. I would hesitate to say high, as the Department for Transport says, because so much of its programme offers those sorts of benefit‑cost ratios or above. In saying that, I exclude consideration of environmental impacts, because I do not consider myself to be knowledgeable about the balance of the costs and benefits on the environmental account.
The risk analysis in the OBC economic case of October 2013 shows that the scheme is reasonably robust to a range of external market factors, so a decent amount of risk analysis has been done. The appraisal is consistent with Green Book principles, but if you were to say to me, “Should we build phase one, London to Birmingham and Lichfield on its own and leave it at that?” I would say, “No”. That does not offer good enough social value for money. The scheme really depends on doing the entire Y network.
Dr Niblett: I would second much of what Professor Mackie has stated. Our view has been that in order to get the benefits proposed, the whole scheme needs to be implemented; but in addition you have to provide sufficient local connectivity and have the local transport network properly connected to High Speed 2, as well as associated regeneration and spatial plans in order to achieve the kind of benefits that are being proposed.
The Chairman: Has any estimate been made of those additional costs?
Dr Niblett: No, not that I have seen.
Professor Vickerman: I would concur with what Peter Mackie has said on this. I would simply add that my feeling is that if you look at what the likely ongoing impact is going to be on the country, these are probably slightly on the modest side. However, we are talking about the sorts of benefits that are going to be achieved over a very long time period and over a period for which it is extremely difficult to make precise forecasts. There is sufficient in there, as it were, to suggest that one proceeds, but with caution.
I certainly second the view that one needs to think very carefully not just about the Y network but about the whole rail network that connects into it and all the other things that you might do alongside it. Of course, then you get into the problem of how much of that is part of the cost of the project and how much is the benefits, but it is, after all, a catalyst and we should recognise it as that.
Q2 The Chairman: In your written evidence, you say that the Department for Transport’s standard modelling may not be particularly effective for large‑scale infrastructure projects. Is it therefore possible to compare this one large project with, let us say, half a dozen smaller projects that may give better value for money?
Professor Vickerman: No, I do not think it is. It would need a consistency of approach to be able to understand where you are with these, so using a standard appraisal package is the right way to start. However, it is then very difficult to start saying that you can get a better set of benefit‑cost ratios from a larger number of small projects from that. One does have to separate these things out, so when talking about a high-speed rail network and airport development, those sorts of things, and the possibility of making such fundamental changes, it is very difficult simply to go by the standard model and say, “Right, we plug it in, we see what the answer is and then that tells us yes or no”.
Q3 Lord Lawson of Blaby: In the economic case, it appears that the overwhelming evidence comes from faster journeys: I think 84% is given. Are these faster journeys from station to station or are they from door to door, because of course what matters to people is the door-to-door time, of which the station-to-station time is only a part?
Professor Vickerman: If you look back through the history of the iterating values that HS2 has produced, you will find that there has been a move from what is more station to station to more door to door. However, that depends on having an awful lot of evidence available to know whose doors are going from and to and much of the benefit is about business travel benefits. We might have a better handle on that because we have a better knowledge of where the starting points and ending points of those business journeys are. That business‑to‑business connectivity is one of the really important things, but it is a very tricky issue to raise there because you are dealing with a very large spread of areas over which people are being funnelled into the tube, as it were.
Lord Lawson of Blaby: I understand the difficulty, which is clearly there, but it does seem to me that the consequences of the calculation itself are pretty dodgy. Indeed, as I understand it, for the most part they are not going to be the same stations and they are going to be a little further away from the centres of population. Therefore, the station-to-station time will be less, but the rest of the time on the journey is likely to be greater. Of course, when you ask what wasted time is and what it is not, it seems to a layman like me that it is much easier for the businessman to do useful work when he is on the train, but not when he is on his way to the station or on his way from the station to his destination. In other words, you are reducing the amount of useful time and increasing the amount of wasted time. That does not seem very sensible to me, and I do not see it reflected in the calculations in the slightest. I understand it is a difficult thing to do.
Professor Vickerman: I would not disagree with your point, but I would add one further point. One of the clear things about high-speed rail on the dedicated network is the increase in reliability, and that reliability is something that people will pay a price for. I say that as a regular user of the HS1 line, which has transformed the reliability of services from Canterbury, where I live, into London. It has shortened the journey, but it is the reliability that is important there, and that counters a little your concern about stations being further away. Of course, that is not true of London; it is less true of Manchester and not really true of Birmingham. The real problem areas are what you do in places like the East Midlands and Sheffield, and that is a serious issue.
Lord Lawson of Blaby: Just to pursue this a little further, it is a pity, incidentally, that it seems to be impossible to make train services reliable if they are not high-speed. I do not quite see why, but anyway, what you have said leads to another question: how you calculate the value of the time saved, if indeed there is any time saved at all, because of the door-to-door issue. This is partly because of how much time is really saved on a door-to-door basis, which is what travellers care about and also to what extent it is wasted time. Therefore, what is the basis for the figure, which is absolutely crucial in assessing the economics of the project?
Professor Vickerman: There are standard measures of business value of time savings and those are what have been used here, which relate to the value of business time.
Lord Lawson of Blaby: When were these first promulgated?
Professor Vickerman: They have been used in the standard appraisal procedure for quite a long time and are revised regularly to reflect changes in wage levels.
Lord Lawson of Blaby: And changes in technology.
Professor Vickerman: The changing technology is an interesting argument that is often used. That now, with permanent connectivity through mobile phones, wi‑fi and so on, people can use their time productively, and that means that there needs to be some adjustments in the values. However, I have seen some research done in the Netherlands that tends to suggest that the sort of activities that people do are very routine and low‑level. People are not performing at a high level while doing this. They may well be doing some routine e-mail answering, which may be a useful activity, but on the other hand, they are not doing things that are very productive at that level, so getting them reliably to a destination to do the productive things is still a benefit
Lord Lawson of Blaby: Surely that is completely irrelevant, because these humdrum, banausic things have to be done. You have to reply to e-mails. You cannot be creative 100% of your waking time. You have to do these other things, and therefore, if they are able to do those on the train, that is time saved just as much, because they are then freed up to do their creative thinking at other times. This Dutch study is surely totally irrelevant.
Professor Mackie: Can I make one supplementary point? I hesitate to defend the Department for Transport’s appraisal in its entirety, but there are some points that, if we are going down the route you are taking us, need to be made. In particular, in the appraisal the standard value of business travel time that is used is a single rail sectoral value. There is a book, a guidance manual, and in that book there is a number, and that is the number that is used for HS2. Now, if I ask myself whether I would expect the composition of the HS2 business travel market travelling from Manchester to London to be the same, in terms of income and other characteristics on a long-distance journey like that, as business travellers going from Wimbledon to Waterloo, my answer is no. Although I accept that the issue of businesspeople working on a train is a live issue, and the Swedes have introduced a discount to the standard value of time to allow for that, there are other offsetting reasons why the Department’s value of business travel time in the HS2 context is, in my view, quite conservative. So I think that the sensitivity tests that the department has done do cover the range of likely outcomes.
Q4 Lord Carrington of Fulham: One of the headline arguments to justify the line has been that we are running out of capacity on the rail network. Indeed, I think they have been a suggesting growth in passenger traffic of something like 2.2% between now and 2036. Do you find that argument convincing?
Dr Niblett: Yes, we do find that convincing. The work that the ITC has recently co‑commissioned looking at UK travel trends has indicated that rail travel growth will probably continue to rise due to fundamental behavioural changes, including a modal shift away from car travel to rail travel. That is particularly notable among both business travellers and younger drivers and younger travellers, particularly male drivers. There seem to be fundamental attitudinal and economic shifts that are persuading younger people to travel by train rather than by car. If we assume that this will, in due course, have an effect further up the age cohorts, it suggests that the 2.2% annual growth that we have seen is likely to continue for the foreseeable future, although there has to be a caveat that 20 years ago we would not necessarily have predicted the kind of rail growth that we have seen over the last 20 years.
Lord Carrington of Fulham: There has been some suggestion in the evidence we have had that the growth in passenger traffic has been fairly flat for the last five to 10 years. Is that not correct?
Dr Niblett: We are seeing already that passenger growth is rising again after the recession at quite a high rate.
Lord Carrington of Fulham: So you think it was a recessional effect rather than a trend line effect.
Dr Niblett: We think the slight slowdown at the time of the recession was partly caused by economic factors.
Professor Mackie: Could I respond to your original question?
Lord Carrington of Fulham: Of course.
Professor Mackie: Let us say we are dealing with population growth of 0.5% per annum, income per head growth of 1.7% per annum and income elasticity of one, so rail growth proportional to income and population growth. That gives you your 2.2%. Now, obviously, over a very long time period the wonders of compounding mean that you end up with a very large number, but I do not find those input assumptions completely outside the plausible ballpark. Obviously, if there is a world recession for ever, you will not get income growth of 1.7% per head per annum, but I do not think that is the business-as-usual assumption that the Government generally care to make when considering their long‑term infrastructure assessments. In the corridor that we are talking about, I think the betting would be that population and income growth will probably be slightly faster than in the economy as a whole. The Core Cities’ agenda says that if you join up London, Birmingham, Manchester, Leeds, Sheffield and the East Midlands, perhaps that is going to be the box of the country, plus Bristol, where growth is likely to be the quickest.
When you come to the demand cap and whether to have a demand cap at 2036 or whenever, it is a bit of an arbitrary assumption when you cut growth off. However, it is better to have a cap than not to have a cap, because there are limits to forecasting and 20 years out is probably far enough to go in projecting demand growth for ever. Otherwise you get silly results like excessive congestion and very high fares to cap the traffic off, which you do not want to be dealing with.
Lord Carrington of Fulham: The assumptions, though, are going to be very sensitive, are they not, to two factors? One might reduce the 2.2% growth, which is pricing policy, because presumably if the high-speed rail is priced at the same as alternative means of transport, you will get a lot of people on it; if it is priced much higher, you will get fewer on it. The other one is also how much the line is used for commuting. Are these capable of being adjusted for in the model in a realistic way out as far as 2036?
Professor Mackie: That is at least three questions there, so let me see. At the moment, HS2 does not have any stations between Birmingham and London, so I imagine that the commuting share of the total HS2 market itself is relatively small. The big commuting benefits are from phase one and are on the capacity relief on the west coast main line. That has been extensively modelled and your assistants will be able to look up the proportion of the benefits that are really due to capacity relief on the west coast main line rather than the direct benefits of HS2 itself. That element of benefit is completely legitimate: if you can have 10 trains an hour from Milton Keynes to London instead of six, you get a capacity benefit out of doing that and more commuters can be located at Milton Keynes. That is the answer to one of the questions.
Another question—and a very interesting one—is how the model deals with pricing and differential pricing. Clearly, there is a very simple, convenient modelling assumption—well, let us assume that prices on HS2 are broadly the same as prices on the conventional network. It is easy to see why the models have done that, because it is a very convenient thing to represent and, as Lord Lawson has said already, there are quite a lot of difficulties in splitting the traffic between the conventional network and the high-speed network when you consider where the real origins and destinations are. However, I feel that the way in which the model deals with pricing is one of its weak points, and it would be better to be testing various premia, even though in a yield management world this is difficult to represent adequately. If you go on a train, there will be 100 different fares, if not more, being paid by the people sitting on it. This is a tremendous challenge for modelling and it is not easy to do, but I feel that a world in which high speed comes at a premium—not a large premium, because too much traffic will go away, but at some premium—should be explored further.
Q5 Lord Rowe‑Beddoe: Going back to one or two of the subjects dealt with by Lord Lawson, do you think that this question of a shorter journey is attractive? When you hear that the shorter journey is of course the rail, but not necessarily from where you begin to where you end, has this really been taken into consideration with the timings that have been given?
Professor Mackie: There are a couple of points there. There is an access time model from people’s origins at Dore or Ilkley or wherever it might be to access the Meadowhall or Leeds station. The question is how accurate that model is, how much is known about how much of the traffic turning up at Leeds is from Ilkley or Bingley or any other sub‑zone within the area. How good are the basic data? Also, how well is the inconvenience factor—of getting on a train at Bingley, travelling on a dark November morning to Leeds city station, walking down a road from Leeds city station to New Lane, where the high-speed train is going to be and getting on it—represented? Those are the issues with that. Suppose the model gets all that right; my answer is then that for long distance traffic journey time savings are valuable. Most of us coming from Newcastle or Leeds or Manchester to do business in London will be involved in 12‑hour days, and if you halve the journey time, that will reduce it to a 10‑hour day or enable you to fit in three meetings in the day instead of two. There are various ways in which those time savings can be converted into additional productivity, assuming that you think meetings like this are productive. I will stop there.
Q6 Lord Rowe‑Beddoe: Professor Mackie, it is part of the case, which is why we are interested in this, that the question of distance is an important contribution in time-saving. It is part of the case that has been put forward. You are saying it—it is very difficult to predict, I understand that—but there clearly is a danger that we are only talking about station to station and not the whole question of door to door. Therefore, it must be slightly dubious if we use station to station purely as time savings; it is not very helpful.
Professor Mackie: I agree. We should not use station to station. The issue is not that. The issue is the accuracy of the access model and whether the inputs are credible and believable.
Professor Vickerman: One of the things that is interesting here is that there are two effects working. One is the effect on the number of people travelling, and the second is the value that we ascribe to that over and above what they may be paying for that journey. Whilst it is not a very good piece of evidence to relate what happened with HS1 to HS2, it is the only bit that we have in the UK, and there clearly is evidence there that people are what is sometimes called “railheading”: they are making longer journeys to a station to be able to catch a high-speed train in order to get the benefits from, presumably, the reliability, even though they are paying a premium fare for it. You can see that particularly at Ashford, which is the major beneficiary of HS1. A significant amount of traffic goes through there now that probably would not have gone through Ashford previously, and so people are prepared, as it were, to take a penalty of having to go slightly further to the station to get what they perceive as a higher quality product. We can see evidence of that in France as well, but that British evidence does lead me to have some confidence in the belief that it will generate the levels of traffic that have been suggested and that there will be benefits associated with that.
Lord Rowe‑Beddoe: Can I go back to Professor Mackie for a moment? Something stuck out. You were talking about the eventual importance there would be to Bristol and I wondered if you would like to explain that a little more and then say what would be the importance, if anything, to Cardiff.
Professor Mackie: I was conjecturing that in the context of the growth in income and population, which was the question about the plausibility of the background growth factors driving the growth curve of traffic, the assumption used by the DfT of 2.2% per annum compound growth for 20 years was reasonable. My answer was that these routes cover 80% of the core cities where you might expect growth to be, if anything, somewhat faster than in the nation as a whole. That is my conjecture and, as an afterthought, I did say that there are some core cities, like Bristol, which are not included in the corridor. I do not want to say anything more about Bristol or Cardiff or Glasgow or anywhere else.
Lord Lawson of Blaby: If I may just come back on one thing, one of you emphasised the importance of the reliability and I understand that. It is a great problem for businessmen—and, indeed, for other people—when train services are unreliable. However, this is a different matter from time-saving, which, as I say, seems to me to be a little dodgy. When you are judging the merits of a transport project or a rail project, you have to decide whether that cost can be used more effectively, more productively, in some other way. Is it conceivable that it might be possible, by spending a bit of money, instead of having, say, the high-speed network, to make the existing network more reliable, or is that impossible?
Professor Vickerman: I do not think it is impossible, but most of the studies that have been done on this suggest that it would be if not as expensive, you would spend a lot of money and not get the same sort of benefits. I think that is right.
Dr Niblett: Yes, indeed, and I would add that the studies have shown that the disruption to the national rail network of such upgrades would be such that the cost to travellers would be much higher than is commonly imagined.
Q7 Lord Griffiths of Fforestfach: I think it is true to say that in the way this case has been presented to the general public, the great merit of it has not been the saving of travel time. Somehow we are saying if we have this huge investment project it is going to raise investment, create more jobs and raise productivity and, in a way, the rate of economic growth is going to increase in the medium term because of it. Do you think that is a reasonable assumption?
Professor Vickerman: I am not sure that it is an assumption. It is something that one can clearly show. That if you reduce the cost of interaction within an economy then you will get productivity benefits and those productivity benefits will lead to growth. It is not an assumption that does that; it is something that comes out of a piece of standard economic analysis.
Lord Griffiths of Fforestfach: What exactly is the mechanism? I have to say that if one is fairly sceptical about the saving of travel time and so on, connectivity might be helpful, but the case for HS2 is really that it is a major step forward in investment and productivity in the British economy. It seems to me that simply to say that it is connectivity is a second-order effect.
Professor Vickerman: The connectivity in that is that connectivity is what is reducing the costs of the economy functioning and that is what generates the benefits. That is what you are paying for, and so the connectivity in terms of the effects of business‑to‑business activities, for example, is important in reducing the cost of those businesses.
Lord Griffiths of Fforestfach: Just give an example of the real benefit from connectivity.
Professor Vickerman: It is the simple fact that you can move more easily from one place to another and not just, for example, lower the cost of your activity in either the market to which you sell or the markets from which you buy inputs. It is also the fact that you can reduce the internal costs of a business that is going to have several locations around the country. Therefore, firms are able to bring the transport system as part of their own interaction and you can get benefits from putting your specialist activities in the right location where they can get the sorts of wider benefits that arise from what are usually called “agglomeration benefits”, which might happen within activities rather than more conventionally within industries. That lowers the cost to individual firms and that, therefore, makes them more able to compete not only internally but externally.
Lord Griffiths of Fforestfach: I can see benefits in the case of, say, supermarkets or the logistics business, but given that productivity is really being driven by technological change, where are you going to get the real breakthroughs in technology because of this better rail system?
Professor Vickerman: You could argue that this is part of the technological change. Therefore, it is one aspect of the technological change that drives businesses forward.
Lord Griffiths of Fforestfach: However, the argument here is that technological change will lead to an increase in productivity outside rail technology, and I am not clear exactly where this productivity is coming from.
Professor Mackie: There is a source of productivity through agglomeration. The story of the cities of the north is that they are too small relative to their international competitors and relative to London, and that this is a piece of infrastructure that can encourage some degree of rebalancing and some growth. I find that argument far more persuasive in the context of a package of measures in which the railway is just one piece of infrastructure alongside a whole lot of other counterpart measures that build science parks and co‑ordinate activities of different sectors and so on in a much more comprehensive way than just putting down a railway and saying, “There you are, get on with it”, will do. So I partially agree with you, but there are other people who are going to come along in the next session and can give you a far more authoritative answer to your questions than I can.
Q8 Lord McFall of Alcluith: Last year, KPMG argued that the economic benefits of the new line could be worth £15 billion a year, I think they said by 2037. Do you find their methodology and conclusions persuasive?
Professor Mackie: Not very, and that answer is on two levels. First of all, there was a technical answer supplied by Professor Henry Overman of the LSE to the Public Accounts Committee when it went into all this, and there are technical issues relating to how those sums were done.
Lord McFall of Alcluith: He said that their forecast could be out by a factor of six to eight. Do you agree?
Professor Mackie: Yes, there are technical issues with their particular methodology, but there is a broader issue that I wanted to draw to your attention. There are issues about the macroeconomic assumptions that underlie the GVA approach. If you are willing to assume that the cost of HS2 is helicopter money that does not displace any other public investment and does not raise interest rates, then naturally you will get very large multiplier effects from investing public money in almost anything, including holes in the ground. I agree with Lord Lawson that it is more appropriate to assume that there is an opportunity cost of spending £30 billion or £40 billion on a railway, and that is spending £30 billion or £40 billion on some other piece of public infrastructure or some other alternative. Once you take those multiplier effects out of the calculation, the factor that you referred to begins to come down to something more manageable. At the moment, the Green Book is being revised and I really think it is important that the Treasury starts to provide some coherent advice on how to do these GVA or GDP‑type calculations, because at the moment this is the Wild West and there need to be controls and guidance on precisely what macroeconomic assumptions are made when doing calculations of that kind.
Lord McFall of Alcluith: You mentioned earlier Bristol, Cardiff and Glasgow and that you would not go there any more. Well, I am going to ask you to go there. Is there an opportunity loss for these areas, and do we need to look at this in its wider context? We have had representations from 20 Miles More from Liverpool and we have had it from Aberdeen and Grampian Chamber of Commerce and others.
Professor Mackie: With any spatial project there are bound to be relative winners and losers, and in extreme cases there may be absolute losers. Before we get to anywhere north of Manchester and Leeds, we have all the routing issues about whether the network includes Stoke-on-Trent or Wakefield, and whether there will be winners and losers within the regions that are served, never mind the regions that are not served.
It is important to keep a balance in what this scheme is going to do and what other investment activities are going to be carried out on the transport network as a whole. You know as well as I do that in Britain it is really hard to get things done, and you have to start in the places where the returns look as if they are highest, and if it works you move on to HS3, 4, 5 and 6.
Q9 Lord McFall of Alcluith: We have been talking about productivity for 40 years and it is a conundrum really. Is this just a war of words about productivity, because there is nothing nailed down about what is going to be produced and what is going to be of benefit? From what I hear from you, it is proving to be loose talk about productivity and we have heard it all before. Alan Greenspan said in the 1990s in America that it was down to IT to deliver the productivity. There is a revision of that now, so we would like to nail down this issue about productivity and the benefits. If there are £15 billion benefits to the country, where are those benefits going to be felt? Are they going to be felt all over the country or is it just going to be sectoral or geographically confined? These are important issues before we go further.
Professor Mackie: I agree, and that comes back to Dr Niblett’s point about the amount of connectivity at regional level that the scheme provides. I can think of one scenario in which, as a result of HS2, we have small enclaves of glass and steel buildings in particular bits of central Manchester, central Leeds, central Birmingham and not very much else. I can think of others where, if there is proper regional connectivity, you could hope that the impacts would be spread out a little beyond the city centres to other locations in the region.
Lord McFall of Alcluith: What I am getting at here is how we can look at this project not just as a rail project but in the wider social and economic area. What can you provide to us that would help us to look at it in that wider way?
Dr Niblett: This comes down to very significant macro questions about the future of the British economy and where it is heading. There has been a lot of talk in academic circles about the growth of the knowledge economy based not just on technology but also on the transmission of ideas, of knowledge, and of services that relate to that. I would draw attention, therefore, to the kind of work that the late Sir Peter Hall and Chia‑Lin Chen at University College London have done, which looks at how these kinds of economies in the knowledge sector developed in Paris and Lyon after the introduction of the high-speed rail line there. They identified that economic effects on different sectors will vary depending on how far they are away from your core megacity area of activity. Within a journey time of two hours, places like Lyon, for example, saw an expansion in their knowledge economy, and so I would suggest that we need first to identify what we want to achieve from our economic strategy and then see how that can be implemented.
Lord McFall of Alcluith: Have we done that sufficiently?
Professor Mackie: One thing that does not make it easy is that the Department for Transport is the sponsor of this scheme. For reasons that I, as a humble academic, do not fully understand, it is difficult to get cross‑government buy‑in; it is difficult getting CLG, BIS and the Treasury at the same table as the Department for Transport and all saying, “Right, what do we have to do in all sectors to make this thing a success?”, and not just to sit back and allow induced traffic and activity to happen if it wants to happen, but to be, in an un‑British way, a little more directive about making things happen. That is an important part of the story. Your colleague Lord Deighton has written a report that is partly about this, which I would commend to you, but I think it all starts from central government rather than the regions and the LEPs. In leaving it to the LEPs there is a risk you will miss an opportunity.
The Chairman: Professor Mackie, you have made some interesting remarks about what the Treasury should do to help this process along. I wonder if you could give us a note on your suggestions for exam questions we should set the Treasury in this regard.
Professor Mackie: I would be delighted to do so.
Q10 Lord Shipley: I want to pursue, first of all, the Y, because the Y does not get half way up the United Kingdom. I would like to know whether you have done any work on alternatives to the Y. In other words, when the Y was decided, after a great deal of thinking, were you content professionally that this was the right decision to have made? Secondly, have you done any work on the impact on the north of England? The KPMG report talks about the north and the Midlands doing better than London, and that may well be true, except of course that the north is a very big place, and coming, as I do, from Newcastle upon Tyne, obviously I might have a view about that. However, I am trying to get at what your view is about Y as a decision, but secondly, whether you think that the whole of the north and Scotland can gain, given that they will have rolling stock but will not have the high-speed lines. Have you done any research on the nature of the United Kingdom in terms of having access to high-speed rail?
Professor Vickerman: The Y, like any network routing, would be a compromise, not only in how far it goes but what it takes in on the way. However, the important point is not to try to think of the Y as something that stands completely separate from the rest of the UK rail network. It is important to have rolling stock, as is being designed, that runs on to the Y so that it serves the whole, whether it is Newcastle or Glasgow or Aberdeen. It is important to see it as part of that. Certainly if you look at the French experience with that, you see that they got very great benefits to cities that were off the high-speed network. Places like Grenoble, which is a great technical centre, is not on the high-speed network but has trains that run directly to it off the high-speed network. If you look at the whole rail network and what this is providing to it, it is coping with the problem of congestion on the most congested bits of the network and can then exploit benefits in the less congested parts of the network.
If I may just go back to the KPMG work, which I am not quite as hostile to as Professor Mackie, my reckoning on that is not that it is correct, but that it looks at things in a different way and asks questions that should be being asked. That is the importance of it. The question is whether that can then provide something that can be more refined in order to ask that, and it does go into great detail in trying to find out who the gainers and the losers are, in some sense, and whether the gainers are big enough gainers to compensate the losers. Basically, the losers are those that would always, in a sense, be the losers from this, because they are the more peripheral parts of the country—places like East Anglia and the south-west—from that. However, they are not major losers compared with the level of the gains that can be made. Now, whether it is £15 billion or £8 billion or £5 billion seems to me to be a second order question to whether it is an overall gain. The answer is yes.
Dr Niblett: Professor Vickerman has given a very good response as to why the Y, in many ways, is probably the best compromise that exists. We know that the north part of the country above Manchester and Leeds is much less densely populated than that to the south of it, and the latter is also where we find the worst problems of congestion. Therefore, if you help to relieve that congestion between Birmingham and Manchester or Birmingham and Leeds, and as long as you ensure that that Y is properly integrated into the conventional rail network at multiple points, one would expect to find benefits transmitted to other places as well further off the Y.
Professor Mackie: Yes, I agree. You can construct an argument that Newcastle, Darlington, York, Preston—places that are not on the Y but are linked to it—possibly stand to do better than places like Bradford, which, as it stands, is not going to be directly connected to the network.
Professor Vickerman: Just to add to that, if I can go back to the French experience again, it is certainly the case that cities like Lyon and Lille benefited largely at the expense of the surrounding smaller cities at their hinterland, because they had direct connectivity into the network, so the places immediately surrounding them did not do as well from that. I think that is the Bradford effect or the Wolverhampton effect or whatever.
Lord Shipley: Of course, an advantage for places north of the Y is that they have city centre stations. Where you do not have city centre stations but you have ones that may take time to get to, I just wonder whether you think that the investment in the local infrastructure to connect those HS2 new stations to other places has been properly costed. There is an accusation that the benefit‑cost ratio has not included those costs for the places that will have out‑of‑town new stations. Is that an issue? Is it a problem? Do you think it should have been done?
Professor Vickerman: I think it is an issue and it is an issue as to what investment you think is needed to connect those in, remembering of course that not every journey starts at a city centre by the city centre station. Therefore, it may well be that in some cases the out-of-town station could be better connected. However, I have to say that certainly the French evidence, which I am more familiar with, is that it is the places that have a city centre station or a city centre station that was used to create a new city centre, which is the case in Lyon, basically because of the congestion around the old station in Lyon Perrache. They built a new city centre around Lyon Part Dieu, which is one of the new industries—that sort of development. It is closer to it, but Lille Europe is similar, where they have tried to create something there.
The worry is the East Midlands one, Derby‑Nottingham, because that is too far out and too far away from the main areas both of residence and activity. That will require significant investment, and this goes back to Lord Lawson’s point: yet again, it is about getting people there quickly, not about it being at the end of a one‑hour tram journey or something, if you extend the Nottingham tramway out to it. So that is important.
Professor Mackie: I agree. Sheffield‑Meadowhall is also a worry. In fact, it is interesting to ponder whether the development of Sheffield and Rotherham should move to Meadowhall, which is in between the two and whether the centre of gravity of the city will change as a result of this piece of infrastructure.
Baroness Blackstone: Before I ask the question I want to pursue the Y for a moment. Do you think there is any risk that the base of the Y rather than the two arms of the Y might end up being the only part of this project completed, because of the huge cost of it, because of the disruption, because of the very considerable dislike of the project by people who are affected by its building? If that was the case, might there be a case for starting in Birmingham and going north and both east and west rather than starting in London and going to Birmingham? Has anybody ever thought about that?
Professor Vickerman: There has certainly been conjecture as to whether it is as well, and of course there are those even further north who suggest you should start it from Glasgow and build it southwards. The problem is that because the base of the Y is a very expensive and difficult part, not least because of the rebuilding of Euston and the tunnel from Old Oak Common into Euston, the danger is that you finish up with the bits at the north and you do not get the bit at the south. Potentially, that would be even more of a worry, because it is clear that the benefits to the northern cities are about connectivity between each other but are also about connectivity to London. I do not think you can cut it off and assume that all the benefits will be created up there.
Q11 Baroness Blackstone: Okay. My question is to you in the first instance, but I would be very pleased if Professor Mackie and Dr Niblett could also answer it. I want to quote what you said in your written evidence: “Evidence from around the world makes it clear that wider economic benefits are not automatic from high-speed rail investments”. What lessons can we learn from other countries? You referred to France just now in your reply to Lord Shipley.
Professor Vickerman: In Europe, we have most evidence from France because it is the most mature network, but we could look at evidence from Japan as well. The French evidence suggests two things. One is that simply building more arms to connect every region, which was the sort of political promise in France, was, to put it bluntly, a rather silly thing to do. It might have been good politics, but it was not necessarily good economics, because every bit of that network is not really an economic proposition.
The second part of that goes back to the answer I have just given not just about investing in transport in the locality but integrating it very, very seriously with the land-use planning of those cities. In many of these cases you get big concentrations of activity—and Lyon Part Dieu is probably the best example of that in France—and those sorts of benefits, but there are one or two smaller places that have done that as well.
What is also clear is that that local connectivity is important and that the places are served. There is a wonderful station called TGV Haute‑Picardie, which is half way between Amiens and Saint-Quentin between Paris and Lille, which is known to the French as ‘la gare des betteraves’—the one in the beetroot fields—because, okay, there is a car park but trains do not stop there. You have to think about this as a connection between major cities and to put the infrastructure investment into those major cities. This goes back to Professor Mackie’s point about joined-up thinking, linking regional and urban planning to the transport system and making sure that those two are in concert with one another. It is not necessarily that one drives the other; it is that they drive each other together if they have been planned in concert.
Baroness Blackstone: Do we only have evidence from France? What about other European countries?
Professor Vickerman: The Spanish one is starting to come forward, but the problem with the Spanish network is that what exists at the moment was completed more or less at the time that the Spanish economy nosedived. One does have difficulty. However, there are the same issues of where trains serve central stations and where they do not come up there and where developments are built around those. In Japan, again, you get it. You get a major benefit where it serves central stations in cities. Compare somewhere like Nagoya, which serves the central station in the city with good connectivity, with places like Osaka, where the high‑speed line, for various geographical, physical reasons, cannot access the city centre and you have to change and you do not get quite the same sorts of benefits from that. Therefore, it is important to be able to integrate it well within the city and the development of the city, and also, as Professor Mackie suggests, perhaps re‑cast the Sheffield‑Rotherham area. These are big changes, but it means that the things fit together better.
Baroness Blackstone: Do the French think that their investment overall has been a good one? I do not mean the French Government necessarily.
Professor Vickerman: Yes, the investment on the whole is seen to be good, as far as the core lines are concerned: the north‑south line, the northern line and the first bit of the south‑west line, the Atlantique. It is the attempts to try to build other bits of the network slightly further that have been rather less successful.
Q12 Lord Griffiths of Fforestfach: We started out with the saving on travel time and so on, but as you have answered other questions, it seems to me, you have gone from the transport case to the economic case. As I heard it, in listening to the economic case it seems to me that you are implicitly arguing—and it came out occasionally from you, Professor Mackie—for a little more central direction. If this thing is to be effective, it requires not only local planning of land use and so on but a little more central direction from government. Is that true?
Professor Mackie: Is it true that I am implying that? Yes. I believe that something of this magnitude requires a Heseltinian‑type figure to front the whole thing up, operate with the regions, operate with the sectors, and operate with the infrastructure providers, the combined authorities. We are not short of institutions here; it is putting them together and making them all face in the same direction to achieve something.
Lord Griffiths of Fforestfach: And you would see as part of that, probably, quite a lot of public investment alongside the rail, whether by local government or by central government.
Professor Mackie: My list of lessons includes where we have been successful in the past—I am thinking, for example, of the London Docklands Development Corporation—what lessons we can learn from the possibly quite short list of land use planning successes that we can quote, and how we apply those in this context. One thing I would ask is whether there is any scope for a little flexibility in the planning of the key infrastructure. For example, we seem to be planning a rail line from Oxford to Cambridge, which is going to cross the HS2 line, which will not have a station between London and Birmingham for 100 miles. Accepting the thing about the potato fields, or was it beetroot, are we missing an opportunity if we say, “No, the distance between London and Birmingham on HS2 is greenfield and can never be built on.”?
The Chairman: Gentlemen, thank you very much indeed for a most productive session. You are very welcome to stay and hear the next evidence session, if you so wish. Thank you.