2
Revised transcript of evidence taken before
The Select Committee on Economic Affairs
Evidence Session No. 20 Heard in Public Questions 236 - 255
Members present
Lord Hollick (Chairman)
Baroness Blackstone
Lord Carrington of Fulham
Lord Griffiths of Fforestfach
Lord Lawson of Blaby
Lord May of Oxford
Lord McFall of Alcluith
Lord Monks
Lord Rowe-Beddoe
Lord Shipley
Lord Skidelsky
Lord Smith of Clifton
Baroness Wheatcroft
________________
Sir David Higgins, Chairman, HS2
Q236 The Chairman: Sir David, can I welcome you to the Economic Affairs Committee? This is, in fact, the last day of our hearings, and we then get into writing mode, so you have an opportunity to certainly give us your views as we start to consider how we are going to frame our report. Thank you very much for joining us.
When he appeared before us last month, Lord Deighton said that he had charged you with considering how the cost of construction could be reduced, and in particular learning from the practices applied abroad. You made some comments in front of the Transport Committee in November 2014 when you pointed out that the French seemed to be able to complete some of the construction work rather more quickly than we were planning to do, and that there were possibly some lessons that could be learnt. I wonder if you could give us a sense of the target that you have set yourself to reduce the cost to, and what to date you have learnt from the French experience that could benefit us, both in terms of reduced cost and improving the timetable.
Sir David Higgins: First, thank you for the opportunity to appear before this Committee. Indeed, I did refer to that in my last report, which came out in November: that we should look at international best practice. I have another role, which is chairing the Construction Leadership Council, which has been mandated by the Government and BIS to look at construction practices. We set a target by 2025, which is one year before hopefully the completion of phase 1, of reducing both the time of construction and the cost of construction, in each case by 25% in real terms. We believe that is certainly achievable. Our challenge for the country is that we really have to achieve those targets, because it is not just HS2; we have a huge programme on nuclear programmes, a massive roads programme—a huge amount of capital works. Our industry is incredibly fragmented; it is disparate, it is small, and it is subject to boom and bust. We never invest long‑term in the skills. A massive electrification programme on the existing railway today follows 15 years of no electrification programme; the same on train carriage construction. There is a long history of stop‑start. What we see from overseas, and in particular for France—I cannot say that all France’s high‑speed projects were very low-cost, but the one we were interested in in particular was a project from Tours to Bordeaux; it is currently under construction. They spent some three to four years just in the planning stage alone, and then they started construction in 2012, and this year they finish all of the civil works, bridges and everything, for a project that is the same size of phase 2, and they do all of that for €6 billion or €7 billion and it looks like they will achieve that. There are no stations included, there are no branch lines, there are no tunnels, because it is through open countryside, and there is no rolling stock, so there are differences. We have already had a team over there, and we are spending teams to Spain as well, and there is absolutely no doubt that rigorous planning, just in time construction where you look at the logistics and you plan for that in advance, can deliver substantial savings in all construction sectors for our national economy, and particularly high-speed. We need to think that this is not a railway, because every time we talk about a railway the costs go up, because our industry has never built a new railway line, besides High Speed 1 of course, which was designed by the French and built by Americans. We have not built a mainline railway line here for generations, and therefore our thinking about contractors, supply chains and designers is built on contingency and things going wrong. We should think of it as a motorway, because that is essentially what it is: a motorway with steel tracks on top. The vast majority of the risk and the cost exposure on High Speed 2 is in the civil works.
The Chairman: Your contention would be that some of the contingency may be able to be saved if we were able to adopt the processes that have been perfected and developed over many years in France?
Sir David Higgins: And other countries too—the work done in Italy for the high‑speed network, or Spain, or in China. Contingency can be saved. I would be more conservative. I would say that we need to do this to ensure we can be responsible and deliver this budget within the amount set out by Treasury. It is essential and, as I have said, with my other hat on it is essential for the entire construction industry that we do not just go down the repeat of the typical cycles.
The Chairman: Have you done an exercise to determine, if we had French levels of productivity and skills, what the construction costs would be in the UK?
Sir David Higgins: We launched a report into the rail industry’s efficiency about four years ago, took a standard bridge, and they costed it in the UK, in Holland and in France. What they discovered there was not a lot of differential cost in the actual raw materials; French aggregates are slightly cheaper and there were a few things like that, and French power sometimes at a cheaper rate. Essentially the issue was access and planning, and the reason the costs here are substantially higher than both those countries was track and access time, and planning. That was in that looking at the existing railway.
We have a commission to study, which will report around mid this year, that will take on the lessons from European best practice, but also, as I say, go further afield and look at what China has been able to produce. Also we should look at Japan: Japan has had a long history of building high-tech and also a level of resilience. Another feature about railway lines is we want a railway line that does not break.
The Chairman: Do you not think we are getting off on the wrong foot by saying, “Well, here is the budget for this. We are then going to add a Treasury contingency in”, which everybody assumes is going to be spent. I thought the purpose of a contingency was that it was for the unexpected, for a rainy day, but it seems to be assumed that it will all be spent.
Sir David Higgins: The history of both Crossrail and the Olympics was that there were significant gateways put on the levels of contingency. For the Olympics, for example, the civil works on facilities and venues had an £8 billion with a £6 billion project budget, a £1 billion first-level contingency, and a £1 billion second-level contingency. It was very clearly set out what those contingencies were, force-majeure risks or government taxation policy, or whatever. The gateway to accessing those contingencies and the use of change control was rigorously enforced, and in the end £1 billion of that contingency was never spent on the delivery of the venues and the infrastructure. We will have the same disciplines on this project.
You are absolutely right: you should not assume that contingency will be spent, but what I did not want to do in either of these two reports was to suddenly declare that I had found savings. We have not done anything yet, and therefore that would be a facile statement, but in terms of a determination to look at how we can save money, we should absolutely be very determined to save substantial money and, as I say, it will not come down to pouring of concrete; that is not where the saving is. It is: what are you building? Why are you building it? Do not change your mind. What is the supply chain delivering that? Have we been ambitious to import procedures from the rest of the world in terms of how we deliver things?
The Chairman: Is there not a fundamental difficulty, because phase 1 has been done to a level of granularity, whereas phase 2 is an estimate, which has a lid on it from the Chancellor? When the work is done it could end up 10 miles south of Manchester?
Sir David Higgins: You are right. The two projects are at an entirely different stage of development. The design of Phase 1 is more detailed; the big focus on phase 2 now is scope: why are we doing it? Which cities do we need to connect to? How do we enter those cities? How do they link into the existing infrastructure? Even on phase 1 we have the hybrid Bill going through a Committee, this House at the moment, and hopefully in two years’ time that will come through the process approved. At the same time now we have a team of engineers with strong construction experience, a number drawn from overseas, who are now looking at and saying, “How will we build this more efficiently? We might have a certain curtilage that we can use; do we need to use that? Are there quicker ways?”. Can we use the example in France, for instance, on this railway I spoke of? They decided to build the railway as a road, a bitumen road, so they used the railway as their main logistics and access track and then they put the ballast on top of that when they had finished using it as a road, rather than having built separate haul roads and other access points.
Q237 Lord Lawson of Blaby: The projects that you referred to earlier—the Olympics and the Crossrail—were constructed during the worst recession that we have had for a very long time. This enabled the Government to put downward pressure on contractors. We hope that we are out of the woods now, so the danger of overrun is very considerable, and we took evidence from the French that the TGV estimates overran and, indeed, most big projects in this country did, apart from the ones during the recession.
There is another element, and that is the configuration of a track, and you pointed out the need to have tunnels and so on. The configuration of the track is substantially affected by the speed at which the trains are going to run. HS2 is planned to run at a speed hugely in excess of the French TGV. Have you looked at the possibility of having a train that runs at the same speed as the TGV—it is perfectly acceptable; I live in France myself and use it occasionally—and make substantial savings through the configuration of the track by having a TGV speed, which is not to be sneezed at, instead of this hugely faster speed that is planned for HS2 for reasons that I fail to understand. Simply, I suppose, so we can boast for having far away the fastest trains in Europe, but I cannot see the point in that when it is going to cost so much more. Are you prepared to have a look at that?
Sir David Higgins: Indeed, your point is very relevant. French trains travel at 225 miles per hour, so 360 kilometres per hour. They often operate at around about 350km per hour. HS1 is rated at 300; the French side is rated at 360. Our line has parts of it rated at 400.
Lord Lawson of Blaby: Which determines the configuration of the track.
Sir David Higgins: Yes, that determines the configuration of the track, and the width of the tunnels, and the distance the tunnels are apart. We have made efficiencies, so the tunnels will not be designed for 400 kilometres per hour, or areas where there is a premium cost on doing that in terms of the tunnel. They will be designed for 360; some of the approaches and the curves as we go into particularly the Eastern leg of phase 2 will not be designed for 400; it would just be too expensive. We will want a train that will probably travel at either 350 or 360; it depends if there is a premium track cost to be going for that extra 10 kilometres an hour, and what the regulations are in Europe, and whether it justifies that extra 10 kilometres an hour.
Regarding the importance of the 400, I have asked the same question as soon as I arrived. I have heard all the stories that we can save a huge amount of money—9% of the whole project cost—by cutting the speed down by 50 kilometres an hour. The answer is that I do not believe that; I do not believe you can save that money. You could save some money by not building the at-grade sections or the sections on embankments at 400 kilometres per hour. The only concern there is it is not a massive amount of money; it is not the 9% that has been rumoured. The question there is once you do that, that is it. So if we want to get to Glasgow in three hours in however many years’ time—10 years, 20 years, 30 years—someone will eventually say, as they do now on tunnels, the Dartford Tunnel or other things, “Why in the hell did we build the tunnel so small?”, or, “Why did we not spend the extra bit of money to enable”—because who knows what is going to happen with train design? At the moment it is very efficient to run trains at 225 miles an hour; the Japanese and the Chinese are designing trains that run much faster, and aerodynamics are key to that whole operational cost. If they do that sometime in 30 years’ time, it would be a shame to have sections of the track that are relatively low-cost to upgrade from 350 or 360 kilometres per hour to 400 kilometres per hour, and lose for ever the flexibility of getting that speed on those long sections.
Lord Lawson of Blaby: You are paying a very high price for that flexibility, and the evidence that we had from Mr Prout was that the 9% saving was a 9% saving if you used exactly the same track and exactly the same configuration. Since you would use a different configuration, because you would have more flexibility, you could do sharper curves—and you know far more about this than I do—the configuration would not have to be the same; in fact, the true saving would be considerably more than 9%.
Sir David Higgins: Yes. To repeat what I said earlier on, one of the first things I did when I arrived was to go to the chief engineer and say, “I have been briefed by various quantity surveyors who are not involved in the project that we could save substantial money; I want to see all the reports”. They came back with the reports and said, “We can save money on tunnelling. You could space the tunnels out slightly closer and save a huge amount of money”. There will be substantial cost on the actually design of the track itself, which we need to think about, of how we do something called the slab track, like where the track in middle of Channel Tunnel is on concrete. Do we put it all on concrete or do we do it on ballast? That is a decision we have yet to make. We will exhaustively look at the premium from going between the 350 to 360 kilometres per hour. You would not want to go less than 350 kilometres per hour, because that is all European—
Lord Lawson of Blaby: At the moment you are planning to go up to 400.
Sir David Higgins: In some sections; not everywhere.
Lord Lawson of Blaby: That determines the configuration of the track to a considerable extent.
Sir David Higgins: It determines the alignment in certain areas.
Lord Lawson of Blaby: The alignment, okay.
Sir David Higgins: The alignment is how flat it is and how sharp the curves are, so certainly, as I said, on parts of phase 2, or some of the approaches in the Chilterns area, we are not going anywhere near that speed, because it would just be too expensive to do that. It is a case of rigorously reviewing the design.
Lord Lawson of Blaby: We are paying a very high price for simply, on certain sections, being able to go at that speed?
Sir David Higgins: I do not believe we are paying a high price. If I thought we were we would really challenge that extra cost. What we are talking about is the difference between 350 or 360 kilometres per hour and 400 kilometres per hour. If I thought there was a 10% saving on the entire project by eliminating that 400 kilometres per hour speed, we would seriously look at that, I can assure you.
Lord Lawson of Blaby: Are you seriously looking at it?
Sir David Higgins: We are looking at everything: the job of the new design team that come in now and were recruited in the last six months is to say, “Here is the design that is going through Parliament. Obviously we have to work within the context of the hybrid Bill, but are there ways of building it quicker, faster, more efficiently? We want you to challenge everything”. We still have to have a railway line that goes from London to Old Oak Common and, of course, through to Birmingham but—
Lord Lawson of Blaby: There is a very high opportunity cost, because the higher the cost of HS2, the more it crowds out other projects.
Sir David Higgins: You are absolutely right. HS2 is a lot of money. We have to prove that we spend it very wisely. The biggest way in which we can waste money is constantly changing our mind, and that is unfortunately the history of many projects when they go wrong: the client is not clear on the brief. We need to have these debates now and exhaustively have them. We have the time, because I believe phase 1 and phase 2 can actually be built quicker, but that means we can create time. We did that in the Olympics. We said, “Besides the tunnel underneath the Olympic site, do not build anything for two years. Stop, work out why you are doing it, plan everything properly, isolate the individual projects and then build everything in four years instead of allowing six”, and that is what we did.
The biggest thing we can do now is make sure the northern communities—the communities in Birmingham, and Euston and Camden—really understand why we are doing it and what we are getting out of it, and we have the best solution, because the tragedy is when you are halfway through construction or just about starting procurement and you have to redesign; that is a disaster.
Lord Lawson of Blaby: That is absolutely right, so therefore the critical time to change your mind is now.
Sir David Higgins: Correct, and we have an expert team, we have resourced them from the best in UK and around the world, and many of them are just coming on board now. Their brief is, “You have to build this. Is this within the constraints of what we have approved within the hybrid Bill, because we cannot verge out of that or misrepresent what has been approved by that, but are there more effective or efficient ways and what are the premium costs for that 10 kilometre difference?” We will look at all those things intensely, I can assure you.
Lord Lawson of Blaby: In a nutshell, the last question: what, in your view, is the great advantage in being able to travel at this ultra high‑speed for a short section of the journey? Where is the advantage?
Sir David Higgins: I suppose the simplest way I can describe it is to describe the fundamental weakness of the existing railway network. Yesterday I was hiking in Cumbria and I drove down the M6; I do that quite a bit. As was typical, once you get below Preston before Wolverhampton, the two lanes on the left-hand side going down were completely chock‑a‑block with lorries, you could not move between them, and all of us, trying to keep within the speed limit but move faster, were quarantined to one lane. I know that on current forecasts by the Highways Agency that that M6 section is going to have 60% more traffic in the next 12 years. The railways are the same, so the problem with a mixed-use railway is everyone essentially goes at the speed of slowest train—a freight train or a commuting stopping train. The reason why you build a high‑speed railway line, which only has trains that do exactly the same speed, and stop at exactly the same stations, is that your efficiency and utilisation of the track becomes incredibly more effective and therefore your cost of running that train and the cost of maintaining the track comes down extensively.
The problem we have in maintaining the existing track is that access is incredibly difficult, and utilisation is very poor, because you have this combination of all sorts of trains trying to use the same track. That is why, whether it be Japan, China, or all of Europe, many, many years ago they started creating dedicated, high‑speed trains that get people over big distances. I know it is not just about speed, but when it takes you two hours to go from Birmingham to Leeds, and it really is, I have to be honest, a hopeless service today, a poor service, and that can be cut to less than an hour; or from Sheffield Meadowhall into Leeds in 14 minutes as opposed to 45 minutes. That is going to transform that industrial belt, which is laced with high‑tech industries, where people at the moment cannot commute and do not commute between those centres of employment.
Lord Lawson of Blaby: Although what you said was very interesting, I do not think it answers my question at all, but you reckon then that the French made a huge mistake in having a TGV that has a top speed of 200 miles per hour instead of the 250 miles per hour for HS2?
Sir David Higgins: They run their trains at 225 miles per hour—that is 350 kilometres per hour—so you could question why we did not build our link across to the tunnel at 360 kilometres per hour, because the trains speed up as soon as they go across the tunnel into France. Their railways line is rated at 360. Ours will be rated at 400 in parts, and most of the rest of it will be rated at 360—in parts less than that. It is going to be a case of not having one standard speed over the entire network. It will be: what is the most cost‑effective solution? But what we want to have is a train that runs at 225 miles per hour, 360 or 350 kilometres per hour, but, for parts of the track where it is economical to, to have the capacity to future-proof it. Therefore if technology changes in 20 years and you have more efficient trains at high speeds, then you can at least use it.
Q238 The Chairman: Could you help us with another important element of cost: the Department of Transport told us that all the infrastructure that is required to allow HS2 to run on the dedicated line is included in the £50 billion. We heard from Transport for London that Crossrail 2 has to be built before HS2 can arrive at Euston, because otherwise they would not be able to cope with the number of passengers who are coming in. When we took evidence in Manchester for the cities in the north, they all listed infrastructure that would have to be built in order for the city to be able to connect itself with the new station, which was either close by an existing station or, in some cases, out of town. Would it not be appropriate to include these additional items in the overall budget if this system is to work efficiently?
Sir David Higgins: It is a very important question, and the simple answer is that the budget for £50 billion includes projects that are necessitated by HS2 for it to work. Sitting in that budget is what you need to get HS2 to work where it meets other stations and tracks. I am sure Manchester and other cities will want to maximise the benefit of it, but the most important discipline is it does not force or commit the Government to do other ancillary regional or metropolitan transport systems.
To answer the question on Crossrail 2, can I be clear that we do not need Crossrail 2 to do phase 1 of HS2; it should be tied in, because we need Crossrail 2, because Waterloo has a finite capacity and it is very close to that now. The Wimbledon line is completely stressed out, and the capacity that goes to Liverpool Street is really, really desperate. I was part of the team that launched the consultation on Crossrail 2 some three years ago. Knowing the need, I know why we are doing Crossrail 2. It is not a necessity; the additional transport capacity that comes with phase 1 of HS2 has catered for Old Oak Common, so a third of everyone that comes on the new service will get out at Old Oak Common; they do not get out today. If HS2 does not happen Old Oak Common does not exist as a platform; you could not even get there on Crossrail, so that takes a huge amount of relief on to the Crossrail line and Euston will be able to cope on phase 1. Certainly phase 2 needs to be co-ordinated with the long‑term upgrade of Euston and, of course, Crossrail 2, but well before phase 2 is finished Crossrail 2, I am sure, will be well under way, if not finished.
Q239 Lord Shipley: Can I just move us on to the issue of cost‑benefit analysis, Sir David? We have taken evidence from a number of witnesses who have doubted the suitability of the cost‑benefit analysis that has been used for a very large infrastructure project such as this. In other words, for small infrastructure projects by the DfT it may be satisfactory, but actually is it fit for purpose for something of this scale? Have you a view about that?
Sir David Higgins: I have read the transcripts of this Committee, and I have also read the exchange of letters that have come between the Committee and the Department on this whole issue. I suppose you could say that the whole issue of cost‑benefit is something that will continually evolve. What you have heard from experts is the current web tag process is, as we stand today, at world’s best practice, and it seeks to identify all the benefits that will come from infrastructure projects. Therefore I would say, in terms of the amount of work and effort that has been put into that, I think it is as good as it will get.
Does it capture everything? I would refer to, and I know you have already heard this from the Secretary of State, the story we all know of the Jubilee line and the Limehouse Link, and the Victoria line, and the second crossing in Wales—and I could give you three or four others where the cost‑benefit analysis had grossly underestimated benefits. It is very difficult to capture the benefit of infrastructure that enables a city regeneration, but I would say that it is to be relied on. What does it do? It is not mean to be a discounted cash flow that you can take to a bank and raise money. It is meant to be a method of rating various infrastructure projects against other infrastructure projects to determine which is the most important. What would be nice, of course, would be to have a national transport strategy against which to measure that; that would be a discipline that would improve the whole debate on how you analyse individual projects. We do not have that today.
Lord Shipley: We do not. I think I heard you say that what we have had is as good as we can get.
Sir David Higgins: Yes.
Lord Shipley: However, the Department for Transport has recently concluded, and I quote, “that due to uncertainties and inconsistencies in the existing evidence”, fresh evidence is required on the value of travel time savings and they have commissioned new research. That is important, because the majority of benefits in the cost‑benefit analysis for HS2 derive from the value placed on a rail passenger’s time. If we have to get new evidence as to whether that value is correct, surely the cost‑benefit analysis may not be as good as we can get?
Sir David Higgins: I think we will constantly refine the cost‑benefit analysis. As you know, it was refined in 2012 and further worked on. Roughly 50% of the cost‑benefit comes from travel-time saving. We have also put some artificial brakes on the entire modelling as well: we have set the limit of growth at 2.2%, and we cap it at 2036. We know that, for the last 18 years, passenger growth on long distance, particularly west coast, went up 4.8%. If you change that and you extend it from 2036 to 2045 it goes up a factor of four instead of 2.2. These things are very sensitive on the upside, but—I know it was in the letter David Prout sent you on the 7 November—they have rated it, it sits in the high VFM range, and we should continue to analyse these issues. In the end, if it is 2.1 instead of 2.2, is this something we are not going to do? History has shown on these major public transport upgrades on existing demand routes, we have underestimated them every time.
Q240 Lord Skidelsky: On cost‑benefit, we have a note from one of our witnesses who wrote: “For infrastructure typically comes in systems, not discrete bits. Choosing what sort and level of infrastructure to supply is not a marginal decision … Marginal analysis—as the core of cost‑benefit analysis—has little obvious to offer”. Have you found it easy to use cost‑benefit analysis to decide between different types of rail systems or, indeed, between a road and a rail system? How far have you been helped by the analysis that has been done on the problems connected with HS2, either HS2 versus another rail system, or to put in a rail system as opposed to a road system?
Sir David Higgins: Certainly we have used it to good effect. On the second report I brought out in November, I wanted to go back to basics on phase 2, because there was a lot of challenges, particularly on the eastern leg from Birmingham through to Leeds, saying, “Surely we could spend less than the budget allocated in phase 2 for that section, and get nearly as good a result in terms of capacity and speed and operational cost‑efficiency”. We did use cost‑benefit ratios for analysing four different schemes exhaustively and that was a very, very good measure.
I have not looked at it comparing road versus rail. The big thing about this rail project is that it will relieve a huge amount of capacity; that journey I was on yesterday on the M6, on the existing network, the west coast, we will free up 20 freight paths every day, so that has the potential of 40 containers on each of those freight trains; if you use the full potential of that, it is 1600 lorries off the M6, if you use the released capacity on the west coast properly—what is the cost? You know that when you have lorries on a motorway, that is what damages the motorway; if it was just cars on the motorways you would never have to maintain them. Look at the M6 toll: it is a fabulous toll way, hardly any trucks on it. It is a very good track in terms of surface, so what is the true cost in terms of comparing a project that can release that amount of capacity and get those lorries off the road.
Q241 Baroness Wheatcroft: Building on that, Sir David, you have been given a particular task to do and you are obviously intent on doing it as efficiently as possible, but you did say it would be nice to have a national transport strategy. Do you think it would be sensible to be starting with a national transport strategy before spending potentially £50 billion or more on one particular piece of rail?
Sir David Higgins: You cannot fault your logic; it would be sensible to have a national transport strategy. I argue that point long and hard in this report—that it got into the report—because many of us do not like the discipline of a proper 30-year strategy, but if ever there was something that needs it, it is rail and long‑term transport requirements. Having said that, I do not think there is ever going to be any debate that will ever convince me or anyone that has worked in the railway that providing new relief, to the west coast in particular, and then the journey time of east coast, there is any other alternative. I worked on the railways for three years; I ran it. I looked at the challenges of maintaining the west coast. £10 billion later the railway line has increased capacity: it is an absolute nightmare to maintain. If you were travelling into Euston this morning, I noticed when I got up, there were severe delays into Euston. What was the reason? Emergency engineering at Watford. I have walked around all the junctions at Watford Junction myself and looked at the state of the track, and the sleepers, and the ballast; it is a nightmare junction—it is a really, really complex junction. It will take two years to properly upgrade and replace that junction and it is urgent to do. If you had a clear run at it with no trains on it, and looked pretty seriously at it, that would take two weeks to do, but you cannot take the railway line out, because you shut the nation’s freight corridor. Forty per cent of the nation’s freight travels on the west coast every day and at night.
Back to your question: any national transport strategy has to have rail to complement road as a major corridor for long‑distance travel. It delivers to such an important key part of the country. I am passionate about the country having a national strategy for transport tied into national strategies for other key utilities, be it from roads through to other things. You have to co-ordinate roads. What is the solution to the M62? That is a nightmare, is it not? Another one? I do not think so.
Q242 Lord May of Oxford: This is a slightly sideways point, but it relates very strongly to the point of having a national strategy that looks at rail and road. You pointed out that our roads, with all the heavy freight on them, can be awful. The last two summers I have driven from Munich Airport down to a place called Achensee in Austria and the roads there are good, simply because in Germany there is a very simple solution: big trucks cannot use the fast lane. There is something we could do that costs absolutely bloody nothing that would make a huge difference.
Sir David Higgins: Yes. That is not in my powers, but I agree with you.
Lord May of Oxford: You might note it; you can do more about it than I can.
Q243 Lord Carrington of Fulham: If I could come on to the fundamental reason as to why we want a new rail track, what I understand you have been saying to us is that the pressure is in freight, and it has been suggested to us by other witnesses that there is no overcrowding in terms of passenger services. Would that be right?
Sir David Higgins: No, it is both. It is in commuter, it is in long-distance, and it is in freight. Building two brand new tracks and taking off the long‑distance frees up the west coast now. Freight often is the back of the queue, so it is crucial that those train paths, which are like Heathrow landing slots, are dedicated to freight and that the logistics centres are enhanced to get that transport off the M6. Otherwise I do not see how we can continue to function in 20 years’ time. It has got to be both; you look at the passenger growth on the train services—look at Virgin service through to Manchester and the growth that that has experienced. I have read transcripts and you talked about 60% occupancy at peak hours; that is right. The trains went from nine cars to 11 cars two years ago, and so you would hope that everything was not crowded out.
What we need to get into our head is that building infrastructure, when you have gone past the responsible level of capacity, is a very expensive thing to do, and it is incredibly inconvenient, and it actually costs the economy. Countries that invest in infrastructure in advance of need—Hong Kong, Dubai, Singapore, or Germany for that matter—build it more efficiently and cheaply, and the economy then grows into that. The best example we have seen of that is that the nine railway lines at Stratford mean that Stratford is now a vibrant commercial centre with jobs, office jobs, retail, and strong employment growth. The same will happen, or should happen, at Old Oak Common. That and Canary Wharf would never have happened unless big decisions were made to invest in Channel Tunnel Rail Link or in the Jubilee line.
Lord Carrington of Fulham: Let us park for the moment the freight and the commuter, because we can come back to the commuter side, but can I probe you a little bit on the long‑distance passenger traffic? As you have said, we have had some evidence, which I am sure you have seen, which suggests that the only real overcrowding is when the pricing structure changes on the trains leaving Euston; that the real crowding is when everybody gets their cheap tickets to go at 7 in the evening, or indeed at weekends and whenever else. That does rather suggest that the long‑distance passenger traffic is not really the pressure point, because that could be adjusted by pricing policies or whatever perhaps; but that the two real issues are freight and commuter, and it is essentially commuter into London. Is that correct?
Sir David Higgins: It is all three. It is definitely commuter; we know the crowding capacity on commuter lines coming into London, and the desire for people to work in London because of the high returns for employment here. Therefore people are commuting from further and further every year, and stressing an existing rail system. In terms of long distance, during the Virgin franchise it has more than doubled—14 million to over 30 million people a year. The growth that has happened since the global financial crisis indicates that that is not going to slow down; that it is going to increase. Now, next week I think I go to Manchester, Birmingham, and on to Sheffield and Leeds. That is a day trip; each one of those is a day trip.
Now, the Manchester service to London is two hours and 15 minutes; 15% of the time it is more than 10 minutes late, so that means it is more than two and a half hours, so I have to provide for that, because I cannot turn up late for a meeting. Therefore, a trip to Manchester for business is a day. If I knew guaranteed it was an hour, that is a morning. It is a very different relationship. It is not surprising that no FTSE100 companies are based in Manchester or Leeds, because there is a cost to that. The concentration of FTSE companies all around London and the south-east is quite bizarre when you think about it, and when you look at a map of the skills and the map of people who commute into London, it is massive. Millions commute into London every day, but hardly anyone commutes between Birmingham and Leeds, or even the 35 miles from Leeds to Manchester—less than 0.5%. It is a massive loss of skills, because people just do not use mass transit to commute around this country for work. If you are Jaguar Land Rover wanting to expand at Solihull, you will have to recruit people around Solihull, because no one is going to be able to get there efficiently from Derby or from Rotherham where there is a lot of other high-tech skilled jobs.
Lord Carrington of Fulham: You were suggesting in that answer that the growth is going to come in business travel.
Sir David Higgins: If you look at a lot of the growth, Trans‑Pennines had huge growth; Wales, massive growth. The Welsh franchise, Arriva, was let on zero growth. The history of that franchise has been an absolute boom in rail travel in Wales, and Trans‑Pennine the same.
Lord Carrington of Fulham: Has it not predominantly been growth in leisure travel?
Sir David Higgins: That is leisure, correct. Those two examples I used are leisure. I commute in on Western, and that is business; that is not rich people.
Lord Carrington of Fulham: No, I am not suggesting—
Sir David Higgins: They are regular commuters. You try getting on a train coming in from Western. Now, of course, £7 billion or 8 billion has been spent to upgrade the western rail link, and you can do that because that line was built by Brunel and it is very wide, very straight, and very flat, thank heavens. That commuter service, with Crossrail and other upgrades and IEP, will start to cope with that demand.
Lord Carrington of Fulham: There are two different arguments, are there not? There is an argument in favour of building new rail track for business travel, which has an economic benefit to the country. There is a different economic benefit providing rail track for leisure travel.
Sir David Higgins: Yes, of course; leisure is an important part of the economy. But when you are talking about business, it is not all people in suits sitting in the front end in first class. It is people who will commute to work: engineers, technicians, who want to move. We forget that technology crescent that goes effectively from Birmingham and Solihull, through Derby with Rolls-Royce, and on to the Rotherham and Barnsley area, and then up into Leeds. That is a hugely productive area of 8 million people and 4 million jobs, but they cannot commute between each other. It is really unrealistic to commute in that area.
Lord Carrington of Fulham: One of the problems we are tackling, where we are trying to come to grips with, is that it has been suggested to us that the reason for this rail track is really, when it is boiled down to its fundamentals, to relieve the commuter congestion problems into London. What this is doing is spending £50 billion to effectively produce a better rail service from Watford. That does seem to be a somewhat expensive way of providing a solution to that problem.
Sir David Higgins: Part of the £25 billion for phase 1 you could say does deliver 18 new train paths into London, which will free up commuter services on the west coast. There is absolutely no doubt it will do its equivalent of Crossrail; it will relieve a lot of commuter services in there, but that is not the sole reason for doing it. It comes back to this principle of a mixed-use railway; it is very old fashioned, it is really inefficient, it is very high-cost, and it does not really satisfy anyone. It does not satisfy freight, it sure as hell does not make for efficient running of long-distance, and it is a really high-cost railway, because it is poor utilisation, and it is maintaining an old Victorian system, which, as we have seen at Christmas, is incredibly difficult to plan, unpredictable, and very inconvenient to the public.
Q244 Baroness Blackstone: Could you tell us what proportion of travellers on the West Coast Main Line are business travellers, and what proportion are travellers for some other reason?
Sir David Higgins: I do not have that figure offhand, I have to be honest. I do not know that figure; I could always find that out for you.
Baroness Blackstone: We asked the Department for Transport, but they seemed to be reluctant to tell us, and it was a bit puzzling as to why they should be. Can you think of why they should be?
Sir David Higgins: I do not know; they should have the figures. We do not directly have the figures; it would be a combination of Virgin and London Midland that would know those figures. I do not know: do people classify themselves as business travellers and visiting friends and relatives and tourists? I am not sure of how they make that division. I can certainly ask on your behalf; I can ask the Department. You did request it from the Department.
Baroness Blackstone: That would be very helpful if you could do that.
Sir David Higgins: Sorry. I thought I had most of the letters from you, but obviously that one I had not seen.
The Chairman: We have had some difficulty in getting that information out of the Department because of the confidentiality arrangements that they have with the operators.
Sir David Higgins: The train operating companies? Maybe that is an issue that the train operating companies defend strongly, because I travel that line quite a bit and I know that London Midland is always saying that if you are a business traveller it is only a few minutes longer, and it is cheaper. Maybe it is part of their marketing pitch; I do not know. Those train operating franchise agreements are complex, and it is not something that I am—
The Chairman: To say the very least, it is most unfortunate that this Committee and the public generally do not have the data on which to be able to judge the capacity argument. I think that must make your job rather more difficult.
Sir David Higgins: The general issue we know, which I think is compelling: 14 million journeys to over 30 million; compound 4.8% growth in long-distance over 18 years. If Heathrow or the roads were coping with that they would have failed years ago; they could not possibly cope with that level of growth. We have basically been able to dine out on the Victorian infrastructure. We have stretched it, we have stuck a couple of extra train cars on, we have done everything we can to squeeze everything out of this infrastructure, and it is honestly not just the west coast. I saw the headline today that there is a train that has never run on time on Southern. Well, we all know why: because there are too many trains in the timetable. It can never run on time, because you have shoved too many trains on to too limited a track, and that is the result of long-term underinvestment in infrastructure. We have to decide what is important.
Q245 Lord Griffiths of Fforestfach: I would like to come on to the question of pricing on the railways. When HS2 is up and running, who actually determines the pricing and what is possible?
Sir David Higgins: The Government. Again, I have read the questions and the discussions, and I know you know that the model is based on matching the existing price and there is no premium business. All I would say is that is all up for the debate. That is an interesting way to develop the current model, and you have to have some model to determine it, but we all understand that the decision will rest with a future Government of the day during the franchising, if it is going to be franchised under a traditional model. If that is how it is going to be run, fine, but all I would say is that when you build a train service that will have 18 train paths an hour, and each train can have 1,000 people in it. You want to fill it. People in 20 years’ time will not be buying a paper ticket, or queuing up or waiting for a seat allocation. How people expect to travel on trains will be very different. I would say, “How is it going to be franchised? How will it be priced? How will people access the train service?”. Not in the way that it is done today, because I would hope it has moved on substantially by then.
Q246 Lord Carrington of Fulham: On pricing, would you see HS2 being able to charge a premium price?
Sir David Higgins: You may well decide, “I want to have conference facilities on these trains, first class dining cars, separate suites as you arrive at the major stations”, because people would use these as business venues as they do a first class lounge at Heathrow Terminal 5. Why not? That could certainly be considered, or you may say, “I want it to be everyday low prices, turn up and go, and I do not want to have to pay a premium because I just decided today to travel on the trains”. All those debates. Technology will enable a lot of that, but we are building the capacity for a future Government to decide how you want to use this release capacity.
Lord Carrington of Fulham: In the model that you have, if the west coast and the east coast lines could actually compete, and they determine that themselves, what implication would that have for the cost‑benefit analysis?
Sir David Higgins: I know you have been through this, so you know that HS2 adds an incremental additional revenue—you would hope it would—to the entire railway itself. What we have now is huge requirements from open-access operators to operate on both the east coast and west coast, and we know they cannot do it, because there are no train paths. I am sure I have seen press articles even in the last few weeks about open-access operators complaining and saying, “This is a restriction of freedom”. There is certainly pent-up demand for new train paths, and it has been restricted because of capacity of lines, and the inevitable performance consequences.
How many more people could you get off the roads and have moving by rail if you had more competitive policy and different pricing policies? It is an interesting debate, but the important thing is that all that is there to be maximised over the next 10 to 15 years. It is not cast in stone today. We will build something that has the flexibility and is future-proofed to allow that sort of flexibility. All we have done is done our model and said, “If you were to leave it exactly as it is today—”. I am sure it is not going to be the same way you get on a train in the future.
Q247 Lord McFall of Alcluith: You mentioned your support for the national transport strategy. Are you doing a service to your ambition for that by endorsing the west‑east train line in your document Rebalancing Britain, where you want it built alongside HS2 at a cost of £15 billion? Was this not the time in your Rebalancing Britain document to say, “Look, we are taking a deep breath here, and we are asking where we are going strategically with our transport policy”? Are you are not just adding a bit piecemeal on to this and defeating your noble ambition?
Sir David Higgins: That is a very good point. What is the ultimate long-term network? Where does it go? Does it go to Scotland? We have done initial work on that for the Department, and it will come back no doubt and ask us to do further work on that. You are right; we should have that. I do not think we were even talking about east‑west six months ago, and as I started spending time with northern politicians, a number of them said, “Why do you not at least consider the issues, particularly of freight?”. People forget. People think the issues of the north are all about transport. The north is much more dependent on cars. It has had good motorways, but if you look at some of those motorways now, the M56 and so on, they are the arteries that move freight around that area of the Midlands, particularly east‑west.
The more I thought about it the more I thought that this debate needs to be had, and the reason I said that is that if you are planning a station in Manchester and in Leeds, you had better at least think about whether you ever want to upgrade east‑west, because when we asked that question, it became obvious that Leeds station is at its capacity already. If you just manage to squeeze in a few more platforms for a high‑speed train service but forget about the fact that there are only a couple of trains an hour, there is a limited capacity between Manchester and Leeds and that should be trebled, and you could cut the service time down to something reasonable, how many people would actually commute between Manchester and Leeds?
Lord McFall of Alcluith: I think you have answered my question, Sir David, in that you were talking to these people over the past six months, and you thought, “That is a good idea, so we will do it”.
Sir David Higgins: You are right, so it is not a national transport strategy. All I am saying is it is short-circuiting a process. I am saying that when you do a national transport strategy you are going to say that the east‑west corridor—Liverpool to Hull, freight, commuter—has to be addressed, because it is an emerging problem because the motorways cannot cope.
Lord McFall of Alcluith: Given that we are writing this report, should we keep that in mind when we write it?
Sir David Higgins: Absolutely. I think you need to say, “There needs to be a national transport strategy. It needs to cover freight. It is also commuter”. We are not building phase 1 for long‑distance, and we are not building it for commuters; we are building it for all of it, because we are trying to get capacity.
Q248 Lord McFall of Alcluith: In an answer to the Chairman when he appeared before the Committee, Lord Adonis said that the sum was £42 billion, which included the cost of all station infrastructure, HS2 itself, including London Euston, the new city centre station in Birmingham, the new city centre station in Manchester, and so on. Could you give us a precise figure for that at the moment?
Sir David Higgins: There is this report, which I put out in March. This is quite detailed on phase 1. I got external cost planners and planners to come in, and we went through it quite strongly. I was able to say the budget is adequate. I did not recommend—
Lord McFall of Alcluith: What is the figure?
Sir David Higgins: It is £24.4 billion. I am saying that the budget is certainly adequate. It covers those stations. In Euston it covers the high‑speed station, so there is £2.5 billion allowed to upgrade Euston. When you look at Euston you have to look at the rest of the station and the upgrades necessary for Crossrail 2, but also a 42-acre site, which has a huge amount of oversight development.
Lord McFall of Alcluith: So that will be extra.
Sir David Higgins: No. The £2.5 billion will deliver us high‑speed, but we have to think of Euston—
Lord McFall of Alcluith: If we are going to have a decent Euston station.
Sir David Higgins: You have to have a plan. The best example is King’s Cross. It will take 30 years, from 2000 when the contract was awarded to Argent, to develop the upgrade of King’s Cross. Work was well under way with the engineering works, but it will take 30 years, from 2000 until 2030, to finish King’s Cross. Euston will be the same, and over that period, with 42 acres, Euston should be a huge community asset and a major commercial centre.
Lord McFall of Alcluith: We will have to dip into the purse again at some stage in the future probably.
Sir David Higgins: And claim the value. There are air rights over Euston that I think will be worth an enormous amount of money.
Q249 Lord McFall of Alcluith: One of the things this Committee has to wrestle with when it comes to support is that we are talking here about a £50 billion package. Now, given that you are in charge, if you were given £50 billion and the freedom to spend £50 billion regarding the future demands in this country, would you say, “Listen, give me that £50 billion and we are going to spend it on HS2 and HS3?”.
Sir David Higgins: Yes.
Lord McFall of Alcluith: You would look at all demands and you would say, “This is a real urgent demand”.
Sir David Higgins: It is a question that was put to a number of the northern leaders of the major cities across the north: “Why do we not give you the money for HS2 and scrap it and you can use it on a local tram system or whatever you want to do?” . They said, “It does not solve the issue of why London, since the Great Financial Crisis, has grown by over 12% and the north has grown by less than 4%. It does not solve our competitiveness or why we have substantially underperformed, so we do not want that. We want the north‑south connection there”.
Lord McFall of Alcluith: There is a question there as well, because you told the Transport Committee that a journey time of only an hour from London to Manchester is going to be transformative to business. Can you explain how to us, because the Department for Transport have given us figures that show that there were more than 250,000 people working for 26,000 companies across greater Manchester in 2012. Is HS2 really going to be that transformational to business in Manchester, given those stats?
Sir David Higgins: Why is no bank based in Manchester, Leeds or Birmingham? It is not the same in America or Germany or China, or even Australia. The idea that every single bank has to be either in the City or Canary Wharf, which is the most expensive place in the world to hire an employee—
Lord Lawson of Blaby: That is not going to change.
Lord McFall of Alcluith: No, of course. I have spoken to tons of bankers over the past 10 years; they are coming out of my ears. Not one has said to me, “Get an HS2 and we will go to Manchester, Leeds or Scotland”. I think you are waffling there, Sir David.
Sir David Higgins: I will give you a tangible example. When I started on the Olympics I went to a number of big investors and developers here in the UK. I said, “We want to build a major shopping centre in East London at Stratford”. I said, “It will cost between £1.5 billion and £2 billion”. They all said, “Why would anyone want to build a shopping centre in East London in that location? It is full of poor people. They have no money”. I said, “This will be the most strategic location in London for shopping, and when you build it no more shopping centres will be built for 3 million people”. It now has Europe’s highest turnover, highest footfall and rents just a fraction below Shepherd’s Bush. It has been a massively successful shopping centre.
I had the same debate with a number of businesses and said, “Would you locate to Stratford?”. The answer was, “Where is that? We all live in west London and the Thames corridor”. I said, “You will not in future”. The fact now that 25% of all the office space in Stratford has already been taken up, and there are banks moving there, and there are banks already talking about moving to Birmingham on the strength of HS2—it will change, because the banking cost structure in the UK is one of the poorest in the world; the cost-to-income ratio, which is the cost that a bank operates as a domestic operation compared to the income coming here is about 60% more than banks in Australia. Therefore they cannot afford to have the operations. They will have to go or they will go out of business.
Lord McFall of Alcluith: Your talents are renowned, Sir David, but we cannot really depend on you as an evangelist to ensure that all these things happen. People go to Manchester and then people go to London. We need to plan strategically, and there is still a big issue here about bolstering the city centre, rather than the regions, and that is to be answered yet.
Sir David Higgins: The question we need to answer is: do you know how much money we are going to spend in the next five years on the existing transport network capital‑wise? Any guesses? I will tell you how much we are spending on High Speed 2 in that period: £16 billion. We are spending £72 billion in that period on patching up the existing rail network and the roads. That is what we have done all the time; for that we get no new major motorways and no new major rail systems. You have to ask yourself: is that balance of capital expenditure, £72 billion on trying to upgrade existing lines in Manchester or into London, the right balance? That is what we have done.
Lord McFall of Alcluith: So we really need a national transport strategy.
Sir David Higgins: We do need it, because at the moment we are spending the £72 billion on existing legacy stuff, and what we have seen does not provide the answer long‑term. We are always chasing our tail. No sooner do we finish Crossrail than it will be at capacity and will lead to Crossrail 2.
Q250 Lord Rowe-Beddoe: I think the national transport strategy is perhaps one we could go a bit further on. Over the evidence that we have taken, the political arguments for this project have changed in the last four or five months that we have been sitting. One major argument, as I am sure you realise and which you have touched upon, is the increase in economic activity in the north and how important, therefore, a high‑speed link is. Obviously, we talked to high‑speed links in France. I am sure you know that the Cour des Comptes did an analysis of Paris‑Lyon and discovered, surprisingly, that more people seemed to go from Lyon to Paris than they did from Paris to Lyon; whether they were business or not does not really matter. There are major problems as to whether or not, by bringing Birmingham closer to London, we will allow Birmingham commuters to commute to London more easily than they do now, and whether or not you would say the banker will now go to Birmingham instead of being in London. What is your view on that? You have expressed it in a way, but I would like serious comment, because there are big debates.
Sir David Higgins: It is a big debate, and I would just let economic forces force that. You can look at the ruthless process that is now under way in the oil industry, the supermarket business or banking. I sit on one of the world’s biggest banks’ board and I know how incredibly ruthless the threat of Google and Apple destroying traditional businesses is. It is scary what these new entrants will do. Every company will have to reinvent its cost structure and its access to skilled people over coming years. Anyone who does not think that is incredibly complacent. Does that mean that Birmingham will be able to compete? At the moment, Birmingham and Manchester have one hand tied behind their back: they have a sub‑standard transport link. I would just go and talk to the leaders of those cities. Ask the leaders of the north, the leaders of Liverpool, Leeds, Manchester and Wakefield. Ask them, “Do you want High Speed 2 or do you want something else?”.
Lord Rowe-Beddoe: We have done that, Sir David. We have heard from the north. In fact, Liverpool would take HS3.
Sir David Higgins: Not before HS2.
Lord Rowe-Beddoe: Yes, they would.
Sir David Higgins: Joe Anderson has never said that to me. I have spent time with him. In fact, he fights for a further extension of the high‑speed line into Lime Street itself.
Lord Rowe-Beddoe: Perhaps we heard him differently. Coming back, if I may, in other words, are we doing it the right way round?
Sir David Higgins: Do you mean should we start with the north first?
Lord Rowe-Beddoe: Yes.
Sir David Higgins: That is a question. I would say there is no option. You may have considered it five or six years ago, but the legislative process is such that getting the second phase through Parliament will take, if things go well, until 2021. That is just the process we have here. It is quite different in France, I have to be honest; it is a different process of approval. If we were to say today, “Why do you not start at the north first?” everything would have to stop.
The other point is that if you are trying to free up capacity, which is a big part of why we are doing this, there is not a lot of point building a lot of railway lines at the top that then hit a bottleneck as you approach London. The biggest area of capacity‑constraint on the entire national network is from Rugby south to Euston, and it is absolutely chronic. You would not solve that by building the line from Manchester to Crewe first; you would only exacerbate it. That being said, I do not believe that you have to wait to do things in the north. If you can say, “There is definitely going to be a high‑speed station in Manchester at this location, and it will come sometime between 2030 and 2035”, business will move there. Business will start planning to invest around that station if they know it is definitely going to happen.
Q251 Lord Monks: You mentioned to the Transport Committee in November that HS2 is the only strategic intervention that provides both capacity and connectivity. Do you think that both these things can be met? We have had a lot of evidence from the antis that connectivity is one of the biggest weaknesses of HS2: the lack of feeder lines, the lack of junctions and so on, which may help connectivity between the main cities and London, but does not do much, say, for Coventry or somebody who does not seem to have much of a connection. Are capacity and connectivity compatible or in opposition to each other?
Sir David Higgins: Capacity and speed are linked, because, where you have a train line and trains travel at 200 miles per hour, there are 18 per hour and each one has 1,000 people on it, if you run it at 100 miles per hour, you are going to get half the capacity on that train line. Connectivity is a very important point and we will not get the full benefits of HS2 if we do not seriously address that. Certainly, my first report laboured really intensely on the whole issue of hub and connectivity. This line links eight of the 10 biggest cities in the country, it directly goes into the four biggest cities in the country, and it means that one in five people in the country will be able to travel on this easily.
That will only happen, particularly at the hub stations, at Crewe, or in the East Midlands or Yorkshire, if these work properly. Their connectivity to road, rail and tram is absolutely essential so that cities like Coventry can benefit or are at least given the choice. Therefore, my recommendation was that Crewe, rather than just being a railway junction, be a proper station. I know people say, “People will never get off a train”, but you do get off a train in Europe. If you travel in Switzerland or Germany, you get off a train, because there is another train coming in 10 minutes’ time. You can walk conveniently across the platform and get the other train, and it is very reliable.
Therefore, if we can create hubs people know they can come to and in 10 minutes’ time there is going to be another train service that is always reliable taking you into London, or back out again, I think that will work. You are right to say, though, that connectivity and capacity are not necessarily linked, but the project fails if we do not address the issue of connectivity very strongly. We listened to Leeds. Leeds has been saying to us, “You are telling us you want to build a station 500 metres away from the existing station. We are telling you we do not think that is the right thing”. We sat back and said, “Maybe they have a point, because if you have people commuting in from Bradford, Wakefield or Barnsley into Sheffield Meadowhall, they are not going to walk 500 metres dragging a suitcase”. You have to address the issue of integration. We are working much better with Leeds now, and we will come up with a solution that works for the passenger.
Lord Monks: On the same point, you have the ones who feel they are missing out, like Stoke, and I mentioned Coventry earlier. Do you have you any good news for them?
Sir David Higgins: The first thing that it does with these other cities is relieve capacity. Putting in a new spine that takes pressure off the existing spine will relieve capacity in Stoke. I have had long discussions, because there is the debate about whether it should be Crewe or Stoke. My recommendation—it is not my decision, it is the Secretary of State’s decision, and the decision has not been made—is Crewe, and the reason for that is that Crewe has about six different railway lines converging on it. It is accident of history that they are there, but they are there. They were built 150 years ago and connect you to Wales, Shrewsbury, Liverpool and Manchester. It is an obvious place—the term “All change at Crewe” was logical—so I cannot recommend changing it to Stoke. However, there is the perfectly good line that comes out of Manchester, through Macclesfield into Stafford, and there are two good Pendolino services an hour at the moment. My recommendation was that they should have that, but they should also look at having a train that would start on the outskirts of Manchester, come down through Stoke and Stafford and come on to the high‑speed line at what is called the Handsacre junction just north of Birmingham, because there is one spare slot.
My argument for now is that I will not recommend to change the location of the railway line, because it does not justify it—many of those cities are disadvantaged—but I will recommend that the Government make a decision on train paths, which I think could enhance the service to Stoke. I have not been to Coventry in the last few months, but Coventry’s services are, again, tied into the regional services and the road access as well into Crewe and into the Birmingham interchange, which is very close to them.
Q252 Lord Skidelsky: I wonder whether the debate has not been a bit skewed, sitting here in London. A great deal of emphasis has been on increasing passenger capacity and increasing passenger speed, whereas we get a barrage of evidence from the north that what they are interested in is getting east‑west freight going. They do not give speed as a huge consideration, just capacity. There seem to be two sets of arguments, which are being artificially put together. What is your comment on that? I am thinking of what the Mayor of Liverpool and other experts have said to us: “You have to get the stuff from east to west, not concentrate on increasing passenger speeds from London to Birmingham, or even to Manchester”.
Sir David Higgins: My argument on that is: why rely on London to make those decisions? Crossrail 2 has got ahead of steam. No one really knows the full details of it; it is not even budgeted and it does not have Treasury support at the moment, but the general public know about it because there has been a very effective campaign to get in the public’s mind that we all need Crossrail 2. There is no equivalent campaign for east‑west rail, and that is because it is a fragmented political group. One thing that has developed very successfully over the last year is that the north, particularly those five cities across the M62, has come together. Why not let them make the decisions on priorities?
There are no easy answers to the freight challenge. You need new capacity, but what would they trade off? Would they build High Speed 3 first or resolve freight? Would they continue with electrification or get greater access into their existing cities? I would rely on the transport experts who live in those cities and the fact they have a democratic mandate to say to them, “Do not ask Whitehall or Westminster to have to pick and choose. Why do you not, as a team, come back with a sensible strategy?”. I think they have the capacity to do that.
Lord Skidelsky: I would like to press you a bit on that. “Leave it to them”, you say, and you have explained part of what you mean, but what about the funding of such an initiative?
Sir David Higgins: Transport for London is very eloquent. I know that they came here and said that we have to have Crossrail 2 to even do High Speed 2. They are certainly very effective in lobbying for budget, because they know how to get money. Transport for the North, which we hope will be a northern body, will then speak as one voice, have strong political leaders and make their case. I am not sure you have had a chance to read it, but I have a chart in here that shows the amount of money spent on London in the national transport budget over a long period of time. Nearly half of all of our transport money nationally is spent on London. That is the cost per head of consumer. The big blue one is subsidy to London commuters. These are all the northern cities. It is a scandal, is it not?
Lord Skidelsky: So it is their inadequate lobbying.
Sir David Higgins: It is that everyone is based in London. You are here, Parliament is here, all the bureaucrats who run the Departments live here. So much power and decision‑making in this country, whether it be local government or whatever, is concentrated here. Every single company has to have a major office here. Every single consulting firm needs to be based in London, because they know it is a very centralised unitary government process, unlike in most other countries in the world. Therefore, the north suffers, as these figures clearly show.
I took them up to Birmingham and Leeds, and I said, “Look at this amount of money. You have Northern Hub. It is a fascinating project. It is worth £600 million, but Crossrail 2 is £25 billion. You are not fishing in the same pond. You have to have an aspiration for building a proper east‑west corridor. Why should you not have that on the same radar screen as Crossrail 2, which is, as I said, essential? Why should it not be also considered as part of the national priorities?”
Lord Skidelsky: I have one last question, if I may. Are you suggesting that that initiative should then run parallel with or be part of?
Sir David Higgins: It feeds into. I believe Transport for the North needs to feed into the department. Ultimately, it has to be the Department for Transport that makes the final decisions on allocation of budget, but in the end why not base those decisions and priorities on the expertise and political mandates that sit in the north, and ask them? “There are going to have to be difficult decisions. There is not enough money to do all these projects. Which are the ones that you want to prioritise and how do you want to connect in to the national infrastructure that we have built?”. Let them come through as a unified voice on that.
In certain regions, that has gone extremely well. I am up in Sheffield next week, and my message to the four cities that make up the 1.5 million people of Greater Sheffield is, “Have a single voice about what you want out of high‑speed rail into Sheffield, because, fragmented, you will not get anything”. Greater Leeds has come together, in the same way in which Greater Manchester now has in the last year, to say, “We are clear what we want. For high speed, it is very important that it integrate at Leeds station”. The East Midlands has done the same.
The point is when these traditionally competitive cities realise they need to work together and come up with a strategy. It was interesting that when I went over to Doncaster, they said, “Whatever you do, do not take away the airport station for Manchester, because we all consider Manchester to be our international airport. If you eliminate that, you cut off forever the north to have access to an international‑standard airport. We do not consider Leeds Bradford to be international. We consider Manchester to be”. The north does consider Manchester to be their major international airport. That sort of thinking helps the national transport strategy, rather than turning it into a political battle where people are just fighting for their individual pet projects.
The Chairman: Have you considered moving the head office of HS2 to Manchester?
Sir David Higgins: We are moving it to Birmingham.
The Chairman: For that reason?
Sir David Higgins: Yes, because of skills. We moved Network Rail’s head office to Milton Keynes. We have moved it to Birmingham, so all the construction will be delivered out there. We will obviously have a base here, because we have people who are in Parliament every day, and we have temporary space down at Canary Wharf. We looked at trying to get space at King’s Cross, but at £75 per foot, when we can get it at less than half that price in Birmingham, it is pretty clear what the decision needs to be.
Q253 Lord May of Oxford: I want to ask you a slightly different question, which derives from that fact that Lord Deighton told the Committee some time ago that the Government had asked you to consider how the cost of construction could be reduced, possibly through learning from practices applied abroad. In particular, he pointed out to us that you, in a meeting with the Transport Committee, had explained that the new Tours to Bordeaux line in France was carried out in two years, and Lord Deighton felt that similar works were required for phase 2 of HS2, but they are expected to take five years. Why such a difference? Secondly, he suggested to us that you told the Transport Committee recently that the cost of putting down a cubic metre of concrete in France is probably the same as England. I am quoting you, I believe: “I think it is everything above that where the costs start to balloon”. I wonder if you could say a little bit about what the ballooning costs that you were referring to are, how they start and what we can do about it.
Sir David Higgins: Everything he said is correct and that is the case. What is it? I was an engineer here—scary—in 1979. I believe I could still be an engineer in the UK with the same skills I had in 1979. That is a pretty scary thing to say, is it not? It is not a high‑tech industry. It is a very, very fragmented industry. We buy on lowest cost all the time. We never invest in skills. We have a supply chain that is fragmented and low‑cost. We have companies that are undercapitalised. People have been gobbled up by American consulting firms. We do not have the equivalent of the big Spanish, German or French multidiscipline contractor companies that have strong revenue streams from owning airports or telecommunications companies, so no one invests in skills. I saw a Spanish company, ACA, and I said, “How much do you invest in R&D?”. They said, “€400 million a year, across our business”. If I went to Balfour Beatty or Carillion and asked them the same question, I think I know what the answer would be.
We have a chance. One thing about a project that is going to run to 2025 and the nuclear programmes is that we have a chance to change what we are currently doing. We have to accept that the industry as it is today—on 2 February, I chair the next quarterly meeting of the Construction Industry Council, and I do not think there would be anyone around that table who does not recognise this—is fragmented, low-cost, low-margin, buying on the lowest common denominator, not investing in long‑term skills, and we are all paying the price for that.
To answer your question, it is not the concrete; it is the design process. To take a rail project from conception to delivery normally takes three to five years. It takes two years to book the access charges normally. If you were designing a new car that way, you would be out of business. The biggest buyer of construction in this country is the Government, and the Government need to buy on terms other than, “I am just going to screw you to the lowest possible cost. I am not going to worry about your commitment to R&D or investment in skill”. Have I answered your question?
Lord May of Oxford: It sounds to me as if the optimum strategy, if it were politically possible, would be to get the French, the Germans or somebody else to build the thing.
Sir David Higgins: When I met this French company, I said, “We will send a team over”. This person came into my room and said, “Can I sit and talk to you?”. I said, “Sure”. I said, “I have heard all these pitches before”. He said, “Just watch the video, all right? That is two years ago”. I said, “How long does this helicopter trip keep going for?”. He said, “For another 200 kilometres, if you want to watch that”. I said, “Okay, you have impressed me. I am sending a whole team over to talk to you”. He said, “Well, if you want to change, do you want us to have our local subsidiary run this on British terms?”. I said, “No, I want to buy what you have over there. I want to buy your international practice. I want your R&D, your specialist issues of launching trusses and the way you do your just‑in‑time delivery of logistics. I want all that technology to come in here and change the market. Why would we not want that level of delivery?”.
I can say that the construction industry is frustrated, because it is having a real tough time. We are caught in the usual pincer movement when a market recovers. They have fixed‑price contracts. The supply chain, of course, is highly fragmented, but as soon as anything recovers, pressures go up on all costs. It is not in a good state, our industry, and yet we are the biggest industry in the country. We are bigger than financial services, and we are an input cost into everything that makes the UK competitive, so reforming our sector is really, really critical.
Q254 Baroness Wheatcroft: My question really leads on from that. You were committed during the Olympics to the vast majority of the work being done by British‑based businesses. I think there is optimism that the same may be the case with HS2, but judging by what you just said, does that imply that the costs will undoubtedly be higher than they would be if we did let the French build it?
Sir David Higgins: No, I do not think so. You are right. We also had a target of 10% local, so, in the four Olympic boroughs, 10% of the people who worked on the workforce would be a long‑term unemployed coming into that. One of the things we noticed on this French project is that a lot of their people and the suppliers are sourced locally, in that local community. Therefore, there was less opposition to driving the railway line quickly through their areas. A lot of the accommodation was used in local hotels. The money went back into the local communities.
Whether it be Crossrail or the Olympics, the vast majority of all the money is spent here. It is interesting to think back 30 years ago, when Bechtel first moved into the country and was brought in, sensibly, by the Government to look at the Jubilee line and finish it. They did not bring a lot of people over from America. They brought some key skilled people. We looked at the rest of the organisation. They are all British, but they brought in some disciplines and controls—change control, design disciplines and management decision‑making—that proved to be world‑standard.
We should be open to considering consortiums. A totally overseas company landing in a market thinking that they can compete will not survive, because there is local custom, practice and supply chain. No one would do that; they would find local partners, so I do not think it is a case of exporting everything overseas. We have a history here of taking the best of the world, adapting it to our market here and making it thrive. We need to do that in our construction industry, as has happened in other industries such as insurance or financial services.
Baroness Wheatcroft: The other issue that is said to add hugely to costs of schemes in this country is of course planning and the amount of compensation that is often demanded by those who are affected. Could you tell us how much has actually been spent so far on buying properties from people who have been affected by HS2?
Sir David Higgins: I had this question at the Transport Select Committee the other month, so, rather than off the top of my head, I can send you to the actual answer that went through, which I think was up to end of November. We will send that through to you on compensation.
You are right. How do the compensation issues work? It is more complex here, because we are three times as dense a country as France. It is easier to build a railway line through wheat fields than it is the Chilterns.
Baroness Blackstone: You said in October that you were preparing advice for the Department for Transport on extending high‑speed rail services to Scotland. Could you tell the Committee what advice you have given the Department on this?
Sir David Higgins: We have done a preliminary report, and that has just said, “If you wanted to have a high‑speed railway line to Scotland, what is the most effective way—east or west?”. Oddly enough, it is not easy, when you look at the geography, because you have national parks and constrained geography going north, but we have done a first-stage preliminary report, which went to the Department just before Christmas, which they are considering. I am not sure when the Department will release that.
They have certainly consulted Transport Scotland. I am up in Scotland next week for a day to talk through with their Minister and the head of Transport Scotland on how the report has gone. They have been centrally involved in the preparation of that report too. It is work in progress, and I am not sure what date the Secretary of State will release it, if he is happy with the current report. I think the reality is that more work needs to be done on the combination of: “Is it additional? Is it a series of upgrades or a new line?”
Baroness Blackstone: How, in your view, would this compare with HS3 in terms of priority—in other words, an east‑west link as against an extension to Glasgow? Which, in your view, makes more sense?
Sir David Higgins: By recommending that the west coast goes to Crewe earlier—so 2027 rather than 2033 or 2035—it will bring benefits to everyone coming from the north in terms of new track and more capacity, so I think there is a benefit there, but asking me to choose between east‑west and so on are the challenges we have come into before. All I did in this report here was to say, “There is a case for east‑west rail and it needs to be addressed. I do not have the answer of the particular route, but you can achieve it and it is probably done within a realistic budget”. We are not at that stage in Scotland.
Baroness Blackstone: What would that budget be?
Sir David Higgins: The east‑west?
Baroness Blackstone: Yes.
Sir David Higgins: It depends. You would never build a 225 mile per hour railway line between Manchester and Leeds. You would be getting off just as you sat down. I know there was a figure put out there that was £7 billion—I read it in the transcripts of the Committee here—which is obtained by multiplying the cost for High Speed 2 by the number of kilometres between those two cities. That is a blunt instrument. It certainly would not be any more than that; that is for sure.
Lord Shipley: I just wonder if I might pursue an answer Sir David gave earlier on about the location of stations, and in particular the one at Leeds, because you made a comment that it is a good thing that local people had said it is not a good idea for people to have to walk 500 yards between stations. As I understand it, those transferring from Euston to St Pancras are going to have to walk 500 metres. In Sheffield, there is still a strong body of opinion that is saying that the station should be in the centre of Sheffield, but not at Meadowhall. We received evidence from two or three witnesses to say that the best location for an HS2 station was always in city centres. Do you have a view about this, both on connectivity and on how easy it is for passengers to get around when they have arrived at one terminal but want to transfer to another one by foot?
Sir David Higgins: It is a complex and politically fraught question. Something that I keep coming back to when we have this debate in Sheffield and in other areas is that we are building a spine; we are building a motorway, not an A‑road. Therefore, it will defeat the purpose if this railway line has to weave through every city—if it has to go through Derby, Nottingham and Sheffield city centres the whole way up.
As to the debate on Sheffield, there are four cities that make up the 1.3 million people who are in Greater Sheffield. Three of them passionately want Meadowhall, and they see that as critical for all the jobs. The high‑tech job growth in that area is coming in Rotherham and Barnsley, and a lot of the railway jobs and new academy are in Doncaster. All I have said to them is, “You need to be united. It is no use you fighting amongst yourselves on this issue”.
I did not recommend changing the line in Sheffield in my report here because it is at least £1 billion more to go through the city centre of Sheffield. It disadvantages the other three cities, because access to them is not as good, and it adds seven minutes to the journey time to Leeds, York and everywhere north. What I was saying is that it would have to be a really compelling reason as to why you could justify that additional cost and impact on performance from going to Sheffield. I am up there next week and I am hoping we will have a debate that comes to a solution.
To your other cases, the issue with Euston is the connectivity. I recommended in this first report dropping the link between HS2 and HS1, because what was proposed was substandard, it was going to disadvantage freight and the North London line, it was going to allow a train at 25 miles an hour a couple of times an hour at that point, and it was really only going from Old Oak Common anyway, so it was really looked at as another service from London to Paris with a separate station, and we know how effective that has been at Stratford.
I actually think people want to go to a station where there is frequency of destination. Within 10 years, trains from St Pancras will go to Amsterdam; they will no doubt probably go to Germany, as well as of course the major destinations in France and the south of France. The fact that you will come to a station where there is a multitude of different services means that it is crucial to have that hub. You need those two stations linked, and that is the planning of Euston that is so critical.
High Speed 2, of course, will be much closer to Euston Road when it is built, so people will get out closer to Euston Road than they do today, and the connections through to the Circle, Hammersmith and City and District lines there are the obvious way to move people between Euston and St Pancras, because there are trains coming every minute, going on that line; you would come out of the train, get on that and go down.
You can look at what the commercial connections are between St Pancras and Euston. Crossrail 2 is critical to that, because Crossrail 2 station is smack in the middle between those two stations. How you integrate that into it is another part of the debate.
Q255 Lord Lawson of Blaby: You said early on that quite a lot of rethinking needed to be done, which should be dealt with now, not later on when it has caused all sorts of problems. You also indicated that there was a lack of flexibility as a result of the long-winded parliamentary process that is involved. Do you think it would be advantageous if we could have, in addition to high‑speed rail, a high‑speed parliamentary process?
Sir David Higgins: Or even if we could have two hybrid Bills at the same time.
Lord Lawson of Blaby: That would be increasing the speed, yes.
Sir David Higgins: We will face a logjam. The advantage of the hybrid Bill process is that it is like a massive planning application. I have to say, the Committee is doing an amazing job, and it is sobering to see people being able to turn up in Parliament and make their case about their house, as you saw yesterday, with the nine year‑old, hopefully a future engineer, appearing before the Committee and challenging our mathematics. That is a very open process that we should support, and I would hate for that ever to be ridden roughshod over, but your point is absolutely right. We have to build Crossrail 2. I would hate to be coming into Waterloo in 20 years’ time if we do not have Crossrail 2, but at the moment Crossrail 2 is going to fight with phase 2 of High Speed 2 and probably east‑west or whatever. We have this logjam of a legislative process. The custom and practice is that you cannot put another hybrid Bill in until the first Bill is back to the House. Why? You cannot have two Bills going through the House at the same time. If your report could say anything about it, there is a real challenge in future in building infrastructure and it is a cost. I have said it here in this report. The biggest risk to High Speed 2 is the legislative process.
The Chairman: Is there not another risk, which is superfast broadband and autonomous vehicles combining to change the way that we work?
Sir David Higgins: I spent about seven days in Silicon Valley in September on a research project, meeting all the top technology and venture capital companies. What was really interesting was that the hotels we stayed at absolutely teemed every evening with venture capitalists, people doing deals and coming up with new schemes, and thousands of different proposals. It was mindboggling—this combination of technology, entrepreneur, venture capital all brought together by a motorway that connects Silicon Valley. That is how it really started. You realise that it matters that people are connected together via a major motorway. Why do they all want to huddle together? Because that is how business is done.
You are right. Broadband will get more and more, but ever since they invented the fax and said it would reduce the utilisation of paper in our offices or the need for people to travel, it does not seem to have. Face‑to‑face clusters seem to be more important than ever.
The Chairman: I thought you were going to tell us that you had found some private investors who wanted to invest in HS2.
Sir David Higgins: Oh, they have, do not worry. They are there. There is a massive appetite for infrastructure investment around the world, particularly the Chinese. I am sure you have seen some speculation of them wanting to invest around Birmingham, and certainly investing in the delivery of High Speed 2. When the time comes and we go out to look at appetite, it is a decision for a future Government as to how they ultimately want to deliver the project and, potentially, to fund it.
The Chairman: Sir David, thank you very much indeed for this helpful session.