EHS0088/EAC/14-15
1.1 London’s number one challenge is accommodating its forecast population growth. The city’s population is expected to exceed its 1939 peak of 8.6 million in early 2015 and reach 10 million in the early 2030s.
1.2 The Mayor supports the principle of HS2 and the need for a national high speed rail network to ease capacity and improve connections constraints on the transport network.
1.3 He believes that if HS2 is delivered properly, it will generate major productivity benefits both for the London economy and also for the city regions of the Midlands and North, benefitting the whole UK.
1.4 These benefits should not be seen as a ‘zero sum game’, improving connections between the UK’s regions will help create several clusters of economic activity that are more internationally competitive.
1.5 However, the Mayor and TfL believe improvements must be made to the scheme to improve the economic, social and environmental case for HS2.
1.6 In order to fully capture the wider economic impacts of HS2, the scheme needs to be better integrated with local regeneration priorities including better links to local transport options.
1.7 The development of London’s rail services remain vital to ensure the benefits of HS2 are realised in London and the regions.
2.1 London’s rapidly growing population will continue to increase the pressure on the city’s transport networks in particular underground and rail. The Mayor believes that if HS2 is delivered properly it can help to ease congestion and improve transport connections which will deliver major economic growth to London and across the UK.
2.2 Despite the recent advances in telecommunications, and the effects of the
recession, demand for long distance rail travel has continued to rise, to the extent that most long distance routes into London are forecast to be at capacity by the mid-2020s.
2.3 Jobs in urban areas in the UK are more productive than other parts of the UK with jobs in central London 70 per cent more productive than the UK average. HS2 would allow more jobs to be concentrated in urban areas. This would be delivered through freeing up capacity on existing main lines north of London or routes into Birmingham, Manchester and Leeds that could be used to further expand commuter services.
2.4 London’s transport system is under great pressure at all levels. Big ticket schemes such as HS2, must not divert funding from other essential transport investment – it should be treated as a core element of a much broader programme of investment to maximise the UK’s overall economic potential.
2.5 These benefits can only be fully realised if the scheme works as part of the wider transport system. Nearly every trip taken on HS2 will require a local or regional connection. Therefore it is essential that the local and regional elements of the journey are able to cope with the increased passenger numbers HS2 will bring.
2.6 When looking at the economic benefits of HS2 the onward travel requirements of the large numbers of HS2 passengers arriving at Euston and Old Oak must be considered. If there are inadequate connections or capacity, people will not easily be able to reach their final destinations. Rather than unlocking growth, the scheme could result in overcrowding and congestion in central London.
2.7 Related to this is the need to ensure the scheme goes hand in hand with local regeneration schemes. HS2 Ltd must work with local authorities to develop economic case studies along the route, as recommended by the Growth Task Force. The Mayor is working with local authorities to develop regeneration policies, which can take advantage of the significantly improved connectivity provided by HS2, most importantly through the creation of the proposed Mayoral Development Corporation (MDC) at Old Oak.
2.8 If the scheme is integrated properly into the existing local transport network, HS2 stands to substantially benefit the London and UK economy, and therefore increase the UK’s competitiveness. Crucially, these benefits should not be seen as a ‘zero sum game’. The real competition is not between the UK’s city regions but with cities across the world. By helping to integrate the UK’s city regions the scheme will help create stronger clusters of economic activity that are able to join London in competing internationally.
3. Should the Department for Transport’s Strategic Case for HS2 published in October 2013 have included any other factors in making an economic case for the project?
3.1 There are ways in which the approach within the traditional parameters could be improved. The quantified benefits in the Strategic Case for HS2 are based on outputs from a fairly coarse UK wide transport model. Whilst this model may be the most appropriate tool for calculating inter-city journey time savings, it is less suitable for capturing the overall transport and economic impacts in London and elsewhere. For most strategic rail scheme appraisals, this would not be a major concern, but due to the scale of the HS2 project and its impacts, it is considered a significant matter.
3.2 HS2 will add an additional 30,000 morning peak passengers at Euston (more than doubling today's demand). Without other improvements to the transport network, this will add substantially to crowding on London Underground services from Euston, generating delays which were not assessed in the economic appraisal of the scheme. This problem is not just confined to London, but also Birmingham, Manchester, Leeds and Sheffield, where similar impacts have not been assessed in the economic appraisal.
3.3 The Mayor therefore feels that the economic case presented in October 2013 does not fully capture all transport impacts and a more comprehensive method to capture transport effects in urban areas is required.
3.4 More fundamentally, there is a basic question about how far the cost benefit approach can capture the impacts of a scheme such as HS2 which is fundamentally about changing economic outcomes in the economy. Traditional appraisal methods extrapolate past trends. This is reasonable for most projects, which are more modest in their scale and ambition, but where a scheme is intended to bring about a radically different economic future, this approach is not likely to capture the full range and extent of the benefits.
3.5 In such circumstances a more ‘objectives based’ approach, supported by high quality risk analysis, offers a more effective approach. An important element of this will be to assess where the future could be different from the past, and how much needs to change to allow such an investment as HS2 to be paid back. A sense of the scale of change, and whether such change has any historical precedent, is enormously valuable in assessing both feasibility and risk.
3.6 The case for Crossrail is instructive in this regard. The extra peak capacity created by the scheme is around 80,000 additional people delivered into the central London area. Could the additional output pay for the railway (for example increased employment and thereby increased taxes), and if so, on what assumptions?
3.7 One approach would look at investments such as HS2 from a rather different perspective. There is a highly visible and powerful risk that London and the South East will become still more unbalanced with respect to the rest of the country if HS2 does not go ahead. Agglomeration forces are powerful and combining a number of city regions can generate the benefits that London currently enjoy. HS2 can connect these cities together both to form one dynamic region but also to the international gateway of London.
3.8 Another area in need of further attention is the wider economic benefits (WEBs). Firstly, there are some problems with the way they are presented in the HS2 October 2013 report. Whilst the October 2013 document attempts to capture WEBs, it is not at all clear how the figures have been derived. Secondly, there is a more fundamental question about the role of WEBs in the case for the scheme. In particular, it is questionable whether the WEBs approach is likely to capture the total impact. A project like HS2 is more than about averages but also about the impacts of transformational change for which WEBs do not adequately capture.
3.10 A possible consequence of a more holistic approach could be to enhance the way that accessibility to particular areas with investment and development potential is valued relative to pure time savings. For example, Canary Wharf has yielded significant benefits beyond those that can be explained by simple economic analysis. Transport improvements played an important role and considering a wider set of objectives would be beneficial to assessing HS2.
3.11 It is suggested that HS2 Ltd should start by working more closely with regional authorities to consider the localised uplift in economic activity that might result from HS2. For example, at Old Oak, analysis by TfL has suggested that the addition of a new station in west London could boost the London economy by at least £3bn. TfL can assist with this for both Old Oak and Euston, where Opportunity Areas (as defined by the London Plan) have been developed.
3.12 TfL is able to draw on a number of examples where a broader set of economic impacts have been successfully captured. The Northern Line Extension, Crossrail 1, transforming the London Overground and the DLR are all examples of projects that have been successful in demonstrating a strong link between transport infrastructure and economic growth. Without tangible examples, the derivation of the HS2 WEBs is likely to be criticised, as a 'black box' calculation.
4. What are the likely economic benefits of HS2 to the Midlands, the North of England and to Scotland? Do they depend on complementary action by government and local authorities, for example by developing measures to attract investment and skilled workers?
4.1 In order for the economic benefits of HS2 to be fully felt by regions in the North and Midlands, complementary transport measures should be considered to ensure that every high speed station is accessible to as wide a catchment as possible. The acceleration of the delivery of Phase 2 of the project will also assist with this objective.
4.2 In 2013, the late Sir Peter Hall[1] identified a range of spatial effects of High Speed Rail (HSR) that would change over the whole life of the development process. Sir Peter stressed that HS2 must be combined with regional regeneration. If not done correctly, HS2 will fail to connect with regional networks preventing the full potential of HS2 to be realised.
4.3 The government should support local regeneration projects around HS2 stations, and work closely with local authorities to ensure that opportunities are not missed – as suggested in the Growth Task Force report by Lord Deighton. The message should not be 'build HS2 and they will come' – a more active approach to capturing the localised economic benefits is required. Otherwise, the benefits from the regeneration of Old Oak through the creation of the MDC will likely be less.
4.4 Ultimately, the economic success of the project, to the UK as a whole, is dependent on a number of factors, including the quality of local connections, responses to land use and other associated links to social infrastructure.
5. Will London be the main economic beneficiary of HS2? Might some areas of the country suffer economic disadvantage?
5.1 Indications from across the world suggest that economic growth in the future is likely to be focused on city regions. HS2 offers the scope for the UK’s city regions to perform more effectively in this international competition. If planned properly as part of a comprehensive economic strategy, the scheme should therefore unlock productivity benefits in all the major city regions that it serves. This will include London but not exclusively so.
5.2 London’s population is forecast to continue to grow, from around 8.5 million today to over 10m people by 2050. While this growth could in theory be wholly accommodated within London, it is likely that some will need to be housed outside its boundaries. HS2 will provide vital additional rail capacity to support this, in particular by freeing some capacity on existing main line rail routes for additional commuter services[2].
5.3 This growth should not be seen as at the expense of other regions. Cities in particular are expected to grow, and this may reduce population growth in smaller settlements across the country. However, if this growth is not facilitated, the equivalent economic activity will not simply be displaced to other locations in the UK, but elsewhere outside the UK or lost altogether.
5.4 In any case, HS2 will help to redress the differences between the connectivity levels enjoyed by London and those of other UK city regions. As noted in research by KPMG[3], London already benefits from significant levels of rail connectivity, so the relative changes brought about by investment in HS2 are smaller than for the other cities served. Many cities will therefore gain disproportionately from improved connections and interchange opportunities onto the HS2 network. In this sense, the main beneficiary of HS2 should be the regions.
5.5 In particular, HS2 will also help to boost economic competitiveness across the UK by providing better connections between regional cities and key locations that are already well connected to London. For example, it will allow regional cities better access to the Eurostar high speed rail services on HS1, as well as improving access to the wider South East, including Heathrow, Gatwick and Stansted airports.
5.6 In conjunction with other planned investment, it will also improve links to important knowledge clusters such as Oxford and Cambridge, which currently have excellent links to London but relatively poorer links to many regional cities. HS2 could facilitate better links between them and locations such as Manchester by allowing new services to be operated on capacity freed by HS2 on the West Coast Main Line.
6. How should HS2 be operated? Should it be a franchise in competition with the West and East Coast Main Lines?
6.1 The Mayor has no particular view on the structure of the operation for HS2. However, the operator of the service should work with TfL, particularly where there are interfaces at Old Oak and Euston, on achieving the best possible service for passengers. This should include coordination of station operation, passenger information and service provision.
6.2 When determining the operational structure of HS2, onward passenger journeys need to be considered. Passenger journeys will not start or end on HS2 services; passengers should benefit from a seamless transfer between these and other transport services.
7. Should travellers pay higher fares on HS2 than other lines?
7.1 The Mayor believes HS2 fares should be integrated with the national fares structure. A major uplift in capacity and the additional competition that HS2 will introduce should have a downward effect on fares overall in the corridors served as competing operators seek to attract passengers. It remains to be seen what premium passengers will be willing to place on the time savings and improved connectivity as well as greater comfort levels associated with travelling on HS2.
8. Does the prospect of HS3 affect the economic case for HS2?
8.1 HS3 has different but highly complementary objectives to HS2. HS3 would enable the city regions of Liverpool, Manchester, Leeds and Sheffield[4] to be within easy commuting distance of one another and this could fundamentally change the economic geography of the UK, allowing a ‘cluster of clusters’ to be established in the north of England, of comparable size to London.
8.2 HS2 would complement this and may in fact be a necessary condition for success. Many of the improvements required to create a ‘cluster of clusters’ relate to north – south travel. Consideration should also be given to a dedicated high speed link to Liverpool which could have a combined HS2 and HS3 role.
8.3 Links to London and continued investment in London’s rail network will remain vital. The northern city regions are not competing with London, but with increasingly competitive city regions across the world. London and the UK’s other city regions could compete more effectively if they worked together as part of an integrated economic system that bring mutual benefits to one another. Through its unique global brand, London can act as a ‘gateway’ to the rest of the UK for inbound tourists and investors, who are more likely to undertake multiple leg journeys beyond the south east if comprehensive high speed rail connections are available, across the UK as a whole.
8.4 For the reasons listed above, the Mayor is supportive of the HS3 proposals subject to business case and affordability.
[1] http://www.theitc.org.uk/docs/108.pdf
[2] At locations served by the West Coast, Midland and East Coat Main Lines in particular
[3]http://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Market%20Sector/Building%20and%20Construction/hs2-regional-economic-impact-1.pdf
[4] This depends on crucial complementary investment in local and regional transport