High Speed Halt

In a move that is both eminently reasonable and entirely shortsighted, the UK PM Rishi Sunak canceled the northern section of High Speed 2, a high-speed rail project extending from London to several northern cities.  Specifically, he canceled the section from just north of Birmingham to central Manchester.  The reason stated was the rapidly increasing cost of the project, which had grown from estimates in 2010 of £17B for a ~335 mile-long network to £98B in 2023 for a ~230 mile network.  The network is now planned to be only around 130 miles in length, with a currently estimated cost of about £62B.  The responsibility for completing the final section in the south, from Old Oak Common in the London suburbs to the terminus at Euston Station in central London, has been removed from the purview of HS2 Ltd, the entity that had been supervising the construction.  Work on the section had already been paused earlier in 2023, and will supposedly resume, but the timeline has not yet been clarified.

This move is reasonable at one level, as the explosion in cost from the earliest estimates to the latest figures published this past summer means that the utility to the country in a standard cost-benefit analysis has declined significantly.  There is, of course, little point in building public infrastructure that is so expensive that the cost of servicing the debt undertaken to build the project outweighs the economic gains from whatever service the infrastructure provides.  That applies to water, sewer, road, and airport projects as well as rail projects.  The UK government, which has been run either in part or completely by the Tories since 2010, has been unable to control the costs of the HS2 project, and has decided to limit the project to the section where substantial construction has already been done.

However, the statements by the Sunak government on the changes to HS2 don't explain how it plans to get the costs for the parts of HS2 that (currently) survive under control.  There is no reason anyone should believe that current estimates for the project will turn out to be any more accurate than previous ones.  The Sunak government claims that up to £36B that was going to spent on HS2 from Birmingham to Manchester will be invested in other projects.  I expect that number to be both reduced by further cost increases in HS2 and by future budget issues that will "require" diverting the previously diverted funds to existing programs.

It should be no surprise to anyone that the Conservatives have failed to control their own project.  Fundamentally, the UK Conservative Party - along with many conservative parties elsewhere - does not believe that government can do anything well, and that the private sector is inherently more efficient at everything.  This has been proven wrong over and over again.  The private sector is not reliably competent at delivering complex public works in many countries, including the UK.  But the Tories outsourced not only the actual implementation of HS2, but also a lot of the design and high-level management of the project, to entities that are not working for the public good, but for private profits.  Some of the cost increases have been exogenous (inflation, COVID), but I suspect a lot have been due to complications that come from not having the incentive to make accurate estimates or figure out the least costly way of doing a particular task.

Despite the questionable of utility of HS2 at the current cost, cancelling the northern sections is nonetheless short-sighted.  HS2, at least on the western side of the Pennines, had two purposes. First, it would reduce the travel time between Manchester, Birmingham, and London.  Reduced travel time would increase economic activity in areas affect by the project.  Second, it would free capacity on the West Coast Main Line for local and freight services.  In train operations, mixing high- and low-speed trains reduces the number of trains that can run per hour significantly.  With the high(er)-speed intercity passenger trains removed from the WCML, the number of other trains that could run would increase by more than the number of high(er)-speed trains removed.  But the need for increased capacity on the WCML north of Birmingham will not disappear because HS2 P2b was canceled, nor will Manchester get any closer to the south, where most economic growth in the country has occurred in the past few decades.

The response of the Sunak government should have been to slow the construction down while it examined the root causes of the cost increases and developed in-house government expertise to manage the future portions of HS2.  Stopping and starting construction disrupts supply chains and employment pipelines, as does long gaps between major projects.  High Speed 1, aka the Channel Tunnel Rail Link, was completed in 2007; HS2 construction did not begin until 2020.  Both institutions and individuals will naturally lose competency over periods far shorter than 12 years.  And when there are future projects in the pipeline, companies are less likely to try to milk current projects, as they have incentive to do a good job in order to get the next one.  Now there is no clear future after 2033, when HS2 is (currently) projected to be completed.  Though project names are being thrown about by the Sunak government, they are largely just old plans that haven't gone anywhere, or minor if necessary upgrades.  The UK needs to commit to a national HSR system that it will build out over the next 75-100 years in order to signal to companies and individuals that it is worthwhile to make long-term invests in education and equipment.  So far the Sunak government hasn't done that, and probably won't given that it has decided that pro-car and anti-environment rhetoric is a useful electoral tactic.  What a Starmer government might do is unclear at this point, and unimportant unless Labour actually wins the next election.

Slowing construction of HS2 would have a downside, of course, which is that financing would have to be carried for an even longer time before farebox revenue and economic benefits start to cover debt repayment.  Nor is there any guarantee that much could be done by the government at this point.  A lot of the increases could be exogenous, or they could be political, meaning that the specific details of construction have been (and continue to be) altered to buy off specific opponents.  It may be that too many bad decisions are locked in, and nothing can be done.  But the Sunak government should try, and then should apply those lessons to future projects.

As a distant observer I don't know exactly how the UK returns to a point where it can build rail projects at a reasonable and predictable cost.  But I believe it should.  Otherwise, the country have difficulty increasing productivity as congestion will continue to increase as the population rises.  The UK's recent experience is in contrast to countries like France, Spain, and Italy, where national HSR systems are moving forward at close to estimated costs.  But those countries have been building more regularly, and have been more judicious in their outsourcing.  Whatever the problem in the UK ultimately is, I hope they identify and resolve it soon.

(1) A side benefit of completing the line between Manchester and London would have been the reduction of flights between Manchester and London area airports, some of which are runway slot-limited.  However, I don't believe it was part of the project's cost-benefit analysis.