What’s happening with HS2?

Hello readers, welcome back to my blog on economics related news!

Last time I did something slightly different. Instead of focusing on one interesting economics related story, I tried to predict, and analyse what the future could hold for 2017. If you didn’t get a chance to read it, I really do recommend it as it will certainly prepare you, as well as help you to understand some of the key problems the world is facing today. If you did read it, you might remember me saying how Brexit and Mr Trump are going to have significant effects on the rest of society for better or for worse. I also mentioned that even though we may not have agreed with the outcome or are frustrated with it; it is vital for the sake of future generations that we keep up to date with the current situation and build a stronger economy going forwards.

This week, however, I am giving you all a ‘cooling off period’ before next week where I will be specifically looking at both Mr Trump and Mrs May simultaneously and the effects of their actions so far such as Trump’s announcement to actually build the wall across the Mexican border and Mrs May announcing on Tuesday that Britain can no longer be part of the single market. I will be focusing on the HS2 rail project, something, that hasn’t been discussed very much in the news for a while. Most of us have probably heard of it and know what it’s all about, but don’t know when it is likely to be implemented, what the economic costs and benefits are and whether or not the money was justified or if it could have been spent in other areas that are in greater need such as the NHS or in education. A healthy, well-educated workforce as I have previously mentioned, ensures that the economy is economically efficient. Proponents of HS2 would counter this by saying that, better transport links and connectivity across the country can reduce commute times, congestion and can also lead to a more efficient workforce but is spending in excess of £55 billion which leads to a slight reduction in travel time really economically viable? In short, this is the basis of the ‘fundamental problem in economics’ that economists are facing all the time: How best to allocate scarce resources among competing users. Because of scarcity we have an opportunity cost, in this case, the opportunity cost of spending on HS2 is the money spent on the NHS.

If you are keen to learn more about this project and want to find out exactly what is happening, then you have come to the right place. In a few minutes, you will be an expert on this subject and can impress all your work colleagues with your enhanced knowledge of something, which has been hidden amongst all the prime media out there at the moment. This post might be a little longer than usual but hopefully, you will learn new things you didn’t know, without even realizing.

As always please post any ideas that you wish to share below or email them to me at rajveersira@gmail.com. Also if you are enjoying reading rsira-economics.com each week and know someone that would enjoy reading it too, please do share it with them and ask them to follow, if they are interested.

 

Before we get into the economics, what exactly is HS2?

HS2 stand for high speed 2 and is a planned high-speed railway in the United Kingdom linking London, Birmingham, the East Midlands, Leeds, Sheffield  Manchester. You might be wondering well what happened to HS1. This is actually already in place and it was the first high-speed rail line in Britain, which connected London to the Channel Tunnel. HS2 consists of two main phases. Phase one is for a new railway line between London and the West Midlands carrying 400m-long trains with as many as 1,100 seats per train. These trains would travel at speeds of up to 250mph, which is faster than any other train in Europe, and they would run 14 times per hour.

The second phase, which is ‘V-shaped’ will improve links and services from Birmingham to Manchester and Leeds. The Department for Transport says there will be almost 15,000 seats an hour on trains between London and the cities of Birmingham, Manchester, and Leeds, which is three times the current capacity.

 

Why was the project needed in the first place?

London is known as the capital of the world and is almost its own country in one respect. With the price of a 2 bedroom apartment costing upwards of £800,000 (more on that another week), it is clear that this city is booming and is attracting people from all over the world. It was also found that without London the UK would have the same GDP as Spain. The criticism is that other parts of the country are not growing at the same rate and that London has overtaken them and is now so far ahead leading to a ‘North-South divide’. HS2 would help alleviate this issue by linking other major cities in the UK to each other. An article by the Guardian explained how the UK’s productivity is lagging behind other major economies. In the time a British worker makes £1, a German worker makes £1.35. HS2 will almost certainly improve productivity and speed up the flow of people, goods, and services. Think of it like faster Wi-Fi. Less time buffering, and more time actually getting on with what you want to do/watch.

The images below help to understand this idea visually. In a world, which is so technologically advanced and is governed and shaped by new tech, it is vital that the UK stays ahead of its competitors.

 

screen-shot-2017-01-29-at-18-19-05screen-shot-2017-01-29-at-18-19-01        VS

Existing set up- 125mph                                                  Trains which can travel up to 250 mph

 

Costs and Benefits of HS2

 

Benefits:

  • Will reduce dependence on domestic flights, lower CO2 emissions and is one step further to providing more sustainable transport
  • Will allow more operators to get involved and interested, increasing competition and potentially reducing fare spikes. However, the opposite could also happen, as companies are likely to charge a premium for the ‘time saving’ gained by using these trains.
  • Significantly increase productivity in the UK and will provide jobs for over 40,000 people. This could reduce the costs for businesses and improve the overall economy.
  • Groups such as the Campaign for High-Speed Rail say there will be added knock-on benefits, while some MPs believe it could be a catalyst for economic growth and help rebalance the economy between the ‘North and South’.

 

Costs:

  • Places further away from the line, like Wales, aren’t expected to see any economic benefits and could lose jobs as a result.
  • The Wildlife Trusts say both phases directly affect nature reserves and wildlife sites, which could lead to a net loss in biodiversity.
  • Historic buildings are at risk of damage or demolition, and local residents will face noise pollution
  • Thousands of people living in Camden, north London, face years of disruption during phase one. Parts of the Regent’s Park Estate will also be demolished
  • The current £42.6bn budget makes it more than ten times the cost per kilometre of some global counterparts.
  • This price has been criticised by campaigners, who have said it is “abysmal value for money”.
  • Unrealistic timetable, and many groups such as “Stop HS2” have said it is likely to be a ‘White elephant’

 

When is it likely to be implemented?

  • The first phase of the £56bn railway is due to open in December 2026, however the Public Accounts Committee is calling it “overly ambitious”.
  • The onward legs to Manchester and Leeds could start being built in the middle of the next decade, with the line open by 2032-33.
  • The search for a company to take on the £2.75bn contract to build high-speed trains for the HS2 rail network got underway this year. The Department for Transport said up to 60 trains, capable of speeds of about 225mph, were needed. The contract will also involve maintaining the fleet and this will be awarded in 2019.
  • Construction has already begun and it is expected to reduce rail times between Birmingham and London by 32 minutes

 

Below are a few images showing the whole project and the areas that will be affected:

screen-shot-2017-01-20-at-09-54-12

Screen Shot 2017-01-29 at 16.47.35.png

screen-shot-2017-01-29-at-17-26-02

 

 

Sources used:

http://www.bbc.co.uk/news/uk-16473296

https://en.wikipedia.org/wiki/High_Speed_2

http://cep.lse.ac.uk/pubs/download/cp361.pdf

http://www.bbc.co.uk/news/business-38684010

https://www.theguardian.com/business/2016/nov/24/why-is-uks-productivity-still-behind-that-of-other-major-economies

http://www.telegraph.co.uk/news/2016/03/21/revealed-hs2-abysmal-value-for-money-at-10-times-the-cost-of-hig/

 

Still want to know more? Have a read of the article below:

http://cep.lse.ac.uk/pubs/download/cp361.pdf

 

If you’re still a bit unsure about the whole Brexit process, what has happened and where the UK stands then I recommend that you read this article by the BBC below, before next week’s post, which explains everything there is to know about Brexit in a nutshell.

http://www.bbc.co.uk/news/uk-politics-32810887

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