Thomas White Global Investing
U.K.
U.K. Stamp
March 26, 2012
A Postcard from Europe
U.K.: High-speed rail ambitions in the age of austerity

U.K.: High-speed rail

When fully completed in 2033, Britain’s new High Speed 2 railway network will connect London to Leeds and Manchester, but will cost nearly $50 billion. The first phase to Birmingham is scheduled for completion in 2026.

Since the coalition government led by the Conservative Party came to power in 2012, Britain has been at the forefront of European countries seeking to improve their fiscal health through dramatic public spending cuts. In the government’s annual budget presented this week, the austerity measures have been further expanded, even as an aggressive plan to lower public debt remains on course.

Nevertheless, the British government has chosen to ignore its own austerity dictums in the area of infrastructure development where investments are being scaled significantly higher. And the centerpiece of the government’s bold plans is a new high-speed railway line that will connect London to the northern parts of the country. At a total cost of nearly $50 billion, it is one of the largest public infrastructure projects anywhere in the world.

The first phase of High Speed 2, or HS2, will open a new 140 mile line from London to Birmingham, the country’s second largest city, in the West Midlands region. Trains travelling at speeds of up to 250 miles per hour will cut the current travel time of about 90 minutes by nearly half. The second phase of the HS2 project will extend the line further north of Birmingham, to Leeds and Manchester, and will offer similar time savings. This new network will have the capacity to carry more than 25,000 passengers every hour, and will reduce the strain on other transportation systems, including the highways. What is more, a connection to Europe through the Channel Tunnel is included in the first phase and a direct link to London’s Heathrow airport is part of the plan for the second phase.

However, commuters will have to wait several years before they will be able to speed away through the lush English countryside from one megacity to another. The first phase, for which detailed route plans have been approved by the government, will not be complete until 2026. Consultations for finalizing the second phase route are scheduled only for 2014, and the high speed trains will not reach Leeds and Manchester before 2033.

In a difficult economic environment when most other European governments are scaling back public spending, including outlays for infrastructure, the British government’s high-speed rail plans are receiving much flak. The project is seen as too costly and with only modest economic benefits. Also, considering the more than two decade long implementation period, the project could run into cost overruns that will worsen its economic viability. It is also possible that commuters would change their preferred modes of transport over this long period and the projected passenger loads may fail to materialize. The Financial Times said the proposed railway line is ‘a white elephant from top to bottom’, and warned Prime Minister David Cameron that he risks undermining his reputation for competent economic leadership.

Instead of backing down, the prime minister is aggressively pushing his infrastructure agenda to gain wider public support. In a major speech in London earlier this week, Prime Minister Cameron termed infrastructure building as a generational opportunity to create a legacy. He said, apart from linking the major cities with a vastly improved, high-speed national network, the HS2 will ‘transform connections in our country just as motorways did in the 1960’s’. As part of the infrastructure upgrade, the prime minister also announced that the biggest 10 cities will have very high speed broadband access and confirmed that a new airport for London is still under consideration.

To mitigate the risks for HS2, the government may draw from the experience of building the existing high-speed rail line, the High Speed 1 or HS1, which extends from London to the Channel Tunnel that links Britain to Continental Europe. From government approval in 1996, the HS1 took more than a decade and $9 billion to build, but now offers super fast passenger and freight connections to Europe as well as domestic services. However, the project faced financial difficulties during implementation and plans had to be retooled. After the line became operational, it was taken over by the British government from the private consortium that had become insolvent. Subsequently, the government auctioned a concession to operate the line for a period of 30 years to a group of foreign investors.

Encouraged by the success of that auction, the British government is now considering similar models to finance other infrastructure projects. The government is evaluating the feasibility of leasing highways and other roads to private investors, who will receive a share of the road taxes in exchange for maintaining the roads. The private investors could also be allowed to collect tolls for new roads constructed and existing roads that are upgraded by them. The government hopes that this plan will attract large sums of private capital, including foreign capital, to the country’s infrastructure sector.

Despite the criticism, the HS2 plan is now receiving broader support in the country’s northern areas and there is growing demand to extend the connections further north. The Scottish government is demanding that HS2 should cover Scotland as well, and argues that the case supporting the project would only improve by adding more regions and cities to the network. Even if these demands are not met, the HS2 as currently planned will still offer a strong link between the south and north. Proponents of the project reckon that the social and political benefits of such a link are likely to only add to its economic payoffs and make the financial investment worthwhile, even in this age of austerity.

Postcards from Around the World

China: Migrant workers heading home

Learn More 

U.S.: Fungicide fears send orange juice prices soaring

Learn More 

Asian tailwind for business jets at Singapore Airshow

Learn More 





Subscribe to get our global publications by email.



Use of this site signifies that you have read Terms & Conditions
© Thomas White International, Ltd. 2018