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*blog revised with new data on the 17th June 2020*
Over the years the anti Hs2 campaign grasped straw after straw. One of the most common ones being binary choices. We could either have flood defences or HS2, or fix potholes in the roads or build Hs2, or – you name it. As the years went on the list got longer and more stupid. Now we have the latest manifestation and one of the most stupid of all. If we scrap the biggest construction project in Europe we’ll ‘save’ the economy from the effects of Covid-19!
But there was one they’ve always kept coming back to. Whatever figure they’d invented for the cost of Hs2 that week – it should be spent on the NHS instead. Because everyone (well, except UKIP, Brexiters and various Tories) love the NHS.
Such ‘logic’ is the epitome of intellectual bankruptcy because it fails to understand a fundamental financial fact. The different between capital expenditure (Capex) and operational expenditure (Opex). Let me explain.
Capital expenditure is an expense incurred to create future benefit, such as buying new assets for a business – like buildings, machinery or equipment. Doing so generates profits for the future over several tax years. Hs2 is simply a very large example of the principle. It will generate jobs (which generate tax revenue), kick-start regeneration in some of our major cities and make the UK a more attractive place for businesses (which generate corporation tax). Capital investment on decent infrastructure is well understood as bringing economic benefits. This BBC article sums up the situation. As capital expenditure will generate tax revenue year after year. It’s not just a one off. That income stream would enable the Treasury to spend money on many different things. Including the NHS if it chose to…
Operating expenditure covers the day to day functioning of a business, like wages, utilities, maintenance and repairs. It also covers depreciation. It’s money needed every year.
The cost of building Hs2 is currently around £88bn. For that we get all the benefits I mentioned. In contrast, planned expenditure for the NHS in 2016/17 is £120.611bn. That means if we diverted the supposed pot of money for Hs2 to the NHS it would run the NHS for less than 9 months. Then it would be gone, never to return. It wouldn’t solve any problems, because the NHS would need that money every year. Instead, you’d be left with rail gridlock (which would cost money, not save it) and you wouldn’t have a catalyst for regeneration in cities like Leeds, Manchester and Birmingham, so you’re not helping rebalance the economy either. Oh, and you wouldn’t have all the tax revenue from the jobs HS2’s created either.
This (in a nutshell) is why the stophs2 campaigns calls to divert money from HS2 to the NHS is both daft, and ignorant. Even Labour’s former Shadow Chancellor, John McDonnell pointed this out in an interview with the Yorkshire Post.
Oh, there’s one other thing. There IS no pot of money sat in the Treasury labelled ‘HS2’ that’s just waiting for another sticker to be applied to it, so it can’t be diverted. HS2 isn’t paid for by the taxpayer either – despite all the rubbish you hear – it’s paid for by borrowing at a time when Governments can borrow at such historically low levels people will actually pay you to borrow!
So the money for HS2 is borrowed against future returns in the same way any government in any country invests in national transport infrastructure. Historically, the UK has always been poor at doing this, which is why so much of our infrastructure is old (just look at the existing West Coast Main line – it was built 190 years ago!). The OECD recommends that baseline infra investment is 5.5% of GDP annually for an economy with aspirations to growth. We’ve only spent this amount twice since WW2, so HS2 and High Speed North is a minimum.
In fact, the cost of building HS2 is spread over very many years, at its peak it will be less than £5bn per year. It’s just another column in the Governments annual budget. But, cancelling HS2 doesn’t free up any money (there’s no pot, remember?). It just means the Government borrows less, or transport infrastructure continues to age and our competitors (the younger, more forward thinking countries) continue to outpace us.
This is why cancelling HS2 and pretending it frees up billions to be diverted anywhere is just economic illiteracy.
Paul Bigland 
Paul, it may be useful to add that the HS2 capital cost works out at around £3bn per year of construction, which is very little in comparison to the NHS budget.
Indeed Andy! Some people talk as if there’s a £55.7bn pot of money sitting in the Treasury labelled “Hs2”. The truth is that the cost of Hs2 is spread between now and 2033. Where the actual cash comes from is dependent on a lot of factors – including how well the UKs economy does over those years. £3bn is what Hs2 is expected in the peak years of construction. Before and after that It will cost a lot less. That’s very different to the NHS, which costs £110bn plus each and every year.
Who do you think is going to pay the capital finance costs Mr Bigland? The £55.7 Billion is one of those guesses at the construction costs only. But then, you know that don’t you, having read the HS2 economic case of course. Here’s a simple question for you; How many people does it take to run a railway that isn’t built yet? HS2’s salary bill currently stands at £37 million per year.
David, I’m not sure what point you’re trying to make. Forgive me if I’ve got the wrong end of the stick, but you seem to be suggesting that HS2 shouldn’t be built because (i) it costs a lot of money, (ii) the outturn construction costs are not fixed prior to construction and (iii) it costs money to plan and design the scheme. But HS2 is no different to any other major infrastructure project in these respects. If these were showstoppers for projects, we wouldn’t have built any major infrastructure at all.
Do you think it was cheap to build the motorway network, or that the construction costs could be known beforehand to the nearest penny? Surely you are aware that it takes a lot of people to plan and design major infrastructure? How much do you think was spent developing the design of Crossrail, or Heathrow Terminal 5, or new nuclear power stations, or motorways? How much money goes into planning an upgrade of existing railways (touted as the ‘alternative’ to HS2 by some) before a single rail is relaid?
I can understand some of the objections to HS2 (although I disagree with them), but your objections seem curious to put it mildly.
David Briggs comments make absolutely no sense. For a start, asking who is going to pay the capital costs is a question that’s already been answered. The ‘logic’ that we should build things because they cost money and need to be planned first is bizarre. Personally, I would be worried if money hadn’t been spent on planning and designing Hs2 before construction starts! The fact that a % of the capital cost of a project is spent on design and planning is a normal feature of any project. So much so that there’s a standard parameter used in the construction sector and HS2 comes well within that parameter.
David Briggs comments show how little those objecting know – about HS2, the construction industry and Government finance. They also show why their campaign is doomed to failure.
If that question of capital costs has been answered, then you will know that it will be borrowed from foreign financial institutions.of course. The problem is that nobody talks about that do they? So, to keep it simple for you, the figure you referred to (£55.7 Billion) is not the actual cost to the nation is it? What is bizarre, is that you seem to think its ok not to disclose the full costs. By so doing, the BCR (Benefit-Cost Ratio) would show the perfect example of how to lose money. To be honest, I doubt you have the slightest idea of economics, or perhaps prefer to ignore economics to suit your choices, and sod the next 2 generations who will be paying for it. As for Andy, well, the old comparisons are great are they not?
More unsubstantiated allegations that ignore all the evidence that demonstrate that you haven’t got a clue what you’re talking about and refuse to deal with the facts. Yes £55.7bn IS the actual cost – as all the documents and hearings make perfectly clear. Yet you still insist that there’s some ‘hidden’ cost that only you know about! It’s escaped the attentions of all the public scrutiny bodies and even Parliament itself. Thank you (once again) for continually showing why StopHs2 in Yorkshire is doomed. It’s living on a different planet to everyone else.
Next time I take out a mortage or a loan I must ask you where to get free finance then.
How is continuing to stubbornly and pig-headedly refuse to face the truth to keep making the same daft assertion meant to Stop Hs2? All it does is show why your campaign is lacking in any understanding of infrastructure financing. You’re lambs to the slaughter…
This thread has aged well. At today’s prices, HS2 is estimated to cost over 100 Billion pounds Sterling. That’s £100,000,000,000 ! Nearly the same as the NHS Budget as compared to in the thread. Oh and now the leg to Leeds has been scraped, oh well never mind then. Oh and the rest of the now reduced network may start operating around 2030-2040. The invertible cost over-runs and delays will mean the eventual cost probably heading over £150 Billion. Hey let’s just print some more money !
More financially illiterate and contradictory nonsense that shows why opponents of HS2 never got anywhere. In one breath you claim the cost of HS2’s risen above £100bn (it hasn’t) yet also claim the route to Leeds has been scrapped (it hasn’t) – and don’t factor it into the costs! You can’t even get the opening dates right! Phase 1 and 2a will open between 2029 – 2033, with the way construction’s going at the moment the earlier date is looking promising. The claim of “inevitable” cost overruns and delays is pure fluff, as is the claim it will cost £150bn +. Oh, as for ‘printing’ money – just what do you think the Bank of England does with a Sovereign currency? Economic illiteracy was never going to stop HS2, it merely shows why no-one takes you people seriously.