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Paul Bigland

Category Archives: NHS

Spend HS2 money on the NHS? Here’s why it’s economic illiteracy

08 Wednesday Mar 2017

Posted by Paul Bigland in Anti Hs2 mob, Hs2, NHS, Rail Investment

≈ 11 Comments

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Anti Hs2 mob, Hs2, NHS, Rail Investment

*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!

gilts

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.

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