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24/06/2015
Find out the truth about HS2 and the Claims made.


House of Lords Economic Affairs Committee
Inquiry into the Economic Case for HS2


Written evidence by Professor Mike Geddes

Read ALL Mike Geddes Reports on HS2 and location of all references to report below and all other reports.
https://hs2theregionalimpact.wordpress.com/author/hs2theregionalimpact/

Summary
This submission responds to the second, third and fourth questions asked by the Committee:
What are the likely benefits of HS2 to the Midlands, to the North of England and to Scotland?  Do they also depend on complementary action by governments, local authorities and Local Enterprise Partnerships?

Might some parts of the UK suffer economic disadvantage from HS2?

Is London likely to be a main economic beneficiary of HS2?
The paper assesses the extent to which job creation associated with HS2 may help to bridge the North-South employment divide by examining recent evidence, especially information produced for the HS2 Growth Taskforce, and recent projections of regional employment trends.

It shows that the claims for the regional employment impact of HS2 made by government or by supporters of the project are subject to serious qualifications. Consequently it is very difficult to sustain the argument that the employment impact of HS2 would significantly reduce the North-South divide.
14 September 2014
Introduction
The impact of HS2 on the North and Midlands is a key issue in the case for or against the project.

The government and supporters of HS2 have consistently claimed that it will have a transformative impact in narrowing the North-South divide.

 Transport Secretary Philip Hammond claimed the high speed rail network will "change the social and economic geography of Britain; connecting our great population centres and international gateways". Hammond further suggests that linking England’s main cities via high speed rail, with further links to Scotland, could help break down the north-south divide. "Bringing those economies in closer reach of London, allowing them to benefit from London’s magnet effect in the world, is going to help solve some of the most intractable postwar social and economic problems Britain has faced." 

Similar claims have been made by government and supporters of HS2 ever since. Recently the HS2 Growth Taskforce said that "HS2 could be much more than a railway.  It could be an exciting and transformational opportunity, particularly for our cities in the Midlands and North….HS2 can help rebalance the economy.”

Such claims have however consistently been challenged by independent experts: 
‘Claims about the "transformational” nature of transport investments should be generally discounted because they have no convincing evidence base to support them’.
Professor Henry Overman, LSE, Evidence to the Transport Select Committee

‘Taking the evidence in the round it is very difficult to substantiate the argument that high speed rail is likely to have a positive impact on regional inequalities.’
Professor John Tomaney, University College London, Evidence to the Transport Select Committee

‘In most developed economies high-speed railways fail to bridge regional divides and sometimes exacerbate them. Better connections strengthen the advantages of a rich city at the network’s hub: firms in wealthy regions can reach a bigger area, harming the prospects of poorer places.’
The Economist
HS2 and job creation: Recent evidence
The debate about the job creation impact of HS2 falls into two parts:
Job creation from regeneration schemes linked to the construction of HS2, concentrated around stations.
Job creation arising from the wider impact of HS2 on the economy.



Jobs from regeneration
Current HS2 Ltd estimates of job creation, including that  associated with regeneration at HS2 stations, are as follows:

 
Table 1 HS2 Ltd job creation estimates      
    Phase 1    Phase 2    Total      
Construction    9000    10000    19,000      
Operation     1500    1400    2900      
                  
Regeneration                  
London    22000              
Birmingham    8300              
Manchester        30,000 – 43,600          
East Midlands        1500 - 1600          
Sheffield        4000 - 5400          
Leeds        13,200 – 19,700          
Regeneration Total    30,300    48,700  – 70,300    79,000 – 100,600     
Of these the construction jobs are temporary, and the operational jobs are small in number. The regeneration-related employment estimates are more significant, and the majority of these would be in the Midlands and North. 

However, as the government admits, many of these will not actually be new jobs, but relocations from elsewhere. Moreover, they are not necessarily directly attributable to HS2: while their location is a direct consequence of the location of HS2 stations, they will depend heavily on other public and private regeneration investment.

This is reminiscent of the case of Lille in France, where there has been major regeneration investment around the HSR station. Lille is frequently cited by supporters of HS2 as showing the scale of job creation resulting from HSR, but in practice HSR has at best been only one element in a much bigger regeneration ‘package’. .  Moreover, despite this investment, unemployment rates in Lille relative to the average for mainland France have actually worsened significantly since the arrival of the TGV. Thus based on this key indicator, there has been no narrowing of economic disparities as a consequence of high speed rail.

The experience of HS1 is also relevant. A report by Colin Buchanan and Partners  suggested that HS1 might ‘help to deliver’ 100,000 jobs.   However there is little if any evidence on the ground that these large numbers of jobs are materialising.

Claims about the propulsive role of HS2 in creating employment through regeneration must therefore be treated with considerable caution, not taken as fact.

Wider employment benefits
In addition to possible job creation through HS2 station-related regeneration, it is argued that there will be ‘wider economic benefits’ in terms of growth and jobs.

There are two main recent sources of evidence for the wider economic benefits accruing from HS2. 

The report by KPMG, HS2: Regional economic impacts, claims that HS2 could generate £15bn productivity gains for the GB economy in 2037 when the full Y network opens, with a further positive effect in following years.  However the employment implications of this are not spelled out by KPMG (and it is of course quite possible that productivity gains would not translate into employment growth if productivity increases resulted from labour-saving investment).

Moreover, the methodology utilised by KPMG has been severely criticised by independent experts.  Professor Henry Overman of the LSE, erstwhile adviser to HS2 Ltd, in a commentary titled ‘HS2 Regional Economic Impact: Garbage in……?’, says the report does things which are ‘technically wrong’ but are crucial for their findings. Key parts of their method ‘does not have a firm statistical foundation’, ‘is essentially unfounded’ and ‘produces estimates of effects that are meaningless’.

The KPMG work also makes clear that the economic impact of HS2 would produce losers as well as winners, especially in places and regions distant from HS2 stations.  These need to be set against the headline-catching ‘£15bn gains’.

Estimates of wider potential regional employment impacts have also been made by Atkins, in consultancy for the HS2 Growth Taskforce.  Table 2 combines these with the station-related jobs shown in Table 1 to show the combined jobs claims for station-related regeneration and wider economic impact.

 
Table 2 Official estimates of total HS2-related employment benefits      
Region/locality    Estimated total jobs    Coverage      
West Midlands    51,300     WM Region      
East Midlands    13,350    EM Region      
West Yorkshire (Leeds)    20,000    Leeds only      
South Yorkshire (Sheffield)    4000 – 5,400    Station-related estimate only      
Northwest (Manchester)    60,000 – 73,000     Greater Manchester      
Total North and Midlands    148,650 – 163,050          
              
London     82,140 – 120,570     Euston + Old Oak Common     
If this data is taken at face value, these estimates suggest that HS2 would have some impact in reducing the north-south employment divide.  The estimate for London is greater than that for any other region/city, confirming that London would be the biggest beneficiary of HS2, but it is between 66,500 and 43,000 lower than that for the whole of the Midlands and North.

This data cannot however be taken at face value as evidence of the impact of HS2 on the North-South divide, for a number of reasons:

The estimates of job creation for the Growth Taskforce are not independent but come from organisations with vested interests, such as Centro in the West Midlands, for whom this is a possible opportunity to lever in major further packages of regional transport investment, and thus are of questionable credibility. 

The estimates are dependent on these very substantial additional regional transport investment packages.  If these are seen as jobs created by HS2, this effectively massively increases the cost of HS2.  On the other hand if these costs are not incorporated in the bill for HS2, neither can HS2 justifiably claim these ‘wider economic impact’ jobs, which are only tangentially dependent on it.

Moreover, there is no new government money for the regeneration proposed and so money would have to be taken from existing funds, threatening other regeneration possibilities across the region.  Effectively, a big slice of future regional transport investment and regeneration would be diverted to try to support HS2 rather than to meet local needs.

In addition, the intention of the Growth Taskforce is to show how the supposed growth and jobs benefits of HS2 can be more widely spread, by means of city-region regeneration and transport strategies centred around HS2 stations.  But this means that the primary beneficiaries would  be the core cities in each region, creating new disparities between the big cities and other areas.  Thus for example of 51,000 jobs in the West Midlands half would be in Birmingham and Solihull, with the rest of the region fighting over the scraps.

Much more account needs to be taken of jobs lost due to HS2 as a result of its negative impact along the route. These are largely excluded from consideration by HS2 Ltd, but would be substantial.  They include jobs destroyed in businesses directly impacted by HS2, and others such as jobs lost in train operating companies which lose business to HS2.

The cost of each job created by HS2 would be eye-wateringly expensive. Taking the  jobs in Table 1 (as these are the only ones for which costs are available), each job would, on the basis of government figures, cost somewhere between £420,000 and £350,000. The real figure would be much higher if temporary and relocated jobs were excluded.  Applying the average cost per job in the wider economy to the sum which HS2 will cost would create 4 times as many jobs, while the cost per job for a standard local economic regeneration project is probably around £35,000.  There are much better ways of spending the  money allocated to HS2 which would bring more jobs and growth across the whole country.

Finally, these estimates of the job creation potential of HS2 are far below earlier estimates which were crucial in building the case for HS2 in the Midlands and North. Perhaps the most widely cited source of this type was undertaken for Greengauge 21 by KPMG in 2010 (Table 3).
 
Table 3 Job gains and losses attributed to HSR by KPMG by region 2021 – 2040      
North and Midlands     000s     South     000s       
East Midlands     -25     London     -59       
West Midlands     68     Southeast     -71       
Yorks and H     49     East     -40       
Northwest     62     Southwest     -48       
Northeast     46               
Scotland     64               
Totals    264         -218       
North-South divide reduced by 482,000, 24,000 jobs a year      

It will be seen that the data shows gains by Northern and Midland regions (with the exception of the East Midlands) but also - in contrast to the contemporary official estimates - substantial losses in the Southern regions.  Even more startlingly, Volterra and Arup undertook a study on the basis of which the Core Cities Group claimed in 2011 that HS2 could underpin 1m additional jobs in our major urban areas.  Political and policy support for HS2 was thus built initially on claims that HSR would have a far more substantial impact in narrowing the North-South divide than current estimates.
HS2 jobs claims in context
Even if we were to ignore these many awkward questions about the official jobs claims for HS2, to what extent would they reduce the North-South employment gap?  Asking this question highlights an important absence from the much of the debate about the impact of HS2 on North-South employment disparities: to wit, any benchmark of the scale of existing regional disparities against which to measure claimed impacts of HS2.

It is not possible to suggest a benchmark which is directly comparable to the data produced by HS2 Ltd and Atkins for the Growth Taskforce.  A comparison can be made however which, despite its limitations, still offers a valuable contribution to policy debate.

Table 4 shows estimates by Cambridge Econometrics of employment change by region over the next decade. This forecasts employment growth in all regions, but much greater in the Southern regions than those of the Midlands and North.  Accordingly, the North-South divide is projected to widen significantly, by nearly 380,000 jobs or about 35,000 a year.

 
Table 4: Employment change by region 2014-2025       
North and Midlands     000s     South     000s       
East Midlands     126    London     458      
West Midlands     166    Southeast     329      
Yorks and H     131    East     241      
Northwest     170    Southwest     184      
Northeast     63              
Scotland     175              
    831        1212      
North-South redistribution 381,000: North – South divide widens by 35,000 jobs a year     
How does this compare with the current official claims?  We cannot be precise, as the latter are for an unclearly specified future period, while the regional employment forecasts are for the next decade.  All the same, a comparison provides very illuminating orders of magnitude.  The official jobs claims show a narrowing of the North-South divide by 42-66,000 jobs.  If we were to assume that these occurred over a decade, that would mean roughly 4,300 – 6,600 jobs a year – compared to the 35,000 a year by which the divide is currently widening.  The impact of HS2 – even ignoring all the deficiencies of the official estimates noted above - would not come anywhere near stemming the current widening of the jobs divide, let alone start to close it. This fundamentally questions any statement that HS2 could bring ‘transformational change’ to the economic geography of the UK.
Conclusions
Assertions that employment growth attributable to HS2 will significantly reduce the North-South employment divide are unsustainable:
Official forecasts of the regional employment implications of HS2 produced by government or by supporters of the project are subject to very serious omissions and qualifications.
Even so, they are much more modest than previous estimates which were crucial in building the case for HS2 in the North and Midlands.
Even when the official claims are taken at face value, any reduction in the jobs gap would fail by a large margin to stop the North-South divide widening, let alone produce ‘transformational change’.
The jobs created by HS2 and possible associated investment would be primarily concentrated in the core city regions, especially around HS2 stations, creating new disparities within regions.
HS2 is a very wasteful means of job creation.  The £43bn cost of the scheme could be used much more cost effectively to create many more jobs across the whole country.
Appendix 1

CENTRO and West Midlands employment

In June 2010 CENTRO published a report commissioned from KPMG entitled: "High Speed Rail and supporting investments in the West Midlands - Consequences for employment and economic growth”.

This report, which headlined the creation of 22,000 new jobs in the West Midlands consequent on phase 1 of HS2 was used as one of the foundations for subsequent claims by the same authors for the generation of over 50,000 West Midlands jobs following completion of the Y network.

The report’s methodology contains many flaws, not least the omission of any attempt to quantify job/investment displacement effects, both within the West Midlands Region from less to more attractive locations, and from the West Midlands to London.

Putting these flaws on one side for a moment, and taking the report at face value, a close examination reveals that:

The job creation figure is based upon a very substantial and very expensive package of local transport improvements to improve connectivity to HS2. Without this package, the report admits job creation would be halved.

The job figure assumes no fare premium for travelling on HS2 as opposed to conventional rail services. If a 30% fare uplift were to be applied ( a not unlikely scenario) the report admits that the projected benefits would be reduced by a further 50%.

The report states that the benefits would be concentrated on those parts of Birmingham and Solihull closest to the proposed stations. No estimate is made of investment displaced from elsewhere in the West Midlands conurbation.

Thus, although the figure of 22,000 jobs was widely publicised (and is currently still being quoted by HS2 Ltd on their website), it seems very likely that direct employment benefits to the West Midlands would only amount to around a mere 5000 jobs at most.



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