24/07/2025
John Redwood's Diary July 24
Why I voted NO when Parliament took the fateful decision to proceed with HS2
Hearing a BBC Radio 4 programme on the HS 2 "Business case" reminded me of why I voted No to the decision in principle in Parliament to proceed with HS2. It made me think further about the great embroidery, extension and stupidity of many modern government business cases. The more complex and expensive they got, the worse in practice they proved to be.
The BBC took us back over one of the big disagreements during the early years of Business Case expansion on HS 2. In the first case cutting the time of the journey gave the country a "gain". It meant those on the train were assumed to be travelling business people, would become more productive as they would save previous minutes from the journey which they could use to work in the office on arrival. So the designers went for maximum speed at considerable extra cost to save minutes for these mythical hard workers who couldn't work on the train.
In later iterations it was decided with new technology business people could work very effectively on the train with wi fi, laptop and smart phone, so all that "gain" disappeared. The modellers decided there were collateral gains for everyone else in the economy from the ability of a business elite to travel well with laptop on a new fast line. These too became exaggerated.
To me a business case is not based on guessing what people might do on the train or attributing side benefits to others. These are matters of judgement that do not generate revenue for the train operator or the state, in this case the same institution. As a businessman my experience of evaluating a new investment was based on asking two simple questions. Could the investment save total and average costs of production? Could it add significant revenue? It had to add enough extra business and or subtract enough existing cost to ensure there was a profit on the investment. It needed to guarantee it could cover its costs of capital.
This should have applied to evaluating HS2. HS 2 was never going to add a lot to total passenger journeys. It was designed to switch some passengers off existing services by offering them a faster and better service. Some thought this could be done whilst charging at a premium price. Others thought the HS 2 nationalised rail would need to undercut the existing rail providers to draw passengers away from the present services. This led to the danger that it would cut revenues and prices on current lines, leading to the demand for more subsidies for existing providers. A modest win for train travellers would be a big loss for taxpayers. It was always likely given an estimated shortfall of demand in the early years of HS 2 that HS 2 would be loss making from the start.
Part of the way through the project the government switched its case from greater speed to help business to the need for more capacity. Covid then undermined the case for more capacity. It was always likely the cheaper solution to provide more capacity for growth would be improved digital signalling on the existing tracks, to allow more trains per hour to run on a railway that already existed.
The biggest reason the Business case was wildly too optimistic lay in the forecast costs. A £37bn project became a £100 bn plus project which then had to be cut down drastically in size to limit the excessive costs. It remains a major financial disaster the more that is spent on it. The taxpayer is unlikely to see any normal cash return on this investment. It neither makes rail travel less costly nor offers the hope of enough additional passengers.
HS2's story begins with a blank piece of paper.
