Author: johnredwood

 

          In its latest version of Why HS2? the government bases its financial case largely 0n time savings, not on capacity improvements.     The government published the Strategic Case for HS2 yesterday. It said that time savings accounted for £45.7bn of the estimated benefits, with solving 0vercrowding offering just £7.5bn of benefits. Total benefits came out at  £71.2bn over 60 years.

         I was surprised to see this major reliance on the time savings, in view of the words about capacity mattering much more than time. The time savings have been newly valued. The estimators have lowered the value of business people’s time spent on the railway, but increased the value of commuter time and leisure traveller time. They have then added in £13.3bn of wider economic benefits, to get to a more favourable cost/benefit ratio for the total project.

           There has been plenty of media comment that an alternative smaller investment in the existing railway would mean many week-ends of disruption to train services given the working on the line. Yet the  Report in its conclusion on p 135 says ” Some of the upgrade schemes (on the existing railway) are likely to be taken forward as part of Network Rail’s normal forward planning process to modernise the network”. In other words there will be some disruption to existing train services at week-ends even with HS2.

        One of the strongest things to emerge from the Report is the huge scale of the railway investment proposed, relative to other transport investment and to the size of the economy.  Over the period 2015 to 2021 the current plans assume an HS2 spend of £16.5 billion, with another £22.5bn spend on other railway investment. This compares with just £15.1bn on national road improvements, despite roads taking more than ten times as much of the traffic as railways.

       The Report also reveals a reduction in the forecast revenue from HS2 services. The estimate is cut by £1.8bn, presumably reflecting evidence that there will be fewer passengers than originally planned. The new forecast is £31bn over 60 years. There is also the question of whether fare levels  can be sustained as forecast when so much extra capacity comes on stream.

           I could not find figures in the Report about current use of seats out of London in the morning and back into London in the evening. The Report seems to concentrate on journeys into  London at the morning peak and out of London in the late afternoon peak.  The table showing where there will be shortage and stress in the system illustrates that the main capacity problems lie in commuter journeys at peak into London from Watford and Milton Keynes,  into Manchester from Stockport and into St Pancras from St Albans.

 

The press picked up an important story about HS2 over the week-end. They claim that Mr Cameron will drop HS2 if Labour turn against the project. This makes sense.

A large project like HS2 would benefit from cross party support. As it will take so long to construct its build period is likely to span different governments. It is easier to do well if all involved agree with it. More importantly, in this Parliament HS2 is only proceeding because of Labour support. There are enough Conservative and other  MP opponents of HS2 to stop it if all Labour MPs voted against. All the time Labour votes for HS2  or abstains, it has enough votes to carry.

Many people find this Parliamentary arithmetic difficult to grasp, yet it is the same arithmetic which means all the time Labour and Lib Dems block a referendum on the EU we cannot have one, and the same arithmetic which finally led to a vote for a lower EU budget when Labour switched sides and joined   Conservatives. Labour votes with the Coalition government to push through many EU measures.

By saying they will make a decision later rather than sooner Labour are being indulgent with themselves and with public money. If it is Labour’s intention later this Parliament to kill off the HS2 project by coming out against it and voting with other  opponents in the Commons to stop it, they should understand that means more wasted money in the meantime.  If this Coalition government does not have the votes to carry the project right through this Parliament owing to a future change by Labour, it would better to kill it off now. That will require Labour honesty about their future voting intentions  and a sense of responsibility with public money.  In this Parliament Labour cannot always enjoy the luxury of opposition, as their votes do determine a good number of policies. In this case Labour is helping push through spending on a project which they now say they may wish to cancel later. The Coalition government  has been proceeding on the basis that Labour invented this project and will continue to support it.

 

             The Secretary of State for Transport asked for my views on the capacity argument for HS2.  I thought I would share them with you.

              To establish that HS2 is needed on capacity grounds the government has to be able to demonstrate three main points. Firstly, that the current WCML is full or nearly full. Secondly that there are no easier or cheaper ways of adding significant capacity to the WCML or providing an alternative  to tackle any future capacity problems. Thirdly, that the high forecasts of likely passenger growth and  use of HS2 are realistic. I remain to be persuaded on each of these three matters.

 

                The government has been coy about current usage of the WCML. Reported figures say that in the evening peak out of Euston the loadings are around 50%, but this does not take into account the move to 11 carriage trains from 9 carriage trains which probably takes it down to 45%.  As the idea behind HS2 is to encourage morning outbound to the north from Euston and inbound to London in the evenings – otherwise it is just strengthening London’s business and leisure pull – the current usage rates are clearly well below half. My own use of the outbound trains in the morning tell me loadings on some of these trains  are around 25% or less, though I accept these are spot checks, not properly calculated averages . I would be happy to publish the exact figures if the railway would supply them.  To win  the argument the government needs to show higher current usage. It is also the case that some  other train lines are considerably more crowded than the WCML, with the Paddington-west country lines probably the worst crowded operating at near full capacity already for periods of the day with severe congestion problems at peaks.

 

                   Should the WCML become more used, then there are easier ways of creating more capacity. Trains to the main destinations could be lengthened. One or more of the  first class carriages could be switched to standard class, as first class seems particularly underused. The purchase of lighter trains with better brakes and better signals could lead to more trains an hour being run on the existing line. These would be much cheaper fixes than building a new line. A report leaked this morning says that increasing capacity on the existing lines would mean disruptive works each week-end. Some of the ideas in this paragraph require different specifications of train,  which would not disrupt the track. Track works can be done at week-ends and overnight to avoid interrupting busy schedules.

 

                   The forecasts for use of HS2 services are very optimistic. HS1 forecasts were far too high, leading to a 30% overstatement of future demand. The idea that once in full operation the railway will be able to fill 18 large trains a hour seems unlikely. The forecasts assume a large proportion of the passengers on HS2 will be switchers from current WCML services. There are simply not nearly enough current passengers to do this, so the forecast relies on an assumed surge in travel on this particular route. It is not clear why.

              The architects of the project also concede that these forecasts will be very dependent on fares policy and the competitive response of the existing mainline operators and the other transport challengers – coaches, planes etc. The only way I could see that the HS2 operators could fill some of their many trains would be through heavy fare discounting, which would undermine the economics of the project even more.We should expect a strong competitive response from some challengers, leading to less fare revenue than forecast.

 

                 Commuters to Milton Keynes and Watford may well increase substantially and may need more capacity. HS2 would be a very   expensive  way of trying to do that. For the rest I remain to be convinced there is enough demand to have a viable current WCML, let alone pay for an expensive HS2 as well.

 

          I want more people to have jobs. I want more jobs to be better paid.

          One of the myths perpetuated is that the “right of centre politicians”  in the UK want cheap wages. Ironically it is we who want to limit immigration to give people already resident here more chance of a job, and to keep wages at a better level for the employee.  It was Labour who relaxed our borders, encouraged large numbers to come, and created strong competition to keep wages down for many jobs. This is something Unite as  a Union would wish to change, as do Conservatives.

        The main positive way to create better paid jobs is to drive forward higher productivity. If we work more effectively we can be paid more.  Higher productivity does not necessarily mean working harder. It can be done by  working smarter. It may mean providing employees with more computer and machine power to assist them with their tasks. It may mean better training. It may simply mean managers and employees sitting down together regularly to review how jobs are done, to identify ways of doing them better. Doing it better may mean faster, smoother or more easily. It may mean taking longer but cutting the wastage and failure rate.

          Quality is not the enemy of lower cost and higher productivity. It is the friend. Doing things right first time saves time and money overall, even if it apparently takes longer and costs more compared to dashing and getting some wrong.

           Nor do Conservatives want to favour the few and the south at the expense of the many and the north. All governments that I have witnessed in the UK during my adult years have wanted to create a better balance between north and south, between London and the rest.  All have tried a variety of policies, some different, many the same. The main emphasis has been on creating more public sector activities in the regions away from London, and pursuing a regional policy which seeks to subsidise jobs and enterprise in the slower growing and lower income areas. Well intentioned though these policies are, there is no evidence that they usually work. The list of lower income higher unemployment locations in 2013 is very similar to the lists in previous decades.

           So what does work? Our past tells us that a cluster of talent, skill and competition can work. The Potteries became the centre for ceramics, and the North East the centre for shipbuilding and steel in their day. Now the Thames Valley has a useful cluster in hi tec industries, and London in financial and business services.  The question is what can other great cities develop as their special expertise?

              The past tells us that  a transforming entrepreneur or two can make a huge difference to a city.  The Potteries owed a great deal to Wedgwood, and then to a range of talented designer-potters in subsequent decades and centuries. Twentieth century Us success owed a great deal to dynasties of the Rockefellers and Carnegies. Great cities have to live with the riches and talent of the few, as they can produce jobs for the many.

            The past tells us that government rarely transforms a city and creates that energy and dynamism that success needs and breeds. What government can do is ensure taxes are competitive, transport links good, the potential workforce well educated. Modern industry does not need a large amount of low cost labour. It needs limited numbers of dedicated professional managers, engineers, designers, salespeople and the rest. Above all industry in the UK needs a new generation of Brunels and Dysons, Wedgwoods and Bamfords.

 

                It is good news that the UK economy is growing again at a decent pace. It remains true that London and the South-east are growing faster than the rest of the country.

               Labour complain about this. Reading the Guardian they seem to think success in London and the south-east is a bad thing. What they and Labour need to do is to study why and how London has done so much better than the rest of the country. They need to ask themselves why was this true when Labour was in power for 13 years, dedicated to spreading the growth  and prosperity more widely around the country. They can of course also ask why hasn’t the Coalition succeeded in  changing this trend so far, despite wanting to?

              I start from the proposition that it is good news that a big part of the country is working better. I do not want to damage that by taxing it more or undermining it in other ways. We need to learn from it so the rest of the country can do as well or better. We need to see London’s success as a strength for the rest of the country, not a problem. London’s taxes are certainly needed to sustain the levels of state spending elsewhere.

                 London demonstrates that you can create a virtuous circle. London wages and salaries are on average higher than the rest of the country. London creates more and better paid private sector jobs than many other parts of the country. London attracts and retains a lot of talent, capital and business from around the world.

                 As the world ‘s growth is dominated by cities, the UK needs to have a similar success in some of its other cities to that experienced in London. Manchester or Leeds or Birmingham have the scope to be faster growing world class cities that can too attract their share of wealth, talent and business from overseas, and draw in more home grown talent and enterprise. They need bigger private sectors to reduce their reliance on the public sector.

                The Guardian complains that London has received the Crossrail investment from the public sector. It was not the decision to build Crossrail that made London successful. It was a necessary catch up investment to cope with all the extra people and work journeys that London is generating. If other great cities in the UK are attracting similar volumes of additional travel, they too should have extra transport capacity. London is still a net contributor to the UK coffers, with a much lower public spend per head than that enjoyed by other regions.

              Tomorrow I will look at what other changes to public policy could help other great UK cities to grow as quickly as London. The changes needed are ones that are friendly to the private sector. Building a bigger and more expensive public sector in these cities has been tried but has not achieved the results wanted.

 

              Just when David Cameron has put on the EU agenda the need to repeal and amend regulations and Directives that are destroying jobs and making the EU less competitive, France and Germany decide to hijack the EU summit to complain about US intelligence methods.

           I am not going to defend Mr Obama who clearly has to apologise to Mrs Merkel and explain what he has been up to. I suspect that Germany too employs people to research US policy and to find out things that are not generally available so Mrs Merkel is well briefed about her US ally.  German staff probably receive off the record briefings, have sources inside the White House to pick up the gossip and do many other things to understand the past and likely future actions of the world’s superpower. If they discovered some private remarks of Mr Obama I suspect they would forward them to Berlin.

           Anyone in public life knows that people are out to pick up their inner thoughts or their unguarded comments to shine more light on what they are likely to do next, or to exploit any mistake or weakness. As a backbench MP I have experienced eavesdropping of my phone and private conversations. These days any private conversation in a public place is liable to be recorded and used by someone.  It must be much worse if you are the Chancellor of Germany.  What I do want is the EU summit to address the problem of the poor economic performance of the EU as a whole, dragged down by too many bad laws and poor public policy at EU level. Picking a public row with Mr Obama is not the best use of this expensive meeting.

 

             The nation is gripped by a debate about the cost of keeping our homes warm this winter. There is another important matter to raise – the impact high energy prices has on our industries.

                Industry transforms raw materials into valuable products. To do so it uses a lot of heat. Gas is also an important feedstock for the chemical industry. Activities like petrochemicals, steel making, ceramics manufacture, general chemicals, glass production and cement require large quantities of energy and gas.

                 At the centre of the Grangemouth closure is a loss making petrochemicals plant which has been losing £10m a month. The dispute with the Union is the immediate cause of the possible  closure. The Union was unwilling to accept a rescue plan  based on maintained salary levels with a less generous pension deal.  The underlying reality is dear energy and dear gas feedstock making it difficult to run a profitable business. Meanwhile US competitors buy gas at much lower prices. It is good that the Union is thinking again about their refusal to accept the recovery plan. The management tell us  that the average wage at Grangemouth is twice the Scottish average. The recovery plan requires substantial expenditure on new facilities to import US gas.

                           One of our leading steel makers has warned the EU that European carbon targets and related costs are pushing more steel making to other continents.  BASF have just announced the closure of their Paisley chemical plant, owing to high energy prices and other costs.

                         Tata Chemicals closed its soda ash factory at Northwich owing to high gas prices.

                          The EU summit has been discussing the need to remove unhelpful EU regulations that are damaging business and destroying jobs. Dear energy is one of the worst features of an EU regime that is giving a big competitive advantage to Asian and Amercian industrial competitors.

                                 If the Uk wants to rebuild its industrial base, it has to extract a lot more of the gas under our feet as quickly as possible. It also needs to use cheaper forms of electricity generation than wind farms. It is not just the high energy using businesses at risk. Modern assembly plants have very large power bills as they have automated extensively.  Power can often cost more than wages in a modern factory.

 

The suggestion that the government should  impose a windfall tax on energy companies may be attractive to some at a time when energy companies are far from popular. It would be revenge for their price hikes, when many are feeling the pinch as a result.

Sir John Major is right to say that Conservatives need to show concern for people on low incomes and benefit incomes who feel the squeeze from high energy prices more keenly than those on higher incomes.

However, a one off tax rise to provide some additional one off help to people on tight budgets does not go to the heart of the problem. The following year after the windfall tax energy prices might be just as high or higher. The underlying problem, dear energy,  has to be addressed.

Nor does it make any sense to say to Conservatives we need to concentrate on bread and butter issues like jobs, incomes and prices, and turn aside from consideration of our relationship with the EU. It is the relationship with the EU that is causing the disruption of family budgets.

In this case of energy we need  the EU to suspend or repeal its renwables requirement. Demanding that we generate a rising proportion of our electricity from renewables is forcing the cost of energy up. The EU needs to suspend or amend its Large Plants Directive. Then we could run our older power stations for longer, saving us a lot of cost, keeping energy prices lower, and delaying the need to spend large sums on replacing them with something dearer.

In Sir John’s day arguments over Europe were not some abstruse diversion from the politics of jobs, incomes and daily life. They were then about how high interest rates had to go and how high they had to stay. The ERM he took us into did  economic damage, destroying jobs and businesses,  and squeezing family budgets. That is why the Conservatives lost in 1997. It was only when the party apologised for ther ERM mistake that it could move on, and it was only when Labour made a worse mistake with its Big boom and bust that Conservatives had a chance of winning again.

The Conservative poll rating fell dramatically on the collapse of the ERM policy. It did not fall during the long arguments over Maastricht. On the doorsteps in 1997 voters were not angry that some Conservatives opposed the single currency. They were complaining about the economic damage the ERM had done to them and their families.