There are three huge projects lined up for the UK in the years ahead. The first is a public sector financed new high speed railway from Birmingham to London, HS2. The second is a largely privately financed London airport expansion, at Heathrow ( or possibly at Gatwick). The third is a privately financed nuclear power station in Somerset, underwritten by promises that the industry on behalf of and at the expense of customers will buy the electricity at three times current prices once it is producing. All three are subject to delay and/or to uncertainties about their future.
HS2 looks the most secure. It will attract massive sums of public money, and is widely supported by the major political parties in the Commons. I voted against with a modest number of other MPs because I did not like the business case. The 2013 Economic Case for HS2 showed Phase One of HS2, the Birmingham to London line, generating just £13.2bn of revenues against a capital spend and operating cost of £30 billion. The presence of revenues above operating costs relied heavily on a large number of people switching from the current conventional railway to the high speed railway. 69% of the forecast passengers are to come from switches from other rail lines, with HS2 generating an additional 26% of its total passengers by creating new journeys. The small balance is to come from switches from road and air travel. Such massive switching from existing railways would obviously damage revenues on the current railway and could induce bigger fare cuts, lowering HS2 forecast revenues.
The government claims HS2 passes its economic tests for such a project easily, as its evaluation shows substantial benefits from saved time for travellers and from possible extra growth generated by the investment. 42% of the claimed user benefits to passengers accrue to the London area. A substantial improvement in the existing railway could be achieved for this scale of investment, with more capacity on lines and in places where capacity is already under more pressure than it is on the mainlines from London to the north as well as improvements in capacity and performance on the existing northern routes.
There does need to be more London air capacity, and most of the cost can be carried by the private sector. The delay has been caused by strong environmental and planning objections to the Heathrow project. These have been made worse by NATs altering routes into and out of Heathrow to anger a lot more people about noise. They did this without consultation, and Heathrow itself has been caught in the crossfire, as they did not respond strongly against the NATs changes and have not so far been helpful to their local communities in putting things back as they were. The government has put back a decision, arguing it needs more time to sift the evidence. It is also going to find it hard to get the majority it needs if it wishes to back Heathrow, with more angry MPs unhappy about the bad neighbour aspects of the airport, and possible votes against from opposition parties.
The nuclear power station – or some other energy capacity – is sorely needed. The French and UK governments are keen to go ahead for all sorts of strategic reasons. Unfortunately for them the French company planning to build and finance the project is worried about the risks and costs that will be on its balance sheet, and is reviewing how to do it. The problem for the UK is not the capital costs or build risks, but the long term cost of the energy. If energy prices stay low and competitor sources remain cheaper, this investment will prove to be very burdensome for UK business and domestic customers.
As I look at these projects, I see the need for market assessment of the risks and viabilities of the schemes. We need faster decisions, less recourse to the taxpayer, and more manageable risks. In energy we could get this with a new fleet of gas powered stations. In railways, the state needs to take a closer look at potential passenger demand and how much people are prepared to pay for tickets.Saying a project is economically sound on the basis of notional financial gains will not pay the interest on the debt or the salaries of those running the railway. Only fare revenue can do that.