Wales and HS2…

The issue of the long-term underfunding of rail infrastructure in Wales by UK Government & its approach to HS2 goes right to the heart of all that is wrong with the constitutional relationship between Cardiff Bay & Westminster

Postscript August 2020….and updated Nov 2020..

Another post script. Trying to work out out what has been spent, on what, and where and by who is a dark art…. I may never find the truth but am getting closer! I have updated based on further details and analysis.

This more formal analysis published by WG in Autumn 2020, which I helped prepare is pretty stark

Historical investment in rail infrastructure enhancements [HTML] | GOV.WALES

I also want to set out some of the “issues” related to the transfer of the Core Valley Lines from Network Rail to Welsh Government and Transport for Wales earlier in 2020. Remember the CVL network is already a publicly owned asset….in Wales. When similar transfers have been transacted in the past (eg when Manchester Metrolink or Tyne and Wear Metro were established) a nominal charge of £1 was levied.

However, the current NR/DfT price tag for the CVL of ~£400M ( I dont know the exact figure) reflects a bizarre and frankly challengeable valuation based on Network Rail’s Regulatory Asset Base.

The RAB was established in the 1990s to allow Railtrack to issue bonds to fund further rail enhancement. However whilst the debt related to the RAB was spread evenly across the network to “value” the asset, the funds generated through the bond sales were not (and Wales has received very little of that despite its network being apportioned the debt via the RAB ).

And in 2014/15 all NR debt was in effect taken back onto Governments balance sheet.

This “suspect” accounting practice still survives (very crudely, network valuation = last years network value -depreciation of asset + apportioned enhancement spend…. irrespective of where those enhancement actually were; I know discounted cash flows for income received from an asset are also used in valuations). If one looks at the details and notes of NR’s 2018 accounts one can see that the practice was really retained to support valuation of NR asset that could be sold to private companies. It should not be applied to transfer of a public asset between governments .

In reality WG should have paid (as had been done in the past) £1 and perhaps been in receipt of a large capital sum to reflect its depreciated state Vs rest of the UK network. (The final agreement on the ongoing OMR value will be interesting) But WG agreed a price….and whilst I understand WG were held harmless financially by UK Treasury, we now have a precedent set for such asset valuations.

I am not sighted on the details or other matters and/or considerations that will have influenced this process. So, again I am happy to be corrected on any of the above.…

This appeared in the Western Mail in September 2020 and a related statement from WG

Post Script Feb 2021 – I submitted written evidence and then attended in January 2020 the Welsh Affairs Select Committee’s review of Rail infrastructure investment in Wales. I also submitted an addendum focussed on HS2 and the devolved rail settlement in February 2021.

Also DfT published a revised FBC for HS2 in 2020. To note: Phase 1 is London Birmingham – with Old Oak Common the initial terminus with Euston to follow later. Best BCR requires the full Y network; Confirms no freed up capacity benefits to Wales (and explicitly notes that no capacity is freed up between Crewe-Chester); allocated the DfT a total capital envelope for the entire project of £108Bn; The BCRs and sensitivity analyses show that for many scenarios the HS2 BCR is marginal and in some cases LT 1.0: It needs the full Y network, generous updated Wider Economic Benefits analysis (which traditionally have not been included in BCR analysis), high forecast demand and within capex expectations, to present a “reasonable” VfM figure. They also modelled 100yr appraisal periods – not just 60 (on the basis we are still leveraging value from Victorian infrastructure – which I think is reasonable)

Post Script Summer 2022. This “blog – 200:1” summarises the key funding issues as does my submission to GBR Consultation earlier this year

Main HS2 Article from Jan 2020 – Expectations…

So now we can look forward to the sunlit Brexit uplands and a UK Government committed to major infrastructure investment around the UK…. or is this just more rhetoric with some cash thrown at a few projects in the north of England to pacify the new blue wall? I hope not, I really hope the new Conservative Government are prepared to deliver on their rhetoric.

What does this mean for Wales and what does the evidence of other projects tell us?

As an example let’s look at HS2. I speak with some knowledge; I gave evidence to the Westminster Transport Committee and their review of High Speed Rail (HSR) in 2011. I followed the work of Greengauge 21[1] and was concerned at that time by the limited awareness of both Welsh Government and Welsh Civic society of the emerging High Speed Rail programme. There were some groups active in this space, for example the Great Western Partnership (set-up partly due to my “encouragement”) involving local authorities such as Cardiff, Newport, Bristol, Swindon, SEWTA and Business Groups like the Cardiff Business Partnership (which I represented) which collectively did act to promote the need for further investment in the Great Western Line (GWML) and South Wales Mainline (SWML) given plans for HSR across the UK.

Back in 2011/2 one particular incident stands out, I recall appearing on Radio Wales AM news before my trip to Westminster to give evidence on High Speed Rail. There was little awareness in the media of the issues; when I got to Westminster, I sat next to Scotland’s Transport Minster Keith Brown (who was supported by a large entourage of officials to support Scotland’s position on HSR). I noted that I was the only person or organisation from Wales to actually give evidence and attend the committee (this is also part of our problem).

Here are some other examples of my musings on the subject, formal and informal going back to 2010. There are plenty more!

My original 2011 Metro Report [2]

A Greater Great Western Line for Rail Technology Magazine in June 2011[3]

Evidence to the Westminster Transport Committee Review of High Speed Rail in 2011[4]

An interview with BBC Wales [5]

Some articles for the Institute of Welsh Affairs[6]

So HS2. Yes, its major benefit is delivering more rail capacity to the “UK” rail network…not speed. In general I think the UK does need more rail capacity. However, the focus on speed and the DfT guidance to go faster to eak out more transport user benefits may well blow the affordability envelope. 180~200 mph would have been fine; we know how to do that (TGV, HS1, etc). Going 230 mph or more needs new engineering, operating kit and standards for OLE, ballast, tunnels, etc. The need to access city centres (esp. Euston vs Old Oak Common) and a tunnel through the Chilterns is also a challenge. Collectively these requirements are adding £Bns to the costs!

And for Wales. Let’s be clear…. It does not benefit Wales at all (well maybe some marginal Wider Economic Benefits in NE Wales). No transport user benefits are in the business case and using the DfTs own figures it will damage the South Wales economy by £200m pa. Yes it may free up some pathways that say North Wales Mainline (NWML) or Cambrian line services could utilise – but this has not been modelled in the business case and no commitments have been made to safeguard such pathways for Welsh services into England; in fact it is likely that other services in England will secure this space before any Welsh services are considered. This is really small beer and misses the bigger picture.

Post script. This is the DfT analysis of freed up capacity in the latest DfT Full Business Case for HS2 published in summer 2020. Nothing that benefits Wales…and the key Crewe Chester link is shown explicitly. with no capacity released.

KPMG originally did a review of economic and employment impacts for Greengauge in 2009/10[7] which I quoted in my evidence to Westminster in 2011. That work was updated by the DfT (Again using KPMG) in 2013. They presented an overall annual economic benefit to the UK of £15Bn[8] but omitted to provide more granular local details. An FOI request from Newsnight uncovered these [9] – which were in line with the original KMPG work for Greengauge.

In summary we can conclude from the official DfT work:

There are no Transport User benefits to Wales from direct HS2 services to/from Wales (see my later blog for a more nuanced presentation)

Overall negative economic impact on Wales’ economy of over £150M per year (negative GDP impact in South Wales could be over £200M with small benefits of up to £50M in NE Wales)

Current costs could exceed £100Bn[10] according to Lord Berkeley, Deputy Chair, of current Government review. When I did my original work a figure of £32Bn was being used! The latest FBC and Treasury guidelines are workingh to a budget (2021) of £108Bn

As defined as an England Wales project, we in Wales get to pay for it out of UK treasury funds. Ignoring tax take, let’s assume that is based on 6% of the population which is £6Bn; if you based it only on where taxes are raised it could still be over £3Bn (Yes we can argue about the exact figure….but that misses the point, it is a big number whatever it is.)

Scotland and Northern Ireland get a Barnet consequential based upon population of the overall costs – so perhaps £13Bn between them. (see my later blog for an example calculation and Barnett explantion)

Rail infrastructure is not devolved to Wales and investment enhancement decisions have been made on an England and Wales basis for decades resulting in approximately 1~2% of UK Government funding for rail enhancements in Wales. Yet Wales has 5% of the UK population and approximately 10% of the UK rail network.

Such figures have only formally been maintained by ORR since 2011 and 1~2% in my view is a high water mark. Before then the stock answer from DfT/NR was that “we don’t maintain those figures on an all Wales basis”! However, a closer look at each NR Control Period High Level Output Specification (HLOS), and sadly I have, makes it clear that the lack of enhancement investment in Wales goes back decades. I even have a letter from then CEO of NR, Ian Coucher, in 2008/9 trying to defend the situation by talking up the maintenance and renewal spend. This is not enhancement investment, it’s what NR needs to spend to maintain the network safely in its current form, and even that figure (and still is today) is lower per route mile in Wales than elsewhere in the UK.

Yes, we now have electrified rail services into Cardiff from London, and yes very welcome small reductions in journey times to London (comparable to the 1980s fastest services). However, the vast proportion of the benefits associated with that investment accrue to passengers along the GWML in England from the Thames valley through Swindon to Bristol. Even with wires to Cardiff, once through the Severn tunnel the SWML is stuck with Victorian line speeds and capacity Figure 1 . Talk of a Wales and Western Powerhouse is frankly unrealistic until such time the SWML can operate like the “main lines” elsewhere in the UK.

Figure 1 GWML/SWML Line speed (Source: Arup)

So one can argue about low tax take and spend in Wales, marginal freed up pathway benefits of HS2, some minor GDP benefits in NE Wales, GWML electrification to Cardiff, etc. However, that misses the big picture, which is that Wales has had very little UK rail enhancement funding over decades and now is expected to contribute £Bns (and we can argue exactly how much) for a scheme, HS2, that delivers no benefit to Wales and in fact is likely to damage our economy. This is frankly not good enough.

All we have been offered recently is a nickel and dime station in Swansea on a rail line (The Swansea District Line) with no rail services that completely by-passes Swansea! It’s worth noting that even the South Wales Metro, which should be fully funded by UK Government in my view, only has £125M of the £740m from DfT. Having said that, hats off to Welsh Government (WG), as without them taking on the project (despite rail infrastructure being non-devolved) it would not be happening. I was in the machinery of government and know there is no way the DfT would have progressed it; there was a reluctance to support the original electrification programme which eventually fell foul of expanding costs for a traditional 25Kv approach.

I also oft hear politicians say, “we get higher subsidies for rail services in Wales”. Yes, and this is as a direct consequence of decades of depreciation of the underlying asset Vs the rest of the UK network. If you dont invest in your network to expand capacity, reduce journey times and improve reliability (as has happened elsewhere in UK & especially London and SE England) your operations become less efficient, more costly and so attract fewer passengers Vs those parts of the network that have been in receipt of such investment. The impact, yes, subsidies go up and the “case for investment” for enhancement appears weaker Vs those places on the investment conveyor belt. Look at the “Case for Investment”[11] I prepared for WG in 2018 for more details.

As an example, if you are in business making/selling widgets and your competitor has invested in more efficient equipment with greater capacity to make widgets, then he/she can make more widgets and sell at a lower price…. you will go out of business. So please do not go on and on about subsidies…. it shows a lack of understanding of the long term link between capital investment and operational efficiency and demand. This is also true of the wider economy – if you let places wither on the vine then over time your welfare costs go up…Doh!

I support more rail services and capacity across the UK…and yes HS2, or variants thereof. However, Wales has been very poorly served by Westminster and Whitehall for decades. We need to do far more and if UK Government is serious about rebalancing the UK economy and driving further investment in infrastructure, then they need to engage with and support WG and not just throw around “northern powerhouse” rhetoric.

Figure 2 2019 National Assembly for Wales / Senedd Research, Mode Share in Wales for Commuting

There is another harsh reality to face when dealing with this issue and facing down the challenge of climate change. Most of us commute in cars; in fact in 2017 Figure 1 over 80% of us used cars with only 4% on train and another 4% on bus. So even doubling that level of PT only scratches at the surface of car usage.

Given the challenge of climate change and the long term negative impacts of car based sprawl, I think a reasonable target is to get car usage down to 60% or less (from 80%); so a 25% reduction. That suggest we need to go from 8% to nearer 30% public transport (bus and rail) use; for the sake of this exercise that assumes at least a trebling of public transport capacity! That is a lot! It also has to be economically more affordable to actually attract and sustain that increased demand. Therefore we have to look at fares and a means to apportion more of the long term external costs of car use to the user through mechanisms like road user charging.

For those still making the case for the M4…. pls take a look at my blog from last year on this [12], the work of people like Todd Litman[13] and Jarrett Walker[14] and even the DfT’s own analysis of the impact of induced demand[15]. This video is also a good explainer.

In essence building more road space generates more traffic, many of the costs of car use are external and have not been adequately appraised over decades and together this has led to more and more car dependant sprawl.

So in my humble opinion, as regards rail, here’s what needs to happen:

Firstly, rail infrastructure needs to be fully devolved to WG with fair funding to reflect decades of depreciation; and yes, a Barnet consequential for HS2; WG then lead on scheme development and remit TfW and/or NR to deliver. I hope the Williams Review makes specific recommendations on this matter! My blog following the publication of the Williams Shapp plan for Rail…which sadly did not deliver in this regard!

Then the priority rail schemes are:

Major upgrade of the SWML (inc relief lines) from Severn Tunnel to Milford Haven: more stations, higher line speed, more capacity, mix of express and all stop commuter services; joint work with WG/DfT/NR given cross border implications

Extend the South Wales Metro – especially network capacity measures (like Cardiff West and Park junction), Cardiff Crossrail / NW Corridor, X-valley and work in/around Newport & Ebbw Valley

Develop the rail foundation of a Swansea Metro including use of Swansea District Line (SDL) for local services and additional stations to provide the foundation of an expandable network

More South Wales Mainline (SWML) services to Swansea and West Wales from London and Bristol Temple Meads – we need a separation of express and all stop services

More services on North Wales Main Line (NWML) – again all stop commuter and express

North East Wales Metro, to accelerate work to enhance Wrexham-Bidston and to integrate with Merseyrail services

New thinking re North-South connectivity the along west of country[16] to connect Swansea Bay via Aberystwyth to Bangor/Caernarfon

Development of Road User Charging – starting in Cardiff and SE Wales

All such ideas have already been published in outline by WG in the 2018, “Case for Investment“ and in 2019 “A Railway for Future Generations” [17] [18]. I also prepared a more focussed summary of Wales Transport investment priorities in a 2021 Blog

We just need some action now.

Happy to talk….

PS I have prepared a short video explainer re devolution and relevance of HS2/IRP to Wales

[1] http://www.greengauge21.net/

[2] A Metro for Wales’ Capital City Region
https://www.iwa.wales/news/2011/02/a-metro-for-wales-capital-city-region-3/

[3] Rail Technology Magazine, “A Greater Great Western Line”, 2011
https://mgbarryconsulting-my.sharepoint.com/:b:/p/mark/EROFJPi4VEVBpcp0mKWGDGUBkWlwNl7FYcbtXK079u87Ig?e=c5WpDe

[4] https://publications.parliament.uk/pa/cm201012/cmselect/cmtran/1185/1185we44.htm
https://www.parliament.uk/business/committees/committees-a-z/commons-select/transport-committee/inquiries/hsr1/

[5] https://www.bbc.co.uk/news/av/uk-wales-24593737/hs2-losers-revealed-after-report-omitted-figures

[6] https://www.iwa.wales/click/2012/01/government-should-now-fund-welsh-rail-electrification/

[7] Greengauge, “consequences for employment and economic growth”
http://www.greengauge21.net/consequences-for-employment-and-economic-growth/

[8] HS2 Regional Economic Impacts,
http://www.highspeeduk.co.uk/D07%20UU%20hs2-regional-economic-impacts%202013.pdf
https://mgbarryconsulting-my.sharepoint.com/:b:/p/mark/EY1EqZyvCIRLtzmmvnkc55UB1OfJ7umom6G6bPqyIM5qCA?e=DyJ9CN

[9] BBC Newsnight FOI request,
https://www.bbc.co.uk/news/uk-24589652
https://mgbarryconsulting-my.sharepoint.com/:b:/p/mark/EU26bnMqHy5AucD0SFJS-sQB4Y2H7rgtwhWw5uVUccfccw?e=leZUyW