Since appearing to present oral evidence in January I have also prepared an addendum re HS2 (below) and the failings of the current constitutional arrangement re rail investment in Wales that expands on that set out in my HS2 blog from January 2020
Addendum February 2021 (link to WASC)
In January 2021, I submitted and presented oral evidence to the Welsh Affairs Select Committee’s investigation of Rail Infrastructure and Investment in Wales. Again, thank you for the invitation. If I may, I’d like to provide a little further clarification/reflection as to the:
- Status of HS2 and its impact on Wales
- The failure of the current constitutional arrangements re rail infrastructure in Wales.
First, on HS2…
There is a tendency from some of its supporters to associate more benefits to HS2 than are reasonable or valid. In so doing they sometimes make assertions (often incorrectly) about rail priorities in places like Wales, esp. when viewed from the London and/or HS2 end of the rail industry telescope.
- The total HS2 scheme has a total capital envelope £108BN
To note, as a comparison, UK Gov has committed ~£350M to rail enhancement schemes in Wales (which is not a devolved responsibility ) in the period 2019-2029
- The BCR for the full scheme now includes “Wider Economic Impacts” which in the past the Treasury was disinclined to include in formal BCR. However, because of the escalating capital costs it has been necessary to do so Figure 3 (I agree that such benefits should be identified and included)
- The BCR for the entire “Y” network and including the more variable WEI, is 1.5 with a low to medium value for money assessment Figure 2
There is a looming issue/decision coming up as to whether to associate the benefits for HS2 Phase 2b Eastern leg (the section from Birmingham to Leeds) with that section, or shift them to North Powerhouse Rail; NPR will also radically reduce journey times from Birmingham to Leeds when linked to Phase 1, 2a and the western section of Phase 2b and so will abstract some of the benefits already calculated for the eastern leg of Phase 2b. It seems unlikely that both can be justified
- Those HS2 WEI are ~£21Bn which includes ~£15Bn agglomeration benefits Figure 5. Based on the earlier DfT analysis, this predicts a ~£150M pa GDP disbenefit to Wales. I have no reason to assume this has changed
- The FBC assessed capacity freed up on the existing network (primarily the Midland ML, WCML and ECML); there are no benefits to Wales and the FBC noted the constraints between Crewe and Chester Figure 1. The need to improve the rail network between Crewe-Chester-NWML is long standing and merits measure to address with or without HS2
- The arguments that claim HS2 will free up capacity and allow more services to places like Holyhead and Aberystwyth (which is a single-track line) fail on this basis. To be clear the FBC make no provision for the additional necessary infrastructure required; furthermore, the services modelled for the full Y network do not provide for any classic compatible services to operate onto the NWML. These arguments also fall into the trap of trying to view Wales rail priorities through the lens of HS2 or from a desk at the DfT in London
- To be clear HS2 provides NO transport user benefits to, and a negative economic impact on Wales. This is drawn from the DfT’s own analysis of economic impacts and the FBC it has prepared for HS2.
Wales has set out its rail priorities, many of which were summarised in its “Rail Enhancement Priorities” in 2020. These are all independent of HS2, because they are focussed on connectivity and movement within Wales and to/from Wales and England. HS2 and NPR COULD help the latter in north Wales at the margins. However, from a Welsh perspective HS2 does not make the top 10 most important rail enhancement schemes.
Now to the constitutional issue…
And this is important. Wales voted for devolution in 1997; the current failed institutional arrangements for investing in and managing the rail network, in Wales have not been amended to reflect that democratic decision. Why? The rail network is a fundamental part of Wales’ economic infrastructure and should have been treated like the road network and included in the devolution settlement. This constitutional anomaly needs to be addressed.
The issues raised at the January session re: complexities of cross border infrastructure and services, liabilities, etc are just bureaucratic challenges to be managed and overcome, and in themselves are just distractions from the real issue. I would reference my point in oral evidence about cross border infrastructure and services (inc. rail) being quite common challenges around the world. For example, between Aachen, Maastricht and Liege, 3 cities, 3 countries all less then 30Km apart.
We are talking about a National Government in Cardiff, not a parish council; WG already manages significant issues and liabilities(e.g. the road network in Wales). To suggest that Wales “was or is unable” to manage the issues related to rail infrastructure is frankly patronising given how poorly those responsibilities in Wales have been discharged by Westminster for the last 30 years. I would make the same case more broadly in terms of energy infrastructure, the role of Crown Estates, etc. The issue is really a Whitehall one, in that it struggles to see how it could work more collaboratively where interests align, with a devolved nation with full responsibility over such matters.
I am not saying the DfT, NR or the ORR don’t have the capability to properly act as custodians for Wales’ rail network (they clearly have a huge amount of capability). It’s just that they have not been organised or remitted in any way that could be described as effective from a Welsh perspective – nor could they, viewing Wales as they do, through a Whitehall lens. Wales is and has always been, at the periphery of Whitehall thinking. That is why devolution was and is even more required.
In this context, it is also relevant to view some of the small print of the 2020 Spending review. As a result of HS2 expenditure and NR Enhancement spend now being included in Department of Transport’s budget, the Barnett Comparability Factor for Wales has fallen from 90% in 2015 to only to 36% today! Figure 6 The Comparability Factors for Scotland and Northern Ireland are still ~90% I am not sure how anyone can defend this – especially as Scotland does get some quantified benefits (transport user and economic) from HS2.
Post Script: Example of Barnett allocation
As an example, here is a calculation based on the Treasury Barnett comparability factors for the DfT and Wales, Scotland and NI as set out in Statement of Funding Policy 2020.docx (publishing.service.gov.uk)
In summary for the DfT the comparability factor for Wales Figure 6 is 36%
In simple terms any Barnett allocation is based on the following
So for example, a £1BN increase in HS2 budget would lead to a £1Bn increase the DfT budget, on the basis of the above then the Barnet allocations are approximately:
Scotland = £1Bn* 92% * 10% = £92M
NI = £1Bn *95% * 3% = £29M
Wales = £1Bn *36% * 5% = £18M
Applying that process, for example, to the entire £108Bn allocated to HS2 on the same basis as a change to DfT budget one then calculates
Scotland = £9.9Bn
NI = £3.1Bn
Wales = £1.9Bn
One could apply the same to NR Enhancement funding which is calculated the same way as HS2.
Under the current non devolved arrangements, as at March 2021 in the period 2019-2029 the UK Gov has only allocated ~£350M to rail enhancements in Wales whilst allocating ~£50Bn to rail enhancements in England over the same period
In effect, costs for HS2 and rail enhancement are being allocated to Wales -yet none of the benefits apply to Wales This is the same perverse situation as the debt associated with NR’s Regulatory asset Base (RAB) – ref my first submission – where the debt accrued for the rail enhancements since 1997 have nominally been spread evenly across the network whereas the actual investment was not. This is, at best, a very questionable accounting practice and certainly a constitutional dysfunction.
The only equitable and effective resolution is to fully devolve all rail powers – as well as an ability for WG to raise monies and borrow to invest in economic infrastructure in the way the UK Gov does. Note: the UK National debt is now 100% of GDP at £2Tn; how much of that was used to support and/or invest in Wales’ economic infrastructure? The ability of the UK Treasury to raise debt and issues bonds etc should be devolved so that Wales (and the regions of England perhaps) can invest for the long term in economic infrastructure – rather than be lumbered with the debt accruing from investment elsewhere in the UK.
This is a broken system and any intent to level up needs to grapple with this serious failing. As I have written, elsewhere, the climate emergency , the challenges of post-industrial decline and inequality, will require a radical overhaul of how our economies function (in a way that most people have not yet realised). I suspect many countries will eventually come to realise that the costly transition to a more carbon friendly, equitable and sustainable economy will require the issue of long term “climate change transition” bonds or similar as a well as radical fiscal changes – inc. ubiquitous measures to reduce car dependency.
Figure 1 Network capacity freed up by HS2
Figure 2 Economic Analysis of HS2
Figure 3 DfT HS2 FBC, BCR over time
Figure 4 DfT HS2 FBC, BCR Phase 1 and 2a (Statement of Intent Network)
Figure 5 DfT HS2 FBC, BCR Full Y Network
 HS2 Phase One full business case – GOV.UK (www.gov.uk)