My written submission to the Welsh Affairs Select Committees review of Rail Infrastructure Investment in Wales

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

The Wales Governance Centre also submitted its evidence which broadly aligns my my analysis.

In relation to some of the challenges to my argument re: the level of investment in Wales, I prepared this brief video that sets out a simplified explanation that may help…and I do use approx. figures which does not detract from the fundamental point. I have also added a more general video re Wales transport priorities

I have also set out how WG and UK Gov could work together on a combined programme for Wales!

Post script Dec 2021. In November 2021 UK Gov effectively cut HS2 and emerging plans for NPR and replaced them with the combined Integrated Rail Plan for the north and midlands of England, now with a combined reduced budget of £96Bn. Nonetheless, the arguments and analysis below re Wales, etc still stand. Also in November the UK Gov published the final report from Sir Peter Hendy’s Union Connectivity Review. Whilst uncommitted and unfunded some of the schemes do reflect some, but by no means all, of the priorities for rail investment in Wales; especially those recommendations related to the NWML and SWML.

Addendum February 2021 (link to WASC)

In January 2021, I submitted (ref above) and presented oral evidence to the Welsh Affairs Select Committee’s investigation of Rail Infrastructure and Investment in Wales[1]. 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.

So, let me provide some clarity. According to the latest Full Business Case (April 2020) for HS2 [2]

The total HS2 scheme has a total capital envelope £108BN (PS now in its reduced IRP form without the Eastern leg down to £68Bn)

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[3]. I have no reason to assume this has changed

Figure 1 Network capacity freed up by HS2

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.

Postscript: Also worth looking at the DfT Commissioned Steer “Freed Up Capacity” Study which broadly drew the same conclusions. Primary benefits are the provision of new all stopper urban, interurban services along the existing WCML, ECML and MML corridors, and new freight paths. There is the potential to allocate “space” to an hourly NWML services from London to Holyhead (vs the current 6tpday) and perhaps to Wrexham (again subject to further non HS2 and unfunded infrastructure enhancements); but as stated in earlier blog what is the likelihood these paths will be made available Vs other competing options with likely higher transport user benefits.

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.

Postscript: For the sake of accuracy. That is NO transport user benefits for direct HS2 services into Wales. There will be some marginal benefits from O/D (origin destination) points in Wales that result in interchange to HS2 services at places like Crewe. Again this is really in the margins and does not materially impact the general thrust of the argument.

Wales has set out its rail priorities, many of which were summarised in its “Rail Enhancement Priorities” in 2020[4]. 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.

Some August 2021 postscripts….

Postscript: It has been asserted that the majority of rail services and passenger benefits to Wales are fundamentally dependent on services and capacity at/through major English stations like Crewe, Birmingham New Street and Piccadilly. Clearly there is some dependency – but again this is in the margins when compared to current passenger flows and demography in Wales – and the priorities for rail investment actually developed in Wales. For example. approximately 2/3 of the Welsh population live along the SWML corridor between the Severn Tunnel and Milford Haven (with perhaps less than 25% that are directly served by the NWML and Cambrian lines). The primary rail services/movements are urban (in Swansea Bay and the Cardiff Capital Region) and interurban – especially to/from/between Swansea, Cardiff, Newport London and Bristol. There is just one train per hour to both Birmingham New Street and Manchester via Crewe – none of the freed up capacity scenarios envision any material changes. I will acknowledge that HS2 measures at Crewe and the HS2 link into Manchester will improve the reliability of the current Cardiff Manchester service; but no more. The Marches line would need a significant upgrade to enhance signalling, line speeds and capacity to enable substantive enhancement to the Cardiff Manchester service – esp journey times

In northern Wales we are grappling with the issues of high car dependency for many shorter local trips. The primary need (as it is in south Wales) is for more local “commuter” rail services and stations integrated with local bus services to begin to address our decarbonisation obligations.

For HS2 to actually help Wales then it needs some major changes. For example the X network as proposed by Greengauge to help improve Cardiff’s status as the most poorly rail connected major city in the UK. If north Wales is to benefit, then the network constraints at/through Chester, the single track between Wrexham-Shrewsbury, etc need to be addressed.

In actual fact, it is likely that more benefits could be enabled through NPR rather then HS2 given the primacy of links to Manchester over London? Some of the capacity issues today related to NWML services to Manchester Piccadilly and the Airport are related to the constraints of the Castlefield corridor and the reduction in the scope of the recent work undertaken.

The HS2 debate also distracts us from rail investment that can deliver more benefits to Wales, more quickly and completely independently of HS2 (which could add some further value in the long term)– as I tried to set out here in respect of northern Wales .

As I have set out elsewhere, the vast majority of benefits to rail services and capacity in Wales are completely independent of HS2 and are associated with different rail enhancement priorities actually and mainly in Wales. To argue otherwise is symptomatic of the poor custodianship of the UK Gov and rail industry of the rail network and services in Wales. This industry blind spot with respect to Wales, further strengthens the case for full devolution of rail powers and funding – which in my view, and supported by the evidence, is unanswerable (see below)

Greengauge 21: Rail connectivity for major UK cities

From UCL Luminocity – Activity Density in Wales

In some recent debate some have also argued that the UK Gov Full Business Case for HS2 is “useless” and does not capture the full benefits. I dont pretend its perfect, but it is the basis upon which the UK Gov has committed to deliver the biggest pubic transport investment in its history. If its wrong, then you are not arguing with me, you are making the case to cancel the project.

For challenge: It seems to me that there may also be misunderstanding re: the link between freed up capacity and transport user benefits (TUB). The latter is essentially an aggregate of a range of trips between different origin and destination points with the benefits calculated broadly by adding their journey times * value of time.

For any new service pattern scenario these transport user benefits are compared to the baseline – typically the current service pattern. My assumption is that in the FBC the new HS2 service were modelled and their TUB added to an unchanged baseline or some modification to that baseline ( eg more all stoppers on WCML, etc). The reality is that the recast services based on the use of freed up capacity on the existing infrastructure will likely generate LESS TUB than the current WCML, etc intercity services (mainly because they will be slower given increased number of stops).

Some of the freed up capacity scenarios that could generate more benefits, require even further infrastructure investment that are not included in the HS2 business case. Its a key rule of “business cases” that you can only associate the benefits with the infrastructure related to the business case. One cant just claim a range of unspecified potential future benefits for as yet uncommitted and un-costed further infrastructure and services.

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[5]. 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);

Now update via October 2021 Budget in new Statement of Funding Policy 2021 – but no change for Wales

In summary for the DfT the comparability factor for Wales Figure 6 is 36%

Fig 6.1 – the update from the 2021 Budget – No change

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 now revised HS2 estimates as part of the 2021 UK Gov Integrated Rail Plan budget of £96Bn (which is in effect a cut to HS2 budget) then using this formula the barnett allocations would be :

Scotland = £8.8Bn

NI = £2.7Bn

Wales = £1.7Bn

If the attribution factor for Wales was 95% (which if rail was fully devolved it would be) then Wales would get£4.5Bn….£2.8Bn more than under the current arrangements

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.

Post Script: For accuracy, in 2005 or 2006, at the same time many more rail powers were devolved to Scotland, I believe the then Welsh Government were offered a similar arrangement by the then Labour UK Gov – but declined. I appreciate the reasons/concerns re administrative capability and taking on infrastructure liabilities. However, I think that is perhaps the biggest mistake made by the devolved administration in Wales; especially when one looks at how rail enhancement investment in Scotland has been transformed in the period since.