HS2 green light down to Tory electoral calculations

The British Conservative Party sees high speed rail as a way of demonstrating commitment to those regions where it performed badly in the last general election - suggests think-tank

Even the British government's own figures suggest the economic case for High Speed 2 is weak. The scheme is loss making in commercial terms and involves huge financial risks that will be borne by the taxpayer. If passenger numbers are significantly below forecast – perhaps, as a result of new technology reducing the need for business travel – taxpayers could even end up subsidising the train services, in addition to the infrastructure costs. The decision to proceed with the project, therefore, makes little economic sense. So, why does HS2 enjoy such strong support within the main political parties?

Crude electoral calculation is almost certainly part of the explanation. The last general election produced disappointing results for the Conservative Party in both the West Midlands and the north of England. The party leadership sees HS2 as a useful way of demonstrating its commitment to the regeneration of these regions. It remains to be seen whether this strategy will be successful. However, positive perceptions about the impact of the project can be manufactured by stories fed to the media. Far-fetched claims that the scheme will create one million or, even, three million jobs have circulated in the local and regional press in the Midlands and the North. By the time the new line opens and such benefits fail to materialise, many of today's political leaders will have retired.

There is also a very powerful lobby behind HS2. It includes elements of the rail industry, as well as local councils and MPs in areas that hope to benefit from the line. This tallies with what economic theory tells us about government spending decisions. It suggests that concentrated interests that stand to gain the most from state expenditure will have very strong incentives to engage in lobbying activity in an attempt to influence policy. And so it is unsurprising that high-speed-train manufacturers, for example, have been major backers of the pro-HS2 campaign.

General taxpayers are the largest group set to lose out from the scheme. By the time the line reaches Manchester and Leeds - 2032 at the earliest - the average United Kingdom household will have been forced to contribute more than £1,000 towards the project. One economic effect will be to divert resources from the productive private sector to this mammoth government scheme. Businesses will therefore go bust as a result of HS2 and people will lose their jobs. Other firms will reduce investment and grow more slowly. But these impacts will be spread out over time and across the whole country. It will not be clear to anyone that they are the result of HS2, even though such negative effects are inevitable when taxpayers are the primary source of funding.

The dispersed nature of the costs of HS2 means that these losers from the project have very weak incentives to lobby against it. The most vocal opponents have therefore been those for whom the costs are heavily concentrated – for example, property owners whose homes will either be appropriated or devalued by the line. But such campaigners have been depicted as NIMBYs, even when their arguments have focused on wider economic issues. The approval of HS2 therefore raises worrying questions about the policy-making process and the degree to which decisions are unduly influenced by the special interests with most to gain from the redistribution of taxpayers' money.

Dr Richard Wellings is deputy editorial director at the Institute of Economic Affairs and co-author of the report High Speed 2: the next government project disaster?