HS2: Should the Taxpayer Be Going Loco?

A recent study by the Institute of Economic Affairs (IEA), a free market think tank, has suggested that the cost of the proposed rail investment High Speed 2 (HS2) will be close to the £80 billion mark, nearly £40 billion more than the last government estimate. Does HS2 still have any economic rationale or is this ambitious investment rapidly running out of steam?

© Dotting

© Dotting

HS2 is a planned high-speed rail network that will create a route from London to Birmingham, with extensions to Leeds and Sheffield. The cost of building the rail link was originally projected at £32 billion but recent reports suggest this figure is wildly optimistic. Even if one accepts a conservative estimate, it is questionable whether HS2 will offer any value for money to the taxpayer.

Large-scale infrastructure projects are rarely financed by private capital simply because they aren’t commercially viable. The reason why HS2, and similar projects such as Crossrail, have been allowed to materialise is because of the external benefits they bring to society. The Government argues they will bring widespread returns to the country by increasing productivity in the economy and relieving pressure on the existing rail network.

The claim that HS2 will increase productivity seems a fairly reasonable one at first. People travelling on the new high-speed network will experience a much quicker service, with time savings from London to Birmingham, Manchester and Leeds in the region of 40%. However, the actual value of these time savings to the economy is less significant. As part of their cost-benefit analysis (CBA), the Government estimated that the value of time savings was £37 an hour, on the assumption that very little work gets done on train journeys. Needless to say this is completely ludicrous. Since the use of laptops, tablets and high-speed internet has become commonplace in trains across the country the opportunity cost of travelling by rail has gradually decreased. With this in mind the benefit of lower journey times is unlikely to create a major advancement in productivity.

The other primary justification for this huge investment is that it will relieve pressure on the existing rail network. HS2 will undoubtedly deliver a large increase in capacity with platforms at over 400 metres in length and trains able to accommodate 1100 passengers. However, such statistics divert attention from the core issue: whether or not these benefits outweigh the costs of building the network as well as the opportunity cost of the billions of pounds of taxpayer’s money. The short answer is no.

The Government has said that HS2 will generate £2 worth of benefit for every £1 invested. This calculation doesn’t take into account information from new studies, such as the IEA’s, which demonstrate that the cost of building the network has been massively underestimated. As the general election draws closer it is inevitable that the costs of building HS2 will continue to rise, due in part to environmental concessions being made on the route in order to satisfy local authorities and conservationists.

That aside, the opportunity cost is the most pressing concern. If we take the Government’s estimate of the cost of building HS2, it is still equivalent to 2% of the UK’s gross domestic product (GDP). This money could be used in more efficient ways, for example, lowering income and corporation taxes. Rather than targeting one particular area, reducing taxation will bring benefits to the whole of the economy through the creation of wealth and jobs, whilst encouraging investment and consumption. Furthermore, these impacts will be immediate and will not cost the taxpayer a penny.

It is true that the rail industry does need investment to increase its capacity, mainly due to overcrowding on the South East network and inter-city lines. However, HS2 is not the solution. The current rail market is organised so that if passenger revenues for train companies are more than 6% above their target, the government takes 80% of the extra revenue – equally the government makes up 80% of the extra revenue if takings are 6% below target. This system destroys the incentive for train companies to invest in extra capacity. The Government should let companies take more of the risk and reward of operating their services, which would then encourage investment into the rail industry without emptying the public coffers.

Whitehall must ignore the pressure from special interest groups and pull the plug on this enormously expensive project. Since the plan was first announced, the cost benefit analysis has deteriorated, leaving the economic foundations for HS2 crumbling. The Government will argue that the rail link will bring wider benefits to society but, as aforementioned, these benefits are either overvalued or heavily outweighed by the costs. There are other public road and rail schemes that will create jobs and relieve pressure on the railways without breaking the bank. Alternatively, the Government could let the free market decide where investment should go by lowering taxes and giving more autonomy to private train companies. It may be a bumpy ride but the sooner this project derails, the better.

Video: Steve Davies’ History of Individualism

The brief summary below is derived from the above video of the inaugural Counting House lecture by Stephen Davies.

The civil war undermines and blasts apart political and spiritual authority, and a radical movement develops. By the end of the first part of the war in 1646 Richard Overton is imprisoned at Newgate from where he fires his Arrow Against All Tyrants, effectively a libertarian pamphlet. Notably it is a property rights respecting right-wing form of individualism, not an anarcho-communist screed as might be expected for a “Leveller” as Overton was falsely described.

The Levellers’ Agreement of the People (the third version in particular published 1 May 1649) was a draft constitution for England that sketched out a radically minimal system of Government. The third draft contained compromises, though they did inititially extend the offer of liberty to catholics and the Irish. The document delegated broad powers to the state, but carved out a long list of very extensive exceptions that the state did not have power over, for example, all commerce. The document was not adopted as the constitution of England (an enormously significant decision) and the tradition went underground through the 1700s.

First, by the time of the 1688 Glorious Revolution a new Ancien Regime was established. A highly religious oligarchy, authoritarian, and corrupted by self-serving laws. Offices of State are bought and sold as commododities, slavery is openly supported as a mutually beneficial moral good, and the function of the state is, and is seen to be, and is accepted to be, the maintenance of the true religion (Anglicanism). It is (still) common for religious minorities to be excluded from public life.

During that century the Commonwealth Men targetted the Ancien Regime. The movement was associated with religious minorities, Congregationalists and Unitarians (more on them later) and on the American Colonies, and twards the end of the centrury and into the 1800s a new self aware “freedom movement” develops to reform the law and social norms of the country. They were not conservatives and would not have agreed that liberty had existed, apart from perhaps in fairytales from the times of the (already ancient) Saxons or as far back as Troy. Bentham comes into play with a individualist hedonic psychology. The success of this movement was enormous. The confessional state was largely dismantled, although leaving the present monarchy. Catholics were emanicipated (and in Ireland permitted to ride horses, carry weapons, and own land), and so were minority protestants. That assumption about the role of the state was underminded. The slave trade was abolished in 1806 then slavery itself in 1832.

Total Ideological Victory

Let’s be clear about how enormous those achievements were. Modern libertarians want to make a fundamental change to the role of the state in this country. The dismantlement of the confessional state, consisting of a reduction in the power of the Anglican church; and the emancipation of minority religions represented just such a change.

Modern libertarians must fight entrenched interests with massive incentives to preserve the status-quo. Public choice theory says this is difficult or impossible, but the abolition of slavery also flies in the face of public choice theory.

I find it enormously encouraging to hear that the challenges we face today have been overcome by past generations with similar views to our own. In the case of slavery, a total ideological victory was won. The moral assessment of slavery was that it was good for those enslaved and was divinely sanctioned. Ten people in a pub totally changed that view to the extent that nobody would now knowingly endorse slavery, and must now conceal their views beneath the soluable veneer of “redistribution”.

Somewhat to the contrary, Stephen also talks about how interlinked the various campaigns are. The network of groups fighting slavery, religious freedom, militarism and imperialism, fighting for free-trade, against the poor-laws, in favour of women’s rights, parliamentary reform and peace all shared a basic individualist analysis. They had a common individualist philosophy, a shared view of government policy and a drive to preserve and expand personal autonomy. They also shared members in common, and together acheived successes in many of the areas mentioned above.


There is, Stephen says, a popular libertarian narrative that there was a tradition of liberty that had established itself spontaneously in Britain and which was undermined by the Benthamites. Stephen did not refer to Hayek specifically but here is a quote in that vein from Ch. 4 of Hayek’s Constitution of Liberty:

The two traditions [of institutional design vs empirical observation and evolution] became finally confused when they merged in the liberal movement of the nineteenth century and when even leading British liberals drew as much on the French as on the British [evolutionary] tradition. It was in the end, the victory of the Benthamite Philosophical Radicals over the Whigs in England that concealed the fundamental difference which in more recent years has reappeared as the conflict between liberal democracy and “social” or totalitarian democracy.

Stephen appears to call this “nonsense” because the individualists of this period had in fact acheived many victories against the Church and local oligarchy and also believed that threats to personal autonomy come not just from politics but also from church, “strong local communities” and even oppressive public opinion. Stephen suggests that if you do not also reject those sources of coercion you cannot call yourself an individualist, but only a libertarian, in doing so Stephen appeared to make a distinction between cultural and political coercion and to reward an additional positive label to those that opposed both, and it is the folks with this broader label that are mentioned in the title of his talk.


Stephen pauses to consider one Manchester based victory that demonstrated the benefits of intransigence. Rejecting compromises and promises the movement for the repeal of the Corn Laws, the largest movement ever seen, succeeded in getting their repeal and rendering protectionist policies unpopular for 100 years, especially in the Labour Party. Interestingly free-trade (if not free-markets in a general sense) still enjoys majority support. Also, it was noted, that because protectionist tariffs were a major source of revenue this campaign also completely changed how tax is collected and used, another goal of modern libertarians.

Peak and Collapse

Later, in the second half of the 19th century (~1850 onwards) there is a revival of imperialism, militarism, jolly heroic wars and also the rise of the collectivist movements. This latter group claimed the modern state would offer liberty to the people through the means of “collective liberty” (!). In response however, from 1870-1905 the self-aware individualism reaches a peak. Institutions are formed and individualist thinkers were widely read, and the individualist bourbon democrats in the US were strong. Then, suddenly, from 1914 the strong and self-aware individualist movement collapses. They had failed to recruit a new generation of activists and the individualist focus had narrowed to free-market economics.

Recent times

From the 1920 more and more people switch focus to economic liberty in this way. Stephen argues, rightly in my view, that this is misjudged for the specific reason that free-market economics is a consequence of the individualist and small governement analysis. Favouring a small state and personal autonomy due to a preference in free-markets is arguing in the wrong direction. It isn’t wrong, but you are holding the the picture upside down. I would only add that one needs to consider an individualist analysis of ethics as well.

In the middle of the century institutions form to fight the good fight against the welfare state and in favour of economic liberty. He discusses Ernest Benn as one of the heroes and founder of the Society of Individualists, and a rare example of someone who fought on non-economic issues. Overall, however the war for economic liberty has been gradually lost. State spending rose from 12% in 1900, down to 10% in 1910, up to 43% and now 52%, a catastropic loss only momentarily halted by Thatcher.

However, there have been improvements in personal agency. This is especially true for females, who’s rights and recognition have obviously grown but is true to some extent for everybody, though not as a policy and only as an accident of rapid economic growth. This growth means that now the 48% of your money you are permitted to control is actually much larger than the 90% you were permitted to keep in 1910. I can’t help wondering if this is a clue as to why the collectivists have gotten away with so many morally corrupt and destructive policies.

The future

To conclude Stephen points out that fundamental re-alignments in politics happen every 40 to 50 years, so we are due for a big one. Through the last 50 years the political argument has been one between economically authoritarian liberals and economically liberal conservatives, and this has carried on without the presence of a significant self-aware movement fighting consistently for liberty. Therefore, it seems likely that a self-aware group of consistent liberals will come to a confrontation with consistent authoritarians, of the smoking banning, internet censoring, journalist detaining sort. This is a clear battle between good and evil with blue water between the two. It is also a good clean fight that we can look forward to, without the confusion of tribal inconsistency; but the most encouraging thing about Stephen’s talk was hearing that similar battles have been won before and several times over and by people a lot like us.

Monday speaker: Steve Davies, PhD

For some “individualism” is a dirty word, an intellectual excuse for greed; for others it is the intellectual tradition that ended the slave trade and is the key to freedom in our time. Which is it? On Monday Historian Steve Davies will relay the history of this tradition; chart its waxing and waning popularity, and its course for the future.

A graduate of St Andrews University in Scotland – the Masters’ class of  1976 – he wrote a thesis on the Law and order in Stirlingshire as it applied between 1637 and 1747 for which he earned his PhD in 1984. While at St Andrews, you won’t be surprised to learn, he was a member of the Conservative Association, the Jeffersonian Association and the History Society.

By 1991 he had co-authored “A Dictionary of Conservative and Libertarian Thought“, meaning he literally wrote the book on Monday’s topic. In 2003 he wrote a second book on “Empiricism and History” a defence of the empirical method as compared to other methods such as post-modernism. (those two links are commission-bearing).

His academic career bridged the Atlantic with positions at Bowling Green State University, Ohio doing Social Philosophy and Policy; and Economic History at Manchester Metropolitan University. At Manchester he taught of variety of things appropriate for a History lecturer including the history of “Utopian and millenarian thought” and the history of the Devil. He then joined the Institute for Humane Studies at George Mason University in Virginia where Stephen ran seminars and outreach networks before leaving to work as Education Director for the Institute of Economic Affiars. For the IEA he helps to organise the popular Freedom Week which, like some unnamed meetings above a pub, was listed in a recent Economist article as one of the signs libertarianism is on the rise. I think it is at least true that that rise is a credit to Dr Davies, amongst others.

Steve’s talk will, therefore, be nothing if not educational. I am greatly looking forward to hearing it.