We have publicly warned Treasury against making ill-advised short term savings on HS2 at the taxpayer’s expense in the medium to long term, arguing that if HS2 is extended to Euston in central London and north of Birmingham to Crewe, the Government can generate substantial returns via its concession value once fully operational.
By concessioning the project the government could secure a considerable return on investment, potentially amounting to as much as one-third of the project’s capital cost. However without the completion of the key sections to central London and Crewe, the value of the HS2 concession—and therefore the return to taxpayers and the Treasury—could be more than halved.
Our analysis estimates the capital cost of delivering Old Oak Common to Birmingham to be £47 billion, but due to the limited railway it delivers it would only have a potential concession value of £5 billion. However to increase the scope of the network to reach Euston and Crewe would incur a further capital cost of £11.5 billion, whilst raising the potential concession value to as much as £20 billion. In this submission to Treasury the rail industry argues that the greatly increased concession value of a line stretching from Euston to Crewe would comfortably outweigh the extra capital expenditure, and that increasing the scope of the project could in fact save Treasury as much as £3.5 billion in the medium term.
In a recent representation to Treasury HSRG offers the successful example of HS1’s concession model, where a 30-year concession was sold for £2.1 billion, covering a third of the total construction costs. HSRG illustrate a clear precedent for monetising HS2, with modelling showing that if HS2 was constructed according to a similar framework, returns to HM Treasury could match, or even exceed, those of HS1.
More broadly, we have set out four key policy recommendations ahead of Labour’s first Autumn Budget on the 30th October. HSRG calls on the Government to prioritise strategic investment into major rail infrastructure projects, outlining 4 key policy recommendations:
- Engage with the infrastructure investment community to explore funding options
- Approve the Old Oak Common to Euston section of HS2, and continuation of tunnelling works to avoid costly delays
- Retain current HS2 landholdings between Birmingham and Crewe
- Develop and stick to a comprehensive long-term strategy for both North-South and East-West travel
These recommendations have been devised to address both immediate infrastructure projects and long-term national rail targets, and in this representation ahead of the Budget rail industry experts assure Chancellor Rachel Reeves that rail investment can help deliver her core goal of kickstarting economic growth.
HSRG also highlight the critical importance for retaining HS2 landholdings between Birmingham and Crewe until long-term decisions are finalised, warning of an alternative costly fire-sale, devaluation of the overall project, and an exacerbation of capacity bottleneck on the West Coast Main Line.
To ensure job creation, skills development, enhanced connectivity, and economic growth across all regions – with a substantial return to the Exchequer – HSRG continues to advocate for the development of a long-term comprehensive strategy encompassing both North-South and East-West travel.
Failure to adopt these policy recommendations risks a severe deterioration of capacity and an incurrence of long-term costs far outweighing any short-term savings. The government must act decisively ensuring a lasting legacy of economic growth, regional development and environmental sustainability that delivers for both the taxpayer and communities.
Dyan Perry, Chair of HSRG, said:
“It is deeply alarming to hear news that Rachel Reeves is contemplating cuts to infrastructure spending. We are aware of the fiscal challenges currently facing the Government, and HSRG appreciates that the forthcoming Budget will involve Treasury Ministers making tough choices.
“However, short-term decisions to cut investment into infrastructure would be deeply damaging to the UK, creating uncertainty and jeopardising investor confidence. Rail investment must be an priority as it achieves far more than simply addressing capacity issues; it drives economic growth, transforming prosperity and productivity across UK regions, creates jobs and upskills workers.
“We strongly urge Treasury officials to carefully consider our recommendations and take action to ensure the UK can fully realise the benefits of a connected rail network. Only by investing in our infrastructure now can we set the UK up for long-term economic success.”