Ed Balls admits funding worries over HS2


by Sunny Hundal    
1:44 pm - July 19th 2013

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Isn’t it time Labour admitted the growing cost of High Speed Rail 2 will undermine the argument that it is a cost-effective project?

And how does it square with the party’s claims that they are going to keep a close eye on major spending projects?

The FT today reports today:

The high-speed rail line from London to the north cannot be handed “a blank cheque”, Ed Balls has said in another sign of cracks emerging in Labour party support for the £42.6bn scheme.

The shadow chancellor told the Financial Times he was “concerned about rising costs” after the proposed bill for the HS2 project rose by £8bn to more than £50bn, including the cost of trains.

“We need to keep a close eye on value for money. I am concerned about the rising costs. As a Leeds MP I can see the benefits for the region and the north of England, but it is not a blank cheque,” he said.

While he still supported HS2, he said, “we have to know the benefits justify the expenditure, so therefore value for money continues to be an important test for me”.

This looks a bit like posturing along the lines of – ‘We’ll keep a close eye but have no specific points to make and can only complain if the costs keep rising

If Labour were serious about deficit reduction they would look much more closely at HS2 costs. They would also lay out red lines and suggest ways of reducing costs if they exceed a current levels.

Of course, I would rather they just scrapped HS2 to illustrate their seriousness on deficit reduction, instead of accepting social security cuts.

Ed Balls has made a good start but this is just positioning so far.

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Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


#1: costs haven’t risen. Claiming that they have demonstrates complete ignorance of the way project costing (for absolutely all projects) is done.

#2: deficit reduction through spending cuts is an insane idea which almost the entire economist community has rejected. The last three years of the UK are a pretty solid clue, even before considering the likes of Greece and Spain.

2. Man on Clapham Omnibus

1. john b

That sounds interesting. So how comes projects overun so frequently on budget?

Any half witted moron could tell you that the HS2 boy’s hornby railway line will not guarantee bringing prosperity to the economy.

Any complete and total moron could tell you that this money would be better invested in a MASSIVE building programme of new homes because that would immediately KICK START the economy. It does not take a five year old child to work out that a MASSIVE Building Programme of New Homes will get the flow of money circulating from planning, surveyors, builders, tradesman, bricks, building materials, decorating materials, fittings, furniture, domestic appliances, removals, council tax, rents and the list goes on and on and on and on and on.

The morons should shove the HS2 right up where the sun don’t shine and immediately use that money to embark on the building of new homes with immediate effect to KICK START the economy.

MoCO: they basically don’t. That’s an urban myth based on projects that were begun more than 30 years ago. Recent major new-build projects have come in to budget (note that the Olympics wasn’t actually budgeted at the time it was bid for; it came in within the first budget that was created).

The projects that go wrong are the ones that are based around upgrading infrastructure, because everyone involved institutionally underestimates how screwed the current infrastructure is, and how much the disruption of closing it will cost. The West Coast Main Line and M1 upgrades are good examples of this. Of course, this is exactly the approach that anti-HS2 campaigners advocate for increasing rail capacity.

Mr Grunt: you are correct that any halfwitted moron could tell you that.

I’m struggling to understand your logic, though. You reckon that spending billions of pounds on new houses would get shedloads of money circulating to the companies and individuals involved in the project and kick-start the economy. This is true. But *exactly the same is true for HS2*; the money goes to nearly the same companies that you’ve highlighted, and will have exactly the same effect.

(better, in fact, because HS2 combines jobs for builders, riggers and diggers with jobs for highly skilled engineers.

The difference is, at the end of the HS2 programme, there will also be a piece of installed capital infrastructure that is economically productive in its own right, whereas at the end of yours there wouldn’t be.

John b @ 4

After the completion of the HS2 if it goes ahead there is no guarantee that the areas concerned will benefit economically. Also the estimated cost keeps rising even before the tracks are laid. No doubt the final cost will end up a lot more than expected due to one thing or another (probably greed). In addition to this trains are almost empty throughout the day except peak times. No doubt as a consequence of laying the HS2 train fares will increase forcing more people of trains. There is no guarantee that train companies will make money long term due to the construction of HS2 and no doubt the tax payer will pick up the bill.

Where you build new houses the local economy gets a financial pick up due to people buying locally. Local Authorities get more council tax revenues. The houses built will generate indefinite rent revenues that will be spent one way or another. Building houses guarantee’s a steady flow of money for the long term whereas the HS2 is a gamble that may end up a financial liability.

So yes, they should stick the HS2 where the sun don’t shine.

6. Charlieman

@4. john b: “Recent major new-build projects have come in to budget (note that the Olympics wasn’t actually budgeted at the time it was bid for; it came in within the first budget that was created).”

It depends on your definition of “project”. Before the project is agreed, a scoping exercise is performed to determine what needs to be done and a guesstimate of costs. The scoping exercise (cf Olympic bid) is rough and ready; there will always be additional things to be done at extra cost. Ideally the actual project will capture those additional things.

When the project starts, it has a budget and contingency funds to cover *new* additional expenses. What the project executioners pray is that the owners stick to the plan. If the owners make significant changes, the project budget turns into something like the scoping budget: a guess. How long will the new changes require?

Man on the street assumes that when Build X is suggested with costing Y, the facility of Build X will cost Y. However the project for Build X will determine cost Y * A with further mitigation costs. When Build X arrives, it will cost Y * B after all of the mitigation costs have been consumed.

Did Build X cost more than expected? What does man on the street think?

“The projects that go wrong are the ones that are based around upgrading infrastructure, because everyone involved institutionally underestimates how screwed the current infrastructure is, and how much the disruption of closing it will cost.”

It is a valid point and an appropriate moment to acknowledge that john b knows more about railways than me. Nor do I know lots about project management, other than being at the receiving end of ill conceived directives.

John b’s suggestion about institutional underestimates, which are acknowledged in scoping but should be cleaned up before a project starts, is worthy. The counter argument for HS2 is that it is a new project. Every MP on the line knows better than the engineers about the line route. MPs on the line will want a minor adjustment such that trains go close to people who don’t vote for them.

The Olympic project was delivered on time because timely delivery was the only option. Bright idea fanciers were told to piss off because the plan had been written in stone. The HS2 plan is not written in stone, so timely delivery may not happen.

7. margin4error

HS2′s budget hasn’t really escalated. The bulk of the possible increase suggested is contingency funding based on a 66% optimism bias.

And this is the problem. The negatives with HS2 continue to be massively overstated while the positives are dragged down by rubbish practice.

Three examples stand out.

1 – we are now supposed to pretend that time on a train is perfectly productive (the assumptions about quicker times boosting productivity because train time is unproductive time have been over-ruled in court) – so now we have to assume 100% productivity for on-train time. This is so absurdly stupid as to defy belief, but thems the rules now.

2 – we assume in all our projections that HS2 will close down after 60 years. Again, this is absurdly stupid. But that’s how the projections were worked out in part because the case was so strong and the numbers so clear cut, why bother going into the endless cycle of greater value in years beyond 60 years when the economic return is made with extra to spare by then. Then people challenge it, play with the numbers, and pretend the case isn’t made – never of course, revising that 60 year close down date. Stupidity incarnate.

3 – People can pretend that the massive regeneration of Stratford, the huge ammount of housebuilding in Ashford, and the insane levels of investment in Kings Cross have nothing to do with high speed rail stations coming to these areas. It is utterly counter-intuitive to do so, but people who have a vested interest against goos infrastructure investment can pretend, and those who want good infrastructure can’t prove in laboratory conditions that the two are linked. So we can’t take the sum of those three economic booms and apply them in any meaningful way to the economic return on HS2. This is even despite the plans for Royal Oak as a new city centre within London, based on it becoming an interchange between HS2 and Crossrail. Amazing plans. Not allowed to consider them a benefit to HS2 on the official calculations though. Technically it is unrelated.

Stupid stupid stupid UK.

I can’t actually believe the ‘technology means we won’t need HS2′ is actually taken seriously. It fundamentally misunderstands how business relationships are formed and maintained. We can connect remotely now, it’s ludicrous to think new broadband suddenly makes business travel obsolete. Better technology normally involves replacing other technology not travel. Look at South Korea and Japan for evidence, heave investment in high speed rail ( and maglev) continues despite high speed broadband.

Great points margin4error. Depressing reading (particularly in the Lebedev papers) that HS2 is a bad idea but new hub airports are good. International connections matter to London but regional ones don’t. Horribly self serving attitudes. London benefits hugely from good (and improving infrastructure). Why can’t regional cities have this too!

9. margin4error

Thanks John

The stupidity of arguing that new technology makes business travel obselete is that the evidence is real life in the world today – and shows that the technology cited actually increases business travel.

I have two jobs. One is as a local councillor. The other is in the private sector. As a councillor, residents tend to email me as opposed to come to my surgery sessions. Yet because email is easier and more convenient for them, they get in touch more often about more things. And that in turn leads me to meet with them more often to talk things through “properly”. Everyone feels more comfortable with the face to face discussion and it often helps to resolve issues far better than a week-long back and forth by email.

My other job involves working with organisations all over the world. That would be ridiculous of course, in an age without telecommunications, or at least very difficult, working on regular projects from an office in the UK, with people in offices all over the world. So it wouldn’t happen. Telecommunications makes it easy, which in turn means we end up travelling out to these cities to have the indepth conversations that need to be had and to undertake relationship building (which is crucial to a client/supplier relationship).

Telecoms advancing means travel grows.

10. EvilCommies

HS2 phase one costs are insanely high for the length of route, compared to similar lines in much more challenging terrain (i.e. the Madrid-Barcelona LAV). This is primarily because of the coalition government shamelessly pandering to it’s fixed deposit of home countries seats and demanding that almost half of the London-Birmingham route be in tunnel where no such work is needed (i.e. crossing open country, where embankments and shallow cuts would be more than sufficient). The money saved by oiwn tunneling where necessary through urban areas and steep terrain could be productively employed to improve urban transport links in Birmingham – which would benefit both HS2 and the city as a whole.

11. margin4error

EvilCommies

There is no terrain more expensive to traverse – than the political terrain.


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