Will HS2 be financially viable in a Covid and post Brexit world?

[Tin Rocket]

How will Covid affect the financial viability of HS2?
Also will Brexit affect anticipated business demand for the service from the Continent?

 

[HSTEd]

Even if demand does not live up to projections, it will be cheaper on a marginal cost basis to transport people on HS2 than on the parallel conventional railways.

So it will be in the public interest to ensure as many people use HS2 as possible.

 

[PeterC]

I think that the answer to both is "wait and see".

 

[GRALISTAIR]

I think that the answer to both is "wait and see".

Correct. So much is changing anyway, so HS2 may benefit from modal shift. We live in interesting times indeed.

 

[Wapps]

We are building HS2 for the next 100 years.

 

[Nottingham59]

HS2 had a pretty dire BCR, and that will be even worse if they don't build the Eastern leg. But it depends what you mean by "financially viable". Will HS2 generate enough fare income to cover its running costs? Probably. Will it generate enough fare income to cover the increased subsidy that will be needed to keep services on the WCML and ECML that premium business customers used to use? Probably not. Will it generate enough income to pay back its capital costs and interest? Almost certainly not.

 

[Hadders]

We are building HS2 for the next 100 years.

Exactly this.

 

[ChiefPlanner]

Exactly this.

Quite - London to Birmingham in what was it , 1835 - London to Bristol in 1837 or so.

 

[Class 170101]

Climate Change - not sure it will be acceptable to build the 3rd Runway so to perhaps reduce the need for internal domestic flights will release runway capacity at Heathrow for International Slots instead.

 

[yorkie]

How will Covid affect the financial viability of HS2?

More people working from home will result in a shift towards people making less frequent, but longer distance journeys.

 

[HSTEd]

Will HS2 generate enough fare income to cover its running costs? Probably. Will it generate enough fare income to cover the increased subsidy that will be needed to keep services on the WCML and ECML that premium business customers used to use? Probably not.

Well the services probably won't continue as they are.
And significant infrastructure rationalisations would be enabled by HS2, although that is a dirty word.

 

[Wapps]

HS2 had a pretty dire BCR, and that will be even worse if they don't build the Eastern leg. But it depends what you mean by "financially viable". Will HS2 generate enough fare income to cover its running costs? Probably. Will it generate enough fare income to cover the increased subsidy that will be needed to keep services on the WCML and ECML that premium business customers used to use? Probably not. Will it generate enough income to pay back its capital costs and interest? Almost certainly not.

I have no idea how you can say that. This infrastructure will be here 100 years from now and no one can predict that far into the future. We are not building it to make a quick return.

 

[LNW-GW Joint]

It's wait and see on Brexit and the continental connection as well.
We still seem to be doing all we can to damage connections with Europe, and many nationals living and working on the "other side" seem ready to give up and go home.
Certainly the financial community is separating its EU business with an exodus from London. There's still no word on "equivalence" for financial services.
Will ambitious Parisiens still want to live in London and commute regularly? Hard to tell.
Cross-channel trade is finding life difficult with the new rules, and professional qualifications will not be recognised by the other side.
The visa regime won't help easy movement of workers. Erasmus is gone.
Increased international trade, if it happens, won't benefit the rail sector. The international student population here has taken a big hit, though Covid will be a big factor in that.
Tourism will probably hold up reasonably well, but it has to climb out of the Covid wipe-out first.

 

[david1212]

Presuming that Covid is behind us long before HS2 is running and that the new normal does not directly reduce either travel or train capacity I do not see that it will have significant changed the financial viability of HS2.

My view is that the step change to much more working from home last March would still have happened but just gradually, or if less working from home instead more working locally. Following on while some envisage only commuting one or two days a week but for a longer distance will that still be the case in 30, 50, 100 years ?

Regarding Brexit given that overall the planners and proposers did not consider a link between HS1 and HS2 to be very important I doubt that international travel, as against travel by international visitors in the UK for at least a few days for either business or leisure purposes, featured in the financial calculations?

The question ' Do you think that the financial model on which the viability of HS2 was based will turn out to be either fundamentally correct or pessimistic ? ' is of course for a thread in a different section of the forum.

 

[Nottingham59]

This infrastructure will be here 100 years from now

no one can predict that far into the future

Forgive me if I'm a bit slow but I don't see how both of those statements can be true at the same time.

We are not building it to make a quick return

So we both agree that it won't be "financially viable" then, in the sense that it is unlikely to generate enough income to pay back the capital cost plus interest?

 

[takno]

So we both agree that it won't be "financially viable" then, in the sense that it is unlikely to generate enough income to pay back the capital cost plus interest?

Would you apply the same logic to a mortgage? Saying that the business case runs over 60 years, and the actual economic benefits are likely to run over a hundred or more is in no way the same thing as saying it won't be able to pay back the capital cost plus interest

 

[Nottingham59]

economic benefits

Sure, there are wider economic benefits. And these give a BCR for HS2 which is (only just) greater than one. Which means that the wider benefits are greater than the cost. But remember the "cost" in this context is not the capital invested. It is the present value of discounted cash-flows from the project over the next 60 years, as a result of that decision to invest. And that cost figure is negative (as it is for nearly all rail investment in the UK). So HS2 is politically viable, in that politicians are prepared to fund it; it may be economically viable, in that the wider economic benefits outweigh the BCR "cost" (but only just, with a BCR of 1.1); but it is not financially viable, which is the question posed in this thread.

 

[takno]

Sure, there are wider economic benefits. And these give a BCR for HS2 which is (only just) greater than one. Which means that the wider benefits are greater than the cost. But remember the "cost" in this context is not the capital invested. It is the present value of discounted cash-flows from the project over the next 60 years, as a result of that decision to invest. And that cost figure is negative (as it is for nearly all rail investment in the UK). So HS2 is politically viable, in that politicians are prepared to fund it; it may be economically viable, in that the wider economic benefits outweigh the BCR "cost" (but only just, with a BCR of 1.1); but it is not financially viable, which is the question posed in this thread.

The BCR figure was enough to get it over the line, but frankly doesn't even scratch the surface of what the actual benefits are. They literally aren't being measured at all.

In terms of whether it's profitable, that's probably impossible to actually measure. As a public construction project being done in the national interest, costs have been piled on which a private company would probably never have to have met, and fare revenue on the line itself won't include any of the indirect benefits to the rail industry. In any case, a lot of the benefit gained from more space on other lines may be used on relatively unprofitable freight because of the substantial externalities gained.

 

[hwl]

The BCR figure was enough to get it over the line, but frankly doesn't even scratch the surface of what the actual benefits are. They literally aren't being measured at all.

Yep, it actually take quite a bit of effort (and hence cost) to accurately quantify some benefits and most of the time DfT aren't interested, the are just interested in the minimum to get it over the line or the minimum + some easy analysis if making it look really good doesn't need to much more work.

Unfortunately for DfT many of the easy analysis schemes have been done leaving the scheme that are need much more detailed analysis.