Keep ambition on track

In: Uncategorized

3 Sep 2013

The proposed HS2 high speed rail link between London and the north of England provides an object lesson in Britain’s failure to promote economic growth. It shows how politicians of all parties can profess support for economic expansion in good faith only to fail to achieve their stated objectives.

In that respect the discussion is more than a debate about a particular proposal to improve Britain’s creaking transport infrastructure. It illustrates why plans to bolster prosperity are so often undermined despite an apparently promising start.

This is a trend I have called growth scepticism: a cultural aversion to prosperity. It is a far more dangerous problem than explicit opposition to growth. The history of the HS2 discussion illustrates the challenge clearly.

In March 2010 the then Labour government announced a £30bn rail project to link some of Britain’s main cities. This followed officially backed reports and consultations on the project. Even back then I argued in Fund Strategy that the plan was not nearly as ambitious as it seemed. Construction of the first phase, linking London to Birmingham, was not due to start till 2017 and it would not be completed till 2026.

Nor was the cost that large in the scale of things. Although £30bn sounded like a lot it would be spread over many years and total public spending is running at about £700bn annually.

In January 2013 the coalition government announced its support for the second phase of the HS2 link from Birmingham to Manchester, Toton, Sheffield and Leeds with completion planned in 2032. George Osborne, the chancellor, said that HS2 would be “the engine for growth in the north and the Midlands”. Essentially the ruling coalition was endorsing the second part of the scheme previously announced by Labour.

Not surprisingly environmental groups have been at the forefront of opposition to HS2. That is certainly their right. But the views of such organisations, normally small and unrepresentative, are typically given too much weight in such discussions. They are often taken to represent the interests of the environment, presumably the planet and all its species, rather than a vocal minority of campaigners.

Perhaps more surprising is the opposition to the scheme on economic grounds. The Institute of Economic Affairs, a free market think tank, recently published a report warning the cost could reach £80bn. Its main argument was that taxpayers are likely to lose out as vested interests lobby hard to ensure the high visibility project goes ahead.

Soon afterwards came a report from the Institute of Directors, an organisation of business leaders, calling on the government to abandon the project. It argued that such substantial investment would be better spent on a combination of other schemes.

From the narrow perspective of cost-benefit analysis the IOD might have a point. Ten smaller infrastructure projects could conceivably have a much greater effect on boosting productivity than HS2.

But such criticisms miss the broader picture. The growth sceptic climate weighs against all large-scale infrastructure projects. Think about the widespread official hostility to enlarging the road network and improving or building new airports.

Those who truly support prosperity need to be far more determined in resisting criticisms of ambitious projects. The unpleasant alternative is a lot of talk about growth but little action.

We need more ambition rather than less

This blog post first appeared today on Fundweb.