17 Mar 2010

Where is the economic benefit?

What is the economic benefit of high speed rail? How is it measured? How can it be measured, let alone forecast? And who gains anyway?

The usual benefits of transport schemes are reduced costs or reduced travelling time. Although economists put a value on "time saved", this usually ends up in land values as the areas that benefit become more attractive. Reduced costs also ends up as a land value enhancement. This was seen dramatically in the Docklands area where a study commissioned by Transport for London revealed an aggregate land value uplift of £10 billion attributable to the Jubilee Line Extension.

It is known that high speed rail results in land value uplift around stations, by concentrating large numbers of people into a small area. It also depresses land values along the route through which it passes, due to disturbance and restriction of access. The winners and losers are those who own land.

What is less certain is the overall effect on land values in a region. What would happen to land values in Scotland if the journey time between London and Edinburgh were reduced to three hours?

If the aim of high speed rail is to promote the economies in regions remote from the capital, would it not be simpler to re-balance the tax system in favour of the more distance regions?


  1. This already happens, the north of England, Wales, Northern Ireland and Scotland receive substantial tax breaks compared to the South East.

    Nevertheless transports aim is to maximise connectivity, to allow access to labour, resources, and markets. You can throw money at any area, but if the basic connections are not there to allow access to markets and labour, little will result.

    Generally speaking, in a developed country such as the UK, new infrastructure tends to result in modest benefits, except where there are substantial time savings - such as in the case of HSR.

    While there could potentially be winners and losers (and this applies to all transport) it would be part of the economic assessment to benchmark this. This would be measurements of time savings, agglomeration effects, external cost reduction and so on.

    I am not aware there is any significant evidence that HS1 depressed land values or caused access problems around the area it passed.

  2. Rob- thanks for posting.

    "Nevertheless transports aim is to maximise connectivity, to allow access to labour, resources, and markets. You can throw money at any area, but if the basic connections are not there to allow access to markets and labour, little will result."

    This is true up to a point. Many locations are marginal and it is often the case that taxation will be sufficient to tip businesses into unprofitability. Conversely, if taxation is reduced at the margin, then businesses will become viable. The effect of improved transport is to bring sub-marginal locations above the margin.

  3. I would suggest that a £1 billion tax break per year over a 15 year period (about the same cost as HSR) would amount to just a few pounds for most businesses and the effect would be vanishingly small. Nor would this address the underlying problem of the North and Midlands, which is effectively in the 'wrong place'. This considering many of those towns and cities were located and grew in a past era of heavily industrialism. With competition from Asia, this generally is set to get worse.

    The North of England needs better, faster links between conurbations and toward London in order to remain economically competitive. For example, the success of Leeds is helped by fast links to London by rail, and according to Professor Danny Dorling of Sheffield university, much of the success of any town in the UK can be measured by how long it takes to ride a train to London.

    The benefits to the north of England are contained in the report by the Northern Way on HSR.


  4. Rob, the north of England's problem is essentially this. And if transport links are improved, most of the benefits are swallowed up in higher land values which end up in landowners' pockets, just as happened with the Jubilee Line Extension.

    Land value taxation would be needed to recover the value created by any infrastructure improvement, but land value taxation in place of existing taxes would also largely compensate for the disadvantage of poor location.

    Nobody seems to have asked whether the money could not be better spent in some other way, which would probably be local and inter-urban transport improvements. Typically, the number of these journeys is an order of magnitude greater than those making long distance journeys.

    To argue that the success of any town can be measured by how long it takes to ride a train to London does not prove that there is any causal relationship.

    Thanks for your interest and comments.

  5. Rob, I have had a look at Northern Way. It is, to say the least, lacking in clarity, which raises questions about the whole document and the philosophy followed. I am uneasy about the methodology but it would take a lot of work to identify what is wrong here.

    It is highly abstracted, looks at the issues from an excessively global perspective and is based on assumptions some of which are questionable.

    Where matters of transport are concerned, it is the fine detail that matters as well. Typically, this is evident with Eurostar, where the time savings of the high speed line are squandered in check-in procedures, the need for pre-booking and consequently to arrive far in advance to avoid losing the journey, and then in the time it takes to get to and from the terminus stations at each end, located in congested parts of the cities served.

  6. I assumed the title of the section was rhetorical - but - if anyone can explain (clearly) how economic benefit happens when HSLs are built I'd like to see that. Clearly upper-management needs to travel to meetings at 'HQ' (ie in London)- but they have the resources (BMW, Airplane) and money to do that anyway.

    Historically the only genuine benefits from a passenger railway I can think of are those from lines to tourist resorts -ie Scarborough, Brigton , Blackpool etc. Surely they don't mean tourism to Birmingham??

    It is a passenger railway?

    Having read some of the reports its easy to get drawn in to the economic fluff about "cost to benefit ratios" - even Network Rail does it. I assumed they meant real economic benefits rather than house prices rising.

    Most of the reports (greengauge21, network rail "the case for new lines") contain a large proportion of enthusiasm with a small proportion of reality.

    I don't think they expect to have to justify the numbers - just create enough media coverage to make HSR a political issue - that has to be supported whether it makes sense or not.

    I wouldn't like to be the party that wins the next election and has to sink the cash into this, or say "sorry stupid idea"..