Politicians should get out of the transport market – starting with High Speed 2
19 July 2011
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20 July 2011
Government and Institutions
Britain’s transport sector is cursed by endless intervention by politicians. Investment has tended to be driven by political priorities rather than consumer demand. The emphasis has been on satisfying concentrated special interests rather than the wider populations of taxpayers and transport users. The latest example is High Speed 2 (HS2) – critiqued in a new IEA paper released today.
HS2 exemplifies the government’s flawed approach to transport policy. It is a centrally-planned, highly political project with all the deficiencies that implies. In particular, central planners struggle to allocate resources efficiently because they cannot access the dispersed and subjective information held by individuals. This problem is exacerbated on the railways since policymakers are operating in the absence of genuine market prices. Indeed, a wide range of economic distortions, including price controls, large state subsidies and an artificial industry structure, make it very difficult to make efficient investment decisions.
The incentive structures facing politicians and transport planners also lead to the misallocation of resources. Financial risks are offloaded on to taxpayers, often many years in the future, while in the short-term politicians and senior civil servants can gain prestige from their ‘grand designs’.
Accordingly, it is unsurprising that the government’s economic case for HS2 is deeply flawed. The passenger and revenue projections are hugely optimistic compared with other, independent,estimates. There are also several unrealistic assumptions – perhaps the most ridiculous is that business people can’t do any productive work on trains. It is also clear that the route of HS2 has been ‘gold-plated’ with little regard to the costs imposed on taxpayers and property-owners: it will be hugely expensive to tunnel the line to Euston and the implications for overcrowding on London Underground may lead to billions more in infrastructure expenditure (funded largely, once again, by taxpayers rather than passengers).
An alternative to the politicisation of the transport sector is provided in Chapter 10 of Sharper Axes, Lower Taxes. Clearly cancelling big, uneconomic projects such as HS2 is a first step. But reform must go much further. Genuine privatisation is needed, not just on the railways but also on the roads. This means more than transferring nominal ownership. Subsidies to public transport should also be phased out, the tax treatment of different modes should be harmonised and the sector should be deregulated. The chapter identifies £15 billion of annual savings to taxpayers in 2015 from such a policy, plus considerable privatisation receipts that could be used to cut fuel taxes. Getting the government out of transport will also ensure that investment serves the needs of consumers rather than inflating the egos of politicians.
HS2 exemplifies the government’s flawed approach to transport policy. It is a centrally-planned, highly political project with all the deficiencies that implies. In particular, central planners struggle to allocate resources efficiently because they cannot access the dispersed and subjective information held by individuals. This problem is exacerbated on the railways since policymakers are operating in the absence of genuine market prices. Indeed, a wide range of economic distortions, including price controls, large state subsidies and an artificial industry structure, make it very difficult to make efficient investment decisions.
The incentive structures facing politicians and transport planners also lead to the misallocation of resources. Financial risks are offloaded on to taxpayers, often many years in the future, while in the short-term politicians and senior civil servants can gain prestige from their ‘grand designs’.
Accordingly, it is unsurprising that the government’s economic case for HS2 is deeply flawed. The passenger and revenue projections are hugely optimistic compared with other, independent,estimates. There are also several unrealistic assumptions – perhaps the most ridiculous is that business people can’t do any productive work on trains. It is also clear that the route of HS2 has been ‘gold-plated’ with little regard to the costs imposed on taxpayers and property-owners: it will be hugely expensive to tunnel the line to Euston and the implications for overcrowding on London Underground may lead to billions more in infrastructure expenditure (funded largely, once again, by taxpayers rather than passengers).
An alternative to the politicisation of the transport sector is provided in Chapter 10 of Sharper Axes, Lower Taxes. Clearly cancelling big, uneconomic projects such as HS2 is a first step. But reform must go much further. Genuine privatisation is needed, not just on the railways but also on the roads. This means more than transferring nominal ownership. Subsidies to public transport should also be phased out, the tax treatment of different modes should be harmonised and the sector should be deregulated. The chapter identifies £15 billion of annual savings to taxpayers in 2015 from such a policy, plus considerable privatisation receipts that could be used to cut fuel taxes. Getting the government out of transport will also ensure that investment serves the needs of consumers rather than inflating the egos of politicians.
6 thoughts on “Politicians should get out of the transport market – starting with High Speed 2”
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I’ve heard enough. There is now SO much evidence that HS2 is not in the national interest that we shouldn’t be wasting any more time or public money discussing it. By all means come back to it in a few years’ time when we’ve paid off our vast national debt. But for now, let’s improve existing public transport links and build a world-beating digital economy – based on high-speed broadband for all – which removes the need for constant travel to and from meetings.
True but we seem to be psychologically dependent on meetings and on ‘management by proximity’ which generates commuter traffic.
Meanwhile: we suffer increasing congestion; burn more fossil fuels for transport.
HSR is seen as an economic driver elsewhere in the world.
Where is the holistic analysis of transport evolution – freight and passengers – encompassing the brave new world of increasing UK population, climate change, energy security etc. etc. etc?
True but we seem to be psychologically dependent on meetings and on ‘management by proximity’ which generates commuter traffic.
Meanwhile: we suffer increasing congestion; burn more fossil fuels for transport.
HSR is seen as an economic driver elsewhere in the world.
Where is the holistic analysis of transport evolution – freight and passengers – encompassing the brave new world of increasing UK population, climate change, energy security etc. etc. etc?
I am sorry but this report cannot be considered as a true and proper independent piece of research when the first named author – Kyn Aizlewood – lives in Barton Green, one of the Warwickshire villages that HS2 will pass through/close to.
This must call this report into question.
@Anonymous – It’s telling that the high-speed rail lobby has chosen to focus on the authors, rather than the economic arguments in the paper. I wrote the sections of the paper on the route and on ‘planning blight’. I live several miles from the proposed line.
Those of us living in London all live close to the proposed line! I’m five miles from Euston. Does that mean I can’t express a view on the part of the line that will cost 25% of the total?