Time to pull the plug on Eurostar?

The dismal economic returns on the Channel Tunnel Rail Link are a stark warning to supporters of a high-speed line to Scotland and the North of England.

The total cost of the link, now renamed “High Speed One” (HS1), is close to £10 billion in today’s money, when all the hidden subsidies and extras are included. And this figure does not include the substantial “deadweight” losses from the additional taxation required to fund the line. A commercial business would expect to make an annual return well above £500 million on such an investment, particularly since railways typically need to be substantially rebuilt after 30 or 40 years.

In this context, the return on HS1 is pitiful. Last year, the “investment recovery charge” levied on Eurostar was reduced by more than half to about £2,200 for each train service using the route. By my calculation, this adds up at most to about £40 million a year – a return of less than half of one per cent on the government’s original investment.

But even this return is questionable. Eurostar has made large losses during its sixteen year history and it remains to be seen whether the hidden subsidy of cut-price access charges will enable it to make sustained profits in the medium term. In other words, not just the infrastructure but the service itself has been heavily subsidised by taxpayers, meaning the overall economic return on HS1 has almost certainly been negative – even before inflation is taken into account. The local “Javelin” services to North Kent now using the line are also subsidised.

Of course, advocates of high speed lines may point to “wider benefits” such as regeneration. Indeed, the expensive re-routing of the Channel Tunnel link through East London was supposed to boost the area’s economy (as well as to facilitate currently non-existent through trains to the North of England). However, state-funded regeneration tends to be a negative sum game. Resources are inefficiently transferred from some areas to others, while social problems are displaced rather than reduced. Moreover, if nebulous “wider benefits” arguments were used consistently as a rationale for taxpayer support, just about every business activity would be entitled to subsidies and almost the entire economy would become socialised.

After sixteen years of support, the government should stop subsidising train services to the continent. Taxpayers could receive at least some compensation if the high-speed line were sold off to the highest bidder with the proceeds used for tax cuts and (unlike in current proposals for its “privatisation”) no restrictions imposed on how the route is used. Perhaps an unsubsidised international service could just about cover maintenance costs, with the sunk capital effectively written off. But far better returns could almost certainly be achieved by shutting down the line and disposing of the assets – which include substantial plots of land, tunnels under London and the Thames, and large amounts of scrap metal.

5 thoughts on “Time to pull the plug on Eurostar?”

  1. Posted 22/07/2010 at 18:37 | Permalink

    Does that mean the tunnel should be filled in, or are you just for sealing the tunnel portals?

  2. Posted 22/07/2010 at 19:06 | Permalink

    I really don’t want to hear this. Having spent much of my working life taking school parties to France via trains, ferries, and trains again, Eurostar is bliss.

    Please somebody, convince me that Eurostar is not a sin, that it’s still ok to pop up to Ebbsfleet, drink a coffee, and be whisked off to Paris in two comfortable hours.

    What if we write off the debt of the tunnel? What if we take the really long view like the next century? There must be a way for something so good to be right.

  3. Posted 22/07/2010 at 20:35 | Permalink

    @Michael Petek – There could be alternative uses for the tunnels under London and the Thames in the event that unsubsidised train services did not provide the highest returns.

    @Richard – The Channel Tunnel itself was built with private money, although indirectly subsidised by the state-funded construction of the high-speed rail lines that feed into it. A possible alternative use for part of the rail link would be a high-speed toll road to the Tunnel, which would be great for school coach trips.

  4. Posted 23/07/2010 at 11:42 | Permalink

    If we had a sane planning system it might well be the case that a sufficiently high speed link could have been built more quickly and much more cheaply.

  5. Posted 25/07/2010 at 09:01 | Permalink

    […] Filed under: Economia,Internacional,Política,Portugal — André Azevedo Alves @ 10:00 Time to pull the plug on Eurostar? Por Richard Wellings. The dismal economic returns on the Channel Tunnel Rail Link are a stark […]

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