Introduction
The High Speed 2 (HS2) project is a railway line under development, with the first phase running from London to Birmingham. According to Railway Technology, “the route is also referred to as the Y network since it is roughly in the shape of the letter Y” (Railway Technology, 2020, p. 1). This route is one of the best transport infrastructures ever built in the UK, linking different cities and regions across the country (Department for Transport, 2017).
Some benefits expected from HS2 include reducing journey times between the nation’s large cities and creating economic advantages and employment opportunities (Railway Technology, 2020). However, it involves substantial financial commitments and long-term implications due to its large-scale nature. Therefore, the stakeholders involved, including the UK government, should have enough information about its success before investing. As part of reviewing the merits and disadvantages of HS2, this paper employs cost-benefit analysis (CBA) to assess its viability.
Project Overview
The HS2 project is the UK’s planned high-speed railway linking London, Birmingham, the East Midlands, Leeds, and Manchester. HS2 will be Britain’s second high-speed railway after HS1, which connects London and the Channel Tunnel (House of Lords, 2015). Although the main high-speed line already connects cities such as Manchester, London, Leeds, and Birmingham, the HS2 will also include Newcastle, Edinburgh, York, Liverpool, and Glasgow. Depending on the approval of later stages, Railway Technology indicates that the project’s first phase is expected to end between 2029 and 2033 (Railway Technology, 2020). Overall, the HS2 project would require three steps to be completed.
HS2 is expected to benefit the UK in many ways. First, HS2 will be a significant undertaking for the UK to boost its economy and address the economic imbalance between the South and the North (House of Lords, 2015). Many people from the two regions will be employed in building the project and operating different railway sectors after its completion. For instance, the project has employed approximately 1,500 employees, which is expected to increase as it progresses through its phases (Railway Technology, 2020).
Secondly, the HS2 will be a high-speed link between London and northern cities, which will ease and quicken transportation, enabling workers to commute to London even if they reside in the northern cities. The primary focus of the project’s proposal was to ensure shorter distances between major regions in the UK. For instance, a report by the CCL Resource Center suggests that the HS2 will reduce the journey from London to Birmingham from 1 hour 21 minutes to 49 minutes (CCL Resource Center, n.d.). This will help save time for travelling and make it convenient for people moving from one region to another to work.
Evaluating the Project’s Merit
The scale and complexity of the HS2 project necessitate a comprehensive analysis by the parties involved. Due to its magnitude, the project entails financial commitments from entities such as the government and other interested stakeholders. Therefore, both parties would want to determine if the project has financial benefits that outweigh the costs and if it represents the nation’s optimal resource allocation.
According to Flyvbjerg and Bester (2021), the justification of the cost-benefit analysis “is its contribution to effective resource allocation” (p. 395). It is a systematic method many business organizations use to analyze the best decisions to make and those to forgo. CBA involves summing up the potential rewards that a given project will bring and then subtracting the overall costs that will be spent (Flyvbjerg & Bester, 2021).
Therefore, by using the cost-benefit method, policymakers in the UK will gain deeper insights into the benefits, disadvantages, and the desirability of the HS2 project as a government investment. It will provide a transparent and evidence-based assessment that addresses the concerns of various stakeholders.
Theoretical Aspects of Cost-Benefit Analysis
Strengths
CBA has several strengths in making decisions related to complex public infrastructure investments. First, its strength lies in the systematic framework that it offers, known as “Pareto efficiency,” which allows organizations to make more informed decisions (Boardman et al., 2018). This framework has often been utilized in projects to organize and structure complicated government project investments, such as the UK’s High Speed 2 (Flyvbjerg & Bester, 2021). If a project’s benefits outweigh the cost, it will be a green light to the go-ahead decisions and forego when it gives otherwise results.
The second strength is the ability to assign a monetary value to the benefits and costs of a project. CBA often aims at determining how to allocate resources effectively by assigning monetary values to costs and benefits and then comparing them (Boardman et al., 2018). This strength would help make informed decisions while planning for a complicated public investment like HS2 because it allows comparison and aggregation of various factors involved.
The third strength of making informed decisions while planning for a complex public investment is its consideration of different externalities. Externalities in a public good or service often play an essential role in determining whether to continue with an investment (Flyvbjerg & Bester, 2021). Therefore, using the CBA, the UK government and other relevant stakeholders will have quantified external costs and benefits, which will help them understand how the project will affect society.
Weaknesses
While CBA could be the most effective tool in making informed decisions, it also has some weaknesses. For instance, for the government and relevant stakeholders to have their results, it would take them more time to understand and estimate all the project’s potential costs and rewards (Dehnhardt, Grothmann, and Wagner, 2022). It would also take them more time to assign accurate monetary values to intangible factors, such as their effect on uniting society, environment, and cultural heritage (Flyvbjerg & Bester, 2021). This time taken and the difficulty in assigning accurate monetary values can lead to biases and limitations in the process.
The second area that CBA needs to improve in making decisions on investing in a complex public infrastructure is the use of a single metric. Dehnhardt, Grothmann, and Wagner (2022), when comparing costs and benefits, it often uses one financial metric, benefits cost ratio or the net present value. This dependence on one metric affects the accuracy of findings in the analysis because it may overlook other factors or dimensions impacting the success of the project (Boardman et al., 2018).
Other weaknesses in decision-making are uncertainties in estimating costs and benefits, biases, and subjectivity (Dehnhardt, Grothmann, and Wagner, 2022). Assigning values of costs and benefits, determining the discount rates, and evaluating different factors and dimensions of these projects may be influenced by stakeholder interests or political considerations.
Cost-Benefit Analysis for the HS2 Investment
The main aim of using CBA is to assess a given project’s economic, environmental, regional development, and social feasibility. For the UK government and other relevant stakeholders to comprehensively analyze the HS2 project investment, it has to design an outline framework for evaluating it. The framework below addresses key design issues, focusing on the effect, outcomes, standing, and basic techniques for assessing benefits and costs.
Effects and Outcomes
Economic Impacts
The first effect and outcome to assess relate to the economy in the outline framework for evaluating CBA for the HS2 investment. The government and other relevant stakeholders should assess the project’s potential effects in reducing travel times and enhancing connectivity within major cities (Berkeley, 2020). They will also evaluate the direct and indirect employment opportunities and business opportunities that HS2 will generate for the cities in the UK. Many people will be employed to work in different positions during the construction and after the project is complete.
Environmental Effects
The other consideration that will be in the outline is the environmental effects. The relevant stakeholders involved in the HS2 development will have to assess how the rail travel will reduce greenhouse gas emissions, potentially a reduction in air and noise pollution, and how its construction will affect the local ecosystem, such as biodiversity, habitats, and protected areas (Dehnhardt, Grothmann, & Wagner, 2022). This will also include how it will reduce road and air traffic congestion.
Social Impacts
The social impacts will also be considered in the outline. The team reviewing the feasibility of the HS2 project will assess how the new rail will improve accessibility for different cities, how disadvantaged groups will benefit, and how it will foster social integration and reduce social inequalities (Institute for Government, 2020). It will also include considering the project’s potential adverse effects on local communities, especially during the construction processes, such as visual intrusion and noise.
Regional Developmental Effects
The team reviewing the feasibility of the HS2 project should also consider how it will affect the development of the region. They will evaluate if the HS2 project will make the economy of the region grow and develop or not through benefits such as increased connectivity, the creation of many business opportunities, and attracting investors globally (CCL Resource Center, n.d.). It should also analyze how the new rail may influence urban regeneration and how some areas it serves may be revitalized.
Techniques for Assessing Benefits and Costs
Many techniques can be used for evaluating CBA for the HS2 investment. The first estimates the direct costs that government and other stakeholders will incur upon investing in the HS2 project (Dehnhardt, Grothmann, and Wagner, 2022). These include land acquisition, construction costs, and expenses for managing the whole project (House of Lords, 2015).
The identification of the indirect costs of a project, such as potential adverse effects on communities and businesses, is the second technique of assessing costs and benefits (Boardman et al., 2018). This will help cater to all factors that would impact its success. The other technique that would be used is the assessment of how it benefits its users, which will include saving their travel times, improving reliability, and ensuring they are comfortable and conveniently reaching their destination (Institute for Government, 2020). Other techniques will include evaluating economic effects and environmental costs.
Consideration of Standing
Considering the concept of “standing” is important for the HS2 investment in CBA. Standing involves distributional effects, stakeholder analysis, and social equity related to a project (Brent, 2023). The review team should consider assessing how investment costs and benefits of HS2 investment will be distributed in different regions and socioeconomic groups. They will also evaluate whether the investment enhances accessibility and inclusion, and if it will address potential adverse effects.
Lastly, the review team will have to assess the stakeholders who will be involved in the development of the project. The first step will be identifying the key stakeholders, such as local communities, business organizations, affected industries, and environmental groups (House of Lords, 2015). The other steps will include engaging stakeholders and balancing stakeholder interests.
Conclusion
A Cost-Benefit Analysis provides a full evaluation of the merits of the high-speed rail project between London and Birmingham, allowing the UK to weigh the investment’s benefits against its costs. This evidence-based assessment is essential for policymakers to decide if the HS2 is a worthwhile venture, as it systematically quantifies all costs and benefits for transparent decision-making that addresses stakeholder interests. Designing and using the CBA framework, which focuses on effects, results, and assessment techniques, is therefore effective for analyzing the HS2’s feasibility and informing the final investment choice.
Reference List
Berkeley, L. T. (2020). A Review of High Speed 2. House of Lords.
Boardman, A. E., Greenberg, D. H., Vining, A. R. and Weimer, D. L. (2018) Cost-benefit analysis: Concepts and practice. United Kingdom: Cambridge University Press.
Brent, R. J. (2023) Use of distributional weights in cost–benefit analysis revisited. Applied Economics. Pp. 1-14. Web.
CCL Resource Center (n.d.) HS2 Review – A brief summary of the High Speed 2 Project. Web.
Dehnhardt, A., Grothmann, T., and Wagner, J. (2022) Cost-benefit analysis: What limits its use in policy making and how to make it more usable? A case study on climate change adaptation in Germany. Environmental Science & Policy. 137, pp. 53-60. Web.
Department for Transport (2017) High Speed Two (HS2) Phase Two: Economic case advice for the Department for Transport.
Flyvbjerg, B., and Bester, D. (2021) The cost-benefit fallacy: Why cost-benefit analysis is broken and how to fix it. Journal of Benefit-Cost Analysis. 12(3), pp. 395-419. Web.
House of Lords (2015) The Economics of High Speed 2. Authority of the House of Lords.
Institute for Government (2020) High Speed 2 costs.
Railway Technology (2020) High Speed 2 (HS2) Railway, UK. Web.