Government must reassess HS2 in light of "serious shortcomings" in economic case, says Treasury Committee

Publishing the results of its inquiry into the Government's spending plans for 2015, the Treasury Select Committee said there were "serious shortcomings" in the cost-benefit analysis for High Speed 2 (HS2). It called on the Treasury update this analysis to address concerns set out by the public spending watchdog, the National Audit Office (NAO), in May; before putting the final investment decision to the Government.

However projects expert Patrick Twist of Pinsent Masons, the law firm behind Out-Law.com, said that the UK needed major transport infrastructure investment for the long term, regardless of the immediate benefits. Inviting the Treasury to make the case for the project was like "asking Casanova to make the case for celibacy", he said.

"The UK has a long-standing record of delaying and cancelling infrastructure projects, much of it on the back of Treasury assessments of benefit: cost ratios," he said. "Such assessments give the impression of allowing for dispassionate, informed judgements that are being made on the basis of facts and reason. But the reality is that they are structured so as to result in a bias against long-term investment and a reliance on a quick-fix, patch-and-mend approach to infrastructure. If ministers had followed Treasury strictures there would have been no M25, no Jubilee Line to Canary Wharf and no Crossrail."

"The Office for National Statistics projects that England's population will grow by 26% by 2050. At the same time, passenger rail traffic has grown consistently since 1983 and has doubled in the last two decades. The inexorable logic of this is that England will need a new North-South rail line. It will happen. The question is whether to go ahead now, or to delay while the costs get higher and years of benefit are lost – just as they were when the Channel Tunnel was cancelled in 1974 and not restarted for 16 years," he said.

HS2 is due to be delivered in two phases, with the initial London to Birmingham phase of the line scheduled for completion in 2026. The line will cut journey times between the two cities to 45 minutes and support trains running at up to 250 miles per hour, according to the Department for Transport (DfT). A proposed second phase of the project envisages the construction of an onward 'y network' connecting the line to Manchester and Leeds, as well as to Heathrow Airport, by 2033.

The project continues to have the support of the leaders of England's three main political parties; however, at the Labour Party Conference last month, Shadow Chancellor Ed Balls said that a future Labour government would not support the line if costs continued to rise. HS2 has also attracted criticism by the Institute of Directors and Parliament's public spending watchdog, the Public Accounts Committee, since the DfT announced an increase to the budget in June. According to the latest estimates, the project is expected to cost £46.2 billion with an additional £7.5bn for rolling stock.

In its early examination of the work done by the DfT to prepare for the new line, published in May, the NAO said that the Government was yet to demonstrate a "clear business case" for the project, particularly in relation to the ability of the new line to stimulate regional economic growth. It was also unclear if the business case covered just the first phase of the line, or the later extension to Manchester and Leeds.

HS2 Ltd, the company set up to deliver the project, responded in September with a report published by accountancy firm KPMG. The report claimed that HS2 could generate £15bn of annual productivity growth, but admitted that the full benefits of this would not be felt until 2037. The Treasury Select Committee said that it would need to examine whether this report, and any further material published by the Government, fully addressed the NAO's concerns and "publicly quantified" any non-economic benefits relied on by the Treasury.

"At £46.2bn, excluding a large contingency reserve, the construction cost of the project has increased by 17% even before it has started," said Andrew Tyrie, the Conservative MP and committee chair.

"A more convincing economic case for the project is needed. We need reassurance that it can deliver the benefits intended and that these benefits are greater than those of other transport schemes – whether in the department's project pipeline or not - which may be foregone," he said.