What does the government claim to be doing this for? The primary objective is to overcome forecast capacity constraints for North-South rail travel. Secondary are general benefits to the UK economy, said to be through a result of reduced travel times, reduced crowding on trains, perhaps reductions in pollution and greenhouse gases. It's also expected to bring benefits in journey reliability, economic regeneration. The 335 mile network is projected to cost £30bn to build.
HS2 is a loony policy!
Many commentators have pointed out just what a completely loony policy HS2 is for all sorts of reasons. Sometimes they point out that similar advantages can be achieved at lower cost by upgrading existing rail. Sometimes the disruption and environmental cost is cited. For years now, econobloggers have been pointing out the unpopular HS2 emperor has no clothes.
But what would be the best way of achieving the government's goals of reducing crowding on trains, increasing travel capacity, cutting journey times and reducing pollution?
The answer here may surprise some people:
Build a free express coach and bus network across the UK!
The government declares that it intends to provide free urban buses and inter-city coaches. Then the government invites competitive bids for a large number of coach services, to be operated without fares. The private operators can then organise their employees, vehicles, maintenance in the market usual way. Uncompetitive bids would be rejected. In economics terms, the government (local or national) is acting as a monopsony purchaser in the provision of a club good, free coach travel, to the benefit of the "club" of local homeowners and landlords.
The idea of creating a large-scale coach network in the UK is not new. Cambridge-based economist Dr. Alan Storkey has studied this for many years, submitting proposals to Parliament and publishing a paper. Public support is found to be very high. The issue was even the subject of a Radio 4 "You and Yours" show in 2007. A key issue missed by Dr. Storkey is the analysis of fares. The number one complaint about public transport (from users and non-users) is the high price of it - journey time on trains is a low priority. This high price sensitivity is confirmed by the dramatic uptake of free concessionary bus passes - taking most slow-witted economists and planners by surprise. The ticket prices are not high because of high marginal costs (they are not) - they are high because the demand is high but the competition is feeble. People will pay high prices for a coach or a rail ticket because the value to them is high. Prices in the economy are normally set by supply and demand, not costs (hence transport subsidies on costs simply boost profits without impacting ticket prices). In a competitive market, high demand results in high volume of production. In a non-competitive market, high demand results in high prices and sometimes high profits. When the price of travel is the number one issue, shouldn't the government consider subsidising prices of low cost solutions ahead of high cost, high risk alternatives?
But how would this help rail services?
Currently, most journeys well served by rail services have only a single operator. Commonly First Group or Stagecoach. They do not operate in a terribly competitive travel marketplace - private cars are the biggest competitor while coaches, taxis and planes usually come far behind. The demand the government is trying to meet is not for people to travel by train to/from central London and central Birmingham, but for travel, door to door.
A free coach service would be a major new competitor, not only to rail, but also the private car. Rail operators currently try to maximise their revenues by "revenue management" ("Yield Management") - charging different amounts to different people at different times. Having special passes and discounts, complex fare rules. This is called "rent-seeking behaviour" in economics, and is incompatible with competitive markets. When different people pay different prices for an identical product, you can be sure competition is lacking.
For many people, a free coach service would be a superior travel choice to the rail journey. Sometime the coach would be slower, but often it would be more direct, have fewer changes. And it would always be cheaper and simpler. The marginal seat cost of a place on a coach service is zero (unless it is already full). The competitive market price for a zero cost item is zero - as airlines have repeatedly discovered to their dismay.
Suppose we took £1bn of the £30bn earmarked for HS2, and invested it in new coaches, what could we get, and when? While HS2 is still going through the courts and planning battles, coach operators could acquire 10,000 new high quality coaches, with capacity of about 500,000 seats (compared with under 50,000 seats on HS2), and still have change for some interchanges, publicity and a web site. Coach services could be up and running even before they start tearing up the countryside, roads, houses and pulling down Euston Station. HS2 works begin with an orgy of capital destruction. The infrastructure necessary to run coaches is already in place, making this a low risk choice. The benefits would come over a decade sooner with coaches than HS2. In fact, the economic benefit would be delivered in every year of operation. A coach network is scalable, distributed, robust, low-risk solution in a way HS2 just isn't. What if HS2 needed 100,000 seats? Or only 10,000 seats? Either would imply big problems. Coaches give ten times the passenger capacity for 1/30th the cost. Wow!
Rail users who found intercity coaches better and/or cheaper would rapidly switch. Seats on trains would immediately be freed up for those who wished to pay for them. Train operators would quickly respond by changing their operations and fares. Most likely they would simplify and slash fares where there was capacity. And on the routes which stayed crowded because they were truly competitive, prices would remain high.
On the roads, major effects would also be seen. Some car users would find the coach service better - saving money and reducing fatigue. Most would continue driving. But by drawing car users into vehicles with 20 to 90 passengers, less road space is needed. Reductions in accidents, and greenhouse gases would be significant (coaches do around 200-400 passenger mpg). Journey times for freight (which HS2 barely touches) and for other car drivers would be reduced.
So in terms of the government's primary objective - meeting forecast demand for North-South rail, the free coach service solves the problem by providing a high capacity, low price competitor to rail, dramatically reducing rail demand. Instead of drawing in passengers to focus on limited mainline rail capacity, travel is dispersed across high capacity coach services much more closely matching where people are and where they want to go to. HS2 actually has the potential to be counterproductive by concentrating travel in a narrow transport corridor, and generating additional journeys on some of the sections it is supposed to relieve - as well as providing a single point of failure with potential to cause travel chaos across the country. This effect is well known theoretically as Braess's Paradox, and applies in just this kind of network where a strong link is strengthened, the weak links feeding it get clogged.
Transport in London is already excellent - a mix of car, taxi, bus, underground and train serving people. And car ownership there is low. Why pay all the expenses when transport is cheap and plentiful? The same effect would begin to happen across the UK if a free coach system were established. Two car households might chose not to replace their second car. Young people would delay buying a car. Older people would stop driving earlier.
How much would it all cost?
A network of 10,000 free inter-city coaches might cost around £2bn/annum to operate, and it would require about 30,000 workers to operate. The figure is comparable in magnitude to the interest cost on the £30bn proposed cost of building HS2 - to say nothing of the running costs.
And how much would it benefit the UK? Perhaps the biggest benefits would be in terms of increased mobility across the country - particularly for the young (under 21), the elderly, tourists, the poor - none of whom stand to benefit much from HS2. Mostly this will come directly from the new coach (and ideally bus) usage, but some of this will be through improved rail and road. A second benefit would be in reduced vehicle and fuel usage. Fuel usage by car is 4x-10x the usage by a coach, so for every litre of fuel used in the coach, the economy benefits by not consuming perhaps five litres. The coach fleet might save 1.8bn litres of fuel per annum, cutting carbon emissions by just under 5m tonnes CO2 - about 1% of total UK output. (100 litres average daily consumption by fleet coaches, 2.7kg CO2/litre). It looks like HS2 will give no more than marginal reductions in CO2. Reductions in vehicle use and ownership add to these benefits. Finally of course there are the reductions in travel time, particularly for road users (less congestion) and those currently poorly served by public transport. Cutting an hour off travel time with a coach network costs only a tiny fraction of the same saving on HS2.
No shortage of infrastructure, investment or spending
The problem with travel and transport in the UK is not a shortage of infrastructure or of total spending. It is a shortfall of utilisation and efficiency. Market structure, not infrastructure is the central problem. Roads are crammed with half-empty cars for a couple of hours per day, then quiet. Bus operators' profits are subsidised while they still charge high fares on nearly empty buses. Trains are overcrowded in the Southeast while many routes are quiet because people are priced into their cars. And the cars lie idle for most of the time. Too much infrastructure is in the wrong place at the wrong time at the wrong price. The government and their vested interests like it that way, and have regulated competition out of existence in provision of both road and rail. The only area of economic freedom is in air travel - which unsurprisingly has responded with innovation and some amazingly low prices.
HS2 fails the economic tests because it is going for the high-hanging fruit - replacing fast and efficient travel from central London to certain locations in The Midlands and North with even faster travel. The project is particularly problematic because of the harm it causes before any benefit whatsoever is accrued - it is nothing but an economic burden before 2026 at the earliest. Fares alone cannot possibly support the HS2 project at any price. Coaches are the mode of transport with the lowest economic costs per passenger mile (fuel, capital, maintenance, labour), outperforming competing modes, typically by factors of 5x or 10x. They can offer a superior service to major under-served demographic and geographic groups to their current alternatives. The population is dispersed across the country. Shouldn't the transport be dispersed too?
Who should pay for it?
So how is the £2bn/annum price tag for free coach travel to be paid for? The trick here is to find the beneficiary. In general, the real economic beneficiary should pay for a government-provided service. In this case, it is the landowners who would benefit. Just as £0.01 Ryanair flights to Mediterranean France are paid for by property taxpayers in France, via the Council operated landing subsidies, £0.00 coach travel can be similarly paid for through the Council Tax and Business Rates, or much better through Location Value Covenants. An extra £60 per household each year may sound a lot, but it would be more than repaid in lower shop prices, fewer and less congested car journeys and savings in transport tickets. Compared to the £3000 per household spend on their cars, it represents a bargain for the community. But the dispersed economic benefits show the folly of attempting to fund the project through ticket sales alone.
Much can be learned from the hugely successful and popular "fares fair" scheme in London under the GLC in the early 1980s, which dramatically cut congestion and accidents in greater London, but was shut down by Mrs Thatcher's Conservative government, and (outside London) ultimately replaced by the well-intentioned attempt to create competition in bus services across the UK. Competition in bus services to the public fails to provide a stable market because there is no stable, profitable market price for multiple competitors on a route. Thatcher's goal of creating a competitive market was sound. But the implementation desperately flawed. It's time to face this failure and rethink market structure. Mergers, bankruptcies, cartelization and/or dirty tricks always resulted - same as in aviation. Competitive bus or coach markets under her deregulation always failed - and predictably so to any economist worth his salt. The best solution is to establish competition to supply a single purchaser with the service on a route, pricing the tickets at marginal cost (usually free). This way, average costs can be brought down dramatically, overcoming the adverse effects of cartel pricing - low provision, low utilisation, complex and often high fares.
Winners and losers
So who would stand to lose from abandoning HS2 for free coach travel?
- Firstly the bankers, who create these enormous sums of money with interest rolled over for over more than a decade. HS2 is the perfect "buy now, nothing to pay for 14 years" scheme beloved of the merchants of debt.
- Secondly the construction company bosses, who will congratulate themselves on winning lucrative new contracts.
- The politicians, who get to hand out the benefits, subsidies and compensation to their favoured groups.
- The landowners (mainly) of London, who don't get to raise their rents from improved London connections.
- People in the car industry, who find it harder to sell new cars.
- Executives in Stagecoach and First Group, who find profits are stabilised at lower levels by the introduction of effective competition in public transport.
- Executives in oil companies, who find a 2bn litre reduction in fuel use no help.
- Taxi drivers have who provide a high-cost government cartel protected service to those without alternatives - and have done since a 1654 law banned unlicensed carriage of fare-paying passengers.
- The road builders, who find the apparent demand for new road space fades away.
- Road pricing schemers who want to charge drivers on all British roads through compulsory satellite locators and monthly billing.
Political support for U-turn likely
If the government abandoned HS2 for a free coach network, I predict there would be cheers from the broad majority of voters. People know HS2 is mind-bogglingly expensive, risky and disruptive. And they know that something should be done about overcrowded roads and trains. And something should be done to address high ticket prices on public transport. Nobody will shed tears for the banking and construction execs' lost bonuses. Abandoning HS2 now in this way would likely be an election winner.
Unstoppable, like Concord(e)
Unfortunately, HS2 may have so much momentum it may be unstoppable. We risk the same financial and economic disaster as Concorde was in the 1960s and 1970s - too expensive politically to stop, too expensive financially to continue. The HS2 calculation has an "optimism bias" on the costs. But what if the cost turns out to be 3x the current figure while the benefit only half what is claimed? One thing is certain - with the kind of corrupt thinking that conceived of HS2, there's no way for society to pick the low-hanging fruit of transport projects like coach networks. Like Concorde, it will be a white elephant which has to be rescued by the taxpayer - perhaps as a another free gift to insiders.
The idea isn't new. But nowhere is it even mentioned in discussions by government, supporters or opponents of HS2. It deserves a public airing.
2 comments:
There's no way for society to select the low-hanging fruit of transport projects like coach networks.
couriers London
Wow...what wonderful thinking! Do you think 38 degrees could get behind this?
This is too important an opportunity to miss...to push for some really enlightened thought.
I'm sure there are organisations all over the country who could get involved. Natcan has to be a first...but the absolute vast majority of us would benefit.
It's a no-brainer, surely!
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