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KPMG says HS2 will generate £15bn a year

11 Sep 13 The proposed £45bn High Speed 2 rail project could pay for itself within nine years, according to a report commissioned by the developers.

After criticism from the House of Commons Public Accounts Committee this week that HS2 Ltd had failed to make the case for the project, the government-owned company has made a timely rebuttal.

An analysis by KPMG prepared for the developer claims that HS2 would boost the UK economy by £15bn a year, thus generating more than £5bn in tax receipts for the exchequer.

The report also gives a breakdown of the economic benefits for each HS2 city region, with variations in the impact on particular regions. Birmingham’s economy will get a yearly boost equivalent to 2.1 to 4.2% of the city region’s GDP. For Manchester, the figure is 0.8%-1.7%, for Leeds 1.6% and for Greater London 0.5%.

Richard Threlfall, KPMG’s head for infrastructure, building and construction, said: “There have been repeated calls for a business case for the HS2 scheme focused on jobs, productivity and growth. KPMG’s analysis forms a key part of that business case, setting out the economic impact across the country of the HS2 scheme. It shows beyond reasonable doubt that HS2 brings net benefits to the country of many times the scheme’s cost. It shows the UK will be £15bn a year better off with HS2, recovering the cost of the scheme within just a few years.

“Our analysis also shows that HS2 will significantly help counter the corrosive effects on our country of the widening north-south divide. There has been a long-running debate about “who wins” from HS2, the north or the south? The answer is both.”

Lewis Atter, KPMG lead on infrastructure strategy, added: “Our report looks beyond time-savings of HS2 to the impact on the real economy in terms of GDP and therefore also tax generated for the exchequer. Adding £15bn a year to the UK economy is like creating an economy the size of Cambridgeshire or Oxfordshire, without reducing the size of anywhere else. Given the proportion of GDP that flows to the exchequer, this means more than £5bn a year in extra tax receipts, more than enough to cover the long term costs of the project to the taxpayer.

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“The work also shows that once the focus is what HS2 can do for the economy, the debate about the ‘lap-top’ effect on the value of time saved on rail turns out to be a red herring. Yes it’s true that because it is possible to use a train a little bit like a mobile office, saving time on a journey isn’t as important as it once was, but it also means that the value of rail connections between places to the economy has gone up and will rise over time. HS2 is not just about speed it is also about new capacity and the ability to provide those ‘mobile office’ benefits to more businesses, between more places and at higher levels of frequency.”

HS2 spokesman Ben Ruse said: “This is a robust, independent report based on peer-reviewed modelling and makes a hugely significant contribution to the progress of HS2. Increased rail capacity, with faster and more reliable connectivity, will contribute to the economy right across the UK. The North and Midlands are set to gain at least double the benefit for the south. There is now clear evidence of the economic boost HS2 represents in terms of jobs, productivity and growth. HS2 is the right project at the right time.”

The full report, HS2 Regional Economic Impacts, is available from HS2 Ltd's website.

Below: KPMG's estimated changes in economic output after investment in HS2 (2037, at 2013 prices)

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