Wednesday, November 10, 2010

Privatisation reveals high speed rail is a dud

For the Blair Government, building a high speed railway from the private built, funded and owned Channel Tunnel was a matter of national pride.  The "business case" was questionable, with a benefit/cost ratio of less than 1, propped up by estimates of "regeneration" impacts at Ashford (which have by and large failed to come about).   However it was about Britain have a high speed railway because France had one at the other end (and Belgium too).   The support for a high speed railway was driven by emotion, because the economic (and the monetised environmental) case was not driven by reason.

The main beneficiaries of the line are not freight users (freight trains don't operate at high speeds, and the lines bypassed were not near capacity), nor those who move road vehicles by shuttle through the Channel Tunnel, but travellers on the Eurostar international service.   Many of them are business people who otherwise would have travelled by air, leisure travellers are not so time sensitive so would largely have gone by rail anyway. 

Why does it matter now?  Well the Conservative-Lib Dem coalition government has privatised it.

Yes amazingly coalition government in the UK, (which includes a party that has been solidly leftwing for some years)  is not shy about privatisation.  It doesn't upset the government that railway unions are upset about it, because most people don't care.   

It was bought by foreigners.  Yes!  A foreign consortium dominated by two Canadian pension funds is paying £2.1 billion for a 30 year lease on the rail line from St. Pancras to the Eurotunnel railyard near the tunnel entrance.  If you believed socialists you'd think that it will result in the asset being run into the ground, services deteriorating and becoming too expensive, in actuality the expectation is that there will be more services, as new train operators are expected to be allowed to use the line.

Yet the real tale is what an atrocious "investment" this line was in the first place.  You see the line cost £5.8 billion in the first place.   Taxpayers' money (well borrowed on their behalf).   A 63% write down on the initial investment.   Yes, it can be leased out again, but in 30 years the interest on that write down value is more than double the sale price.

So yes, the first high speed railway in the UK was a deadweight loss, a destruction of wealth for the British economy.   Even a bid that goes beyond expectations shows that the new owners can't even expect to recover half of the capital cost from train companies.  

So you might wonder if that was such a dud "investment" then why is this deficit cutting government so keen to pour money into another one that wont even come close to covering its costs from users?   More grandstanding, national pride and totem building.

Of course if it's lousy for Britain, it is many times more lousy for the USA.


StephenR said...

If you believed socialists you'd think that it will result in the asset being run into the ground, services deteriorating and becoming too expensive

If you're talking about the recent NZ context, isn't that in the case of ownership of the railway lines?

libertyscott said...

The difference is that you couldn't sell NZ's railway network for anything approaching its replacement value.