Oxera analysis suggests that Northern Powerhouse Rail could return high value for money
On the day that northern leaders unite to back the £39bn investment in Northern Powerhouse Rail, Oxera’s analysis for Channel 4 Dispatches suggests that the scheme could offer high value for money.
Northern Powerhouse Rail, previously known as HS3, is a proposed railway network that would link Leeds, Manchester, Liverpool and other major cities in the north of England. Today, leaders from the North of England have asked the UK government for a full and long-term commitment to Northern Powerhouse Rail, and to recognise the scheme’s critical role in regeneration and growth, to refresh the Northern Powerhouse Strategy.
Channel 4 Dispatches commissioned Oxera to look at the economic potential of Northern Powerhouse Rail. We estimated the benefits of the scheme by calculating benefits to passengers from expected journey time improvements, before applying various adjustments to capture other non-journey time benefits, wider economic impacts and ‘transformational’ impacts. We then estimated the costs of the scheme, and combined this with the benefits to obtain the benefit–cost ratio (BCR). The BCR tells us how many pounds of economic benefits are generated from investing one pound in a project.
The results of our analysis suggest that the scheme could offer high value for money, where each £1 invested yields at least £2 in economic benefits. Several assumptions that we made are conservative—such as those on fares and the value of travel time savings—but even with these conservative assumptions, the economic returns are considerably greater than £2 for each £1 investment. With an alternative set of assumptions, it is possible that the BCR could rise further.
However, it is important to emphasise that these results should not be interpreted as being precise; they can only provide an indication of the likely magnitude of Northern Powerhouse Rail’s costs and benefits. Northern Powerhouse Rail is still at an early stage of development, and its scope is not yet confirmed.
Our analysis also relies on several high-level assumptions. While we consider them to be reasonable, given the preliminary stages of Northern Powerhouse Rail’s development and the purpose of this analysis, they can be improved given additional, higher-quality data and further analysis.