Vanessa Abrahamson Blog: HS2 will not cost Scotland ₤ 17 billion

Tuesday, February 2, 2021

HS2 will not cost Scotland ₤ 17 billion

A Facebook post claims that Scotland’s bill for the High Speed Two rail network (HS2) is £17 billion, despite the fact that the line won’t reach Scotland.

There’s no evidence that Scotland will pay £17 billion for HS2. The project is being wholly funded by the UK government, not devolved governments. Public finances are not calculated in such a way that costs of specific projects are allocated out to the UK’s nations.

This aside, when the UK government increases spending which only affects England, Scotland receives money, equivalent to its population share, back to spend itself. This is the case with HS2 which means that, in effect, all money spent on HS2 which is raised by Scottish taxes will be returned via something called the Barnett formula.

Also, while HS2’s high-speed lines will not reach Scotland, HS2 will cut the travel time to and from Scotland in some cases, because HS2 trains going between Scotland and England are expected to run on the high-speed lines in England before or after moving onto the regular network.

How much is Scotland spending on HS2?

HS2 is being paid for by the UK Department for Transport. This is funded by public money including taxes gathered across the UK.

We can’t really say the extent to which taxes collected in Scotland are contributing towards HS2 because bits of government revenue aren’t generally earmarked for specific projects.

There are statistics which estimate public spending in Scotland, by working out what share of UK-wide projects go towards benefiting Scotland, as well as Scotland-specific spending.

This may be the source of the £17 billion figure. An FOI submitted late last year quoted these public statistics which show that £17 million, not billion, was estimated to have been spent on HS2 for the benefit of Scotland between 2014/15 and 2018/19.

This looks to correspond to the amount of “current” spending on HS2 (spending on day-to-day running costs), and doesn’t include the capital spending elements of the project (spending on assets), which are more significant. For example, day-to-day spending on HS2 might include staff salaries, but capital spending would be things like buying land for the tracks or the tracks themselves.

Regardless, these statistics don’t really show how much goes from Scotland to pay for these projects, but about how much is spent for the benefit of Scotland, for example through cutting journey times between Scotland and England.

However, whenever spending on services in England is increased, money is also allocated to Scotland using the Barnett formula.

What is the Barnett formula?

In the UK certain parts of public service are devolved to the administrations in Scotland, Wales and Northern Ireland.

When the UK government decides to change the spending on things in England, the Barnett formula is used to calculate how much the governments in Wales, Northern Ireland and Scotland should receive for funding services they’re responsible for.

It essentially has the effect of preventing exactly the sort of thing claimed in this viral post—tax raised from Wales, Scotland and Northern Ireland being spent on things in England only, without any money coming back for those governments to spend themselves.

The formula multiplies the change in spending by the UK government department by what’s called a “comparability percentage” and then by the proportion of the population affected.

With HS2, that “comparability percentage” is 100%. That means that whatever is spent on HS2 in England, in effect, results in money equivalent to that spending, relative to the size of Scotland’s population, going north of the border.

So for every £1 spent on HS2, Scotland receives 9.7p more funding (because Scotland’s population as a percentage of England’s is about 9.7%). (Technically Barnett funding is not worked out on the spending on individual projects, but the change in spending at a departmental level, but this is, in effect, what happens).

The total spend of HS2 is estimated to be around £107 billion in 2015 prices, according to an independent review of the project’s costs. We’ve looked at these costs before.

Thanks to the Fraser of Allander Institute, for helping with this article.

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