There has been a call to cancel #HS2 and use the money on more immediate needs like properly funding the NHS or buying everyone a bike. We all want the NHS to be funded - but it doesn't work that way: in fact we'd be worse off. A thread to explain why... /1
We Greens believe in borrowing to invest. Our 2019 manifesto proposed £94bn, to be invested in the national grid, energy storage, renewable electricity, home insulation, R&D, railways, cycle paths, electric vehicle infrastructure and so on (greenparty.org.uk/assets/files/E… p85) /2.
The point about investing is that you invest *in* something - an asset which has value and generates a return (in accountant-speak, "CAPEX"). /3
That's different from spending, where you spend *for* something that you need now, which doesn't necessarily have any lasting value (called "OPEX"). They're different kinds of money and they come from different sources. /4
When the Government invests, it borrows the money to do it from the money markets - by issuing treasury bonds (called gilts). These have a fixed interest rate and a date (50 years or more in the future) when they need to be paid back by. /5
At the moment the rates are very low (in some cases even negative: the government's being paid to borrow money: ft.com/content/3d576f…). So it's an excellent time to borrow to invest. /6
The government needs to be doing a lot of this to help stimulate the economy out of the COVID recession. HS2 is a good target: it provides jobs and will help drive down CO2 emissions. /7
In HS2's case, the Treasury will issue gilts each year to pay for that year's slice of HS2 spending. That'll be passed to the Department for Transport, who will pay it to HS2 Ltd, who'll eventually pay the contractors doing the work. /8
How much are we talking? Roughly speaking, HS2 Phase 1 will need about £40bn to build, between now and completion in 2033 - so just over £3bn per year. /9
To put that in context, Network Rail is investing about £4bn per year in upgrading the existing rail network (networkrail.co.uk/wp-content/upl…, p15), whilst the total of government gilts issued in 2018-19 was £98.6bn (dmo.gov.uk/data/gilt-mark…). /10
By contrast, when the government spends on current needs, like the NHS wages, training and materials, that’s OPEX which is set against tax receipts. It can't use gilt borrowing to fund it, because there isn't any asset to justify the investment. /11
So cancelling HS2 wouldn't release any money for anything else: the money just doesn't exist until the government issues the bonds for it. /12
It's a bit like if you arranged a mortgage to buy a house, then decided not to buy the house. The bank won't lend you the money anyway to spend on something else. /13
HS2 *is* an investment. It will generate a return for the Treasury through ticket sales, taxes paid by its staff, rent on its property etc. And the extra economic activity in the Midlands and North that it will generate. That money *can* be spent on things like the NHS. /14
And the government could one day sell HS2, just like it did with HS1 in 2010, and recoup the investment. /15
And since it has a benefit cost ratio greater than 1 even under quite pessimistic assumptions, that return is greater than the cost of building it. So by cancelling it, the Treasury would actually lose money. As a nation we'd be worse off. /16
So Greens shouldn't be calling for #HS2 to be cancelled. Since government borrowing is so cheap at the moment, we should be demanding investment in HS2 *and* all our manifesto ideas. And funding the NHS! /end
Postscript: @InfraPunk has put us right on one thing - see this correction:
