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Superfast broadband will see a bigger return on investment than HS2, says economist

Thursday, September 11th 2014 by Hannah Langston

The economic benefits of connecting every UK home to superfast broadband will exceed investment, according to the London School of Economics’ Professor Gabriel Ahlfeldt – but the cost-benefits case for the proposed HS2 rail-link is less clear.

Almost £43bn has been allocated to the high-speed railway project, whereas just £1.7bn has been set aside for connecting 95% of the nation to fibre broadband.

Speaking to Cable.co.uk, urban economics expert Professor Ahlfeldt told us, “Both are likely to deliver sizeable economic benefits but the benefits need to be compared to the costs of providing these infrastructures. The cost-benefit case seems to be clearer for superfast broadband.

“There is decent evidence suggesting that the economic benefits will exceed the costs for all but the 20% most rural areas in the country.

“The case for HS2 is less clear, mainly because the costs are so large,” he added.

The government’s superfast broadband project is due for completion in 2017 whereas HS2 won’t be up and running until at least 2026. However Mr Ahlfeldt believes it could take “decades, not years” for the economic benefits of the link between London and the North to recover its costs.

Referring to his statistical analysis of the German high speed rail line connecting Cologne and Frankfurt, where he found the benefits to local cities exceeded the cost of construction, Mr Ahlfeldt said, “The problem with HS2 is that the per mile costs are orders of magnitude larger than in the German case, which makes it more difficult to get to a positive benefit/cost ratio.

“With the investment into superfast broadband the government seems to be on more solid economic grounds”.

Responding to Mr Ahlfeldt’s comments, HS2 spokesman Richard Pain told us, “HS2 should not be viewed as a competitor or alternative to superfast broadband as it is not a question of one or the other.

“Technological advances such as email, video conferencing and smartphones have coincided with rail passenger numbers more than doubling since the mid-1990s. They have led to increased travel, not less. And there is a strong business case for this new north-south rail line, with at least £2 of benefits for every £1 spent.

“Analysis by KPMG has shown that HS2 could boost the economy by up to £15bn per year when operational. HS2 will rebalance the economy, skill a generation and support new homes and jobs”.

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