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Conservatives withdraw support for high speed railway

It was reported last week that the Conservatives have withdrawn their support for the proposed route of HST2. This is due to anxiety about of losing votes from NIMBYs in the Tory heartland, who are fearful of property blight. It is the worst of reasons since it does not go to the root of the problem and question the whole project.

Nevertheless a valid point is being made, if not directly. There is no effective means of judging whether or not a particular item of infrastructure development is a good investment, both in absolute terms and relative to other possible and competing investments. The unfolding arguments about whether Britain should have a high speed railway and where it should run illustrate a general problem.

A good measure of the value of infrastructure is the aggregate change in land value to which it gives rise, but there is only limited experience in analysing the effects and forecasting the likely increases. The Conservative objection to the high speed railway boils down to the unstated fact that it leads to a fall in land values along the line of its route and to increases only within the catchment area of stations.

The next difficulty is that this external value of taxpayer-funded investment is not captured for the exchequer and produces no return, being instead taken in the form of windfall gains by landowners. If there was a system of land value taxation in place, based on the taxation of the annual rental value of land, these windfall gains would be collected automatically. Conversely, there would be compensation for the losses, thereby taking the force away from the objections of NIMBYs.

But this too has become controversial because of the suggestion of what is known as “tax increment funding” which has got the thing a bad name. TIF involves hitting people with a lump sum charge, levied within areas that had gained from the infrastructure, which of course would be grossly unfair. It is unreasonable to expect people to make large lump-sum payments for something they will get little from, nor is it possible to draw a boundary which defines where the benefits begin and end.

Nevertheless, people should pay for these benefits because at present, if they do not want to use them personally, they can, and do, cash-in their gains and go somewhere else.