Yes it increases rail capacity massively, it will reduce rail headways on existing routes. Fast trains require a bigger gap between trains, so if they are placed on separate lines these can be reduced. More stopping trains can be placed on the WCML, and capacity will be increased at Birmingham...
I agree money could be spent elsewhere, but why not both? I think thats what a lot of people fail to see, it always seems to be an argument, the railways need better investment as a whole, and this project is one of many that will be necessary in the future.
We may not have agreed previously on railways, but this is exactly the correct view on HS2. Trying to plan a train once an hour down the West Coast Mainline was difficult enough, to the point where its no longer goes to Milton Keynes.