Off the rails? The business case for and against HS2

With the highly controversial HS2 under government review, further doubts are being raised over its future. But what does this mean for small business owners?

By Nick Huber on 10/10/2019

How will HS2 impact small business owners? | iwoca
Image: Madeline Ragsdale

HS2 is a proposed high-speed rail link between London, Birmingham and the north of England. Its aims? To directly connect eight of the 10 largest cities in Britain, reduce overcrowding on trains and create more than £92 billion for the UK economy. According to HS2, for every £1 spent the UK will receive £2.30 in benefits, alongside more than 30,000 new jobs - 70% of which will be outside of London.

These are big promises, and it doesn't stop there.

Trains on the HS2 line are expected to travel at 250 miles per hour, carrying more than 300,000 passengers a day and cutting the journey time between Manchester and London by about one hour (to 49 minutes), according to a government estimate.

However, the government’s recent announcement of an independent review into the future of the high-speed rail link has raised questions over its benefit to the UK transport network, and puts delays on construction work scheduled for the end of 2019. While it may create a major economic boost for the UK, critics argue that investment in existing transport links would be a better use of money.

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If everyone will benefit, why is there a review?

Plans for the rail link between London, Birmingham, Manchester, the East Midlands and Leeds have become increasingly controversial. One of the main worries is over the project’s escalating costs. According to a statement published in September by Grant Shapps, Secretary of State for Transport, the budget has increased from £55.7 billion to between £72 to £78 billion (in 2015 prices), amid further doubts whether the project will achieve its planned benefits.

When the review was announced Shapps said that although transport infrastructure has the potential to drive economic growth and support towns and cities across the UK, investments must be continuously assessed for their costs and benefits.

What is the review examining?

The review will assess whether or not HS2 should go ahead - considering HS2’s “affordability and efficiency”, “scope”, timing schedule and its relationship with Northern Powerhouse Rail. It will be led by Douglas Oakervee, former chair of HS2 Ltd and Crossrail, along with a team of independent experts. Having been announced in August, it’s due to make its recommendations later this autumn.

What does business want?

It’s hard to gauge the opinion of the UK’s millions of SMEs but most UK business groups want HS2 to go ahead. They say that it will help the economy.

“For the good of UK small firms and the economy as a whole, it’s vital that the HS2 project remains on track,” the Federation of Small Businesses, said in August. It also stated that the project should provide value for money and that this could be helped if smaller businesses were included in the project’s procurement.

Alexander Paper Supplies in Crewe, North West England, is less than one mile from the HS2 route. Its owner, Sandy Cowen, acknowledges that the project is controversial but says that there is “huge” support for HS2 among Crewe businesses because it will benefit the region’s economy and provide infrastructure investment for the north of England, not just the south.

He thinks its right for the government to review the project because of increasing costs. “I appreciate it’s a huge project, but as a business if we were organising a project and costs escalated as rapidly as HS2’s have we would have gone bust.” But given that the government is committed to the project its best to “follow through”, he says.

Not all SMEs support HS2, though. Nigel Sarbutts, founder of The PR Cavalry - a Manchester-based technology SME, says: “The central claim made for HS2 is that it will regenerate entire regional economies, but there is no example of high speed rail achieving that goal in any comparable economy to the UK.”

And, he says, there is “abundant evidence” that high-speed rail tends to benefit the capital rather than the regions.

It’d be better to spend HS2’s budget on city and regional transport schemes that will be of more benefit to SMEs, most of whom do most of their trade locally and recruit locally, says Sarbutts.

Could the plan for HS2 be tweaked so businesses outside London get more value from it? The Institute for Public Policy Research, a think tank, reckons that phase two of HS2 should start in the North, rather than in the Midlands, as currently planned.

Doing so would help reduce the imbalance in transport spending in England, it says. The government plans to spend £3,636 per person in London, compared to just £1,247 per person in the North of England, according to the Institute for Public Policy Research (IPPR).