7 April 2021

Birmingham businesses face the hidden costs of HS2

By Andrew Cordiner

You’ve got to admire its staying power. Since it was launched by the Conservatives at their 2008 Autumn conference, HS2 has been rejected by the then Labour government, then subsequently adopted, it’s survived multiple reviews and budgets and it’s outlasted austerity, six Secretaries of State for Transport, four Chairmen of HS2 Ltd and three CEOs.

Now Phase 1 is underway with a view to opening the new rail line between London and Birmingham sometime between 2029 and 2033. But it is perhaps ironic that, for a project which will do so much damage to the Environment, its latest challenge also comes from nature: the Covid effect.

The HS2 business case promises ‘up to’ 500,000 jobs and billions in inward investment. The project has engaged no less than 17 PR companies to pump out the propaganda, but when we are spending upwards of £100bn on a single project (the most expensive Human Made Project in History at twice the cost of the International Space Station), people need to feel they are getting value for money.

But are we?

The business case is based on time savings in travel. But in a post-Covid world is there any value to saving time on a rail journey given you can turn on your computer and arrive at a meeting anywhere in the world instantly, and for less cost than HS2.

It’s also reliant on 58% of the passengers being premium fare business passengers who will most likely no longer travel as we switch to working from home.

Before Covid, the project was set to offer a substantial boost to the regional economies. It promises wider economic benefits in the form of businesses relocating to the West Midlands to take advantage of the faster travel. It would deliver an economic boost of £96bn for the UK of which 9% would accrue to West Midlands whilst 22% accrues to London.

On the face of it an £8.6bn boost to the West Midlands economy is welcome – but it comes with a hidden cost that politicians have not disclosed.

Birmingham has two stations, one for the City Centre and one for the Airport. Both stations are isolated and disconnected from existing transport links. There is a cost to plumb HS2 into the Transport Network and that is set to fall on hard pressed businesses in West Midlands.

As part of the devolution deal, an HS2 Connectivity Package was agreed between the Mayor’s Office, West Midlands Combined Authority (all the regional councils) and the DFT to fund the estimated £1.25bn required to connect the project up. Combined Authorities would take on £553m in additional debt serviced by their council taxpayers, then the Mayor would introduce an Infrastructure Levy via additional business rates.

The worry for local industry will be where the axe falls.

West Midlands business will struggle to come to terms with an additional 6% per annum to fund something they are unlikely to derive any benefit from for another 10 years, especially given what this would mean for businesses already decimated by the pandemic.

Perhaps the worst affected sector by Covid is retail. A report by PWC in 2019 already recorded the West Midlands was one of the worst hit regions from the decline in retail shops following brand collapse or closures. In the most recent blow, the John Lewis Store at Grand Central was forced to close due to the high overheads, of which business rates is certainly one.

As we recover from Covid, it remains to be seen what will be left of High Streets, but there can be no doubt that if a successful major chain like John Lewis can’t cover the business rates in prime Birmingham, it is difficult to see how an Infrastructure Levy will make this better.

You could look at it another way: £1.25bn out to get £8.6bn back. Sounds a great deal, except you won’t be getting the return on your money any time soon, you may not get it at all if the benefits don’t materialise and, in the meantime, in addition to your Covid debts, the Mayor wants another 6% on top.

No doubt Manchester, Sheffield and Leeds will be facing the same devolution deal and connectivity burden. For a Prime Minister keen to level up the country, its interesting that while London will reap 22% of the benefits of HS2, the capital’s businesses don’t have to pay an Infrastructure Levy to enjoy it.

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Andrew Cordiner is former Director of LXB Retail Property.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.