(Bloomberg) — Rishi Sunak faced growing anger from business leaders, politicians across the spectrum and even a major donor as he weighed whether to shorten a flagship rail project that may cost the UK £100 billion ($123 billion).
The prime minister and chancellor are locked in talks over whether to halt the Birmingham-to-Manchester leg of High Speed 2 over concerns its cost is spiraling out of control. A decision may come as early as this week before Conservatives gather for their annual conference in Manchester.
“We do have to respond to the budgets,” Defence Secretary Grant Shapps said in an interview with the BBC on Sunday. “We have been hit not just by coronavirus but also by war in Ukraine, and I think any responsible government looks at that and says does this still stack up for what the country requires in terms of where it’s spending its resources?”
While Shapps didn’t detail what Sunak is likely to decide, his remarks fed speculation that the Conservative government will drop a major part of the project that was at the heart of its strategy to “level up” prosperity in northern communities. Tories won support from those areas away from Labour in the last election and need to retain that backing to win again.
The Sunday Times separately reported Sunak is looking for ways to cut inheritance tax, which Shapps called “deeply unfair” without confirming there would be a change.
His remarks signal the Conservative Party, trailing the Labour opposition in polls, is juggling its priorities ahead of an election widely expected next year. The inheritance tax measure would appeal to the party’s wealthy backers, but the idea of further pruning HS2 touched off a broad backlash.
- Manchester Mayor Andy Burnham told Sky News northerners were being “treated as second-class citizens” by leaving the area with “Victorian infrastructure” that will deepen the wealth divide with the south.
- Jürgen Maier, former CEO of Siemens UK and vice-chair of the Northern Powerhouse Partnership, told Times Radio that “confidence levels in businesses to invest in their operations for infrastructure in the UK has really been knocked.”
- John Caudwell, the billionaire founder of Phones4U and a Conservative donor, told the Sunday Times that stopping HS2 won’t “make Britain great again,” that it should go ahead as intended and delays would make it “disastrously more expensive.”
- Former Prime Minister Boris Johnson told the Times that, “it’s the height of insanity to announce all this just before a party conference in Manchester” and that Sunak shouldn’t deliver a “mutilated” HS2.
- Ten university vice chancellors including those in Warwick and Coventry urged Sunak to press ahead with HS2 in full, saying it will “allow our universities to continue to drive the transformation of the regional economy,” the Financial Times reported.
- Former Conservative Chancellor George Osborne wrote in the Times that shortening HS2 would be an “act of huge economic self-harm.”
Sunak is working on a series of policy changes on housing, infrastructure, immigration and industrial policy over the coming weeks, people familiar with the plans have told Bloomberg.
A U-turn on HS2 would follow his decision to water down rules pushing the UK toward Net-Zero fossil fuel emissions, which also triggered a backlash among Conservatives.
The government is concerned that inflation is jacking up the costs of HS2. It’s already spent £24.7 billion on HS2 as of June, with a total budget for the first phase of the project from London to Birmingham of as much as £45 billion. Beyond that the numbers are more opaque. The official cost of the whole project is £71 billion — though the government’s own review said it could exceed £100 billion.
“The sequencing of what happens next is a perfectly legitimate question,” Shapps said on the BBC. “A serious government looking at the long-term future makes these decisions even when sometimes they’re not popular at that moment, in the interests of the country at large.”
Scaling back HS2 would also be a blow for suppliers. Work on the project has been led by a range of UK and European engineering companies, including Balfour Beatty Plc, Vinci SA, Ferrovial SE, Eiffage SA and Kier Group Plc. More than 3,000 businesses have done work on the project, which supports 3,000 jobs, according to HS2.
Infrastructure has been one of the few strengths for the construction industry this year, which is reeling as homebuilders slash projects after soaring mortgage rates strained affordability for more buyers. Dropping a major part of HS2 would be a drag on the sector and the broader economy at a moment when analysts say a recession is increasingly likely.
Business groups including the British Chambers of Commerce and CBI have already urged the government to stick with HS2, saying it will both support jobs and improve productivity.
Darren Jones, Labour’s shadow chief secretary to the Treasury, equivocated on whether the party would support the Manchester link. He told the BBC he “would love to see HS2 built” and added, “we’re not going to make decisions about national infrastructure projects that involve tens of billions of pounds without all of the information being available.”
HS2 trains will reach speeds of 225 miles (362 kilometers) per hour, faster than most other high-speed lines in the world. On the High Speed 1 Channel Tunnel line, Eurostar trains to and from continental Europe reach 186 mph, while domestic services attain 140 mph. HS2 will also triple north-south rail capacity, with as many as 14 trains an hour using the line.
The decision to proceed with HS2 was taken after the Oakervee Review into the project concluded that the full Y-shaped network should be built.
While trains from London to Birmingham may start running by 2033, the leg extending to Leeds already has been dropped. The government also delayed work on the terminus at Euston station in central London, meaning the first trains will finish at Old Oak Common in the capital’s Western suburbs.
The 130-page report following a study led by civil engineer Douglas Oakervee dismisses proposals such as building only part of the line, starting it from Manchester to boost the northern economy, or halting it on the fringes of London as impractical or poor value for money.
–With assistance from Kitty Donaldson.
©2023 Bloomberg L.P.
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