(Bloomberg) -- Rishi Sunak faced anger from UK business leaders, politicians across the spectrum and even a major donor as he considers whether to shorten a flagship rail project that may cost £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 mounting costs. A decision may come as early as this week, but the timing is awkward as the governing Conservatives gather for their annual conference in Manchester on Sunday.
“It is right that they are looking at it,” minister Rachel Maclean said during the government’s broadcast round on Monday, adding that no decision had been taken. “It is regrettable that there are these escalations in cost, especially when you are looking at the pressures on the public finances more broadly.”
The comments are the latest example of the government choosing not to quash reports it is preparing to drop a major part of the project, which was at the heart of the Conservative Party’s manifesto promise to “level up” prosperity in northern communities. The Tories won support from those areas away from Labour in the 2019 election, and trailing by 20 points in most national surveys, need to retain that backing to have any chance of a repeat.
Sunak is in campaign mode with an election due by January 2025 at the latest, and is promising a series of long-term policies to put the UK on what he called a different trajectory. Last week’s scaling back of his green agenda was part of that. The Sunday Times reported he is looking for ways to cut inheritance tax.
During a visit to a community center north of London on Monday, Sunak declined to comment on either inheritance tax or HS2. “We’re absolutely committed to leveling up and spreading opportunity around the country, not just in the North but in the Midlands, in all other regions of our fantastic country,” he told broadcasters.
Yet any move to scale back the rail project is risky, because it will underscore that while he was the choice of Tory MPs to replace Liz Truss last year, his agenda has not been put to voters or even fee-paying members of his party. Sunak pledged to keep HS2 in the leadership campaign he lost to Truss.
More broadly, though, the project has been a pillar of Tory policy since its inception. Senior figures in the party hit out at the idea, including former Conservative Chancellor of the Exchequer George Osborne, who wrote in the Times that shortening HS2 would be an “act of huge economic self-harm.”
Sunak shouldn’t deliver a “mutilated” HS2, ex-premier Boris Johnson told the Times newspaper, even though his administration canceled another leg of the line to Leeds when Sunak was chancellor in 2021. “It’s the height of insanity to announce all this just before a party conference in Manchester.”
Any further watering down of HS2 is likely to undermine the Conservatives’ pledge to reset the north-south divide, which has been a political vein running through much of the recent turmoil in the UK, including Brexit. Manchester Mayor Andy Burnham told the BBC on Monday it would leave northerners with “Victorian infrastructure, probably for the rest of this century.”
- 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.”
- 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.
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 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.
Scaling back HS2 would be a blow for suppliers. Work 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, 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.
While trains from London to Birmingham may start running by 2033, the government has delayed work on the central London terminus at Euston station, meaning the first trains will finish at Old Oak Common in the western suburbs.
The 130-page report following a study led by civil engineer Douglas Oakervee dismissed 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.
(Updates with Sunak comment in sixth paragraph.)
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