How will the HS2 cancellation affect UK SMEs?

The scrapping of HS2’s eastern leg has generated both criticism and praise. But how will the new plans affect SMEs?

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Last week, the UK government announced it is scrapping the Eastern leg of its major multi-billion pound rail infrastructure project, High Speed 2 (HS2).

The promised new rail lines would have nearly halved travel times between major cities such as Birmingham and London, creating new network opportunities for regional businesses as well as more accessible commutes.

As a substitute for the cancellation, the government has announced the new Integrated Rail Plan (IRP), a £96bn investment package for the Midlands and the North. The move has sparked disappointment amongst some regional business leaders, while others have praised the new plan and the £18bn savings it will ensure.

We run down how the IRP differs from HS2, and look at how Northern- and Midlands-based small business owners will be affected by the news.

What was the HS2 Eastern leg and why is it being scrapped?

HS2 is a massive project intended to create high-speed rail links between London and major cities in the Midlands and North of England including Birmingham, Manchester and Leeds. It is set to complete by the late 2040s.

The first phase, linking London and the West Midlands, is already under construction. The next section will extend the line to Crewe. The final phase was to build new lines to Manchester and Leeds.

But last week the UK government announced that the Eastern leg – which would have reduced the journey time from London to Leeds by 50 minutes – has been scrapped as a cost-cutting measure. The final phase will now stop at East Midlands Parkway.

Why is it being scrapped?

The main reason for the cancellation of the Eastern leg is cost-cutting. Since being announced in 2009, HS2 has faced delays and mounting concerns over its environmental impact and spiralling costs. It’s been estimated that cutting the Leeds leg will save £18bn.

Supporters of the new IRP say that the move is also unnecessary given the huge drop in rail passengers that occurred as a result of the Covid-19 pandemic. Figures from the Office of Rail and Road (ORR) show that just 388 million journeys were made in the 12 months to the end of March 2021 – the lowest number of people using Britain’s railways since at least 1872.

What does this mean for businesses in the North and Midlands?

HS2 has been heavily publicised as an example of the government’s ‘levelling up’ agenda, which plans to address regional inequalities across the UK by investing in important public services like infrastructure.

In fact, in 2017, the Eastern leg of HS2 was described by the West Yorkshire Combined Authority as “vital to support the next steps in transforming our economy.”

However, according to the newly-published IRP outline, the new plan will still contribute towards levelling up.

It states: “The Government is committed to levelling up our country. We cannot afford continued underperformance in the North and Midlands, either in terms of the life chances people enjoy, or of national competitiveness and wealth.”

So what will the IRP bring to businesses in the North and Midlands?

Longer journey times 

The main loss caused by the cancellation of the Eastern leg is that business travel times along the East Coast Line will be considerably longer than those promised in the HS2 plans.

For example, under the previous designs, travelling from Leeds to London would have taken one hour and 21 minutes. Under the IRP, it will take one hour and 53 minutes. However, this is still a 25 minute improvement on the current service length.

Slower economic growth

Less investment in the North on the HS2 eastern leg will mean some areas across the regions will not receive the same amount of economic benefit from HS2 as the South of England. This means it could hinder, rather than support, the levelling up agenda.

As an example, the IRP will likely have an impact on northern supply chains by holding back plans to increase freight capacity on the rail network. Job creation will probably also be restricted as North- and Midlands-based cities will have less access to the talent and education opportunities present in the South of England.

More local investment

There is still a lot to welcome in the IRP in terms of its ambition to rapidly strengthen connections between regional towns and cities. Whilst on a smaller-scale than HS2 would have brought, the IRP will benefit small businesses by bringing an increase in local tourism and improvements to public transport.

The savings generated by cancelling the HS2 Eastern leg could also be redirected into local business support.

What is in the new Integrated Rail Plan?

The IRP outlines a number of new investments and initiatives for the North of England and the Midlands. Amongst the headline announcements is:

  • Instead of the HS2 Eastern leg travelling through Toton, a shorter high-speed line will link Birmingham and East Midlands Parkway
  • There will be a new, 40-mile high-speed ‘Northern Powerhouse Line’ linking Warrington to Manchester and Marsden
  • There will not be a new fast line between Leeds and Manchester, via Bradford. Existing lines will instead be upgraded and electrified
  • Leeds has been promised a new tram system with £200m worth of immediate funding

The full breakdown of the new IRP, and what it will mean for the UK regions, can be found here.

Will the IRP definitely go ahead?

The IRP report states: “In line with the government’s existing approach to rail enhancements, commitments will be made only to progress individual schemes up to the next stage of development, subject to a review of their readiness.”

That means the plans will be regularly reviewed in future, and won’t go ahead if they are not approved by the Treasury.

How are business leaders reacting to the news?

Reaction has largely been split amongst small business owners and regional commentators. Some view the new IRP as a welcome investment that will bring benefits to the Midlands and the North more quickly than the long-term solution that HS2 posed.

In a press release, Sir John Peace, head of regional transport body Midlands Connect, said: “[The] announcement gives businesses and local leaders the reassurance they've been waiting for – that HS2 is coming to the East Midlands. Although these plans are different in some respects to what we'd expected, there are a lot of positives in here and lots of things to be excited about […] Our challenge to the Government is simple – it should move as quickly as possible to get spades in the ground and bring benefits to local people sooner.”

However, some are more skeptical that the IRP will contribute only small-scale improvements following a decade of planning for HS2’s major infrastructure overhaul.

Stephen Church, North Markets Leader and Manchester Office Managing Partner commented in a press release: “As businesses continue to invest and grow across the whole North region, improved transport infrastructure and rail connectivity is essential to ensure the maximum economic impact from such developments is unlocked.

“Although positives can be drawn from the IRP, including the two new high-speed lines planned between Crewe to Manchester and Warrington to Manchester – which are vital links into the city – and the electrification of lines across Leeds, Liverpool and Manchester, [the] announcement will leave many feeling more must be done.”

Many commentators criticised the plans, which they saw as a huge disappointment for the thousands of regional businesses that were promised economic growth through improved rail connectivity.

Responding to the Integrated Rail Plan announcement, managing director of the Mid Yorkshire Chamber of Commerce Martin Hathaway said: “[The announcement] from the transport secretary mentioned levelling up multiple times, however this is not how it feels for our region’s businesses who see this as a significant downgrading of previously announced transport schemes. Our members have told us that transport is already a major issue when it comes to moving people and goods across the north, with current transportation systems often underperforming and being under-resourced.

“Cancelling the HS2 eastern leg and downgrading the Northern Powerhouse Rail plans so that they do not include a full upgrade of the Transpennine route will severely damage the opportunities for the growth and development of northern businesses, as well as significantly reduce the opportunities available for our communities.”

In a press release, Federation of Small Businesses (FSB) National Chairman Mike Cherry said: “Confirmation that a significant section of HS2 is not going ahead will come as a big disappointment to small firms right across the country which were banking on its delivery. Targeted, local investment is a great thing – the detail unveiled tomorrow will reveal whether we have enough here to make up for the HS2 shortfall. There will be those who worry that the levelling-up agenda is already going off track.”

Neil Debenham, an entrepreneur and small business consultant, told us: “Last month’s All-Party Parliamentary Group Scale up to level up report, warned how a critical shortage of lending to small businesses is preventing SMEs in the north from growing successfully. Money is not reaching those people who can drive successful businesses, create jobs and create further opportunity.

“For this reason alone, the scrapping of HS2 is a real blow.”

Helena is from Yorkshire and joined Startups in 2021 from a background in B2B communications. She has previously written for a popular fintech startup covering everything from money-saving tips to cultural reviews.

She is particularly interested in project management software and the films of Peter Jackson.

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