The Potential:

The development of a second high-speed rail network was originally proposed in 2009 by the Labour government at the time, led by Gordon Brown. Concerns began to arise over capacity constraints on the West Coast Main Line railway as they were increasing with the network projected to be at full capacity by 2025. Therefore HS2 Ltd was established to explore the possibility of a high-speed rail network connecting London and more northern parts of the country such as Manchester and Leeds. This connection was part of the plan to reduce the North-South divide in the UK. At 2009 price levels, HS2 was slated to cost £37.5 billion. In 2010, David Cameron committed £20 billion to investment into rail projects, in which HS2 was included. Costs continued to increase with the government increasing the cost of HS2 to £42.6 billion in 2013 which increased to £55.7 billion in 2015. Costs have sky-rocketed since then, reaching an estimated £98 billion in 2020. The UK’s soaring inflation levels would have increased costs further to an estimated £100 billion today. 

The potential impact of HS2 on the UK economy was certainly significant. Currently, to travel from London to Birmingham by rail, the journey time is 1 hour and 21 minutes. HS2 will reduce the journey time to 45 minutes for the London to Birmingham route. HS2 is also expected to free up space for an extra 144 freighter trains per day which has the capacity of over 2.5 million lorries. The substantial reductions in journey times has the potential to change the economic geography of the UK. Economically important connections could be vastly improved by HS2 as the network increases opportunities for different businesses to trade and interact. Alex Burrows, the head of strategy at Centro said previously that ‘HS2 will act as a catalyst, at last, for investment in and development of Birmingham Eastside’.

From a business perspective, the reduced transport costs could enable them to more easily connect with potential suppliers, enabling them to access higher-quality and lower-cost inputs. Businesses would also be able to connect to potential customers with greater ease hence enabling them to supply markets further afield. The functioning of the labour market could also improve owing to businesses being able to employ workers from a much larger labour market. For example, businesses in Manchester would more easily be able to access specialist legal, financial or accounting services that are based in London. This would increase the effective size of the market and allow skills to be better matched to employment opportunities. These potential affects of HS2 can change the relative competitive position of different areas and potentially lead to shifts in the geographic patterns of trade and economic activity. A decrease in transport costs also reduces the barriers to trade therefore allowing more businesses (particularly those that are geographically further away) to trade, stimulating increased competition. The competitive opportunity has the potential to spark renewed innovation through research and development, however the competitive threat has the potential to reduce the individual profits of firms which can lead to a fall in the output by some firms. 

From a human perspective, a reduction in transport times acts as an incentive for people to go to work or work late rather than working from home or leaving work early. This could increase the productivity of workers as studies reveal that workers are significantly more productive when actually going to work rather than working remotely. A recent study by Stanford found that ‘those who worked full time (8 hours/day) at home are 70% less productive than those who don’t work from home’. This increase in labour productivity leads to greater output by firms likely resulting in greater business profits. The array of jobs available is likely to improve owing to reduced geographical labour immobility; this could allow people to discover jobs that better suit their skills and hence make them more productive in their chosen specialty. The potential improvement in access to leisure and retail opportunities may lead to an increase in consumption owing to access to a wider range of products available to consumers. These products are likely to be priced competitively at similar or even cheaper prices compared to current items on the leisure and retail market. However, the potential impact of reduced geographical labour immobility is an increase in competition with the labour market which may lead to increased difficulties with finding employment. 

A complex set of interactions between businesses and labour may emerge; the pattern of supply and demand for labour may change owing to increased competitiveness. This could influence wages and result in changes in the efficiency of production which could influence product prices and consumer decisions. These interactions would vary geographically resulting in changes to local employment and wage levels as well as local skill needs, development and house prices. Should more businesses be attracted to a particular city as a result of the HS2 infrastructure, the demand for labour from the local labour market would increase. This derived demand for labour may be available if HS2 has attracted more labour; it could be, however that the higher level of demanded labour is not available owing to relatively fixed supply which results in local wage levels rising. 

The prospect of mega-regions being established in the North and Midlands becomes real especially if cities such as Birmingham become within an hour of London and Heathrow. This allows for cities to develop their own specialisms as has happened in the Netherlands with Amsterdam specialising in high-tech and industrial industries. HS2 could therefore allow for cities in northern and midland areas to build individual specialisms owing particularly to the geographical connectivity that HS2 brings to northern and midlands cities. This allows for more skilled workers to access employment in the north and midlands of the UK. There are also opportunities for investment around stations in these regions which could uplift land values accordingly. 

Birmingham Eastside is one area in particular which may benefit from the investment into the region brought by HS2. It is hoped that businesses in Birmingham Eastside will have better access to markets and services, as well as the larger availability of labour. HS1 brought 15,000 new homes, 70,000 new jobs and £4.4 billion of regeneration benefits into the Kent economy. HS2 therefore has the potential to bring similar benefits to regions such as Birmingham Eastside into the northern and midlands economy.  Given the financial constraints that local authorities are currently operating under, private investment into these regions will be essential in order to maximise the regeneration potential and therefore improving material living standards. 

The Reality:

At the Conservative Party conference 2023, the Prime Minister, Rishi Sunak, announced that the Northern leg of HS2 to Manchester would be cancelled owing to costs spiralling to an eye watering level. In March 2019 HS2 Ltd notified the department for transport that it would not be able to meet the budget. This came after spending over a year in 2018 trying to trim back the specifications in order to save costs. 

The ground conditions for the route were much worse than originally expected which required additional reinforcement and materials in places where engineers had hoped to use the freshly excavated rock. This increased costs and caused additional delays as the ground needed an extra year to settle before construction could start again. The preparation of ground around London Euston more than doubled in cost as asbestos was unexpectedly discovered and a greater than expected amount of archaeological work was required. Costs were estimated to have increased by a further £1 billion owing to these unexpected problems. 

Station infrastructure had also been forecast in an overly optimistic way during the initial HS2 budget, with cost estimates based on historic station building programs. Design alterations added an extra £1 billion to the present day forecast. The planning for a bridge just outside Euston station has encountered much difficulty with designing and planning contributing to the further costs. In 2015, the underground cables were budgeted at £480 million, however, the diversion of gas and power lines for the construction in 2019 was expected to cost £970 million as a very large amount of work was required by skilled labour, all of which comes at an additional cost. 

Phase 2 of HS2, has had very little spent on it already except for the designing of the route and the acquisition of required property. Phase 2a to Crewe has almost doubled with costs being £6.5 billion in 2020 with an estimated date of completion being in 2031. Phase 2b from Manchester to Leeds was forecasted to be at £41 billion in 2020, 63% over budget and threatening a delay of up to seven years.

These successive increases in costs year on year left the cost of HS2 staggeringly over budget. Therefore the question remained whether HS2 was going to give the UK the biggest ‘bang for our buck’. HS2 is still planned to reach Birmingham interchange with branches to central Birmingham and Handsacre, near Lichfield. HS2 trains for Manchester, Liverpool and Scotland will join the West Coast Main Line at Handsacre. Rishi Sunak has promised to invest ‘every single penny’ of the £36 billion saved by scrapping phase 2 of HS2 into transport schemes in the north. He believes that the ‘Network North’ plan to boost connections between the region’s east and west, instead of south to London, would be more beneficial to the region’s economy. The question that remains is whether this scheme will provide the ‘levelling up’ which the north and midlands desperately needs.