What That HS2 Announcement Really Means, And Should You Worry?

The UK government has announced an independent review, chaired by Douglas Oakervee, into whether and how to proceed with the High Speed 2 project (HS2). It is the culmination of long years of doubt about the project from Tory backbenches, and more widespread alarm at the escalating costs, now said to reach £100B.

But what does the announcement really mean for property, and what comes next?

The answer could be that Manchester is a big winner, Birmingham a smaller winner, and Boris Johnson the biggest winner of all.

 1. What Did The Government Actually Say?

A review of “whether and how to proceed with the High Speed 2 project will provide the department with clear advice on the future of the project,” said a Department of Transport announcement. The chair will be Douglas Oakervee, and Lord Berkeley will be his deputy.

The review will look at the range of costs and benefits, whether any of those have changed since the project was first approved and whether the business case can still stand up.

The full terms of reference are available here.

2. So Oakervee and Berkeley Are Boris Johnson's HS2 Hatchet Men?

Not quite. It may be more complicated than that.

Oakervee is a former chairman of HS2 and an early advocate. He long ago complained that the project was misnamed because it wasn't about speed, it was about capacity. If the government wanted a true believer to rethink the project away from speed and into serious regional development, Oakervee is their man.

Lord Berkeley is a Labour peer, a longtime advocate of railfreight and an early advocate for the Channel Tunnel. He knows the rail industry well, and is not afraid of big projects. But he has been critical of HS2, claiming mishandling of compensation issues and misleading Parliament on the costs. Berkeley is not somebody you would appoint if you wanted the review to give HS2 an easy ride. On the other hand, a review signed by Labour-supporting HS2-sceptic Berkeley which green-flagged HS2 would cut the legs from under objectors.

3. That Seems To Suggest A Rethink Not A Cancellation?

That is the implication of their Lordships' Economic Affairs Committee report Rethinking High Speed 2, published in May, and a document very likely to be the playbook for what happens next.

The report argued that HS2 has been off the rails since the start because it was conceived, and will be built, from London to the North, not from the North to London.

"We regret that construction of High Speed 2 started in the south rather than the north. If construction on the first phase of High Speed 2 had not started already, we would be urging the Government to prioritise rail links between northern cities, rather than improving links with London, which are already good," the report said.

The committee goes on to express alarm that the decision to start from the wrong end means that if cost overuns mean cuts, it is the northern sections (built last) that will get cut.

Their conclusion is worth reporting in full, particularly because Boris Johnson has since pledged to back the £39B plans for the Northern Powerhouse rail scheme linking Liverpool via Manchester to Leeds.

"The Government’s priority for investment in British rail infrastructure should be the north of England," the report said. "People travelling into northern cities are reliant on overcrowded and unreliable services. Rail connections between northern cities are poor. It takes just under an hour and a half to travel the 75 miles between Liverpool and Leeds by train, around the same time it takes to drive between the two cities. By contrast, it takes around two hours and a quarter to travel more than 200 miles between either city and London by train."

3. Is This Review Really All About Northern Powerhouse Rail?

Quite possibly. That is what the Lords’ committee suggested. "The planning and construction of Phase 2b of High Speed 2 and Northern Powerhouse Rail should therefore be treated as one programme," the report said. "Decisions on the timing of works should be made according to the needs of the rail network in the north: work could begin on improving connections between northern cities without having to wait for the second phase of High Speed 2 to be constructed fully. In any case, funding for Northern Powerhouse Rail should be ringfenced and brought forward where possible."

It is also what the terms of reference hint, asking Oakervee and Berkeley to see if costs could be saved by “different choices or phasing of Phase 2b, taking account of the interfaces with Northern Powerhouse Rail.”

The review will also examine:

• the direct cost of reprioritising, cancelling or de-scoping the project, including but not limited to: contractual penalties; the risk of legal action; sunk costs; remediation costs; supply chain impact; and an estimate of how much of the money already spent, for instance on the purchase of land and property, could be recouped.
• whether and how the project could be reprioritised; in particular, whether and, if so how, Northern Powerhouse Rail (NPR) (including the common sections with HS2 Phase 2b) could be prioritised over delivering the southern sections of HS2.
• whether any improvements would benefit the integration of HS2, NPR and other rail projects in the north of England or Midlands.

 4. And The Politics Works How?

You can almost hear the conversation in Whitehall. "Why don't we set up a review, it can sift all the evidence, and then we can declare HS2 has passed all the tests of value-for-money and efficiency, and that will knock the wind out of protestors' sails?" No doubt something like it has been whispered in the Department of Transport for years. Has Boris Johnson fallen for this idea? Two recent events are relevant.

First, Johnson's opposition to big infrastructure projects means very little. He threatened to lie down in front of bulldozers to prevent a new runway at Heathrow, then arranged to be out of the country when the crucial vote was taken, and has since sounded like he might simply let the project through. The prime minister's sceptical noises about HS2 may follow a similar pattern of gradual retreat from opposition.

Second, new prime ministers love to review things — it suggests fresh thinking and buys off some friends. In 2016 Theresa May conducted a similar review of the £18B Hinkley Point nuclear power station, only to approve the project a few months later. If Johnson is preparing to OK the HS2 project, a review that neutralises the main objections is a vital first step.

The joy of a solution of the kind the Lords committee proposed is that it pleases voters in the North, whilst taking the heat off voters in the South (who suddenly find their HS2 problems on the back burner).

Manchester gets everything it wants with the assurance Northern Powerhouse Rail will go ahead. Birmingham gets a promise of HS2 and the potential to unblock some major local projects like the £137M Midlands Metro Eastside Extension, currently stuck in an HS2 logjam.

And the Tory-voting South? They get the assurance that Johnson has listened, the pleasure that comes from knowing HS2 promoters have had some sleepless nights, and the comfort that the project isn't as unviable as it seemed. And, in any case, it is a long way off.