Britain makes drastic cuts to giant HS2 rail project. Business warns of blow to credibility

By Hanna Ziady, CNN

London (CNN) — UK Prime Minister Rishi Sunak has taken the axe to Britain’s biggest current infrastructure project, ignoring warnings from business leaders that a U-turn would damage investor confidence in the country.

Sunak announced plans Wednesday to curtail High Speed Rail 2, known as HS2, the government’s flagship transport project intended to boost railway capacity and cut journey times between London, Birmingham and Manchester — England’s three largest cities.

The government will cancel the remainder of the project, scrapping the Birmingham-to-Manchester high-speed line and dashing hopes that it would deliver badly needed investment to less affluent parts of the United Kingdom.

The money saved will instead be reinvested into “hundreds” of new transport projects in the English midlands and the north of the UK, Sunak said at the Conservative Party Conference in Manchester in the north of England.

“This means £36 billion of investment the projects that will make a real difference across our nation,” he added. “Our plan will drive far more growth and opportunity here in the north than a faster train to London ever would.”

Sunak said the economic case for HS2 — a project 14 years in the making, plagued by repeated delays and cost overruns — had been “massively weakened” by a fall in business travel following the pandemic.

But business and political leaders, including members of the ruling Conservative Party, have strongly criticized the decision — leaked before Wednesday’s official announcement — as the latest example of confusing policymaking by the UK government.

“This is the biggest and most damaging U-turn in the history of UK infrastructure,” High Speed Rail Group, which represents rail and engineering firms, including Siemens and Hitachi, said in a statement. “What we have now is a plan for a railway that will not deliver the transformational benefits the north of England needs.”

Andy Street, the Conservative mayor of Birmingham, said the about-face “damages” Britain’s international reputation and that as a “serious G7 country” the UK had to be able to deliver on “difficult” infrastructure projects.

Investors had already committed “hundreds of millions, if not billions, of pounds” on the “promise” of HS2, he said in an interview with radio station LBC this week. “You cannot then turn around to those investors and say, ‘We’ve changed our mind.’”

One such investor is Tom Wagner, co-chairman of US private equity firm Knighthead Capital Management, which bought the Birmingham City football club earlier this year.

In a letter to Sunak published late last month, Wagner, now chairman of the club, said the improved connections with the rest of the UK that HS2 would bring was a “key” factor in Knighthead’s decision to invest in the club.

“The expectation is that the government will honor its commitment to deliver on publicly stated long-term plans,” he wrote. “Any deviation could result in a loss of investor trust, and this would have a considerable negative impact on the UK. The ambitious HS2 project falls into this category.”

Job losses

Beyond the knock to business and investor confidence, there could also be an impact on local contractors and workers.

Scaling back the line will have “a chilling effect on the UK’s construction industry,” said Mark Reynolds, CEO of construction firm Mace Group, one of the contractors on the project.

“We look forward to seeing the detail of the hundreds of planned new rail and road projects,” he added, calling on the government to publish an updated infrastructure pipeline to give investors confidence and allow the construction sector to plan ahead.

Labor union GMB said cuts to HS2 would cost “hundreds” of jobs.

“The UK’s political instability was already holding the economy back — it will now be even harder to fund and deliver the new infrastructure that the country desperately needs,” the union’s head of research and policy, Laurence Turner, said in a statement.

The decision to scrap the northern leg of HS2 is just the latest policy muddle offered up by the UK government.

It follows last month’s decision to delay a ban on the sale of new gas and diesel cars by five years — a move criticized by leading automakers, including Ford (F), which had already invested heavily to meet the original target.

Sunak defended the newest policy shift, saying “facts have changed” and this required a change of direction.

He touted “ambitious” plans for new east-west transport links, dubbed “Network North,” and said the government would work to deliver quicker rail travel and more rail capacity between Birmingham and Manchester.

The HS2 line between the cities would have been up and running between 2035 and 2040.

Mark Allen, chief executive of listed property group Landsec, said the root of the issue was “less about the specifics of what HS2 will or won’t bring to the economy. It’s more what that says about our ability, or lack of ability, as a country to deliver major infrastructure projects.”

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