(Bloomberg) -- Prime Minister Rishi Sunak has officially axed the northern leg of a much-anticipated high-speed rail network designed to improve connectivity between the north and south of the UK.

In a speech at the Conservative Party conference on Wednesday, Sunak confirmed earlier leaks that HS2 will now terminate in Birmingham, in the West Midlands, rather than continuing to the northern city of Manchester.

He said the “facts have changed” on HS2 in the wake of the pandemic, and that money could now be better-spent on improving local transport links than connecting major cities across the country. It comes as Sunak tries to differentiate himself from Labour leader Keir Starmer and his own Conservative predecessors, who had backed HS2, ahead of a general election expected next year. 

But the scrapping of the rail link may yet backfire. Andy Burnham, Labour mayor of Greater Manchester, told Channel 4 News that curtailing the long-awaited project “will permanently reduce the size of the northern economy.” 

What is HS2?

HS2 first kicked off in 2009, under the Labour government of Gordon Brown, as an effort to better-connect Britain’s major cities. Successive Conservative administrations committed to the project, and it became a flagship policy of the Tory party’s “levelling-up” agenda under Boris Johnson.

Read more: Tory Latest: Mayor Accuses Sunak of Turning Back on Levelling Up

It built on HS1, the high-speed rail line running between London St. Pancras and the Channel Tunnel. The idea behind HS2 was not only to provide a quicker link between the UK’s capital and the North East, but also to free up the Victorian rail lines in the north of the country to allow for better local transport links.

Originally, the plan for HS2 involved a Phase 1 to be built from London Euston to Birmingham Curzon Street, a Phase 2a to continue to Crewe, and a Phase 2b to link Crewe and Manchester. A separate HS2 East link would connect Birmingham to the East Midlands, allowing for onward journeys to cities such as Nottingham and Leeds.

 

Why is HS2’s Manchester leg being axed? 

As red-hot inflation in recent years has piled pressure on departmental budgets, Sunak has been looking to cut spending. On Wednesday, he said HS2 was the “ultimate example of the old consensus.” The economic case for the rail line “has massively weakened with the changes to business travel post-Covid,” he added, while its expected cost has ballooned. 

According to the Department for Transport’s figures, rail usage in August and September fluctuated between 74% to 87% of pre-Covid levels. 

While passenger numbers have slipped, scrapping the HS2 extension will leave questions about how to free up extra capacity on rail lines for freight.

What does the HS2 cancellation mean for politics and the North?

Sunak’s announcement is unpopular with many leaders in the Midlands and the North. Manchester’s Burnham told Sky News that the scrapping of links to his city symbolized “desperate decisions from a dying government,” and scoffed at Tory promises to build a “Northern Powerhouse.”

Companies and residents were also disappointed. “What we have now is a plan for a railway that will not deliver the transformational benefits the north of England needs,” said High Speed Rail Group, a collection of businesses. 

Major business group the Confederation of British Industry said it sent a “damaging signal about the UK’s status as global destination for investment.” The union GMB said the decision to scrap Phase 2 would cost “hundreds of jobs.” 

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

Sarah Beer, a partner at Excello Law who has been working with families impacted by HS2, said the backpedaling would “infuriate” those whose properties had already been compulsorily purchased to make way for the rail line.

Sunak did receive praise from some, however, with think-tank the Institute of Economic Affairs calling the HS2 cancellation a “victory for common sense.”

What will replace the Manchester leg of HS2?

Sunak has vowed to spend “every single penny” of the £36 billion ($43.6 billion) he had earmarked for the Manchester leg of HS2 on new projects connecting towns and cities in the North and Midlands, creating a “Network North.”

“You will be able to get from Manchester to the new station in Bradford in 30 minutes, Sheffield in 40 minutes, and to Hull in 84 minutes on a fully electrified line,” Sunak said. 

Projects which he committed to include: 

  • Protecting the £12 billion investment to connect Manchester and Liverpool
  • Building a Midlands Rail Hub “connecting 50 different stations”
  • Extending the West Midlands Metro and building a Leeds tram
  • Electrifying the North Wales Mainline
  • Upgrading the A1, A2, A5, A75 and M6 roads and motorways, while delivering “70 other road schemes”
  • Bringing back the Don Valley rail line between Sheffield and Deepcar

What will happen to HS2 contractors?

Swathes of businesses across the UK, ranging from small enterprises to larger firms, had been awarded contracts relating to HS2. 

Costain and Kier were the UK-listed companies which are most exposed to HS2, according to the investment bank Liberum. For those companies, the cancellation of Phase 2 would have little impact on their forecasts, analyst Joe Brent said.

“Kier has said explicitly that is expects HS2 to be flat for the forecasting horizon, and that it assumes nothing for 2a and 2b,” said Brent. Some might benefit from the new projects Sunak backed.

How much will HS2 cost? Is it on budget?

Back in 2009, the government estimated that HS2 would cost £37.5 billion according to a report by the House of Commons Library — or £56.9 billion today after adjusting for inflation. By 2020, the estimated cost of completing the full HS2 network had been revised up to £88 billion-£119 billion in today’s money.

By scrapping the Manchester leg, Sunak said he would free up £36 billion to spend on other transport projects. This will take the total sum that the government is spending on HS2 and the new projects to around £79 billion-£91 billion.

How long will it now take to get from London to Birmingham and Manchester on HS2?

According to Number 10, even just building Phase 1 of HS2 will allow for faster journeys:

  • Euston to central Birmingham in 49 minutes, 30 minutes faster than now
  • Euston to Manchester in 1 hr 40 minutes, 27 minutes faster than now
  • Euston to Liverpool in 1 hr 45 minutes, 26 minutes faster than now

Why is HS2 behind schedule? What’s the timeline for completion?

HS2 is due to be completed between 2029 and 2033, far later than original estimates which suggested Phase 1 would be complete by 2026. Some of those delays can be attributed to the pandemic, but pro-growth campaign group Britain Remade blamed “the over-consulting, the over-designing, and the constant planning delays that push up costs.”

While the northernmost stretch of HS2 got the chop, Sunak confirmed its southern terminus will be in Euston and not Old Oak Common, which is six miles outside of central London and had been considered as an end-point to save costs. 

--With assistance from Eamon Akil Farhat and Kate Duffy.

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