The cost of building HS2 is “totally out of control”. So said the Chancellor last week, as speculation builds that this controversial high-speed rail scheme could be cut back once again.
Although the London to Birmingham section of Europe’s largest infrastructure project is already under construction, Jeremy Hunt is “looking at all the options”.
The eastern Birmingham-Leeds leg already fell victim to cost pressures in late 2021. Now, well-sourced rumours suggest the Birmingham-Manchester branch is about to be axed.
The development of HS2’s “London Gateway” at Euston has been halted, sparking fears the main terminus could end up, ludicrously, in the unfashionable west London suburb of Acton, rather than the city centre.
Since HS2 was formally proposed in 2010, it has generated strong emotions, with both supporters and opponents forcefully arguing their corner. This column has been sceptical from the start.
Now, as costs balloon, and with technology revolutionising how often commuters travel, the case for HS2 – always marginal – is falling to bits.
Yet HS2 is about to get even more contentious. Ministers must choose between writing off the £20bn-£30bn already sunk into HS2 or committing another £50bn-£70bn needed to complete what is seen by many as a white elephant vanity project.
It’s been a big week for the UK economy – and at least some of the news has been positive.
On Wednesday, we learned headline consumer inflation fell to 6.7pc in August – down from 6.8pc the month before. With sharply rising oil prices having driven up petrol and diesel costs over the summer, inflation had been expected to rise.
This evidence of falling prices pressures was bolstered by a sizeable drop in “core inflation” – excluding food and energy costs – from 6.9pc to 6.2pc.
The producer price index, the cost of the firms’ inputs, also remained in negative territory. Input prices actually fell 2.3pc during the year to August, pointing to lower consumer inflation in the months to come.
Geopolitics remains a danger – with the Opec exporters’ cartel, working with Russia, having driven up the price of crude from around £70 to £95 since June, a 35pc increase. Should the West’s adversaries turn the energy price screw further, another inflation spike could emerge.
Yet on Thursday, the Bank of England felt just about confident enough, after 14 successive rises, to keep borrowing costs on hold – with the nine-strong monetary policy committee split in a knife-edge five-four vote, keeping the base rate at 5.25pc.
The MPC, having been painfully slow to spot post-lockdown inflationary dangers, seems to have been swayed by growing concerns its new-found insistence on ever-tightening monetary policy risks driving the UK economy over a cliff.
Certainly, GDP shrank 0.5pc in July, raising the danger of a UK recession – two successive quarters of negative growth – this autumn and winter.
Such concerns were compounded on Friday, as the latest Purchasing Managers’ Index survey of business leaders showed companies suffering during September.
The “composite” PMI measure, covering the entire economy, fell to 46.8 this month – with readings below 50 signalling economic contraction. As recently as April, this same metric was up at 54.9.
And, aside from lockdown, the PMI measure covering the UK’s mighty services sector – driving four-fifths of GDP – registered its weakest survey result since the aftermath of the 2008 global financial crisis.
Slow growth, of course, translates into weak public finances. Fresh data last week showed that public sector net borrowing hit £11.6bn in August, £3.5bn more than the same month in 2022.
Since April, borrowing has been £69.6bn, almost 40pc up on the same period last year. The national debt is now equivalent to 98.8pc of annual GDP – a level last seen in the early 1960s.
Amid this fiscal squeeze, the Chancellor – due to give his Autumn Statement on Nov 22, ahead of a likely general election in mid-to-late 2024 – maintains that tax cuts are “virtually impossible”. Few political observers believe that – but if the Tories are to stage a “giveaway” pre-election budget next spring, something has to give.
That helps explain the intense speculation that HS2 is about to be subject to yet more radical surgery. In its current form it will, after all, be the most expensive railway ever built.
The original 2010 price tag has spiralled from around £30bn to over £100bn. Countless transport experts have slammed the project as grotesquely over-priced, while offering terrible value for taxpayers’ money.
The case for spending tens of billions of pounds on a 250mph train line over relatively short distances – when wireless-connected commuters can anyway work while in transit – has always been shaky.
And shorn of its links from the Midlands to the North, HS2 makes even less sense – which is why some are arguing, despite the money spent, the entire thing should be scrapped.
The UK is already the world’s most regionally lopsided developed nation – and a slew of international evidence suggests a high-speed link like HS2, far from spreading regional prosperity, will draw more business to London.
The real gains are to be had by building more frequent, faster routes into and between our northern towns and cities, linking them together into a growth centre to rival London – which can be achieved relatively cheaply.
And if ministers really want to improve connectivity in the Midlands and North, there are countless “quick fix” high-return projects they could tackle.
How about finally widening the narrow, two-line Castlefield corridor in central Manchester – a pinch point that disrupts trains across the North West and beyond?
Another bottleneck that needs fixing is Ledburn Junction near Milton Keynes, which slows down the whole of the West Coast Main Line.
Consider, also, that while around 80pc of train routes in the South East are electrified (not including the Tube), that compares with just 15pc of trains across the North. Electric trains can pull more carriages and accelerate quicker, so there can be more of them, leading to more frequency and less overcrowding. Why not get on with electrification?
HS2 delivers few benefits, but is happening anyway because of the lobbying power of engineering conglomerates and property developers, and broader metropolitan bias. Time for ministers to wield the axe.
Follow Liam on Twitter @liamhalligan