Out-Law News 3 min. read

Government "considering the case" for landowner contributions from those who benefit from HS2

Landowners and businesses whose properties increase in value as a result of their proximity to the proposed new national high speed rail network could be expected to "contribute" to the project, according to a Government report.

Setting out its updated business case for High Speed 2 (HS2), the Department for Transport (DfT) said that it was considering the "case for a contribution to the project" from those who benefit from an increase in land value. These contributions could take the form of "core project support, land, or aligned investment", according to the report.

Infrastructure law expert Patrick Twist of Pinsent Masons said that the proposal was not without precedent.

"This is quite a bold statement which may make businesses and landowners close to the proposed route nervous, and seems to hint towards a regime of surcharges similar to the Business Rate Supplement that supports Crossrail," he said.

"It is not immediately clear on what basis those that benefit will be identified, or how they will be compelled to contribute: however, if Crossrail is anything to go by then the increase in land values for business owners will substantially outstrip any contribution that they will be required to make," he said.

Twist said that the new report provided "the most comprehensive business case for HS2 yet", including some "interesting pointers" as to how the Government expected to develop and pay for the new line.

"The strategic case also gives the clearest indication yet that the Government has rejected project finance to fund the project, effectively taking on the construction management itself," he said. "This would serve to speed up the project by heading-off protracted negotiations over funding arrangements with financiers."

"But there is one statement of unbridled optimism in the report: namely, that Royal Assent for the Hybrid Bill will be achieved in 2015, which is necessary for construction work to kick off in 2016/17. Most observers think it would be nothing short of a miracle if that happened; so already some slippage in the timings can be anticipated," he said.

The report follows criticism of the proposed scheme from business bodies and public spending watchdogs, and states that HS2 is the only way to meet the UK's increased need for additional rail capacity. It includes a revised benefit to cost ratio (BCR) of the line, valuing it at 2.3 or providing £2 worth of benefits for every £1 spent.

The BCR has been revised downwards since earlier reports to reflect that business travellers are often productive on long train journeys, but remains "similar to Crossrail and higher than the BCR for some other major projects when approved", the DfT said. If rail demand continues to rise until 2049, the BCR will increase to 4.5, the DfT said.

A section of the report published yesterday indicated that upgrading existing rail lines instead of proceeding with HS2 would lead to years of disruption for less than half of the capacity improvements projected from the new route. The research, by Network Rail and engineering consultancy Atkins, found that upgrading the West Coast, East Coast and Midlands main lines would lead to 14 years of weekend closures on major routes. The report also shows that without action, demand for rail travel will continue to grow resulting in 40% of passengers on commuter services into London standing during evening peak travel by 2026.

"We need a radical solution and HS2 is it," said Transport Secretary Patrick McLoughlin. "A patch and mend job will not do - the only option is a new north south railway. HS2 brings massive benefits to the north, is great for commuters and the alternatives just don't stack up."

According to the report, over 100 cities and towns could benefit from new or improved services as a result of freed up capacity on the existing network if HS2 goes ahead, as well as space on the network for an additional 1,000 lorry-loads of rail freight a day. This would come in addition to up to £15bn of productivity benefits each year, as identified by KPMG in a previous report. The Government also expects considerable regeneration around stations, which would deliver jobs and economic benefits similar to those produced by construction around the HS1 Channel Tunnel rail link.

The Government also plans to ensure that all towns or cities which currently have a direct service to London will offer "broadly comparable or better" services once HS2 is completed, and will shortly begin a study to recommend how this could be done, it said.

HS2 is due to be delivered in two phases, with the initial London to Birmingham phase of the line scheduled for completion in 2026. The line will cut journey times between the two cities to 45 minutes and support trains running at up to 250 miles per hour, according to the DfT. A proposed second phase of the project envisages the construction of an onward 'y network' connecting the line to Manchester and Leeds, as well as to Heathrow Airport, by 2033.

The project continues to have the support of the leaders of England's three main political parties; however, at the recent Labour Party Conference, Shadow Chancellor Ed Balls said that a future Labour government would not support the line if costs continued to rise. According to the latest estimates, the project is expected to cost £46.2bn with an additional £7.5bn for rolling stock; a budget that Treasury Secretary Danny Alexander told the Andrew Marr show this weekend that he was "confident" the project would meet.

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