Prime Minister Rishi Sunak confirms he will scrap the Northern leg of HS2

The northern leg of HS2 from Birmingham to Manchester has been scrapped, Prime Minister Rishi Sunak announced during his keynote speech at the Conservative Party Conference in Manchester yesterday. “I am ending this long running saga,” he said, saying he would be replacing it with “a new Network North that will join up our great towns and cities in the north and Midlands”.  “I am cancelling the rest of the HS2 project. And in its place we will invest every single penny – £36bn – in hundreds of new transport projects in the north and the Midlands, across the country. This means £36bn pounds of investment in projects that will make a real difference across our nation.” However, the PM did also confirm that the Euston HS2 terminus station would go ahead.

A side note: Transport Secretary Mark Harper is under pressure this morning to explain why No. 10 kept saying no decision about HS2 had been taken when Rishi Sunak had already pre-recorded well in advance of his speech, a video announcing it and posted on X, formerly Twitter, yesterday morning.1

Inevitably, there were many negative responses to the announcement, which follows weeks of speculation. Former Conservative Prime Minister David Cameron said the decision would fuel the view that Britain cannot act for the long-term and is “heading in the wrong direction”, with fellow former PM Boris Johnson writing “I agree” in response to Cameron’s tweet.  Louise Haigh, Labour’s shadow transport secretary, said: “Is there anything more emblematic of 13 years of dismal failure by this broken government than their flagship levelling up project that fails to even reach the north?” BusinessLDN CEO John Dickie said: “The government has done the unthinkable by building a new north-south railway and stopping halfway. This short-sighted decision has been made with little attempt to work with business to explore how costs could be reduced and private investment increased.” He added: “This meddling by ministers sends a very negative signal to investors and contractors, which will drive up the price that we all pay when it comes to delivering future major infrastructure projects.” The London Chamber of Commerce and Industry’s (LCCI) head of policy James Watkins agreed the decision was a bad one, saying: “Businesses in the capital expected a high speed rail ink that would boost productivity and growth not just for London but for the Midlands and the North West. This decision also means that the long awaited plans to relieve capacity on the West Coast Mainline has been lost – which can lead to future rail delays for London travellers and all people who use this rail line across the country. As we look ahead to the Labour Party conference, we await to see if shadow ministers will commit to HS2 from London to Manchester”.

The HS2 cancellation leaves the Government with almost 1,000 properties worth up to £1.1bn that were acquired to make way for the northern leg, phase two, of the project, on which the Government has already spent £2.3bn to date, in 2019 prices, including the property purchases. Among them was a mansion sold by the comedian John Bishop for £6.8m in 2019. Where it can, HS2’s policy has been to rent homes back out after buying them, but in many cases the homes have been left sitting empty, The Telegraph says. Now, Ministers say they will look to sell those properties no longer needed, while other plots of land will be need for the new rail schemes referred to by the PM in his speech. The cancellation has also thrown £1.1bn worth of contracts into doubt, the newspaper says. These include a project management contract worth a maximum of £250m, awarded to American engineering giant Bechtel; a contract for professional services worth up to £500m split between Mott MacDonald, WSP Aecom, Ineco and Arup; a £100m contract to Keir for “enabling works” on the route between Birmingham and Crewe and a £150m contract to Balfour Beatty  for “early environmental works” and ground investigations on the same stretch; and two other contracts worth £50m each for railway systems design and land-related services, such as engagement with landowners. An Arup spokesman said: “We will be working with HS2 to explore how existing contracts may be progressed or phased out as you would expect in the normal course of business.”  A Government spokesman said HS2 Ltd would engage with its supply chain to “examine the impacts” of the cancellation of phase two before providing an update to Parliament.

The Prime Minister also said yesterday that he would raise the legal smoking age by one year, each year, meaning that a 14-year old today would never be legally allowed to buy cigarettes in their lifetime so “they and their generation can grow up smoke free.” Tobacco stocks slipped into the red following the announcement, with London-listed cigarette companies British American Tobacco (BAT) and Imperial Brands losing £1.4bn from their market cap. BAT said the proposals would be difficult to enforce and risked creating a category of “under-age adults,” while Imperial said the plans could cause “significant unintended consequences” without elaborating further.

Meanwhile, Rishi Sunak’s “confusing” net zero policies threaten to derail a recovery in car sales and hit the wider market, Robert Forrester, CEO of Vertu Motors has warned. Vertu operates 190 forecourts under brands including Bristol Street Motors and Macklin Motors. Forrester told The Telegraph that the supply of electric cars already outweighs demand, and that purchases by retail customers had been “muted” in recent months. While calling Sunak’s decision to delay the ban on the sale of new petrol and diesel cars by five years “pragmatic,” he said it will however “potentially put a brake on the level of growth”. He further predicted that manufacturers might start holding back supplies of electric vehicles in the coming months to ensure they have enough stock to hit targets set to ensure electric vehicle sales must make up 22% of total car sales and 10% of van sales by next year.

Britain’s long-term borrowing costs surged to a 25-year high yesterday, with the yield paid on 30-year UK bonds hitting 5.115%, higher than in the wake of former PM Liz Truss’ so-called mini-Budget a year ago.

The UK’s services sector remained stuck in contraction in September for the second consecutive month, with firms laying off staff at the fastest rate since early 2021, according to the closely watched services purchasing managers’ index (PMI), compiled by S&P Global and CIPS. “Sluggish business conditions, heightened risk aversion among clients and downward pressure on demand in the wake of rising borrowing costs,” were all cited by firms as contributing to the contraction, John Glen, chief economist at CIPS, said.

Figures from Rightmove show that the average number of tenants requesting to view a rental property in Britain has lengthened from 20 to 25 in just five months. In 2019, there were typically six telephone or email requests to see each place, Rightmove said, describing the current mismatch between demand and supply as "just crazy". The property portal has also revealed that the average advertised rent for a new let outside of London has rose to a record £1,278 per month between July and September, a 10% rise on the same period last year; while in London, average advertised rents rose to £2,627 a month, a 12.1% rise on last year.

The acquisition of 100 former Wilko stores by B&M and Poundland could fall through, a report in The Times suggests, because the discount retailers are attempting to negotiate more favourable terms with landlords, which may fail. B&M, which has bought 51 Wilko stores, has been accused of delaying completing on the deal while it looks to set up more favourable rent and lease arrangements, the newspaper says, while Poundland is attempting much the same with regard to the 71 Wilko stores it bought last month. Property sources told the outlet that if the two firms cannot reach an agreement with landlords, then the deals to acquire stores could fall through, resulting in “more store closures, further job losses and an even smaller return for Wilko creditors”.

Metro Bank shares have lost almost a third of their value this morning since Reuters reported that the challenger bank is looking to raise £600million to bolster its balance sheet. Metro Bank has since confirmed that it is “evaluating the merits of a range of options, including a combination of equity issuance, debt issuance and/or refinancing and asset sales”. Metro floated on the stock market in March 2016 at £20 a share, rallying to a high of over £40 in 2018, but it equity is today trading at just 38p a share.

The Competition and Markets Authority (CMA) has given the green light for Hitachi’s £1.5bn takeover of Thales’ rail signalling interests, after the Japanese firm agreed to sell parts of its European mainline business. The CMA launched an investigation into the deal amid concerns that it would reduce competition in the supply of rail signalling systems in the UK, a market traditionally dominated by a very small number of suppliers but concluded yesterday that the sale of Hitachi’s existing mainline signalling business in the UK, France and Germany would be an “effective and proportionate remedy, which will preserve competition and ensure customers, such as Network Rail, will not be negatively affected by the merger.” However, the selloff will still require the regulators’ approval and Hitachi’s key customers in these countries will also need to agree to the transfer of relevant signalling contracts.

Meanwhile, the UK's cloud computing market is to be subject to scrutiny by The CMA over concerns it is being dominated by Amazon and Microsoft. Media watchdog Ofcom said the two make up 70-80% of the sector in the UK, while closest rival Google has 5-10%. It has referred the sector to the competition watchdog for investigation.

A consortium of strategic and financial investors has reportedly approached FTSE 250 listed firm Ascential with a bid to take over its Cannes Lions and other events operations. According to Sky News, private-equity backed exhibitions company Hyve, and MediaLink, a media and marketing advisory firm owned by United Talent Agency, tabled an offer to acquire Ascential's events arm in the last few weeks. Under its plans, MediaLink would acquire the Lions and associated assets including WARC, while Hyve would become the owner of Money 20/20, a major international fintech event. Sky said it was unclear whether Ascential's board had engaged with the consortium on its offer. It also said that the value of the bid could not be ascertained. Last week, Ascential confirmed another Sky News report that it was in exclusive talks with Apax Partners about the sale of its WGSN consumer trends data business. Ascential declined to comment on the story.

Former Co-operative Bank Chairman Paul Flowers has appeared in the dock at Manchester Magistrates’ Court accused of a near £197,000 fraud by abusing his position as Enduring Power of Attorney for one Margaret Mary Jarvis. It was the 73-year old’s first court appearance; two earlier hearings were aborted when his lawyers told the court he had recently suffered a stroke and could not attend. He entered the court walking slowly with the aid of a Zimmer frame. Flowers, a former Methodist minister, and a Labour councillor in both Rochdale and Bradford, was Chairman of the bank between 2010 and 2013. He did not enter a plea at the hearing as magistrates told him his case would have to be heard at the Crown Court as if he was convicted on the charge, the crime would incur a custodial sentence longer than they are able to impose. Flowers was granted unconditional bail to appear for a plea and trial preparation hearing at Manchester Crown Court on November 8. He has a string of previous convictions. In 2014, he pleaded guilty to possession of drugs after he was filmed by an acquaintance agreeing to buy cocaine, methamphetamine and ketamine – a crime that earned him the moniker ‘the crystal Methodist’. In 2011, while a Councillor at Bradford Council, "inappropriate but not illegal adult content was found on a council computer he handed in for servicing, whereupon he resigned. He was also caught drink-driving in Manchester in 1990, also when a Councillor, after celebrating his 40th birthday, and was given a driving ban by magistrates. Flowers was also convicted of carrying out a sex act in a Hampshire public toilet more than 40 years ago. Additionally, several newspapers reported allegations he communicated with rent boys using his work email account while in charge of the Co-op Bank. Flowers resigned in disgrace from the bank after it lost £700m in the first half of 2013, and a £1.5 billion hole in the bank's finances was discovered by the then new CEO Euan Sutherland.