Business development · 22 January 2016

High Speed 2: Will it benefit micro firms?

high speed 2
The owner of Manchester based Hoopla Marketing agency believes that transport links within the North are more important than links to London

George Osborne has described High Speed 2 (HS2) as a “vital investment” which will “change the economic geography of the country”. In a speech he made in Manchester in 2014, the chancellor emphasised the importance of the project to the creation of a Northern Powerhouse and to shifting the vast inequality of economic power in the country away from the South East.

Though the first stage of the project has not yet received Royal Assent, the chancellor travelled to China in September 2015 to urge Chinese investors to bid for construction contracts and investment opportunities – highlighting the extent of government support for the project. Underlining this, MP Robert Goodwill said in September 2015 “HS2 is happening, and it’s time to get ready”.

The economic and strategic cases published to justify the rationale for the project suggest the new line will improve connectivity between the North West and the rest of the country, allowing firms outside London to reach a wider range of markets and thrive as a result of this. Overall, the project is expected to deliver some £13.3m of economic benefit to the UK.

Yet evidence from around the world suggests that linking regions to the capital with high speed rail tends to benefit the dominant cities rather than the areas they pass through. France, Spain and Japan, which have had high speed rail for decades, all provide evidence suggesting that it will be our capital which benefits most from HS2.

Not wanting to rely on the statistics alone, Business Advice spoke to two people who are based along the proposed route to find out if the increase in capacity and faster journey times between London and Manchester, Birmingham and Leeds are expected to have a big impact on the small business space.

Danny Cleaton is the co-founder of Hoopla Marketing, a social and digital marketing agency based in Manchester. His company provides an excellent example of the “new work” sectors – professional services, digital and creative industries – which a 2015 report from the Centre for Cities highlighted are vital to regional economies as well to the country’s overall economic health.

Employment in the three industries increased four times quicker than for the economy as whole between 2009 and 2013, while output from the digital sector alone increased more than seven-fold between 1990 and 2013.

Despite the tech-driven nature of his work, face-to-face meetings are still key to the business, and were a key driver of his decision to locate in the city. “We’re based in Manchester because that’s where other businesses are – you can walk to other offices. We try to do meetings over Skype sometimes, but it’s better to meet in person – you build up stronger relationships.”

Cleaton’s clients are spread out across the country, but predominantly based in the North West. Business trips to London are important but infrequent. In contrast to the main arguments often made for why we need HS2, it’s neither journey time nor overcrowding which puts him off, but cost. “If I don’t book in advance, a trip can cost £100, and then it actually makes more economic sense to drive down,” he said.

As a result, although he can see the benefits of HS2, he is not convinced that they will impact on his business.

“I really hope it will link up the North with the South, but the question is: will HS2 bring people up here or suck them down to London? There is already such a draw to the city, because it’s where so many big businesses are based. Firms down there which offer the same services that we do can charge three times more for them due to this greater demand,” he said.

David Hardman, the CEO of Innovation Birmingham, also has his doubts. Based within Birmingham Science Park Aston, in the centre of the city, the company acts as as a focal point for its tech community, connecting startups to experience, ideas, and money. “London can suck ideas and expertise into it, but we’re trying to create an alternative cluster,” he explained.

“If it shrinks the country, then that’s good. But the statistics show that HS2 will do more for London than it will for Birmingham. We know that lots of people want to be based in the city because of the high quality of life here, but there is a danger that the faster journey time will simply make it easier for them to live here and work in the capital,” he added.

With the estimated final bill for HS2 currently standing at somewhere between £40bn and £80bn, what is certain is that the opportunity cost of the project is high indeed. And both of those we spoke to have suggestions for policies which might be more beneficial to their regional micro business communities.

“We need investment in the transport system up here – especially outside of the big cities,” explained Cleaton. “When I go down to London, people can easily make a 50-minute journey on the tube to meet someone for a drink and a chat. But up here, the trains are less frequent and more expensive so that just isn’t viable.”

For Hardman, spreading economic power across the country is as much about reputation as it is about infrastructure. “The economy of Birmingham is doing well. If you come into the centre, you’ll see plenty of cranes building new offices and houses, and there are also plenty of Michelin-starred restaurants. But that isn’t necessarily how people see the city,” he said.

“Part of the appeal of London for young companies is the availability of funding. In order to attract the sort of investors that small firms need to Birmingham, we need perceptions to change. I’d like to think that there could be a knowledge quarter at this end of the track to compete with the one that is being created around King’s Cross at the London end of the line – that would certainly help counteract some of the hype around Tech City and make people realise that there are alternatives.”

The overall message seems to be one of guarded scepticism about the project. For young firms focusing on getting through the tough first few years, 2033 – when HS2 is due to be finished – is also a long way off.

“The way we communicate will have changed so much by then,” said Cleaton. “Will there even be the need for it then?”

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Hannah Wilkinson is a reporter for Business Advice. She studied economics and management at Oxford University and prior to joining Business Advice wrote for Kensington and Chelsea Today about business and economics – as well as running a tutoring company.