A train line to nowhere?
HS2 shambles + Stories that matter this week
Hello and welcome to the latest edition of Off to Lunch…
High Speed 2 will go into central London. Forgive me if that sounds like a statement of the obvious, but that is what Jeremy Hunt has been forced to clarify this morning.
He was forced to clarify this after The Sun ran what looks a well-sourced story by its respected political editor Harry Cole. This story said that the government and HS2 Limited, the organisation leading the project, were considering scrapping or delaying the planned - and partly-built - HS2 station at Euston. Instead, HS2 trains would terminate at Old Oak Common in west London and passengers would then get into central London via the Elizabeth Line or other means. This is all due to the rising cost of the project…
This change would be suboptimal, to put it mildly, and the reaction has been predictably angry in the areas that would use HS2 to get to and from London, such as Birmingham and Manchester…
Anyway, the chancellor has since insisted that HS2 will go into central London, although I note he does not appear to have ruled out the Euston station being delayed. Stay tuned for more developments in this story…
Hunt made the comments at a speech at Bloomberg’s offices in London. This speech was supposed to talk-up the government’s plan for the economy amid discontent among some Tory backbench MPs (like Boris Johnson and Liz Truss) that Hunt and Rishi Sunak are not doing enough to get the UK growing, whether that be through tax cuts or other initiatives. Hunt pushed back on the prospect of tax cuts and subsidies for green technology - which the US is using effectively to attract investment in new technology - pointing to the perilous state of the national finances (more on that below).
But the noise around HS2 risks overshadowing Hunt’s speech (which frankly didn’t contain much new anyway). This newsletter aims to pick out the signal over the noise to help you understand what matters. But the noise and uncertainty around HS2 is a signal itself. The government seems unable to commit and stand-by a project that should be a key plank of improving transport infrastructure across the UK and therefore levelling up the economy. The existing transport infrastructure is breaking at the seams and there is something painfully ironic in the fact that new doubts have emerged about HS2 in the same week that Rishi Sunak warned Transpennine Express that its contract to run train services in the north of England is at risk because they are so unreliable. You can read more about that here.
There has been some interesting news and analysis around about levelling up this week. Check out Andy Burnham’s comment piece in The Guardian about how the UK should learn from Germany, where there is a law that requires funds to be equally distributed across regions. You can read that here. A new report by the IPPR North think-tank also said that if the north of England was a country then it would rank as the second worst in Europe for levels of public and private investment (behind Greece). You can read the Manchester Evening News’ take on that “damning report” here. The full report is here
New data suggests that Manchester has been one of the worst impacted areas by the economic slowdown over the last year. The Evaluate Locate Key Cities Tracker by consultancy firm JPES Partners looks at the economic vitality of areas across the UK. It tracks 96 different economic metrics such as the health of the labour market, earnings, house prices, start-ups and more. It is a useful index and I have written about it before. The latest report says that the economic vitality of Manchester fell by 11.8 per cent in 2022, the worst of the 20 cities it tracks. This compared to a 3.6 per cent drop in Belfast, which was the top performer, and Greater London, which was second after a 4.7 per cent drop. The bottom five places were Manchester, Aberdeen, Edinburgh, Nottingham, and Liverpool.
The data is a sign that the pressure on the economy is having a clear impact on areas across the country, but not equally.
That is the difficult backdrop to which the chancellor gave his speech. He also gave it after a week full of business and economic news that matters…
Other stories that matter this week…
The latest figures from the Office for National Statistics on the state of Britain’s public finances were alarming. They showed that net borrowing by the public sector was £27.4 billion in December 2022, the highest since monthly records began in 1993, more than double the £10.7 billion in the same month in 2021, and well above the £17.7 billion forecast by economists. The big increase was caused by the cost of the government’s energy support scheme and interest payments. However, the difference between the borrowing figure and forecast was largely due to economists expecting the ONS to change how it accounts for student loans, which it is yet to do. This accounted for £8.6 billion of the difference. Nonetheless, the debt facing the UK is eye-watering. The government paid £17.3 billion in interest on its debt in December (Office for National Statistics) Sticking with the economy, The Times ran what looked a well-sourced story that said the Office for Budget Responsibility, the government spending watchdog, has told Jeremy Hunt that while the economy may not do as badly as feared this year it may not recover and grow as fast in the years ahead. So all that optimism about the economy this year could be misguided (The Times)
Tesla reported this week that revenue rose 37 per cent year-on-year in the final three months of 2022 as it delivered 405,278 new vehicles to customers. Elon Musk also excited investors by saying that Tesla could sell 2 million vehicles this year for the first time. Demand for electric cars, or at least those sold by Elon Musk, is booming (Tesla) However, the car industry in the UK has a problem. To put it simply, car manufacturers are not stepping up production of electric vehicles because they say demand is not there yet. But the demand is not there because consumers feel that the vehicles are too expensive and there are not enough charging points across the country. But the companies making charging points say they cannot roll them out any faster because there are not enough vehicles on the road to make them all viable. This logjam between the three parties - carmakers, consumers and charging point providers - is hurting everyone. Something is going to have to give. This week the Society of Motor Manufacturers and Traders said that the number of cars built in the UK in 2022 was 775,014, down 9.8 per cent on 2021 and the lowest since the 1950s. Electric and hybrid vehicles accounted for one-third of those manufactured (SMMT) On charging points, an analysis by The Times found the UK could miss its target of having 300,000 chargers by 2030 by 20 years. Oh dear (The Times)
I wrote in last week’s Off to Lunch that Preston-born Michael Platt might have more money than anyone in finance thanks to the stellar performance of his hedge fund BlueCrest Capital. Well, a fascinating profile of him has just been published which includes some old quotes from Platt about his approach and his obsession with managing risk. Apparently when he was 10-years old he learned how to solve a Rubik’s cube from any position in under one minute (Neckar’s Minds and Markets)
There has been interesting news regarding supermarkets this week. Firstly, John Allan, the chairman of Tesco, sparked a row with suppliers and farmers by saying on the BBC’s Sunday with Laura Kuenssberg that it was “entirely possible” that food producers were using inflation as a reason to put prices up more than necessary. He made these comments despite Tesco reporting rising sales and profits (The Guardian) On Thursday Wm Morrison posted a 4.2 per cent drop in like-for-like sales and a 15 per cent drop in underlying profits in the year to the end of October, sparking new concerns about the health of the Yorkshire-based grocery chain after its takeover by private equity firm Clayton Dubilier & Rice (Daily Mail) Finally, Bestway Group has announced that it has bought a 3.5 per cent stake in J Sainsbury. The family-owned company says it has no intention of making a takeover bid for Sainsbury’s but is interested in buying more shares from other investors. Bestway owns the Bestway wholesale business as well as Costcutter, Well Pharmacy chain, Bargain Booze and Wine Rack. It is owned by Pervez, Choudrey and Sheikh families and says it is the 7th biggest family-owned business in the UK (Bestway)