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Is private finance the answer for HS2?

27 September 2023

Four ICE policy fellows share their views on what role private finance could play in delivering HS2 in the UK.

Is private finance the answer for HS2?
Construction on phase 1 of HS2, between London and Birmingham, is underway. But future links have been, or could be, scrapped or delayed. Image: Shutterstock

The future of High Speed 2 (HS2), the UK’s flagship high-speed railway project, is in doubt.

Speculation is growing that the government will cancel or curtail future phases.

Four experts in infrastructure funding, financing, and transport, shared their thoughts on whether private finance could secure the future of the project.

'Project security is now of fundamental importance'

Inviting private finance at this stage would add to the final costs to the taxpayer from any base cost position.

However, it would secure the whole project – which is now of fundamental importance – and target any new programme better.

Howard Potter is an ICE policy fellow and former chief transport planner and engineer for the DLR, London Docklands.

'Time for the UK to take a closer look'

The holy grail in major transport project financing is long-term private sector capital with deep pockets to share risks with taxpayers.

Perhaps the search ends with pension funds.

These institutions now hold more than $50 trillion globally and their return expectations are long-term.

Is there a way to make major infrastructure projects attractive to this long-term, stable capital?

There is.

But it demands imagination from the government – a risk-sharing partnership approach that ‘inverts’ the traditional private finance approach.

The new transit system being built in Montreal is an example of how to target this kind of finance for major transport infrastructure.

Time for the UK to take a closer look.

Duncan Symonds is an ICE policy fellow and executive director at IFM Investors.

'Investment should consider whole-life value'

Infrastructure such as HS2 should generate a return on investment.

But investment must consider whole-life value, not just short-term costs.

Where central government is responsible for outcomes, such as net zero or levelling up, it should be responsible for investment.

Investment from beneficiaries, such as HS2’s city regions, can complement this.

Developers around stations should be invited to invest in the station, establishing retail and hospitality outlets.

Fare incomes and rent or rates holidays can provide returns.

Consistent government backing and a credible assessment of risk and long-term reward should invite investor confidence.

HS2 can be profitable – but the government needs to offer certainty.

John Pelton is an ICE policy fellow.

'Decide what you want and stick to it'

From a limited survey, infrastructure funds make a return of >6%.

That’s after all funding and operating costs. 

So, returns from investing in HS2 would need to be considerably higher.

That margin needs to come from somewhere.

This makes private finance an expensive way to fund the railway. 

This is nothing new: it’s been an argument against private finance forever.

The single rule for building major infrastructure is to decide what you want and stick to it.

Inflation has played an undeniable role in HS2’s growing costs – but so too has a requirements creep. 

If the private sector is involved, any changes will cost even more.

Bernard Kinchin is an ICE policy fellow and director at Icon Consulting.

About ICE policy fellows

ICE policy fellows are an active network of infrastructure experts who provide advice and insight to drive the ICE’s policy programme forward.

We’re seeking ICE Fellows to join the network, particularly those from, or with experience, outside the UK.

We support our policy fellows with regular briefings, training, and opportunities to represent the ICE in front of decision-makers.

Find out more.

*The ICE welcomes guests to share their views about infrastructure policy issues on the Infrastructure Blog.

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  • Ben Gosling, speechwriter and policy content manager at ICE