All aboard HS2

Posted by Liz Rees in Latest insights category on 21 Feb 20

In his election campaign Boris Johnson committed to a capital spending programme to make Britain more competitive on the global stage. As mentioned in our email earlier this week the upcoming Budget is likely to support Johnson’s spending plans.

In supporting HS2, the Prime Minister stressed the need to ‘have the guts to take a decision, no matter how difficult and how controversial, that will deliver prosperity to every part of the country.’ No doubt he is aware of the fact that Japan and leading European nations have had high speed rail systems for many years.

Not surprisingly, the HS2 project has its critics with the costs, estimated at over £100bn, being top of their concerns. Since planning began more than a decade ago, £8bn has already been spent. The engineering challenges are significant and there is opposition from environmental campaigners due to the impact on woodland, wildlife and nature.

Nevertheless, Johnson is adamant that any mismanagement to date can be rectified. A minister will be appointed to oversee the project on a full time basis and HS2 Ltd will be split into 3 companies with separate management teams.

How will the economy benefit?

A key objective of HS2 is to boost productivity outside the South-East. UK productivity has been falling and, today, stands well below the average for major industrial nations.

The construction work should have an immediate positive effect on local economies, creating around 16,000 jobs by 2020, whilst the long-term benefits should be felt across the country.

The National Productivity Investment Fund supports investment in transport, housing and digital infrastructure. It is expected up to 90,000 new homes will be built alongside the infrastructure upgrades.

Other initiatives

HS2 is part of a wider commitment to capital investment across the country, including 40 new hospitals and expansion of social care.

Business leaders and politicians in Northern towns are pushing for routes to join up industrial centres across the North of England, and the £39bn Northern Powerhouse rail project has been revived. This should improve connections between the North West and North East via Leeds and Manchester.

Funds investing in the future of the UK

Contractors, house builders and building materials suppliers have performed well recently on the promise of increased infrastructure investment. If you are looking to top up your ISA before the end of the tax year, a UK Mid or Small Cap fund may offer exposure to the fortunes of the British economy.

Morningstar bronze-rated Franklin UK Mid Cap Fund pays close attention to quality and valuation and currently favours the housebuilding sector.

The long term and illiquid nature of infrastructure projects means they are more commonly found in an investment trust structure.  Funds that invest in a range of such specialist trusts include FP Foresight UK Infrastructure Income and TIME UK Infrastructure Income, although these do not currently have a Morningstar rating.

Important Information: We do not give investment advice so you will need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser.