A new version of HS2’s northern leg has moved a step closer after Andy Burnham’s government approved a study to examine how it should be paid for, The i Paper understands.
The Prime Minister has spoken frequently of his desire to see plans for a new rail line resurrected, citing warnings from the industry that the West Coast Main Line between Birmingham and Manchester is close to reaching capacity.
Under Sir Keir Starmer, Labour’s position was that it would not look at building such a line until the 2040s at the earliest but The i Paper understands momentum has shifted under Burnham and officials are now being tasked with how to restart work as soon as possible.
Phase Two of the high-speed rail line between Birmingham and Manchester was axed by former Tory prime minister Rishi Sunak in October 2023 due to the continual delays and escalating costs of building Phase One of the project.
The London to Birmingham line is expected to cost up to £102.7bn and will not open until May 2036 at the earliest.
At least £2.6bn has already been spent on the former Phase Two route, including purchasing thousands of properties along the route which remain under the ownership of the Department for Transport (DfT).
‘Rocket boosters’ under railway line revival
Officials have been given the green light for a crucial study to examine various models for how much the rail line would cost and how it would be paid for.
Burnham first asked for the study when he backed a proposal for a scaled-down, cheaper HS2 alternative put forward by a consortium of private businesses and branded “HS2 lite” by some commentators in 2024.
This would still be a “high-speed” rail line, with trains travelling at 186mph (300kph) using what is known as “ballasted” track which is 70 per cent cheaper than the “slab” track being used to build HS2.
Coincidentally, Labour has already told HS2 Ltd that it wants to downgrade the speed of trains for Phase One to the same speed of 186mph in a bid to save money.
Heidi Alexander, who retained her position as Transport Secretary during Burnham’s reshuffle in July, said during an appearance on BBC Breakfast last week that she now expects the new Prime Minister “to put some rocket boosters” under the revival of an HS2 alternative.
With Labour having already committed £45bn to Northern Powerhouse Rail (NPR), a plan for improvements going to east-to-west across the North, The i Paper understands the central task of the study is to work out how to keep spending on another new railway line “off balance sheet”.
In essence, this means a model where the private sector finances and delivers a public infrastructure project and is repaid over decades, so it does not appear in the government’s wider spending or debt figures.
One example – Private Finance Initiatives (PFI) – was used by UK governments for many years before falling out of favour due to criticism of their value to the taxpayer.
During the Tony Blair and Gordon Brown governments, Labour enthusiastically used PFI to build dozens of schools and hospitals but their legacy is now tainted by claims of huge debts.
Burnham came into direct criticism for approving PFI deals while Health Secretary and later admitted mistakes had been made.
But having committed to maintaining the fiscal rules set by former chancellor Rachel Reeves, he has very little wiggle room for spending and is looking for other options.
‘There’s a clever way of funding this’
In an interview with The i Paper before his win in the Makerfield by-election, Burnham confirmed his intention to resurrect HS2 to Manchester and suggested a financial model similar to the one used to build Crossrail in London.
Around 60 per cent of the £19bn project came from local taxes including an extra 2p “business rates supplement” (BRS), initially applied to premises across the capital with a rateable value of £70,000 in 2023, now risen to £92,000 as of April 2026.
In total, the BRS is expected to raise more than £8bn.
However, sources with knowledge of the alternative HS2 plan have told The i Paper a BRS is unlikely to raise the same level of revenue outside London.
Land value capture (LVC) is another mechanism Burnham supports, whereby developers profiting from the increase in land value around major public infrastructure pay an extra tax.
Labour announced a change to planning rules this week which will mean councils must give a default “yes” to proposals for housing beside train, tram and underground stations.
This could boost the value of land around stations on a new rail line between Manchester and Birmingham.
Public and private investors need to find answer
But some sources close to the process still believe such mechanisms will not provide enough capital and that a more likely answer is to find cash from investors.
The National Wealth Fund, which has around £28bn in capital to deploy and is headquartered in Leeds, could be part of the solution.
Together with other private sector investors, they could set up a joint venture to build the railway line using a concession model similar to the one used for HS1, the Channel Tunnel rail link.
Under this arrangement, the government still owns railway but enters into a contract with a private operator to manage the infrastructure.
The HS1 concession is widely considered a success, having been sold for £2bn in 2010 – recovering around a third of the original £6.2bn build cost.
A spokesperson for the DfT declined to comment but pointed to Labour’s commitment to a new railway line between Manchester and Birmingham as part of the Northern Growth Strategy.
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