Vanity project or golden opportunity? Infrastructure projects, whether at a local, regional or national level, have a habit of polarising opinion and forging interest groups on both sides of the tracks. HS2 is no exception.
Against a backdrop of political lobbying by those for (who promote shorter journey times, increasing capacity, driving economic growth) and those against (who cite cost, environmental impact, alternative uses of government funds) it is, of course, individuals, communities and businesses that will be affected and find their historical status quo significantly altered by the project.
As part of my work on such projects as HS2 and Crossrail, it’s clear that their impact can be very significant, whether it’s a small family business or part of a FTSE quoted multinational.
If a business finds itself the subject of a compulsory purchase order and its land or premises are acquired to allow construction of the network, it’ll be entitled to claim compensation for what is called “disturbance”, in what is somewhat understated legalese. Depending on the circumstances, compensation may include, for example, loss of profit, business value, plant and equipment, relocation costs and the acquisition and fit-out costs of alternative premises.
It is primarily the loss of profit and business value that I focus on as a forensic accountant, commonly working alongside surveyors and other property experts in advising both businesses and acquiring authorities of the financial impact of compulsory purchase. This has been across a wide range of industries including retail, betting, professional services, waste disposal and aggregates producers.
As to the level of compensation due, broadly speaking, this flows from the decisions the business makes. A business will want to continue trading, whatever its size, and will strive to find an alternative trading location at the earliest available opportunity to reduce losses. Indeed, it’s under a duty to take all reasonable steps to mitigate any potential losses. If it can relocate, then the losses may prove only to be temporary but that’s not to say its trading levels could not fall on a more permanent basis, if the alternative premises are not as suitable.
Comparison of a business where location is critical (think of a retailer and its footfall demands or a distributor dependent on easy access to transport networks) with that where it’s not (such as a professional services company in a generic office building) shows up how important this issue can be.
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If the search for suitable relocation premises falls short and there are no other mitigating options, the business is “extinguished” – it is forced to close and cease trading, the “doomsday” scenario. Then, broadly, the compensation is based on the value of the business as a whole.
Overall, in considering what compensation is due, the overriding principle is that of “equivalence” - you should be in the same position after being acquired as you were before, in monetary terms. It’s a common principle within many areas of compensation and aims to ensure that a business (or individual) is compensated fairly and fully for their loss.
A longstanding contention – and one that seems to undermine the sense of full and fair compensation – is the payment of interest on compensation. Under current legislation, any late payment only attracts an interest rate of 0.5% below the Bank of England base rate. With historically low rates and no floor, the interest rate has been effectively zero for a long time. Not fair? Well, this is currently under review as part of a consultation process from the DCLG and HM Treasury, which recommends that the rate be raised to 8%.
With the government committed to HS2, believing it will “change Britain’s productivity performance in the future”, what will be its biggest and most expensive infrastructure project to date is here to stay. For a landowner or business that finds HS2 needs to compulsorily acquire its land or premises, it’s undoubtedly an unsettling time and, although monetary compensation may be an unwelcome alternative, the root of the process values fairness and giving you what you’ve lost to get you back on the right track.
James Stanbury is a partner in the London office of RGL Forensics with 25 years’ experience of forensic accounting and dispute resolution.