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Small Businesses in Railway Arches

Volume 730: debated on Wednesday 22 March 2023

Motion made, and Question proposed, That this House do now adjourn.—(Jacob Young.)

I have sought this debate to bring to this House a number of serious issues affecting small business based in railway arches.

There are more than 5,200 railway arches across the country. They have historically provided affordable workspace for a wide range of businesses. They were sold by Network Rail on a 150-year lease in 2019 to Telereal Trillion and Blackstone Property Partners, which established the Arch Company to manage them. Sixty per cent. of those arches are in London, and they are typically clustered around key urban centres and near major transport hubs. There are 324 arches in my Dulwich and West Norwood constituency.

The Arch Company reported a £45 million profit in the 2021-22 financial year. I would be grateful if the Minister could reflect on that figure as I set out some of the issues that railway arch-based businesses in my constituency are currently facing. The issues are twofold. First, I will raise the impact of a recent rent review process on a number of car mechanic businesses based in my constituency. Secondly, I will raise a number of wider issues arising from the Arch Company’s lettings policy in the Brixton and Herne Hill areas of my constituency.

Turning first to the impact of the recent rent review on small businesses, I have been contacted by several car mechanics who run businesses based in railway arches in the Loughborough Junction and Camberwell parts of my constituency. Those are long-standing small businesses that typically employ two or three staff and usually take on apprentices. This sector is under pressure at present as a consequence of changes in the market for vehicles and the increase in electric vehicles on our roads. There has been a drop in traditional business, and there is a need to learn new skills, which comes at a cost. The customers of those businesses are also under financial pressure. Many have older vehicles, which are essential for their work, and they are facing a cost of living crisis—they cannot afford to pay more for vehicle maintenance.

The car mechanics—several of whom I know were hoping to be in the Public Gallery but have been caught out by the business concluding early—all tell of the same experience: the Arch Company has sought to double their rent. I know that the Arch Company has argued that the level of rent those companies have been paying is low—below market level—but the market rent for car mechanic businesses based in railway arches has been established for a long time, and the business model of those businesses is based on it. If a proposal for a rent increase effectively smashes the business model of a whole sector, that cannot be allowed to pass without challenge.

My hon. Friend is describing the experience of businesses in her constituency that are tenants of Network Rail. She might be interested to know that Transport for London provides quite a different kind of service and relationship with its tenants. It is estimated that 99% of tenants in railway arches under tube lines are small and medium-sized enterprises. TfL paused rents when businesses were no longer trading during the pandemic. Laura Sevenus Swimming Tuition and W6 Gym are two examples of small businesses in my constituency that benefited and are now thriving thanks to a positive partnership approach by TfL. Does she agree that that is the right way to go and that maybe Network Rail can learn lessons from TfL?

I am grateful to my hon. Friend for that intervention because she highlights very clearly the contrasting approach Transport for London takes to businesses in exactly the same physical circumstances, and how it is possible to run a different model that both benefits businesses and secures rental income for the landlord.

The car mechanics in my constituency have described the Arch Company as being difficult to negotiate with. They try to call the office, but the telephone is not answered. They receive an unexpected visit to their premises, and feel intimidated. The Arch Company will not engage with them as a group of businesses, despite their often being co-located on the same street of railway arches.

What car mechanics in my constituency have experienced has all the hallmarks of a rent maximisation approach, which has little regard for the individual small businesses it affects and which risks traditional light industrial uses being squeezed out in favour of gentrifying businesses that can pay a higher rent, regardless of the importance of the existing businesses in terms of the livelihoods they provide and to the customers they serve.

The National Audit Office investigated Network Rail’s disposal of its railway arches to the Arch Company. It found that, although the sale itself achieved value for money and the achievement of Network Rail’s own objectives, it was

“concerning that tenants as stakeholders did not form part of the aims of the sale and that they were only fully considered late in the process.”

The sale places no residual obligations on the Arch Company with regard to existing tenants or rental levels. The Arch Company does have a tenants charter, but this is a voluntary document that is not enforceable. The NAO further concluded that, in the future, there should be much more engagement with stakeholders affected by such a sale, and that any Government Department engaged in a sale should consider whether to place explicit customer protections in the contract of sale.

I understand that, following my interventions, the Arch Company has stepped up its engagement with some of the car mechanic businesses, and has agreed a new lease with a zero rent increase for one of them. I will take the opportunity afforded by this debate to urge the Arch Company to do the same for all of these businesses, so that they are protected in the medium term, have the time and space they need to recover from the impacts of the pandemic and to reskill where needed for the age of electric vehicles, and can continue to afford to offer highly valued apprenticeships.

The second issue I am raising with the Minister today is the impact of Network Rail and the Arch Company’s policies on two town centre areas in my constituency, Brixton and Herne Hill. In both cases, the difficulties began prior to Network Rail’s sale of the arches. Back in 2015, Network Rail announced that it needed to complete major works to two lengths of viaduct and planned to terminate the tenancies of businesses occupying the arches and evict them. A very effective community-led campaign, which I supported, ultimately secured the right to return for these businesses and protection from a cliff-edge rent increase, stepped over seven years.

The works dragged on and on. What was supposed to be a year turned into two years, and then five, creating enormous “dead zones” in both town centres, reducing footfall and making it very hard for businesses neighbouring the arches to trade. The works started to come to an end just as the pandemic took hold, meaning that the trading environment for returning businesses was very challenging. The situation was then made even worse in Brixton by the failure of Network Rail to notice during the preceding four years of major works that there was a significant structural problem with the northbound platform at Brixton station, which overhangs Atlantic Road, where many of the arches are located. This resulted in a further year or more of scaffolding and vacancy.

Once all the scaffolding was removed, the viaduct along Atlantic Road and Brixton Station Road looked—well, exactly the same as it did before. Almost seven years of appalling damage done to the economy of Brixton town centre, and Network Rail had not bothered to remove the buddleia growth, fix the brickwork or improve the lighting. It had even created a new problem: in wet weather, dirty rainwater now drips down from the northbound platform on to shoppers on Atlantic Road. It has felt as if Network Rail has been treating Brixton with total contempt. Following my intervention, it has agreed to do some additional works to improve environmental quality in the area, but frankly that is too little, too late after years of damage to our local economy and community.

Many of the refurbished arches in Brixton and Herne Hill still stand empty: by the Arch Company’s own figures, 25% of the arches in my constituency are currently vacant. The Arch Company says that it is open to approaches from start-up businesses and organisations that cannot afford to pay full market rent, but whenever I or the local ward councillors have approached the company on behalf of a business willing to rent an arch, no lease has been forthcoming. I know of two organisations, both of which would make a brilliant contribution to Brixton town centre, that would like to rent an arch, but both have only been offered levels of rent far above what they can afford.

I bring these issues before the House today because railway arch-based businesses make a significant contribution to local economies and local communities, providing goods and services and creating local jobs. The very nature of this estate has been that it provides affordable space, but in disposing of the arches to the Arch Company, Network Rail essentially cut those businesses adrift, placing them outside of Government regulation and at the mercy of the lettings policy of an entirely private organisation.

We should be doing all we can to protect and nurture small businesses during difficult economic times. As such, I ask the Minister the following questions. First, what representations has he made to the Arch Company in relation to the rent increases being faced by its tenants? Does he think the doubling of business rents in a single step during a cost of living crisis is an acceptable way to treat small businesses? Will he consider what protections can be given to long-standing railway arch-based businesses from unmanageable rent increases? What support is available for car mechanic businesses to gear up to maintain electric vehicles? Finally, will he work to strengthen the duties of Network Rail to consider and mitigate the economic impact of its operations and to maintain its estate properly? We owe it to the thousands of business owners, employees and customers to ensure that railway arch-based businesses are treated fairly and supported to thrive.

It is a pleasure to serve under you in the Chair again, Madam Deputy Speaker, and I congratulate the hon. Member for Dulwich and West Norwood (Helen Hayes) on securing this debate on small businesses in railway arches. As she has said, small businesses are the lifeblood of the UK economy, providing jobs and driving innovation. I am pleased that the railway supports those businesses through high-quality accommodation in railway arches. In the hon. Member’s constituency alone, there are 300 arches in use by businesses, ranging—as she has mentioned—from mechanics to retail and food. I would just like to add that I am very sorry indeed that her constituents—the mechanics she mentioned—are not able to be here due to the timing of the debate. I am sure they will be able to watch and see that they have been well represented by the hon. Member, and I hope they will note my response with interest.

To help improve the state of the railway arches and fund improvements to the railway, Network Rail sold leases for many of its railway arches to the Arch Company Ltd —or Arch Co, as I will refer to it. As part of that sale, Network Rail sold over 5,000 properties on 150-year leases, generating over £1.4 billion, which was invested back into the railway. As the hon. Member for Dulwich and West Norwood has set out, running a business in a railway arch is not always plain sailing, and I am aware of some issues that have occurred in her constituency that Network Rail has engaged with her on.

While arches offer businesses access to affordable property in prime locations, they remain part of the railway. Network Rail will sometimes require access to undertake safety-critical maintenance work. Network Rail is aware of the need to balance the safe and efficient operation of the railway against the needs of Arch Co’s tenants. To help businesses remain trading, Network Rail tries to examine vacant arches, working closely with Arch Co to understand vacancies and planned refurbishment programmes. On occasion, access will be required to undertake safety-critical arch examinations in tenanted arches. Network Rail works with Arch Co and its tenants to undertake examinations at times that will be less disruptive to the individual businesses, including trying to work outside of business hours and working around tenants’ fixtures and fittings.

Since it acquired the leases, Arch Co has been engaged in what it calls Project 1000—its plan to invest £200 million to bring 1,000 empty and derelict spaces into use by 2030. Arch Co plans to create space for 1,000 businesses, supporting approximately 5,000 jobs in urban areas in England and Wales, including major works in London, Manchester and Leeds.

Network Rail has worked closely with Arch Co to agree standardised designs that streamline landlord consent processes and minimise risk to the railway. This has allowed Arch Co to accelerate its enhancement programme and support its tenants in the arches to evolve and meet current market demand. Network Rail prioritises the undertaking of arch examinations during the refurbishment process to minimise disruption and enable tenants to maximise trading periods between examinations.

I know that the hon. Member has campaigned for the protection of those owning businesses in the arches. Network Rail seeks to support businesses that are disrupted by its works. It will cover rent payments for the period of disruption and will look to return arches in an improved condition. Further support from Network Rail to cover additional costs incurred by tenants is considered on a case-by-case basis.

While Network Rail and Arch Co work hard to ensure that businesses can return to their arches, there are exceptional occasions when businesses may have to leave permanently. No tenants have been permanently removed from the arches since February 2019, and any tenant facing removal would be entitled to a statutory compensation element, depending on the terms of their lease. Where possible, Network Rail will work with Arch Co to identify suitable alternative accommodation within either Network Rail’s or Arch Co’s portfolio. To support effective business planning for tenants of arches, Network Rail access is subject to a minimum of either 60 business days’ or six months’ notice, dependent on the nature of the access. Network Rail and Arch Co try to give more than the minimum notice period, and the 12-month forward rolling plan for arch examinations and specific communications plans is much more the case for larger projects. In emergency circumstances, Network Rail has the right to immediate access where prior notification is not possible. Network Rail liaises with the businesses and Arch Co to keep them updated in such circumstances.

When Network Rail transferred its leases to Arch Co, rent arrangements, protections and notice periods were transferred unchanged. That included all provision for rent reviews, with any increases tied either to market level or the retail price index. Before and since the transfer of the arches to Arch Co, many neighbourhoods where railway arches are situated saw dramatic regeneration, increasing the value of properties. Even during this time, very large increases in rent have been an exception. I note the points made by the hon. Member, but with the arches having been transferred from Network Rail to Arch Co, some of the matters she has raised are a matter for Arch Co.

To support those whose leases were transferring, Network Rail and Arch Co worked with tenants to develop a tenants charter, which commits Arch Co to being an accessible and responsible landlord, providing environments to help its customers to thrive, working with its customers and creating positive social and economic impact. If the hon. Member feels that that tenants charter has not been accorded to, I will of course look at the requirements on Network Rail from that tenants charter to assist her and her constituents.

The hon. Member also referred to Atlantic Road. I have positive memories of the time I spent working in Brixton. I spent five years as a youth centre staff manager and trustee for two youth centres on Coldharbour Lane, and I used to walk past the arches that she talked about. I want to see for myself—not just for those reasons—the issues that she talked about on Atlantic Road. I would be pleased to join her in her constituency, meeting her constituents and business owners on Atlantic Road so that I can see and hear for myself.

In conclusion, I thank the hon. Member for securing this debate. It has raised a number of key issues that show how important it is that small businesses in the UK have access to safe, reliable and affordable premises. Railway arches represent an excellent opportunity for those businesses to get affordable premises in prime locations, and I hope I have demonstrated Network Rail’s commitment to work alongside tenants where access is required. I hope I can find out more when I join the hon. Member, if she will have me, in her constituency to see for myself.

Question put and agreed to.

House adjourned.