Small Businesses in Railway Arches

Ruth Cadbury Excerpts

Wednesday 22nd March 2023 Commons Chamber

[Helen Hayes (Dulwich and West Norwood) (Lab)]

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.

[Ruth Cadbury (Brentford and Isleworth) (Lab)]

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?

[Helen Hayes]

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.