Written statement: Rail Update - Nov 15

Minister for Rail (Huw Merriman): HS2 Six-Monthly Report to Parliament: November 2023

Review of High Speed Two (HS2) including programme update, benefits, local community impact and engagement, land and property, programme governance and a forward look.

Overview

The Government announced a new plan, via the Network North Command Paper, to improve transport across Great Britain on 4 October. This directs spending away from future phases of HS2 towards local and regional transport schemes, whilst committing to the improved delivery of HS2 Phase 1.

This is because the facts around HS2 have changed since its inception: costs have increased, delivery has been delayed and the pandemic has changed the travel patterns HS2 was originally designed to serve. Cumulatively, these factors have weakened the economic case. The Government has, therefore, made the difficult decision to not extend HS2 beyond Birmingham, while taking a radical new approach to Euston Station.

Instead, the Government has announced a new plan for transport spending, as outlined in the Network North Command Paper. Through this, the Government intends to reallocate £36bn (2023 prices) of funding earmarked for the HS2 programme to a range of other high priority transport schemes across the North, the Midlands and Great Britain, investing in hundreds of projects in towns, cities and rural areas.

We will complete Phase 1 of HS2 between London and the West Midlands. There will be two branches: one to central Birmingham; and one to Handsacre, near Lichfield, meaning passengers will be able to travel on HS2 trains through to Manchester, Liverpool and Scotland, joining the West Coast Main Line for the rest of their journeys. No decisions have been made on the train service that will run when HS2 is operational.

As set out by the Network North Command Paper:

• The Government’s view is that the best interests of our country are not served by progressing with further phases of the project, in the face of diminishing relative benefits and more pressing transport priorities elsewhere. So we will not proceed with Phase 2a, 2b or HS2 East.
• HS2 Phase 2b Western Leg is now cancelled but some sections of the route are the same as those anticipated to be part of Northern Powerhouse Rail. As set out in the Network North Command Paper, the Government will take the time to consider next steps for the Phase 2b legislation that has been reintroduced into Parliament and whether there is a way to repurpose that to deliver Northern Powerhouse Rail. A further £12bn (2023 prices), additional to the £36bn, has been earmarked to better connect Manchester and Liverpool. This would allow the delivery of Northern Powerhouse Rail as previously planned, including high-speed lines. But we are working with local leaders to agree whether they wish to suggest other uses of this money to achieve the objective with that £12bn.
• We are going to scale back the project at Euston and adopt a new development led approach to the Euston Quarter which will deliver a station that works, is affordable and can be open and running trains as soon as possible. We will not provide design features we do not need and will instead deliver a 6-platform station which can accommodate the trains we will run to Birmingham and onwards and which best supports regeneration of the local area. In this way we will attract private funding and unlock the wider land development opportunities the new station offers, while radically reducing its costs to the taxpayer.
• The scope of Phase 1 will now be reviewed to guarantee delivery of only that required for updating the reduced HS2 programme.
• Delivery remains on track for the initial high-speed services between Old Oak Common in west London and Birmingham Curzon Street by 2029-2033.
• Work on HS2 in Lichfield and the surrounding villages, including the connection to the West Coast Mainline at Handsacre Junction, will continue.

In the Department’s (DfT) Accounting Officer Assessment of 4 October, the Accounting Officer concluded that continuing to build Phase 1 resulted in an estimated Benefit Cost Ratio (BCR) above 1 in a range of scenarios taking into account sunk costs to date, the estimated remediation costs of not continuing and based on an indicative timetable of eight trains per hour between Euston, Birmingham Curzon Street and the North West. Work has begun on an updated Business Case for the revised programme. This will update the strategic case for HS2 in light of Network North and provide a full economic assessment following decisions being made on the HS2 train services running to and from Euston. These will be made in due course, taking advice from West Coast Partnership Development, HS2 Ltd. and Network Rail, and will be subject to consultation. An updated Phase One business case will be published in due course.

This report uses data provided by HS2 Ltd. and covers the period between March 2023 and September 2023 inclusive. Unless stated, all figures are presented in 2019 prices. Data on benefits is taken from September 2023.

Programme update

Schedule

The forecast date for initial HS2 services between Birmingham Curzon Street and Old Oak Common remains within the range of 2029 to 2033.

An updated delivery-into-service range for services to Euston will be provided in due course.

Affordability

In my last report, I highlighted the cost pressures faced by HS2 and the work HS2 Ltd. was undertaking to review the Phase One Estimate at Completion (EAC). The HS2 Ltd. Board has now advised me that its updated EAC for Phase One is £49bn-£57bn (2019 prices), the scope of which was the route from Euston to Birmingham and works north to Fradley and the Handsacre Junction. This is a very significant upwards revision compared with HS2 Ltd.’s previous projections and is a wide range in comparison to the scope of the remaining work.

HS2 Ltd. has advised that cost increases on Phase One since Baseline 7.1[1] stem from a wide range of compounding issues including design performance, delivery productivity, consenting delays, and a difficult operating environment with Covid and the Ukraine War affecting the supply chain. In particular the costs of Main Work Civils (MWCC) work has increased in cost since Notice to Proceed due to an interplay of these factors. The latest projection HS2 Ltd. provided for MWCC is £21.8bn-£23.4bn (in 2019 prices), which represents a cost increase of £6.1bn from Baseline 7.1.

[1] Aggregated costs as set out in the Full Business Case which was approved at Notice to Proceed in 2020.

The Government disagrees with the £49-57bn figure for two reasons. First, it was drawn up by HS2 Ltd. before they were notified of the decision to cancel Phase 2. It reflects HS2 Ltd.’s understanding of the project in September – that it would be proceeding to Manchester and the East Midlands, and with more expansive plans for Euston. The scope and costs of Phase One will now be reassessed following the decision not to proceed beyond the Midlands, including the decision to adopt a development-led approach to Euston.

Secondly, DfT makes different assumptions on how much cost risk remains addressable, including different assessments of: how future risks could be actively mitigated; how revised incentives could change the trajectory on the costs of completing the civils and systems work; and the size and composition of HS2 Ltd’s own operating costs. As set out in the Network North Command Paper, for the historic Phase 1 scope DfT officials have, therefore, estimated a provisional range of £45-£54bn on the basis of the same data used by HS2 Ltd., but using different assumptions on how much remaining cost risk remains addressable.

I have asked the HS2 Ltd. Executive Chair, Sir Jon Thompson, to update HS2 Ltd.’s estimate to consider the revised scope of Phase 1 and the cancellation of the wider scheme reflecting reduced scope and the costs of any changes; to explain and evidence why the upwards revisions have been so significant and their causes; and to agree an EAC with Government by providing an action plan on how HS2 Ltd. will deliver the revised scope at the lowest reasonable cost, detailing actions needed to support HS2 Ltd. and its supply chain from the Government.

I will update Parliament once that revised estimate has been provided and new cost targets have been provided to HS2 Ltd. including clarity on any changes to the scope or the Funding Envelope. I propose to state this in both 2019 values (for comparison to the historic position) and in 2023 values (to show the cost in current terms and to reflect the recent period of high inflation).

As stated in the Network North Command Paper, the Government has increased its ambitions for the Euston redevelopment and has begun work to create a transformed ‘Euston Quarter’ led by a new Development Corporation, or equivalent, and using private funding to deliver a station that works. Euston sits in an internationally significant commercial district close to a world-leading cluster of scientific, research and development institutions, providing a significant opportunity to leverage private sector investment and minimise up front cost to the taxpayer. Government ministers have undertaken substantial engagement with Euston stakeholders since the announcement, including through a meeting with the Euston Partnership Board chaired by Peter, Lord Hendy of Richmond Hill, which brings together HS2 Ltd., Network Rail, Lendlease, Transport for London (TfL), The Greater London Authority (GLA), Camden Borough Council (CBC) and the West Coast Partnership. Going forward, the Department will consider a range of delivery models, financing mechanisms and the optimal scope, risk allocation and phasing of the comprehensive scheme. I will provide further updates to Parliament as this work progresses.

Delivery

Phase 1 is already well underway, with the project three years into its construction phase. There are currently 350 active construction sites between the West Midlands and London.

Tunnel drives are making good progress across the route. In the Chilterns, the Tunnel Boring Machines (TBMs) Florence and Cecilia have successfully reached the Little Missenden ventilation shaft; more than three quarters of their 10-mile drive beneath the Chilterns is now complete. Sushila and Caroline, the two TBMs creating the first section of tunnel that will make up the 8.4-mile Northolt Tunnels between West Ruislip and Old Oak Common station, have completed the first mile of twin-bored tunnel in the capital. Since their launch in November 2022, the 2,000-tonne TBMs have each installed over 847 tunnel rings, made up of 5,929 concrete segments in total.

Overall, half the tunnel boring machines for the route have launched, 1 in 6 tunnel journeys - comprising more than 14 miles of new tunnels - have been completed and 16,897 rings have been installed.

Stage 1 of the design and build contract for Birmingham Curzon Street was awarded to Mace Dragados Joint Venture in May 2021. An update on Stage 2 is expected in the coming weeks.

At Old Oak Common, the excavation of the underground box that will house the HS2 station platforms is now over 50% complete. In line with the programme, groundworks for the conventional rail station which will accommodate 8 platforms on the realigned Great Western mainline and relief lines, commenced in October 2022.

A contract between HS2 Ltd. and Network Rail has been confirmed for the delivery of the rail systems element of the GWML platforms. Both the Secretary of State and I visited Old Oak Common in August. I hosted the Deputy Mayor, TfL Commissioner and rail industry representatives to discuss progress across the site. The progress made at Old Oak Common is crucial for realising the potential for the creation of jobs and provision of housing enabled by the station through the new transport connections provided, and which the Government is working hard to achieve together, with the Mayor of London. To that end I have created a taskforce including Transport for London and Old Oak and Park Royal Development Corporation (OPDC) to consider, and take forward action, on this critical part of the programme. The first meeting of the Old Oak Taskforce took place on 31 October 2023.

The Department and HS2 Ltd. have started working to bring the work on Phase 2a to a stop in a safe and efficient way whilst ensuring value for money. There are a wide range of tasks, including wrapping up contracts and not progressing the Design and Delivery Partner and Main Works Civil framework contracts. Land will be remediated where early/enabling works had commenced and where new habitats have been completed, a suitable long term management plan will be established to support our no net loss of biodiversity commitment.

On the HS2 Crewe-Manchester scheme, the Hybrid Bill Select Committee continued its work hearing petitions from people and communities affected by the Bill up until Parliament went into recess in September. The committee produced its first report on 19 July setting out its views, and responses to the issues raised by petitioners to that point, to which the Government responded in September. A second additional provision was also deposited in July 2023.

The Select Committee adjourned in October, pending further instruction from the House following the cancellation of HS2 Phase 2b Western Leg. The Bill has been carried over into the next Parliamentary session and we are currently considering its future as we look to deliver Northern Powerhouse Rail, or any alternative that local leaders may agree, as quickly as possible, as outlined in the Network North Command Paper.

The Network North Command Paper set out the Government’s policy to pivot away from High-Speed rail interventions and focus spending on the transport infrastructure benefitting the local journeys that matter most to communities. Whilst Network North cancelled the HS2 schemes north and east of Birmingham, it maintained and added to the other commitments in the Integrated Rail Plan, including broadening the scope of Northern Powerhouse Rail. The existing Northern Powerhouse Rail commitments in the Integrated Rail Plan continue to stand. The King’s Speech set out the Government’s intention to repurpose the HS2 Phase 2b Bill to provide options to progress the delivery of Northern Powerhouse Rail. Work continues to deliver the other Integrated Rail Plan schemes, and to develop the new schemes brought forward by the Network North Command Paper.

The Department is working with HS2 Ltd. to stop development work on Phase 2b Western Leg that is no longer required in a safe and efficient way, whilst ensuring value for money. The Department is also considering repurposing the development work that is required to deliver Northern Powerhouse Rail as outlined in the Network North Command Paper. The Network North Command Paper committed £12 billion to better connect Manchester to Liverpool. This would allow the delivery of Northern Powerhouse Rail as previously planned, including high-speed lines. As promised in Network North, we will work with local leaders to agree whether they wish to suggest other uses of this money to achieve the objectives with that cost envelope.

Following the cancellation of phase 2, a study will be established to consider connectivity in the Midlands and connecting areas.

HS2 Ltd. continues tendering for Phase One rail systems packages, including track installation, overhead catenary and high-voltage power. HS2 Ltd. has provided suppliers with scope clarifications to support them in submitting competitive bids. Bids previously submitted by the supply chain showed higher indirect costs and fees than estimated and are currently unaffordable. These pressures are recognised in the revised EAC range advised by HS2 Ltd. HS2 Ltd. continues to develop its management capability for the rail systems alliance, which is responsible for delivering these systems packages in a collaborative model.

Benefits

Growth and opportunities for local communities

HS2 between London and Birmingham will continue to act as a catalyst for local investment and regeneration, unlocking growth around new and existing station sites and in the wider area. Local places are best placed to develop strategies and delivery plans aimed at making the most of the arrival of HS2.

DfT and HS2 Ltd. are working closely with partners across both central and local government to ensure places along the HS2 route take full advantage of the opportunities for economic growth, investment, regeneration and placemaking.

At Euston, we will appoint a development company, separate from HS2 Ltd., to manage the delivery of this project. We will also take on the lessons of success stories such as Battersea Power Station and Nine Elms, which secured £9 billion of private sector investment and thousands of homes. So, we will harness the future growth that the station will unleash to support its development, to ensure we get the best possible value for the British taxpayer - and ensure that funding is underpinned by contributions from those people and businesses its development supports. At the same time, we are considerably upping the ambition of the Euston redevelopment, where we will be looking to establish a Development Corporation to create a transformed ‘Euston Quarter’.

Green transport for a net-zero future

HS2 Ltd. continues to make progress its ambition of reducing the carbon emissions associated with building the railway. The company exceeded its carbon reduction target for 2022/23, achieving a cumulative forecast reduction of 29.6% against the Phase One baseline. This exceeds the forecast 28% reduction previously expected by March 2023.

The programme remains committed to supporting projects that create and restore woodland along the HS2 route. The HS2 Woodland Fund was relaunched in June, with £3.25m available to support landowners near the route create new native broadleaved woodlands and restore existing ancient woodland sites.

HS2 Ltd. is continuing to work on several active travel outcomes. This includes continuing the design and delivery of active travel interfaces across Phase One, exploring opportunities for linear active travel corridors along Phase One through the repurposing of maintenance access tracks or use of construction roads for walking, wheeling and cycling.HS2 Ltd. also continues to work with Sustrans to enhance sections of the National Cycle Network.

HS2’s stations are being designed to be sustainable. At Old Oak Common innovative and lower-carbon approaches in designing and constructing the station have been used. The station needs minimal energy and net-zero emissions whilst in operation, and there are extensive public transport and active travel choices included in the design.

Skilled workers for an innovative industry

The HS2 programme continues to support tens of thousands of jobs and thousands of UK businesses have already worked on the project. There are over 3,000 UK businesses in the supply chain acrossthe United Kingdom. It is helping train a skilled workforce for the UK’s wider rail and construction industries. The programme has created over 1,300 apprenticeships since Phase One Royal Assent in 2017 and currently supports over 30,000 jobs, the majority of which are currently working on delivering Phase One.

As the largest infrastructure project in the country HS2 will also continue to be at the forefront of innovation within the construction industry, using its buying power to ensure innovation is embraced and driven throughout the supply chain, and using the HS2 Accelerator programme to support SMEs and pilot new ways of scaling digital technology and innovative delivery.

Local community impact and engagement

HS2 Ltd. and its contractors are committed to minimising the impacts of construction on communities. I receive regular updates from the independent Construction Commissioner and the HS2 Residents’ Commissioner who proactively assure the considerate delivery of HS2 works along with the Department for Transport’s independent Construction Inspectors.

In his twenty-fifth report, the Construction Commissioner highlighted the area around Euston Station as a particular challenge for communities since the decision to pause works at the station was implemented earlier this year.

In response to the pause in construction activity at Euston we have commenced work on so called ‘meanwhile uses’ to determine what can be done to reduce the impact of the pause on the local community. We have an opportunity to use parts of the HS2 construction site to provide meaningful and active uses in order to maximise community benefits and generate social and economic value at Euston. This work is being undertaken in close cooperation with the London Borough of Camden with a strong focus on local engagement to deliver community priorities. So far, we have delivered new green space for communities to enjoy, and we are looking to bring commercial operators and community organisations on board to boost economic and social activity in the area.

For the former 2a and 2b Western Leg sections, HS2 Ltd.’s community engagement operation will focus on resolving any local uncertainty around works that are no longer required, or any restoration works that now need to take place.

HS2 Ltd.’s community and business funds exist to support communities affected by construction. These funds are intended to leave a positive legacy long after construction is completed and to go beyond statutory compensation and committed mitigation schemes. So far, over £16.6 million of funding has been awarded across 293 local projects along the line of route. Recent awards have supported village hall refurbishments, new equipment for community groups, and the restoration of outdoor areas for nature and recreation.

The volume of anti-HS2 protestor activity continues to be low. There are currently no protestor sites that directly threaten delivery of HS2. An injunction prohibiting trespass on, and obstruction of access to, land acquired by HS2 Ltd. was granted by the High Court in September 2022 and remains active along the route. Illegal protest has cost the project an estimated £38 million in direct costs and around £114 million in consequential costs, such as delays, to date. Of this, only £4 million has been added since HS2’s route-wide injunction was granted.

Land and Property

The Government recognises that the changes set out in the Network North Command Paper will mean some people and communities will have had land and property purchased that is no longer needed for the revised scheme. We are committed to acting in good faith and for fair treatment for all affected – particularly those with transactions in progress – whilst protecting taxpayers appropriately.

Officials are working to formally lift Phase 2a safeguarding within weeks and Phase 2b safeguarding will be amended by summer 2024, to allow for any safeguarding needed for Northern Powerhouse Rail (NPR). There will be no further compulsory purchase notices on Phase 2a, or the non-NPR sections of Phase 2b, and HS2 Ltd. are not accepting new applications under the existing schemes from property owners in the areas where safeguarding is going to be lifted. Applications that are in progress will be handled on a case-by-case basis after consultation with the claimant. We are currently developing the programme for selling land acquired for HS2 that is no longer needed and will set out more details in due course. We will take time to develop this programme carefully to ensure it delivers value for money for taxpayers and does not disrupt local property markets. We will engage with the communities and individuals who are affected throughout this process.

Programme governance and controls

The Network North Command Paper set out the Government’s intention to provide strengthened governance and control whilst the changes to HS2 were implemented. In line with this, the Government is progressing work to:

• support the HS2 Ltd. Executive Chair, Sir Jon Thompson, and the HS2 Ltd. Board in strengthening accountabilities, governance and control within HS2 Ltd. through a comprehensive change programme that he is leading;
• re-emphasise the primary focus on delivering HS2 cost effectively and affordably as HS2 Ltd.’s primary objective after safety;
• support Sir Jon Thompson in appointing a highly capable chief executive focused on delivering HS2 to schedule and the revised budget;
• review HS2 Ltd.’s advice on its revised EAC once this has been adjusted for the changes required by Network North and to then set a revised funding envelope and target cost;
• require HS2 Ltd. to provide a detailed action plan setting out how it intends to work with the Government and its supply chain to deliver the remainder of HS2 at the lowest reasonable cost including shared assumptions and metrics to assess progress;
• require HS2 Ltd. to secure ministerial approval for any contract award decisions and contract changes that are above its agreed affordable budget; and
• strengthen scrutiny of delivery, cost and schedule performance through a revised Sponsor Board with full participation from officials from HM Treasury (HMT) and the Infrastructure and Projects Authority (IPA).

Alongside these immediate interventions, the Department is commissioning an independently led review of the control and assurance of the delivery of its major infrastructure projects. This will report to the Department for Transport, HMT, and the IPA and consider how to improve Government’s confidence on estimation, scope control, and adherence to schedule and budget of major schemes delivered by its arm’s length bodies, including how obstacles to cost effective delivery can be reduced.

The Ministerial Task Force provides strategic oversight, support and challenge for the successful delivery of HS2 and met on 1 November to discuss the latest performance management information, the cost estimate range for Phase 1 and HS2 Ltd.’s response to changes to the HS2 programme. It will meet again in December to consider improved management information and obstacles to delivering better value for money construction in the UK context.

The former HS2 Ltd. Chief Executive, Mark Thurston left HS2 Ltd. at the end of September. I am grateful to Sir Jon Thompson for taking on additional responsibilities in an Executive Chair capacity until a successor is in post. Sir Jon will continue to be supported at Board level by Deputy Chair Elaine Holt. Recruiting a new Chief Executive is a priority for HS2 Ltd. and the Department and we expect to be able to announce an appointment early in the new year.

Since my last report, the Secretary of State has also reappointed Ian King as a Non-Executive Director for a further term on the HS2 Ltd. Board, and Joanna Davinson, Keith Smithson and Nelson Ogunshakin as new Non-Executive Directors.

Forward look

In light of the Network North Command Paper, we will now proceed with the steps necessary to take these decisions forward.

We will continue to focus on the cost effective delivery of HS2 Phase One and redirect funding from the cancellation of later Phases to the Network North programme. My Department will also begin developing a revised business case for the revised HS2 scheme.

I will provide further updates to Parliament on the development-led Euston project as it progresses.

On Phase 2a, the Department will continue to work with HS2 Ltd. to bring early/enabling site activities to a safe stop and conclude any land remediation activities for the handing back of sites.

On Phase 2b Western Leg, further work will consider legislative options for delivering Northern Powerhouse Rail, including whether elements of the High Speed Rail Bill can be repurposed to the support delivery of this.

On HS2 East, a study (to be conducted as part of Network North) is being established to holistically consider connectivity in the Midlands and connecting areas.

I will update Parliament once HS2 Ltd. has revised estimates and new cost targets including any changes to the scope or the budget. Subject to the agreement across Government, I also intend to state this in both 2019 values (for comparison to the historic position) and in 2023 values (to show the cost in current terms and to reflect the recent period of high inflation).

Financial Annex [1]

This annex reflects the current spend to date against the funding envelope agreed at Notice to Proceed in 2020. The Phase 1 EAC work has identified challenges within the forward projections which still have uncertainty and are yet be captured in these tables.

It should be noted that HMG conducted an Efficiencies and Savings Review (ESR) earlier this year, with savings found across the department, due to significant inflation and non-inflationary pressures on HS2. Following this, the 23/24 budget was updated at Main Estimates to £6.5bn. However, as was noted at Main Estimates, there remain substantial inflationary pressures on the programme, with full-year costs currently forecast by DfT and HS2 Ltd. to be £8bn, that will need to be resolved at Supplementary Estimates. As is standard, the Mains budget and 23/24 forecast are both presented in 2019 prices in this report, rather than cash prices, and therefore do not fully account for those remaining pressures. Government will provide further details of the 23/24 budget and forecast in cash terms as part of the standard Supplementary Estimates reporting to Parliament, which will also reflect the Network North announcement.

Historic and forecast expenditure (2019 prices, including land and property) ^[2]

[1] The figures set out relate to the historic scope of the programme and have not been amended to reflect the Network North announcement.

[2] The numbers set out in the tables have been rounded to aid legibility. Due to this, they do not always tally. All figures stated below are given in 2019 prices

[3] Spend to date includes a £0.9bn liability (provision) representing the department’s obligation to purchase land and property.

Evolution of Phase One HS2 Ltd. contingency (2019 prices) drawdown over last six Parliamentary reports

Evolution of Phase One government-retained contingency (2019 prices) drawdown over last six Parliamentary reports

[4] As highlighted in the October 2021 report, £0.015 billion has been allocated to enable Old Oak Common to increase the number of trains it serves before opening services to Euston Station from 3 to 6 trains per hour but has not yet been drawn down from government-retained contingency.