HS2 verdict: Scheme now very poor value for money after Northern leg cancellation, says committee of MPs
|
Report calls for answers from Govt to questions raised by decision
to cancel HS2 Phase 2 Failure of governance and oversight over
spiralling costs following years of warnings The High Speed 2 (HS2)
programme, after the cancellation of its latter stages to run only
from London to the West Midlands (Phase 1), will offer very poor
value for money for the taxpayer. In a report published today, the
Public Accounts Committee (PAC) offers its verdict on both the
high-speed...Request free trial
Report calls for answers from Govt to questions raised by decision to cancel HS2 Phase 2
Failure of governance and oversight over spiralling costs
following years of warnings The High Speed 2 (HS2) programme, after the cancellation of its latter stages to run only from London to the West Midlands (Phase 1), will offer very poor value for money for the taxpayer. In a report published today, the Public Accounts Committee (PAC) offers its verdict on both the high-speed rail programme and Euston station. The PAC’s report is the latest addition to over a decade of scrutiny raising concerns around the management of HS2. The Government has accepted that delivering only Phase 1 will not be value for money, as its total costs significantly outweigh its benefits. The Department for Transport (DfT) told the PAC it was still better to complete Phase 1 – a calculation made by excluding the £23bn* spent to date, and including as a benefit of the project avoiding approximately £11bn* of remediation costs from cancelling entirely. The PAC has been left with little assurance over the calculations, and calls for a clear summation of Phase 1’s benefits. The report raises questions as to the many as-yet unknown ramifications of the decision to cancel HS2’s Northern leg. These range from how land and property now no longer needed will be disposed of, taking into account the needs of the taxpayer, local interests and fairness to those who have had their properties compulsorily purchased; impacts on other rail projects dependent on the cancelled phases; what will be delivered with a redirected £36bn** and when; down to how the high-speed trains (which will likely run slower than existing trains on tracks not designed for their speed) will operate as part of the network. As repeatedly highlighted by the PAC, cost overruns and delays have been a constant problem throughout the whole HS2 project. The estimated cost of the completion of Phase 1 with inflation range as high as £67bn**. Poor cost management indicates a failure of governance and oversight at both HS2 Ltd and DfT, and the report calls for answers within six months as to how these issues will now be brought under acceptable and properly accountable control. The report warns there are also urgent decisions to be made on funding the development of HS2 Euston, which is dependent on attracting private finance to pay for it. The Government has no plan yet on how to make this happen, and the PAC is highly sceptical that investment can be attracted of the scale and speed required to make Euston a success. *2019 prices **2023 prices Dame Meg Hillier MP, Chair of the Committee, said: “The decision to cancel HS2’s Northern leg was a watershed moment that raises urgent and unanswered questions, laid out in our report. What happens now to the Phase 2 land, some of which has been compulsorily purchased? Can we seriously be actively working towards a situation where our high-speed trains are forced to run slower than existing ones when they hit older track? Most importantly, how can the Government now ensure that HS2 deliver the best possible value for the taxpayer? “HS2 is the biggest ticket item by value on the Government’s books for infrastructure projects. As such, it was crying out for a steady hand at the tiller from the start. But, here we are after over a decade of our warnings on HS2’s management and spiralling costs – locked into the costly completion of a curtailed rump of a project and many unanswered questions and risks still attached to delivery of even this curtailed project.” PAC report conclusions and recommendations HS2 now offers very poor value for money to the taxpayer, and the Department and HS2 Ltd do not yet know what it expects the final benefits of the programme to be. The Department acknowledges that building just Phase 1 will not be value for money because total costs will significantly outweigh benefits. However, in October 2023 the Department’s Accounting Officer did assess that, excluding the £23 billion that had been spent to date (in 2019 prices), it was value for money to continue and complete Phase 1. There are many uncertainties in this assessment and we were left with little assurance over the calculations. In particular, the Department needed to include as a benefit the £11 billion (in 2019 prices) of costs avoided from not cancelling the whole project, in order to justify continuing. Even with such assumptions the potential benefits are low, with between £1.10 and £1.80 of benefit for every £1 to be spent completing the project. The Department also has further work to do to before it fully knows what the potential benefits will be. The Department will now need to revise its business case for Phase 1, which it expects to complete during the first half of 2024. Recommendation 1:
Costs have continued to escalate and the Department and HS2 Ltd do not know how much the programme will now cost. This Committee has repeatedly raised concerns about the Department’s and HS2 Ltd’s management of costs. But, despite our warnings and recommendations, costs have continued to rise. The Department’s estimate of how much it will cost to complete Phase 1 is now £45 billion to £54 billion (in 2019 prices), above a budget of £44.6 billion that had been reset only three years previously in 2020. HS2 Ltd is estimating an even higher range, of from £49 billion to £57 billion (also in 2019 prices). HS2 Ltd estimates that inflation since 2019 will add a further £8 billion to £10 billion to the cost. HS2 Ltd has not been able to constrain costs in its main works civils contracts, despite this being an area we flagged for attention in spring 2020. In our view there has been insufficient senior level focus on cost control before; but HS2 Ltd says it is now implementing changes to increase its focus on cost control, for example through new senior roles and better management information. The Department has also set out its intention to bear down on the costs of Phase 1, help HS2 Ltd to change its culture on cost control, and strengthen its own governance and control of the programme with increased oversight and reduced delegation. Recommendation 2: The Department and HS2 Ltd should set out in its next six-monthly update:
The Department and HS2 Ltd do not yet know what the impact of the decision to cancel Phase 2 will be on the HS2 programme and how HS2 Ltd will need to adapt so it can be successfully delivered. HS2 Ltd and the Department need to work through in detail how they will close-down work on the cancelled sections of HS2. The Department does not yet understand how the high-speed trains will operate as part of the rail network or how the HS2 line will connect to the West Coast Mainline to maximise benefits from Phase 1. For example, trains designed for the high-speed line will likely be slower when on the West Coast Mainline compared to the existing tilting rolling stock as they will not be able to travel on the older track infrastructure at the speeds they were designed for. It will also need to identify ways to resolve impacts on other projects, such as Northern Powerhouse Rail which will need a new revised scope. HS2 Ltd acknowledges that it needs to think about the capabilities the organisation needs to complete the tasks ahead. HS2 Ltd says, however, that although it has flexibility in the pay it can offer, competitors can offer much higher salaries still, impacting on its recruitment and retention. Recommendation 3: The Department and HS2 Ltd should set out in its next six-monthly update:
Developing Euston is dependent on attracting private finance to pay for it, but the Department does not yet have any plan for how to do so and has to make investment decisions soon to protect long-term value for money. Despite the intention to scale back the station itself compared with previous plans, redevelopment work at Euston remains a huge and complex project. Government has redirected £6.5 billion (in 2023 prices) of expenditure away from Euston, and the Department is now looking for private funding to cover the costs of the re-scoped Euston station and the over-site development. It is also considering ways the private sector might contribute towards the cost of tunnelling from Old Oak Common to Euston. The Department has previously had more modest proposals for private sector investment at Euston rejected by HM Treasury due to the risks involved. The Department told us there is ‘in principle’ interest from the private sector, but that it needs to decide on the financing model. The Department does not yet have a plausible or detailed proposition it could take to the market and it is likely to take significant time to develop one. There are urgent decisions the Department must make on funding the tunnelling from Old Oak Common to Euston or it will incur much greater costs from stopping and restarting work. Recommendation 4: The Department should:
The Department and HS2 Ltd do not yet know when they will dispose of land and property no longer needed and how they will balance different interests. The Department has spent over £600 million on land and property (in 2019 prices) along the section of the route that has now been cancelled. Part of this land may be required for other projects, such as Northern Powerhouse Rail, but the Department is looking to release land for other purposes quickly. When disposing of the land, HS2 Ltd and the Department will need to ensure that this is done in a way that protects the taxpayer as well as local interests, while also being fair to those who have had their properties compulsorily purchased. The sale of land and property can take many years, with individuals seeking to buy back land no longer needed for Phase 1 finding the process difficult and lengthy. There is a moral expectation that government should expedite opportunities for people who wish to buy back their land and property where they have been required to sell it. Recommendation 5: The Department and HS2 Ltd should, alongside the Treasury Minute response, report to the Committee their plan for land and property disposal. This plan should include:
The Department has yet to finalise what the redirected £36 billion (in 2023 prices) originally intended for the cancelled HS2 phases will fund or decide on when these projects can be expected to start. The Department has redirected the £36 billion that would have been spent on HS2 Phases 2a, 2b and East to a large portfolio of different road and rail projects through ‘Network North’. This funding will be available over the period up to 2041, very roughly mirroring the timings of when it would have been spent on HS2. The Department has announced how some of this funding will be redirected, such as support for bus services and additional funds for mayoral combined authorities. The Department says that the list of alternative investments contained in Network North would go through normal business case processes to be approved and while some projects are well advanced, other projects still require a significant amount of further work. There is not yet a list, with expected costs and benefits, of what projects the Department expects will be delivered over the long-term with the redirected funds. Recommendation 6: The Department should, alongside its Treasury Minute response, report to the Committee on how it intends to report and update the list of projects by region that will be funded through money redirected to Network North, over what timescale projects will be delivered, and how it will ensure value for money will be achieved. Notes to Editors: Full inquiry info, including evidence received, can be found here. More information on past PAC inquiries into HS2: |