“No clear end in sight” to HS2 cost or delays with “many difficulties ahead” say MPs

• Massive rail programme will “literally run out of time” if key Euston decision delayed further

Following criticism by the Public Accounts Committee over the lack of transparency from the Department for Transport (DfT) and HS2 Ltd when the project’s delivery timeline and budget were hit with serious issues, the Government is now providing the Committee with “a clearer explanation of costs than we have previously seen in its reporting to Parliament.”

But the Committee is now “increasingly alarmed” about key elements of the programme, particularly the lack of progress at Euston Station, which have the potential to lead to yet more costs, delays and uncertainty over the promised benefits of the programme.

The current estimated cost of completing High Speed 2 is between £72-98 billion (2019 prices), compared to an original budget of £55.7 billion in 2015 (2015 prices). Civil construction of Phase One is now planned to finish in 2025, with initial Phase One services (Old Oak Common to Birmingham Curzon Street) starting between 2029 and 2033.

Euston station is a key part of Phase One, but despite the necessary planning consents being in place since last year, according to HS2 Ltd,the DFT is yet to make key decisions on the design and approach to construction there. HS2 Ltd told the Committee it is “getting close to the point where the programme will literally run out of time” if this next decision is not made soon.

Government also still needs to decide how Phase 2b – the northern sections of the route – will integrate with other parts of the railway and transport system.

The increases in costs have dented public confidence, and the volume of complaints about disruption and environmental damage from construction is rising and expected to increase further. The Committee says HS2 Ltd has an “opportunity to get on the front foot and engage with communities earlier and more successfully than it has done so far” - but DfT and HS2 Ltd have been unable to tell the Committee how they will ensure delivery of the range of benefits Government has promised to the people, communities and businesses along the route, including the creation of local jobs.

Dame Meg Hillier MP, Chair of the Public Accounts Committee, said “HS2 is already one of the single most-expensive taxpayer-funded programmes in the UK but there’s actually no clear end in sight in terms of the final cost, or even the final route. The project was plagued by a lack of planning and transparency from the start and there are many difficulties ahead.

“This project cannot simply keep sinking more taxpayer funds without greater clarity on the later phases. The development of Euston is a real challenge that must be resolved swiftly now.”

Sir Geoffrey Clifton-Brown MP, Deputy Chair of the Public Accounts Committee, said "For the first time, HS2 limited has given us estimated costs and delivery times for each section of Phase 1. However, they have given us an estimate of £2.6 billion cost for the redevelopment of Euston station, which may or may not be realistic, but they have not given us a date by which Euston will be integrated into the rest of Phase 1 and indeed this Phase will initially open at Old Oak Common. If Euston does not come on stream fairly soon after this the major cost benefits of Phase 1 will be curtailed.

"The overall cost of Phase 1 is £35billion with a £10 billion contingency, which would appear to be achievable. However, plans are not yet complete as to how Phase 1 will be integrated into Phase 2, and the costs of Phase 2a and 2b are far less certain. Therefore, the total wide estimate of building the entire railway is far less certain, between £72 to £98 billion, and could well exceed even that."

PAC report conclusions and recommendations

1. While it is encouraging that the civil construction elements of Phase One seem to be on a firmer footing, the scale of the work that still needs to be done means future costs remain uncertain.We have previously criticised the Department and HS2 Ltd’s lack of transparency over the programme’s delivery timeline and budget, and Government subsequently committed to six-monthly reporting to Parliament on the programme. HS2 Ltd is now able to provide us with a clearer explanation of costs than we have previously seen in its reporting to Parliament. HS2 Ltd reports that it has spent £11 billion to date and used £0.4 billion of its contingency, out of a total budget of £44.6 billion (2019 prices). The contracting of Phase One civil construction, worth £15.5 billion, is complete, of which £2.5 billion has been spent. HS2 Ltd considers the budget for Phase One to be realistic and estimates it has completed approximately 20% of the work, having spent 5% of its contingency. While Phase One appears to be in a better place than when we reported in 2020, the risk of cost increases remains. A substantial amount of the Phase One programme is still to be procured and HS2 Ltd is already reporting cost pressures of £0.8 billion from activities such as delayed enabling works and Euston station. HS2 Ltd is yet to fully quantify the final cost of the impacts from the COVID-19 pandemic but estimates the cost to be between £300 million and £400 million at the end of 2020. If these costs are validated, they will be covered by the government-retained contingency of £4.3 billion.

Recommendation: The Department and HS2 Ltd should set out as part of its future 6-monthly reporting to Parliament, a more comprehensive view on risk to the Phase One cost estimate and the use of contingency. The reporting of costs should be consistent over time and include, preferably in tabular format, areas such as:

• how much Phase One contingency has been used/remaining (£) and the proportion of contingency used/remaining (%). This should be included for: HS2 Ltd contingency (A); government-retained contingency (B); and, the total Phase One contingency (A+B);
• details of the cost pressures, including the value (£) of those that HS2 Ltd has confirmed and accepted, and those that HS2 Ltd is assessing as potential and not yet confirmed;
• a clear indication of whether cost pressures have increased, decreased or remained stable since the preceding 6-monthly report; and,
• progress being made on the cost efficiencies programme, with a supporting narrative.

1. The Department has made little progress on the design and delivery at Euston since we last reported, and we remain concerned that time is running out. Euston station is a key element of the programme both as the London terminus for High Speed 2 and a link to existing railway network and London Underground. We raised concerns over the lack of clarity of the design and delivery of Euston station in our May 2020 report, but the Department has made no final decisions since then. The redevelopment of Euston station is currently estimated to cost £2.6 billion. Despite HS2 Ltd telling us last year that the design of the station was ready for planning consent, the Department has spent the past 15 months looking for cost saving options and efficiency opportunities, including the potential for a smaller station. HS2 Ltd asserts that it is getting close to the point where the programme will literally run out of time if a decision is not made soon, and that Old Oak Common is being set as the London terminus when the railway first opens to decouple it from the risks at Euston. The Department recognises that Euston is a very urgent and immediate challenge and expects to report on progress in autumn 2021. We recognise the benefits Euston provides, such as redevelopment opportunities around the station, as well as its complexity in being built at a busy operational railway in a city centre location, but the uncertainty of this part of the programme is substantial. This impacts businesses, passengers, residents and other industry stakeholders. This uncertainty needs to be resolved urgently, and the Department needs to ensure appropriate assurance has been completed on the decisions taken on the design and delivery arrangements.

Recommendation: The Department should set out in its next 6-monthly report to Parliament:

• the decisions that it has made about Euston;
• details of the assurances it has undertaken;
• its timeline on when remaining decision points will be met; and,
• any impact on the Euston opening range of 2031 to 2036.

1. HS2 Ltd has started planning how it will integrate its systems for Phase One to ensure the railway works, but this is an inherently risky part of the programme. We previously raised concerns that, given the scale of the programme and its future impact on the rail network, if the Department does not give enough attention to managing the interdependencies within HS2 and other rail programmes, passengers and services would suffer. In addition to the stations and infrastructure, HS2 needs to ensure that railway systems can work together in order for services to run. HS2 Ltd is attempting to avoid the Crossrail experience of failing to integrate the various systems required to operate the railway. HS2 Ltd is starting to plan its approach to integration of systems early and has proposed a delivery approach which would incentivise alliances between contractors. HS2 Ltd recognises that this approach is bold and complex and has not been undertaken in the railways before, although there are examples in the oil and gas sector. The systems required to operate the railway in Phase One will not be installed and tested until the late 2020’s. However, procurements on the parts of the programme that are integral to the successful integration and operation of the railway are underway. Smaller contracts, such as tunnel safety doors, have already been procured, and larger contracts, such as track, electrification and signalling, are expected to be procured over the next two years.

Recommendation: HS2 Ltd must continue to monitor and report on both progress and the time allocated to systems integration as part of the regular 6-monthly updates to Parliament, and inform the Committee promptly if the time allocated to these latter stages is at risk of being squeezed.

When it has announced the winner of its competition for the rolling stock contract, HS2 Ltd should write to the Committee to explain how the design and delivery of the train will support the integration of the systems required to operate the railway.

1. We are increasingly concerned that the Department and HS2 Ltd do not yet know how they will turn the benefits promised from High Speed 2 into a reality, including what additional investments will be needed or how these will be funded.The Department claims that High Speed 2 is a catalyst for investment, jobs and growth but also acknowledges that it needs to focus on making sure that the programme achieves what is intended. The Department needs to turn those intentions into a plan that brings together local authorities, the private sector and other Departments. There are some examples of the Department encouraging private sector investment, such as £50 million announced in the Budget for development around the Birmingham Interchange station, and the programme’s promise of regional job creation. However, despite hearing that pockets of activity to realise benefits is happening, we are concerned the Department does not yet have an integrated programme to delivering these benefits. We are disappointed to hear that local jobs are not being created in the numbers expected. Realising the benefits for the Midlands and the North is dependent on removing the uncertainty around the outcome of the integrated rail plan.

Recommendation: The Department and HS2 Ltd should write to the Committee within three months, describing their strategy to identify, monitor and evaluate the benefits of the programme. The Committee will monitor what progress has been made against this when we next revisit High Speed 2.

1. The Department and HS2 Ltd are not adequately engaging with the Department for Education to secure the skills required for the future of the programme and training the next generation of skilled workers. We have repeatedly raised concerns that the Department and HS2 Ltd did not have the skills or capability they needed now or in the future to successfully deliver the programme. The Department and HS2 Ltd have repeatedly failed to convince us that their plans to secure the future skills and capability needed are enough. In 2016, HS2 Ltd and the Department told the previous Committee that the National College for High Speed Rail would be crucial in training people in the skills required for High Speed 2 and other infrastructure projects. The college has since become the National College for Advanced Transport & Infrastructure and, most recently, merged with the University of Birmingham. The Department admits that the performance of the college has been disappointing and hopes that its latest merger, new leadership and new curriculum from September 2021 will be an opportunity to get the best out of the arrangement. Yet the Department’s involvement with the college has been limited as it falls under the Department for Education’s accountability remit. We are disappointed in this lack of engagement, as it is in the Department’s strategic interests to have a strong relationship with the college and ensure it provides the skills and curriculum High Speed 2 and other infrastructure projects need.

Recommendation: The Department must proactively engage with the Department for Education and other relevant education providers to ensure there are plans in place for further education colleges to get the through-flow required for the programme. The Department should write to us to explain how it is engaging with these stakeholders within three months.

1. We are already concerned about the volume of complaints on disruption from the programme which does not bode well for the future as more communities will be impacted as construction progresses. HS2 Ltd estimates it has handled 124,000 queries over the past three years and interacted with over 76,000 people along the route. It is engaging with the supply chain, its contractors and local MPs to help inform communities about its work. However, the number of complaints from the public about High Speed 2 has increased as main construction on Phase One has started. Complaints to the Independent Construction Commissioner HS2 rose to 86 in the first quarter of 2021 from 74 in the previous quarter. The majority of complaints are about the impact of construction on roads and traffic, vegetation clearance and about noise and vibration. Due to the scale of the programme and the time until the railway is complete, complaints are likely to increase as the programme progresses. It will be critical for HS2 Ltd to develop a way of embedding the lessons it has learned into its day-to-day processes, so that mistakes from Phase One are not repeated in Phase Two, and that community engagement and environmental concerns are more proactively addressed by the company.

Recommendation: The Department and HS2 Ltd should write to the Committee within three months setting out how they intend to resolve the issues around community engagement and the environment observed by the Committee in this report.