HS2 Euston: Government does not know what it is trying to achieve with the station
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- Construction pause’s costs and impacts for local community and
small businesses unknown - £2.6bn budget and updates to Parliament
on Euston’s cost pressures were unrealistic The Department
for Transport (DfT) still does not know what it is trying to
achieve with the High Speed 2 (HS2) station at Euston, despite
spending over eight years planning and designing it. In March 2023,
the DfT announced that it would be pausing new construction work at
Euston...Request free trial
- Construction pause’s costs and impacts for local community and small businesses unknown - £2.6bn budget and updates to Parliament on Euston’s cost pressures were unrealistic
The Department for Transport (DfT) still does not know what it is trying to achieve with the High Speed 2 (HS2) station at Euston, despite spending over eight years planning and designing it. In March 2023, the DfT announced that it would be pausing new construction work at Euston for the next two years. In a highly critical report noting multiple different iterations for the project, the Public Accounts Committee (PAC) calls on DfT to use the current pause in construction on the project to finally establish the design and expectations for the station against what it is willing to spend. The DfT does not yet know the costs and impacts of the pause for the local community, with work still to be done on making the site safe and potentially useable by local residents during the pause. The PAC is also unconvinced that the impact for the DfT’s supply chain, in particular for smaller businesses involved in the works, will be mitigated by their employment elsewhere on the HS2 scheme. The DfT’s decision to pause followed estimates of a £4.8 billion cost to build the station, compared to an original £2.6 billion budget, which was completely unrealistic. Previous updates to Parliament on cost pressures at Euston did not disclose the risks that construction costs could be significantly higher than unexpected for the station left undisclosed by the DfT. The PAC calls on the Department to provide greater transparency in its six-monthly updates to Parliament. Questions also remain as to how the Government will manage high levels of inflation on the HS2 programme. The PAC’s inquiry heard the HS2 project is seeing 30% to 40% swings in the cost of raw material. The Treasury has made clear that departments are expected to absorb the higher costs from inflation within existing cash budgets. The DfT and Treasury have not yet reached an understanding on how to deal with this without taking decisions which would risk poor value for money on the project, including further reductions in spending. Dame Meg Hillier MP, Chair of the Committee, said: “The HS2 Euston project is floundering. This is a multi-billion pound scheme which has already caused major disruption to the local community put on pause. The pause, ostensibly to save money, is not cost free – mothballing and possible compensation for businesses which have lost work will all need to be added to the HS2 tally. The Government must now be clear what it is trying to achieve with this new station, and how it will benefit the public. “Our report finds that a wildly unrealistic budget for HS2 Euston was set in 2020 in the expectation that it would be revised. The Government must demonstrate that that it is not just repeating the same mistakes of unrealistic costings. HS2 Euston has shown us that forging ahead over-optimistically in an unclear direction is clearly not the right approach.” PAC report conclusions and recommendations Despite spending over eight years on planning and designing the HS2 Euston station, the Department still does not know what it is trying to achieve with the station. HS2 Ltd had first proposed an 11-platform design for the station in 2015, to be built in two stages. Following recommendations from the Oakervee review in 2020, the Department instructed HS2 Ltd to change to a 10 platform, single-stage design to make it simpler and more affordable. However, the latest estimate in March 2023 for the revised design showed it had become even more unaffordable, at £2.2 billion over budget. The Department attributes the high cost to the revised design incorporating all requirements, including from stakeholders such as Transport for London, the Greater London Authority and the London Borough of Camden. The Department now plans to use the pause in construction to determine the minimum requirements for the station and make decisions about what should be prioritised for the design to be affordable but still maximise value. It must choose how to balance and integrate the operating requirements of the conventional station with the HS2 station and decide its level of ambition for supporting regeneration. Recommendation 1: The Department needs to use the current construction pause to finally establish the design and expectations for the station against what it is willing to spend. The £2.6 billion budget set in 2020 proved to be completely unrealistic for what the Department wanted to deliver. In April 2020, as part of the overall Phase One budget of £44.6 billion set by the Department, HS2 Ltd set a £2.6 billion budget for Euston. This budget was below HS2 Ltd’s early estimated cost for the station of £3 billion. Later, more detailed estimates showed that the costs were likely to be significantly higher, with the 11-platform design forecast to cost £4.4 billion in June 2020 and the revised 10-platform design £4.8 billion in March 2023. This is despite work by HS2 Ltd between 2020 and 2022 to identify ways to reduce the expected costs. HS2 Ltd tells us that it set the budget in 2020 on the expectation it would be revised given the uncertainty around the station design and its provisional estimate. The Department also acknowledges that its challenge of costs at the time was focused on the overall Phase One budget rather than individual elements, such as Euston. The NAO reports that additional spending of £548 million has taken place up to the end of December 2022 (in cash terms) of which £106 million was nugatory spend due to the decision to alter the design from 11 platforms to 10. Recommendation 2: The Department needs to be much clearer to Parliament and the public that the revised budget it sets is realistic and the station design it approves is affordable and deliverable with timescales for construction before it restarts construction work at Euston. The Department does not yet know the costs and impacts of pausing construction. Neither the Department nor HS2 Ltd know the likely costs of pausing construction work for the next two years. They had been developing funding scenarios for the HS2 programme since the 2022 Autumn Statement but, with the decisions now made, HS2 Ltd still needs to work with its supply chain and with the local community to determine the full extent of costs and impacts. This would include making the site safe and potentially useable by local residents during the construction pause, and meeting contractual obligations. HS2 Ltd hopes to find an interim solution that is amenable to local residents and businesses, while it intends that much of the supply chain will be redeployed to other parts of the HS2 programme. However, we are not convinced that the impact on the supply chain, particularly on the smaller businesses, will be mostly mitigated by their employment elsewhere. Recommendation 3: We expect departments to have identified the costs associated with decisions on pausing projects so that Ministers can make fully informed decisions and so that departments can manage these costs effectively. For Euston, the Department should produce an interim report in three months on how they and HS2 Ltd are managing the costs of the pause, exactly how much has already been spent including costs associated with Network Rail and how much more they expect to spend to complete the project. This should include the cost of settling contractual obligations. HS2 Ltd should also include in that update the proportion of the supply chain at Euston, in particular small and medium sized enterprises, that have been re-employed elsewhere on the HS2 programme. The Department should also report on how much of the design work for the revised projects had been done and how much remains to be completed. The Department and HM Treasury have not reached a clear understanding about how they would manage high levels of inflation on the HS2 programme, including accessing Government-held contingency. In the 2022 Autumn Statement, HM Treasury confirmed that departments needed to absorb the higher costs from inflation within existing cash budgets. In response the Department has paused some of its capital projects including Euston. However, the risk from high inflation will continue to be an issue on the HS2 programme. The Department continues to discuss the treatment of inflation for major projects with HM Treasury, but there is not yet an agreed way to deal with this to mitigate the risk of poor value for money decisions. In setting the budget for Phase One of the HS2 programme in 2020 the Department never established how the government-held contingency of £4.3 billion would be deployed. Given that some of this contingency could potentially have been used at Euston or on Phase One more widely to manage the higher spend from inflation, we are concerned that arrangements for the use of this contingency have not yet been determined. Recommendation 4a: The Department should agree with HM Treasury and report back to the Committee in six months on how they will manage the continued consequences of high inflation. (b) HM Treasury should set out to the Committee how it will work with all departments to manage the consequences of high inflation on major capital programmes. (c) The Department should also establish and set out to the Committee the requirements to access the government contingency on the HS2 Programme. The Department’s reports to Parliament on the HS2 Programme did not reflect the significant level of uncertainty in its estimated cost of Euston station. From October 2020 through to its six-monthly update in October 2022, the Department has reported to Parliament that the cost pressure at Euston was around £400 million, and the focus of its accompanying narrative was that work was ongoing to reduce this. However, this reported cost pressure is less than one-fifth of the £2.2 billion amount by which HS2 Ltd’s latest cost estimate exceeds the original £2.6 billion budget for the station. The Department claims that until February 2023, £400 million was the only known and validated cost pressure, and it had hoped that the move to a 10-platform single-stage build would enable it to manage that pressure. HS2 Ltd says that it was aiming more for a cost of £3.3 billion, which was its estimate in April 2021 (£700 million above budget), but that it was only when it got the construction partner’s assessment at the end of 2022 that it had a clear understanding of the construction costs. This was as part of the two-stage procurement process that HS2 Ltd is employing on the programme. Previous updates to Parliament now appear to have been unrealistic in respect of cost pressures at Euston, with the risks that the costs of construction could be significantly higher not having been disclosed in the Department’s updates. Recommendation 5a: The Department should provide, as part of its six-monthly updates to Parliament on the HS2 programme, clear explanations of the maturity of its cost estimates and the risks that could result in material changes to provide greater transparency. (b) We note that our sister committee the Transport Select Committee asked questions at their hearing on the 21st June 2023 (Questions 163 to 167, Oral Evidence) in relation to the six monthly reports to Parliament. They queried:
We fully endorse all of these questions and expect them to be fully covered in the next report. The Department has not yet learned lessons from managing major rail programmes. In previous examination of other rail programmes like Thameslink and the Great Western Railway modernisation we have reported very similar problems to the ones we are now seeing again with Euston. The Department and HS2 Ltd say that they are learning lessons from other programmes such as Crossrail. But that there is more for them to do for example, on cost estimation, the treatment of contingency and managing the integration of complex projects. They also acknowledge that there are lessons they could learn from the development at King’s Cross such as the value that could come from managing the work at Euston as one integrated programme. HS2 Ltd considers that the work at Manchester Piccadilly will be the most important place for them to learn the lessons from Euston, given that Curzon Street Station in Birmingham is already much more developed. However, both stations are major construction projects in their own right and careful scrutiny of costs needs to be maintained by the Department to ensure that similar mistakes do not reoccur. This will include thinking about the right set up and organisation of the project, getting it in place early and determining the scale of ambition for regeneration and over-site development work. Recommendation 6: The Department needs to demonstrate to Parliament and the public that they are successfully embedding the lessons from past rail projects and not just repeating the same mistakes. Specifically on Euston the Department and HS2 Ltd should report back to the Committee on:
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