Where now for HS2?: PAC urges Government to set out what benefit can be salvaged for taxpayer
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The failure of the High Speed 2 (HS2) programme, one of our most
important public sector projects, is now a reputational risk to the
UK. The Public Accounts Committee (PAC) today publishes its report
updating its long-running scrutiny of the project, following the
cancellation of HS2's Northern leg. The report urges the Government
to lay out to the public, in responses to the PAC expected before
summer this year, what value taxpayers can now expect from their
huge investment in...Request free trial
The failure of the High Speed 2 (HS2) programme, one of our most important public sector projects, is now a reputational risk to the UK. The Public Accounts Committee (PAC) today publishes its report updating its long-running scrutiny of the project, following the cancellation of HS2's Northern leg. The report urges the Government to lay out to the public, in responses to the PAC expected before summer this year, what value taxpayers can now expect from their huge investment in the project. Thirteen years since HS2 was given the go-ahead by Government, it is not known what it will cost, what the final scope will be, when it will be completed, and what benefits it will deliver. The PAC's inquiry was told by the Department for Transport (DfT) and HS2 Ltd., who share responsibility for HS2's repeated failures, that the programme would now undergo a “fundamental reset”, following a similar reset less than five years ago. The PAC is seeking details from Government of how oversight of the programme will be improved. However, the report finds that neither DfT nor HS2 Ltd currently have the skills or capabilities to make a success of the programme. The report notes past findings of gaps at the DfT in key areas such as risk management and assurance, project management and project controls. The PAC is not convinced that DfT has sufficiently considered how it can bring fresh thinking to its own leadership of HS2, or whether it has the right skills and capabilities in place to lead the programme effectively and credibly. The PAC's inquiry found that very little progress has been made on addressing the needs of those affected by the purchase of land and property as part of the programme. People who previously owned property that is no longer needed, who may welcome the opportunity to buy it back, have been waiting for years, and are still waiting, for answers. The report calls for people's cases to be addressed sympathetically and rapidly, particularly where this was someone's home. The report also specifically picks out Euston Station, and HS2's ‘bat tunnel', as elements of concern. It finds that the c.£100m cost of the 1km bat tunnel, which did not strike the right balance between protecting wildlife and the burden on the taxpayer, more than doubled the cost of that section of railway alone. On Euston, the Government's plans currently rest on the c.£6bn cost being significantly underpinned by the private sector. There is no clear plan for this, and the Committee is sceptical the private sector will come forward to the level required. In the meantime, local businesses, residents and passengers will continue to face significant disruption at Euston for many years to come. The Government and HS2 Ltd's inability to agree with each other on how much the programme will cost starkly illustrates their failure to work together effectively. Total programme costs could approach £80bn, and the PAC is pessimistic as to whether significant cost savings can be delivered in construction on the project. The PAC's warnings that HS2 Ltd. needed to carefully manage its contracts in this area went unheeded. Given a lack of apparent incentives for contractors to deliver significant savings, HS2 Ltd. must now lay out what steps it will take if it cannot renegotiate better terms. Sir Geoffrey Clifton-Brown MP, Chair of the Committee, said: “Our Committee has not made recommendations in our report on delivering better outcomes for HS2's future passengers. We are long past that point. It is time to deal with HS2 as what it is – a cautionary tale that should be studied by future Governments in how not to run a major project. We are sceptical of Government's ability to successfully deliver even a curtailed scheme, one which we already know will on its face bring very poor value for money. The question has instead become: what possible benefit can the Government now salvage for the taxpayer, from a mess that presents real risks to the UK's overall reputation? “This Committee has scrutinised HS2 since its inception. Our report lays out a catalogue of warnings proceeding from that scrutiny which, if heeded, may have brought about a different outcome. Both DfT and HS2 Ltd. must now begin the hard work of making this project the best possible version of itself in the circumstances, while swiftly addressing the needs of those impacted by decisions made under this scheme who are still waiting for answers. The Government must now look to future, and deliver on its responsibilities to Parliament and the wider public - through the lens of its accountability to the PAC. “It is ultimately the Department of Transport that has failed to manage this enormous project and manage HS2 properly. This is likely to have wasted billions of pounds of taxpayers money in delays and overspends. The department as well as resetting the project must now reset itself to manage this project to a workable conclusion in line with the eventually agreed budget and timescale. To do this they will need to employ people with the correct range of skill sets to critically supervise and oversee this huge project. This is the only way to salvage its severely tarnished reputation. We expect to see a real improvement when we next examine this matter.” Notes to Editors Past PAC inquiries into HS2:
PAC report conclusions and recommendations The Department and HS2 Ltd share responsibility for repeated failures on the HS2 programme, which now needs a fundamental reset.It is unacceptable that 13 years since government confirmed HS2 would go ahead, we still do not know what it will cost, what the final scope will be, when it will finally be completed or what benefits it will deliver. We have seen the same issues time and again, with a reset of the programme already needed in 2020 due to escalating costs and delays to the schedule. The fact that another reset is now needed less than five years later points to a failure of governance and oversight. The Department needs to adopt a significantly different approach to its oversight and radically improve its cost and control of HS2 as part of a “fundamental reset” of the programme. The Department and HS2 Ltd expect to complete the reset, including establishing revised costs and benefits, by around mid-2026 but is likely to revise governance and oversight arrangements much sooner. Recommendation 1.
The Department and HS2 Ltd's failure to work together effectively is starkly illustrated by them not being able to agree how much HS2 will cost. The Department and HS2 Ltd have still not agreed on how much it will cost to complete Phase 1. They are yet to reach agreement on the methodology and assumptions that underpin their cost estimates. This has been exacerbated by HS2 Ltd failing to ensure it receives reliable data from its supply chain. The existing budget, set in 2019, is no longer viable. With the estimates for completing Phase 1 now as high as £66bn in 2019 prices and inflation adjustments potentially representing an additional £10bn, the total programme costs could be close to £80bn. Only when the Department and HS2 Ltd are able to agree on cost estimates will they be able to agree a budget with HM Treasury. In the interim, the Department is agreeing annual budget settlements for HS2 Ltd, a short-term funding approach that provides poor value for money for the delivery of any long-term infrastructure project. Recommendation 2. Alongside its Treasury Minute response, the Department should write to the committee, setting out details of the agreed cost estimate methodology. The Department should also include in its next six-monthly update to Parliament when it will update programme costs into current prices and how frequently it will do this in the future. HS2 Ltd's construction contracts are unacceptable to the public purse and it is imperative that HS2 Ltd deliver on its assurances to us that it can renegotiate these and deliver significant cost savings. The terms and operation of these contracts provide extremely poor value for money. HS2 Ltd did not heed the warnings that the previous Public Accounts Committee made in 2020 that, in bearing more of the risk of cost increases, it would need to ensure the contracts were managed carefully and accepts that it has not done so effectively. HS2 Ltd is now seeking to renegotiate these contracts on more favourable terms. However, we are unconvinced that there are incentives for the contractors to make significant changes and deliver significant cost savings. There is also a risk that the main contractors pass any financial consequences down the supply chain to small and medium-sized enterprises who may find it more difficult to absorb such changes. Recommendation 3.
HS2 Ltd's efforts to reduce the environmental impact of HS2 are not delivering value for money, with the c.£100 million cost of a protective 'bat tunnel' more than doubling the cost of that section of railway alone. The Committee does not consider that the right balance has been struck between protecting the landscape and wildlife and the burden this places on taxpayers in relation to large public infrastructure projects such as this. The most striking example of this is the 1 kilometre long 'bat tunnel' that HS2 Ltd is building at a cost of c.£100 million (in 2019 prices) to reduce the impact of the railway in that area on a protected species of bat. This is in addition to the £73 million cost of building the underlying stretch of railway and the time and effort taken by DfT, HS2 Ltd and other bodies involved to agree the design and planning permission for the structure. The fact that the Department and HS2 Ltd chose this solution leaves us concerned that the cost to the public purse was not properly front and centre to their decision making. The Department acknowledged that the laws in this area for national infrastructure should be reviewed and while we welcome the recent announcements from government to reduce such burdens on infrastructure projects, through a Nature Restoration Fund, it is not clear to what extent this would reduce costs and delays for major projects such as HS2. Recommendation 4. In its letter to us before the 2025 summer recess, the Department should set out how it will work with the Department for Environment, Food and Rural Affairs to assess what impact the new nature restoration fund would have had on the section of the line where the bat tunnel is, and use that case study to help refine the operation of the fund. The Department and HS2 Ltd do not have the skills and capabilities needed to successfully deliver the programme. The Public Accounts Committee has repeatedly raised concerns over the Department and HS2 Ltd having the skills and capability they need. Following the cancellation of Phase 2, HS2 Ltd now needs to reinforce its capability, such as in commercial management, and focus its culture on the singular purpose of delivering Phase 1 for the lowest feasible cost. The company now has new leadership in Mark Wild, who brings experience of delivering Crossrail and is tasked with delivering the programme's reset. There are also likely to be changes in advance of the reset to how the Department engages with HS2 Ltd as well as how it organises itself internally following the conclusion of the Major Transport Project Governance and Assurance Review. However, we are not convinced that the Department has sufficiently considered how it could bring fresh thinking to its own leadership of HS2 , or whether it has the right skills and capabilities in place to lead the programme effectively and credibly. Recommendation 5. The Department should, alongside the reset of the programme, set out how gaps in skills and capabilities, such as in leadership and other key areas, will be addressed to secure the successful delivery of HS2. This should include the performance measures or indicators that leaders will be reviewed against. The Department's plans for Euston carry huge risks given the uncertainties about its scope, cost, funding, schedule and delivery model. In the 2024 Autumn budget, the government confirmed that HS2 would terminate at London Euston rather than Old Oak Common in West London, but the scope of the work needed at Euston is unclear. The task at Euston is significant as there is not only the construction of the HS2 station and potential allowance for future expansion, but also redevelopment of the existing Network Rail station, the underground station and the surrounding area, all within an extremely tight space. The Department has not yet decided on the final delivery model for work at Euston and how this connects with possible commercial development. Its current ambition is also for the approximately £6 billion cost at Euston to be funded through significant contributions from the private sector. However, there is not yet a clear plan for this and we are sceptical that the private sector will provide this level of contribution. In the meantime, local businesses, residents and passengers will continue to face significant disruption at Euston for many years to come. Recommendation 6. The Department should include in the six-monthly update to Parliament an update on its progress on Euston, including progress in establishing a delivery model and private financing for the works; how it is managing risks; and latest figures for both the spend to date and total cost estimate. Things are moving too slowly on making decisions on the disposal of land and property purchased as part of the programme. The Department has yet to determine what land and property can be disposed of following the cancellation of Phase 2, and what land it will retain ownership of for the purpose of potential future work. In February 2024, the previous Public Accounts Committee stressed the need for the Department and HS2 Ltd to develop a strategy for the disposal of land and property, and to balance this with the needs of those who have been affected. Very little progress has been made and people who previously owned property that is no longer needed, and who may welcome the opportunity to buy it back, are still waiting for clear timeframes and answers. This includes properties that were already no longer required from changes to the HS2 route in 2021. We expect HS2 Ltd and the Department to consider these cases as sympathetically and rapidly as possible within the framework of the Crichel Down Rules, particularly when it was someone's home. Some of this land and property may be required as part of government plans to improve rail connectivity in the north of England. Furthermore, having cancelled Phase 2, the Department will also still need to address capacity issues on the West Coast Main Line, given it is expected to reach capacity by the end of the 2030s. Recommendation 7.
Over the last decade the Department and HS2 Ltd have repeatedly said they are learning lessons but there is little evidence that lessons have been applied effectively and mistakes avoided. Since 2013, the Department and HS2 Ltd have told the Committee that they have been learning lessons. This has included areas such as around management of costs and schedule. The Department and HS2 Ltd say that they are still drawing on work already completed on HS2 to learn lessons for future delivery and have worked with HM Treasury and the Infrastructure and Projects Authority to consider all the lessons to date. However, escalating costs, programme delays and rescoping demonstrate that the Department and HS2 Ltd have not implemented these lessons effectively. Recommendation 8. Alongside its Treasury Minute response, the Department should write to the committee setting out the key lessons they have drawn and then, in its six-monthly update, explain how those lessons have been put into practice. |