Question

Why is HS2 over budget？What is the risk that the project have not been adequately managered？

Answer 1

The National Audit Office (NAO) has claimed that HS2 is over budget and behind schedule because the Department for Transport (DfT), HS2 Ltd and wider government have underestimated its complexity and risk.

The government spending watchdog’s hard-hitting report also claims that significant challenges remain to completing the programme and delivering value for taxpayers and passengers.

DfT’s latest estimate of the cost of HS2 is between £65bn and £88bn (2015 prices), between 17% and 58% over available funding. The programme is still at an early stage, costs are uncertain and could change, though a leaked report earlier this month claimed that costs could balloon to over £106bn. Full services on the entire network are now forecast to start between 2036 and 2040, between three and seven years later than originally planned.

The NAO say the target opening date for Phase One (London to West Midlands) was ambitious and set by comparison with other infrastructure programmes. DfT did not sufficiently consider that HS2 is a much larger and more challenging programme to deliver.

In 2013, the NAO reported that it would be difficult for HS2 Ltd to complete all work in the time available and in 2016 warned that the 2026 opening date was at risk. Although it was clear from 2016 that the 2026 opening date was in doubt, DfT did not reset it. Since April 2019, HS2 Ltd has been planning on the basis of a more realistic schedule for the programme.

DfT, which is responsible for funding and overseeing delivery of the railway, set the available funding for Phase One in 2015, based on a basic design produced in 2013. Since then, forecast costs have increased on all parts of Phase One except the purchase of new trains. DfT and HS2 Ltd now estimate Phase One to cost between £31bn and £40bn, or £3.9bn to £12.9bn more than its available funding.

HS2 Ltd did not account for the level of uncertainty and risk in the programme when estimating the costs of Phase One in April 2017. It used a method for calculating contingency that was not appropriate for a programme at such an early stage of development. The £7bn of contingency was not enough to address the significant cost increases that emerged.

By not fully and openly recognising the programme’s risks from the outset, DfT and HS2 Ltd have not adequately managed risks to taxpayer money. They have tried to understand and contain costs but have been unable to bring them within the available funding, or enable passenger services to start by the planned opening date.

Gareth Davies, head of the NAO, said: “There are important lessons to be learned from HS2, not only for the Department for Transport and HS2 Ltd, but for other major infrastructure programmes. To ensure public trust, the Department and HS2 Ltd must be transparent and provide realistic assessments of costs and completion dates as the programme develops, recognising the many risks to the successful delivery of the railway that remain.”

Reacting to the NAO report, regional bodies and senior industry figures urged the government to press ahead and deliver HS2 in full.

Henri Murison, director of the Northern Powerhouse Partnership, said: “Today, over 120 of the Northern Powerhouse and Midlands senior business leaders have written to the prime minister calling on him to build HS2, and integrate it with wider important projects including Northern Powerhouse Rail. Work produced for the Northern Powerhouse Partnership, taking into account the NAO suggested cost of £88bn, shows that using official northern inter-city travel estimates a benefit costs ratio of over £2 of benefit from every £1 spent, better than comparable projects like the Jubilee Line extension or Thameslink in London. In short, today we know conclusively HS2 will cost more than originally planned, but when the decision was made to go ahead, the benefits were also significantly underestimated.”

Nick Baveystock, director general of the Institution of Civil Engineers, said: “What is important to remember, regardless of the decision government might take on the future of HS2, is the challenges the project seeks to solve are significant. We need a network that can meet the demands of commuters, now and in the future, by tackling overcrowding, resilience and reliability. The government must also find ways to keep the UK connected, while meeting our 2050 net-zero target.”