The report by the National Audit Office published today (24/01/2020) does not seek to conclude whether HS2 ultimately is likely to be value for money, but looks at the cost and schedule estimate in advance of the Department’s plan to take the final investment decision on Phase One of the project. The Department for Transport expects to take the final investment decision on whether to proceed with Phase One and to start main civil construction in early 2020.

Read CIHT's Response to this report here

It is concluded that the The Department, HS2 Ltd and government more widely underestimated the task, leading to optimistic estimates being used to set budgets and delivery dates. In not fully and openly recognising the programme’s risks from the outset, the Department and HS2 Ltd have not adequately managed the risks to value for money.

Read CIHT's Technical Article on cost overruns in megaprojects here. 

A total forecast cost for the programme is not yet clear. The Department’s emerging estimate, as at December 2019, gives a potential cost of between £65 billion and £88 billion (2015 prices), between 17% and 58% more than the available funding of £55.7 billion (2015 prices) agreed with HM Treasury.

A number of issues have led to the increased costs:

• The 2026 target opening date for Phase One was ambitious.
• The Department and HS2 Ltd underestimated the complexity of the programme, and Phase One is now forecast to cost between £31 billion and £40 billion, £3.9 billion to £12.9 billion (14% to 47%) more than its available funding. 
• HS2 Ltd did not account for the level of uncertainty and risk in the programme when previously estimating the costs of Phase One.
• The Department and HS2 Ltd underestimated the impact on costs of changes made to the design and construction of the railway by the hybrid bill.
• HS2 Ltd included ambitious savings targets in its forecast costs to get within the available funding on Phase One but did not change its approach in order to deliver them.

The report notes that while the estimated cost and schedule for Phase One are now on a stronger footing, the challenge of getting Phase One into construction, and of monitoring and managing the programme as it progresses, is considerable. In going forward, the NAO sets out a number of recommendations for HS2 Ltd and the Department:

• DfT should periodically assess itself about the feasibility of completing the programme to agreed dates.
• Dft and HS2 Ltd should work together to clearly and consistently track programme performance and identify when risks are emerging. 
• DfT should assure that HS2 Ltd has the necessary capabilities to deliver the programme.
• HM Treasury, DfT and HS2 Ltd should take decisions on the scope and available funding for the programme. 

On wider programme management issues, the NAO recommends that the government should ensure that it takes appropriate account of the limitations of cost benchmarking information when using this approach to estimate costs. 

Source: www.nao.org.uk

CIHT on HS2

CIHT have identified a series of questions we beleive need to be answered to help change the narrative in relation to HS2:

1. Are the strategic economic benefits proven?
2. Are the assumptions in the business case robust?
3. Will HS2 help address the north-south divide, or will it exacerbate it?
4. Are the assumptions about modal shift from road and air realistic?
5. Is HS2 a low carbon solution, or will it increase carbon emissions?

Sue Percy, Chief Executive, CIHT said:

“CIHT has maintained a consistent position in support of the HS2 project as we believe it has clear benefits for capacity, connectivity and the economy if delivered in an appropriate manner. It is clear however, that HS2 is proving to be a divisive issue and more needs to be done to demonstrate the benefits that the project could deliver, including wider regeneration and investment opportunities and the levelling up of the economy.”

CIHT had previously outlined a series of benefits in relation to HS2 that we believe form the basis of rebalancing the current argument.

These benefits included:

• Key rail routes connecting London, the Midlands and the North will be overwhelmed without HS2. The existing West Coast Main Line will be full by the mid-2020s. Action is required to increase capacity on these routes.
• HS2 will link eight out of Britain’s ten largest cities, serving one in five of the UK population.
• The project will re-balance (i.e. close) the north-south divide, generating economic growth outside London and the South-East. The Core Cities predicted that HS2 will underpin the delivery of 400,000 jobs.
• During the morning peak, there are on average 4,000 people standing (d) on arrival into London Euston; and 5,000 people standing on arrival into Birmingham. Additional capacity is needed to address this.    
• The HS2 network will free up capacity on the existing rail lines, allowing more local rail services to serve towns and cities on the routes, particularly for commuters.
• Additional capacity on existing lines will also be available for additional freight services.
• Reductions in journey times between Britain’s major cities will improve business productivity.
• The construction industry needs major infrastructure projects like HS2. Project construction will support economic growth in Britain.
• OECD rank the UK lower than Mexico, Chile and Hungary in terms of public investment in infrastructure between 2006 and 2011.
• If the money is not spent on HS2 then it won’t necessarily be available for alternative transport projects.

CIHT will continue to review the progress of HS2 and discuss in future articles