Today the Public Accounts Committee released their latest report on their investigations into the High Speed 2 rail project. It’s not a bad bit of work. It’s (rightly) critical of some aspects of the project but it doesn’t descend into hyperbole in the way the PAC used to do under a previous Chair. Instead, it’s objective and balanced – which is why it’s been almost completely ignored by opponents of HS2 as it’s shot their fox when it comes to their hysterical and exaggerated claims for the ‘true’ cost of HS2. I read it this morning but I’ll spare you having to do the same as I’ll bring you some of the highlights here. However, If you want to read the full report yourself. here’s a link.

The summary immediately upsets opponents of HS2 as it points out that the costs of HS2 are nothing like their distorted claims. The report states that;

“With construction of Phase one underway and plans for Phase 2a approved by Parliament, the current estimated cost of completing High Speed 2 is between £72–98 billion (2019), an increase from the original budget of £55.7 billion (2015 prices) in 2015. While HS2 Ltd consider these estimates to
be realistic, uncertainty remains, particularly when 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 also unable to 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 need to be covered by the government-retained
contingency of £4.3 billion”

So, yes, there are budget pressures, due to programme delays and Covid, but more of that later as the news isn’t all bad. For example, the project has a huge contingency budget, here’s what the report says on page 4;

“The Phase One budget is £44.6 billion including almost £10 billion of contingency (2019 prices)”

That’s a lot of contingency! Page 5 puts this into an even clearer perspctive.

“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.”

Yep, only 5% of the “almost £10bn” has been spent, which suggests there’s still a lot of leeway in the budget despite the pandemic and other unexpected events. Contingency is a figure that most commentators (even those who should know better) routinely fail to explain. When you see that “HS2 will cost £100bn” or whatever headline figure’s being bandied around (normally the fictional £106.6bn lazily and wrongly used by the media) it’s important to understand this isn’t the *cost* of HS2, this is the budget for HS2 – and that budget includes a large contingency that’s there as a cushion in case of genuine, unexpected cost increases – such as the ones allocated to Covid – and only a tiny proportion of it (5%) has been used so far.

So, Quite rightly, the report recommends that;

“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” this would include “a clear indication of whether cost pressures have increased, decreased or remained stable since the preceding 6-monthly report”

This makes sense as the budget is often difficult to understand as breakdowns don’t always follow a logical pattern. Another nugget is the news that the projects finances are not all about the contingency being eaten into. Page 11 contains this item;

“HS2 Ltd explained that it had an efficiencies programme and had found savings and opportunities totalling £200 million, mostly for civil construction such as bulk purchase of fencing and security.”

The report is less optimistic about the redevelopment of one of the key parts of the project – Euston station. The PAC’s very critical of the Department of Transport. They say;

“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”

This is spot on and a major concern. The DfT (no doubt driven by the Treasury) has been doing everything it can to penny-pinch on Euston, even going as far as to potentially hamstring the future resilience and expansion of services by trying to cut the number of platform from 11 to 10 just to save a few bob in the short-term. As the PAC states;

“the Department has spent the past 15 months looking for cost saving options”

Sadly, this is a familiar pattern and a classic example of knowing the cost of everything and the value of nothing. There’s a number of rail schemes where the DfT is constantly delaying them by asking for ‘reviews’ to relook at crucial (but expensive) options. The Trans-Pennine route upgrade (TRU) is yet another example. Rightly, the PAC point out that these delays can cost more money than they save.

The PAC mention another issue, not with the HS2 railway itself, but with the DfT and Government. They say (page 7);

“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”.

It’s that vision thing again. It’s notoriously difficult to get politicians (and the Civil Service) to plan for the future rather than the electoral cycle. Of course, without HS2 the question is moot. You can read far more about the Euston station question on page 12 of the report.

There’s also a lot of detail on other aspects of the project including training, consultations and complaints, but I’m going to focus mostly on cost. On page 11 the report outlines the fact nearly of the major contracts for Phase 1 are let so costs are known;

“The construction of the main civil engineering components of the programme (such as tunnels and viaducts) is a major undertaking and was a major cause of delays and cost increases at the time of our last report.16 In a letter following our evidence session, HS2 Ltd informed us that it had now contracted all the civil construction work, worth £15.5 billion, of which it had paid approximately £2.5 billion. It told us that the estimated total cost of all four stations for Phase One would be just over £5 billion, and that it had agreed contracts for three of the four stations. As a result, it expected that the construction for
Old Oak Common would be £1.67 billion, Birmingham Curzon Street would be £460 million and Euston would be £2.6 billion. It explained that it had not yet agreed a contract for construction at Birmingham Interchange but expected this to cost in total between £350 million and £500 million. HS2 Ltd told us that it estimated that railway systems will cost a total of £3.6 billion. Although some of the smaller systems contracts, such as the tunnel safety doors, had already been procured, HS2 Ltd told us that railway systems was the part of the programme where most procurement was outstanding. HS2 Ltd told us it
planned to procure the larger systems contracts, such as track, electrification, signalling and controls, in the next two years. HS2 Ltd estimated the cost to purchase the trains (rolling stock) would be around £1.6 billion. The Department and HS2 Ltd told us that they hoped to award the contract to design and build the trains later in 2020″.

This is rather a disappointment for those who like to make up exaggerated numbers for how much they claim HS2 will cost!

Section 16 (page 13) goes into detail on the risks of integrating HS2 with the existing network, a problem that’s bedeviled Crossrail and one everyone’s keen to learn from and not repeat. I won’t go into detail other than to say it’s a problem people are focussed on avoiding.

The report contains an updated schedule of works, which says this;

“HS2 Ltd told us it had a 10-year programme of work for Phase One before services started between 2029 and 2033. It further explained that it planned to complete civil construction between 2020 and 2025; railway systems between 2025 and 2028; and, commissioning, integration, driver training and entering into service between 2028 and 2030”. This suggests that HS2 services will begin well before the extended programme date of 2033.

All in all it’s a good report that’s realistic about the challenges that come from the largest construction project in Europe, one that’s going to take many years to complete., with all the uncertainties and wild-cards the world can throw up in such a period. I only wish others would take such a pragmatic and reasoned approach. But that approach is probably why it’s been widely ignored. Journalists can’t roll out their favourite cliché and call it ‘damning’!

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