HS2 cost uncertainties continue to worry MPs

A report by a Parliamentary committee has found that while HS2 has improved its performance, there are still concerns about costs and how the project’s benefits will be fully realised.

The programme is at an important stage of its development: Phase One (London to the West Midlands) has entered a stage of substantial construction; Phase 2a (West Midlands to Crewe) has received approval for construction by Parliament; and the Department for Transport (DfT) is assessing how to best integrate Phase 2b (Crewe to Manchester and the West Midlands to Leeds) with wider transport plans in the region.

The Phase One budget is £44.6 billion including almost £10 billion of contingency – so the baseline cost is £33.6 billion, and so far they’ve spent £11 billion to date and used £0.4 billion of the contingency.

Often when clearing brownfield sites such as Old Oak Common and Euston, the contingency is used up front due to unexpected problems, so the low use of the contingency so far bodes well for coming in on budget.

The Government’s latest range of estimated costs for Phase 1 is £35–45 billion.

HS2 has also completed the next tranch of contracts, worth £15.5 billion. There are still future risks, and HS2 currently expects to use up another £0.8 billion of its contingency funding from activities such as delayed enabling works and Euston station.

However, the committee noted that it’s still worried about future costs and the impact of Covid on the project’s costs.

There is also concern about the delays at Euston station, and the lack of clarity about the design and delivery of the station. This is partly down to the DfT which is looking for cost savings, which is good, but possibly by cutting the number of platforms, which pretty much everyone agrees would be very bad.

HS2 asserts that it is getting close to the point where the programme will literally run out of time if a decision is not made soon, and that Old Oak Common is being set as the London terminus when the railway first opens to decouple it from the risks at Euston.

The DfT expects to make a decision this autumn with full planning approval in September 2022, and the committee warns that the “uncertainty of this part of the programme is substantial”. Although there should rightly be oversight of the project by the DfT, there seems to be a level of micromanagement going on that will always lead to problems and delays if it’s not curtailed.

The report notes that HS2 is working early on systems integration to avoid the delays that bedeviled Crossrail, but also flagged that the “collaborative alliance” model used by HS2 is new to the railway industry, although it is often used in other large capital investment projects. Mindful of the problems that systems integration always throws up when being completed on railways, HS2 has recently set up a panel of external experts to monitor and advise on issues that may crop up.

The committee did raise a concern about public engagement and how HS2 might not be handling complaints to their best, but was positive about the environmental work being done, and that “there would be no net loss to biodiversity from phases 1 and 2a, and that there could be a net gain to biodiversity from Phase 2b”

Protests against HS2 have been estimated to have cost the project around £75 million so far, and there’s concern that legitimate peaceful protests are starting to become more violent and that contractors will need more support in managing these issues. There’s a general industry acceptance that in the early days HS2 was a bit aloof in how it managed public engagement in showing the benefits of the project and working to minimise the downsides, but there has undeniably been a big improvement in communications in the past couple of years.

In concluding, the committee warned that it’s “increasingly alarmed” about key elements of the programme, particularly the lack of progress at Euston Station, which have the potential to lead to yet more costs, delays, and uncertainty over the promised benefits of the programme.

Overall though, most of the concerns raised by the Committee report look to be manageable, so long as pressure is maintained on HS2 to keep on top of them.

The full report is here.