Government clashes with HS2 over ‘significant’ cost increase

The government has clashed with HS2 Ltd over a “very significant upwards revision” in the estimated cost of the high-speed rail scheme.

Transport minister Huw Merriman challenged new figures from the publicly owned rail company, which put the cost of phase one – from London to the West Midlands – at between £49bn and £57bn in 2019 prices.

The current funding envelope for HS2 phase one is £44.6bn in 2019 prices.

HS2 blamed the increased costs on programme scope changes, delays in planning consents and supply chain pressures in the wake of the pandemic and the war in Ukraine.

But Merriman said his department had calculated an estimated phase-one cost of £45bn to £54bn, using the same HS2 data but different assumptions on how much remaining cost risk remained addressable.

“[HS2’s cost prediction] is a very significant upwards revision compared with HS2 Ltd’s previous projections and is a wide range in comparison to the scope of the remaining work,” he said in a written statement to Parliament.

Merriman said he rejects HS2’s new estimate because it had been drawn up before the decision to cancel the second leg of the scheme, which would have seen the high-speed link extended to Manchester and the East Midlands.

He also said the Department for Transport had made “different assumptions” on, for example, how future risks could be mitigated and how revised incentives could impact the costs of completing civils and systems work.

Merriman said he had asked HS2 chair Sir Jon Thompson to update HS2’s cost estimate and provide an action plan setting out how the scheme would be delivered under its revised scope at the lowest reasonable cost.

A spokesperson for HS2 said the project was one “of unprecedented scale and complexity”.

“Rising costs were caused by multiple factors including delays in planning and environmental consents, programme scope changes, and supply chain pressures linked to the pandemic and Ukraine war,” he said.

“With hindsight, estimations made prior to full construction by the government and HS2 Ltd were overly optimistic and delivery performance did not fully match expectations.”

Under the leadership of Sir Jon Thompson, HS2 was committed to learning lessons of the past few years and controlling costs, he added.

On Tuesday (14 November), the chief executive of the Infrastructure and Projects Authority (IPA) defended his organisation against claims that it should further scrutinise cost estimates provided by HS2.

In response to suggestions that the company had concealed the scale of the cost pressures, Harriett Baldwin, chair of the treasury select committee, said that it was the IPA’s job to “get to the bottom” of the estimated figures.

But IPA boss Nick Smallwood said: “We only have the material and data made available by HS2, and we had the same data as the department got, so it’s on the basis of that data that we did our analysis.”

The authority declared HS2 “unachievable” in July, citing major issues with the project’s definition, schedule and budget.

Asked whether the figures provided by HS2 had been audited by the IPA, Smallwood said: “I would not use the word audit, I would say we reviewed that data.”

He told the committee that he had said shortly after being appointed in 2019 that the HS2 project probably was over-engineered and over-specified, but given the project was already underway there would have been cost penalties in changing it, so the advice was given to carry on.

His experience of first-of-a-kind projects is that they almost invariably lead to overspends as costs are difficult to estimate, he said.

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