DfT perm sec admits HS2 now represents ‘poor value for money’

Stripped-back plans for high-speed rail are now costed at £54bn to connect London with the West Midlands
Artist's impression of HS2 trains at a station Photo: HS2 Ltd

By Jim Dunton

06 Oct 2023

Department for Transport permanent secretary Dame Bernadette Kelly has acknowledged that the government’s pared-back plans for the HS2 rail network will cost up to £54bn and represent “poor value for money” for taxpayers.

Her admission came in a letter to parliament’s Public Accounts Committee that accompanies an accounting-officer assessment of prime minister Rishi Sunak’s decision to cancel plans to extend the high-speed rail line beyond the West Midlands.

Kelly’s latest assessment for the sections of HS2 that will still go ahead is that delivering the line will cost £45bn to £54bn, up from the department’s current budget envelope of £44.6bn at 2019 prices. HS2 was originally estimated to cost £37.5bn in 2009 prices.

She also said governance of phase one “is being strengthened to further increase the focus on cost control and increase government oversight”.

On Wednesday, Sunak used his speech to the Conservative Party’s annual conference to confirm widely-briefed proposals to scrap phases of the project that would have delivered new high speed lines to Manchester and the East Midlands. Plans for HS2 rail lines to Leeds were cancelled in 2021.

Construction of phase one of HS2, which will link London with a new terminus in Birmingham and includes lines connecting the new tracks with the existing West Coast Main Line in Staffordshire, is well under way and is set to continue.

However uncertainty surrounds the future of London’s Euston Station as the southern terminus for HS2 services. Sunak said DfT-owned HS2 Ltd would be stripped of its role in relation to Euston in favour of a private-sector led approach to delivering the station that includes “building thousands of new homes”. Work at Euston was paused in the spring following a near doubling of the projected cost of the new HS2 station.

In her accounting-officer update on the changes to the HS2 programme, Kelly said cancelling its phase-two works would require primary legislation and that processes to lift or alter restrictions on land safeguarded for the project would need to be followed.

She said the “alternative vision” set out by the government for Euston – which Sunak told the Conservative Party conference would save £6.5bn – was “subject to further work and business case”.

Kelly’s accounting-officer assessment says the benefit-cost ratio range for continuing with phase one of HS2 is between 1.2 and 1.8 – suggesting that every pound invested would deliver between £1.20 and £1.80 in benefits.

The assessment concludes: “I can confirm that, in my judgement, completing the delivery of HS2 between Euston and Birmingham, including Handsacre, meets the value for money requirements of Managing Public Money.”

However in her letter to PAC chair Dame Meg Hillier, the perm sec notes that the value-for-money opinion only relates to the “marginal decision” to continue with phase one of the project at the current stage of its delivery.

“Taking an estimated range for the total costs of phase one and assessing them against the estimated total benefits (i.e. including sunk costs and excluding remediation costs) would result in a BCR range significantly below 1 and would represent poor value for money,” she said.

According to figures from think tank the Institute for Government, £22.5bn had been spent on phase one of HS2 as of February this year, and a further £2.2bn on the HS2 project as a whole.

Figures provided by DfT and No.10 on Wednesday suggested that the BCR for the revised version of HS2 “could fall as low as 80 pence for every £1 spent”. Some previous estimates put the benefits of every £1 spent as high as £2.30.   

Responding to Sunak’s announcement yesterday, Hillier said “stop-start approaches” to large and complex infrastructure projects plainly did not represent value for money for taxpayers.

She said the government’s approach risked undermining wider confidence that its programmes for major infrastructure investment would be delivered.

“In a globally competitive world, companies may now choose to invest their time and skills in other countries,” she said.

"As a committee we have been raising concerns about HS2 for a full decade, so this latest change is little surprise.”

She added: “It is likely we will be examining the costs of this latest decision in the months to come."

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