Public spending watchdog the National Audit Office has warned that the Department for Transport does not know what the true cost of delivering the HS2 rail network will be, although its current estimate is a budget-busting £55bn-£88bn.
A progress update on the high-speed rail network planned to link London with Birmingham, and then extend north to Manchester and Leeds in subsequent phases, said the upper end of the current projection was 58% above the available budget of £55.7bn, expressed in 2015 prices. The £88bn figure is £10bn higher than an upper estimate for the project given to parliament by transport secretary Grant Shapps in September, also expressed in 2015 prices at the time.
The NAO said that as of 31 March last year, DfT and HS2 Ltd had spent a total of £7.4bn on the whole HS2 project. It added that the high-speed line – the first phase of which was originally supposed to open in 2026 – was now running between three and seven years late, with only a truncated service between Old Oak Common in west London and Birmingham expected to commence in 2029.
The NAO said full services on the entire network were now forecast to start between 2036 and 2040, if ministers decided to press ahead with the proposals as they currently stand – a decision to be informed by the Oakervee review, which is with ministers but yet to be published. Earlier this week the Financial Times reported that a leaked version of the review had costed HS2 at £106bn.
The NAO report said the total cost forecast for HS2 was “not yet clear” and that the DfT’s £65bn-£88bn range was only an “emerging estimate” for the whole project.
“Phase two is at an early stage of development, and given the reasons for cost increases on phase one, we do not think that it is possible, as yet, to estimate with certainty what the final cost could be,” it said.
A key message of the NAO report is that DfT, its delivery company HS2 Ltd and the government more widely underestimated the task of delivering a new high-speed rail network, which led to “optimistic estimates being used to set budgets and delivery dates”.
The report said that because DfT and HS2 Ltd had failed to “fully and openly” recognise the programme’s challenges from the outset they had “not adequately managed the risks to value for money” that the scheme presented.
It said the department and HS2 Ltd also underestimated the impact on costs of changes made to the design and construction of the railway by the phase one hybrid bill – some of which made the specification different from the international comparators on which cost estimates had been based.
The NAO said environmental and visual impact measures, such as lowering the railway below ground level had added around £1bn to construction costs, while £4.9bn of efficiency savings identified by HS2 Ltd in 2017 had not been pursued.
Its report also noted that the seven multimillion-pound contracts for phase one of the line that HS2 Ltd let in 2017 were having their terms revised in a way that would free contractors of liability for cost increases “above a fixed target price”. The move was described as a bid to counteract higher-than-anticipated cost estimates from contractors designed to protect them against exposure to price overruns under mechanisms in the initial contracts.
The NAO said that under the revised regime, HS2 Ltd would be responsible for funding increases above the estimated cost and contractors would lose a proportion of their fee for building the railway if they did not meet performance indicators on cost and schedule.
NAO head Gareth Davies said the government’s HS2 experience had “important lessons” for other major infrastructure programmes.
“To ensure public trust, the department and HS2 Ltd must be transparent and provide realistic assessments of costs and completion dates as the programme develops, recognising the many risks to the successful delivery of the railway that remain,” he said.
The NAO’s recommendations included a call for DfT and HS2 Ltd to work with the Treasury on the scope and available funding for the programme, taking into account the trade-offs between cost and benefits.
“It should reflect a realistic assessment of the full cost of the programme and include appropriate contingency,” the report said.
“It should also include the potential impact on cost, schedule and benefits of decisions made during parliamentary scrutiny of the phase two hybrid bills and provide this information to parliament.”
A DfT spokesperson said the department had supported the NAO review and was already acting on many of its recommendations.
“To ensure transparency around the project, we have worked closely with the NAO to provide information on the latest cost and schedule estimates for HS2,” they said.
“We recognise that there have been significant underestimations of both the cost and schedule of HS2 in the past which is why we commissioned the Oakervee review to provide advice on whether and how to proceed with HS2.”