DfT perm sec ‘disappointed and dismayed’ at £2.2bn HS2 Euston Station cost hike

Bernadette Kelly tells watchdog MPs near doubling of projected cost for new HS2 terminus came as a “surprise”
The construction site of the London Euston HS2 terminal, where costs are projected to rise by £2.2bn. Photo: PA Images/Alamy Stock Photo

By Jim Dunton

25 Apr 2023

Department for Transport permanent secretary Dame Bernadette Kelly has told MPs that a projected cost hike of £2.2bn for the new HS2 station at Euston came as a “surprise” that left her “disappointed and dismayed” when the figure was revealed by delivery company HS2 Limited.

DfT had been working on the basis that the budget for the new terminus was £2.6bn and had previously stated that cost pressures with the project were in the region of £400m. Last year, it emerged that the department had written off £105m worth of design work on initial proposals for an 11-platform station after switching to a “smaller, simpler 10-platform design”.

Members of parliament’s Public Accounts Committee heard yesterday that DfT and HS2 Limited are now working on the basis that a third design for the station will be required because the £4.8bn cost of the most recent designs exceeded the budget for the project. Last year, the whole HS2 project was costed at £71bn, measured in 2019 prices. Rocketing inflation since then is likely to ramp up the eventual figure considerably.

Last month, the National Audit Office put the available budget for the Euston project at £3.3bn, including contingency funds. Its report on the project came shortly after the government announced a two-year pause to work on the station to allow time to find “an affordable and deliverable design” alongside a pushback of other elements of the scheme.

Quizzed about the spiralling projected cost of HS2’s southernmost terminus yesterday afternoon, Kelly said that up until last September, DfT had been looking at cost pressures that appeared manageable.

She told MPs the department had “no sight” of the £4.8bn figure until “around December 2022” – two months after HS2’s last report to parliament was published in October.

“I was as disappointed and dismayed as anybody when suddenly a figure of £4.8bn emerged so incredibly late in the work,” Kelly said.

“That was a surprise. It coincided with the point within government where decisions were having to be made about our overall investment programme alongside the investment programmes of the whole of government.

“I think it was a combination of that very unexpectedly large number and acknowledgement that we had a real-terms cash management issue for our investment programmes which led to the decision to pause. I would have liked to have seen a more benign set of circumstances, but we have to work with the circumstances and context that we have.”

Kelly said she believed the government’s March decision to pause elements of HS2 would protect the core project.

Committee member Jonathan Djangoly said progress at Euston appeared to be a “failure of delivery on a massive scale” and asked whether anyone at DfT or HS2 had been held to account.

Kelly responded: “What we have done now is got to a point where we have a better understanding of the complexity of the current design and its cost. We’ll need to proceed from here to try and work out what the right next step is, what the right options are to consider, and how we get to a better outcome.”

Djangoly said he would take the perm sec’s answer “as a no”.

HS2 Limited chief executive Mark Thurston told PAC members that £2bn had been spent on work for the Euston terminus so far, and that a further £220m would need to be spent ahead of the pause to “wind down” ongoing operations.

Thurston told MPs that the £4.8bn cost had emerged through pricing for a high-level concept design for the new station that dated back to 2019-20.

“Until you’ve designed the scheme and you’ve had the contractor price it, you don’t really know what it’s going to cost,” he told MPs. “And that’s the position we’ve now got to.”

Alan Over, DfT’s director general for high-speed rail and senior responsible owner for the project, said he expected the project team would have to take a “substantial amount” out of the £4.8bn version of the project to get it down to an “affordable position”.

He said public sector bodies with a stake in the station redevelopment – including Transport for London, Network Rail and Camden Council – may need to step down their requirements from the new station to deliver it at a “more reasonable cost to the taxpayer”.

Over said the cost of the two-year pause would only be known once there was a clearer picture of how much work from the first two designs for the station could be used for the redesign.

He said it was "very plausible" that the team would be able to cut more from the eventual bill than it would cost to have "a third go at getting an affordable design".

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