Recommendations & Conclusions
12 items
2
Conclusion
Sixty-Third Report - HS2 Euston
Accepted
The £2.6 billion budget set in 2020 proved to be completely unrealistic for what the Department wanted to deliver. In April 2020, as part of the overall Phase One budget of £44.6 billion set by the Department, HS2 Ltd set a £2.6 billion budget for Euston. This budget was below …
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The £2.6 billion budget set in 2020 proved to be completely unrealistic for what the Department wanted to deliver. In April 2020, as part of the overall Phase One budget of £44.6 billion set by the Department, HS2 Ltd set a £2.6 billion budget for Euston. This budget was below HS2 Ltd’s early estimated cost for the station of £3 billion. Later, more detailed estimates showed that the costs were likely to be significantly higher, with the 11-platform design forecast to cost £4.4 billion in June 2020 and the revised 10-platform design £4.8 billion in March 2023. This is despite work by HS2 Ltd between 2020 and 2022 to identify ways to reduce the expected costs. HS2 Ltd tells us that it set the budget in 2020 on the expectation it would be revised given the uncertainty around the station design and its provisional estimate. The Department also acknowledges that its challenge of costs at the time was focused on the overall Phase One budget rather than individual elements, such as Euston. The NAO reports that additional spending of £548 million has taken place up to the end of December 2022 (in cash terms) of which £106 million was nugatory spend due to the decision to alter the design from 11 platforms to 10. Recommendation 2: The Department needs to be much clearer to Parliament and the public that the revised budget it sets is realistic and the station design it approves is affordable and deliverable with timescales for construction before it restarts construction work at Euston.
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Government response AI summary
The government agreed, stating the Euston Reset Programme will establish a realistic budget range, assess the updated station design for affordability, and provide a new delivery-into-service date before restarting construction work.
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HM Treasury
4
Recommendation
Sixty-Third Report - HS2 Euston
Accepted
The Department and HM Treasury have not reached a clear understanding about how they would manage high levels of inflation on the HS2 programme, including accessing Government-held contingency. In the 2022 Autumn Statement, HM Treasury confirmed that departments needed to absorb the higher costs from inflation within existing cash budgets. …
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The Department and HM Treasury have not reached a clear understanding about how they would manage high levels of inflation on the HS2 programme, including accessing Government-held contingency. In the 2022 Autumn Statement, HM Treasury confirmed that departments needed to absorb the higher costs from inflation within existing cash budgets. In response the Department has paused some of its capital projects including Euston. However, the risk from high inflation will continue to be an issue on the HS2 programme. The Department continues to discuss the treatment of inflation for major projects with HM Treasury, but there is not yet an agreed way to deal with this to mitigate the risk of poor value for money decisions. In setting the budget for Phase One of the HS2 programme in 2020 the Department never established how the government-held contingency of £4.3 billion would be deployed. Given that some of this contingency could potentially have been used at Euston or on Phase One more widely to manage the higher spend from inflation, we are concerned that arrangements for the use of this contingency have not yet been determined. Recommendation 4a: The Department should agree with HM Treasury and report back to the Committee in six months on how they will manage the continued consequences of high inflation. (b) HM Treasury should set out to the Committee how it will work with all departments to manage the consequences of high inflation on major capital programmes. (c) The Department should also establish and set out to the Committee the requirements to access the government contingency on the HS2 Programme.
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Government response AI summary
The government agreed, outlining specific principles for accessing government-held contingency on HS2, including requirements for HS2 Ltd to use existing funds first and exceptions for Secretary of State Retained Risk events, and committed to reporting back in six months.
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HM Treasury
6
Conclusion
Sixty-Third Report - HS2 Euston
Accepted
The Department has not yet learned lessons from managing major rail programmes. In previous examination of other rail programmes like Thameslink and the Great Western Railway modernisation we have reported very similar problems to the ones we are now seeing again with Euston. The Department and HS2 Ltd say that …
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The Department has not yet learned lessons from managing major rail programmes. In previous examination of other rail programmes like Thameslink and the Great Western Railway modernisation we have reported very similar problems to the ones we are now seeing again with Euston. The Department and HS2 Ltd say that they are learning lessons from other programmes such as Crossrail. But that there is more for them to do for example, on cost estimation, the treatment of contingency and managing the integration of complex projects. They also acknowledge that there are lessons they could learn from the development at King’s Cross such as the value that could come from managing the work at Euston as one integrated programme. HS2 Ltd considers that the work at Manchester Piccadilly will be the most important place for them to learn the lessons from Euston, given that Curzon Street Station in Birmingham is already much more developed. However, both stations are major construction projects in their own right and careful scrutiny of costs needs to be maintained by the Department to ensure that similar mistakes 8 HS2 Euston do not reoccur. This will include thinking about the right set up and organisation of the project, getting it in place early and determining the scale of ambition for regeneration and over-site development work. Recommendation 6: The Department needs to demonstrate to Parliament and the public that they are successfully embedding the lessons from past rail projects and not just repeating the same mistakes. Specifically on Euston the Department and HS2 Ltd should report back to the Committee on: • what measures the Department and contractors took internally to address costs overruns and to identify who was responsible • what lessons they have learned from the Euston project and how it will apply them at both Birmingham Curzon Street, Manchester Piccadilly, having done so they will scrutinise the revised costs carefully to avoid further cost occurring in other pa
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Government response AI summary
The government agreed, outlining actions to embed lessons from past rail projects, including working with the IPA, promoting a learning culture, identifying cost drivers in the Euston Reset Programme, and sharing insights for future projects like Birmingham Curzon Street and Manchester Piccadilly.
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HM Treasury
7
Conclusion
Sixty-Third Report - HS2 Euston
Accepted
We asked the Department to give us an indication of what a reduced design for Euston station might look like. The Department told us that it would need to examine two options before it could come to the right solution: the minimum station option that would support passenger services and …
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We asked the Department to give us an indication of what a reduced design for Euston station might look like. The Department told us that it would need to examine two options before it could come to the right solution: the minimum station option that would support passenger services and meet requirements; and the value maximisation option of, for example, investing more in an integrated station and more in over-site development. In the example of a minimum station option, the Department said that it might have to look at cutting back on over-site development, even though that would not be welcome in terms of economic regeneration, which is one of the project’s aims.13
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Government response AI summary
The government agrees and has commenced the Euston Reset Programme, aiming to develop an affordable Euston campus that maximizes benefits within available funding by April 2025, which reflects the committee's observation of the Department's planned options examination.
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HM Treasury
8
Conclusion
Sixty-Third Report - HS2 Euston
Accepted
The Department told us that it wanted to look at all elements of the design to see where the opportunities are to deliver something that prioritises passenger benefits and wider benefits of the scheme, but also reduces costs.14 It plans to use the pause in construction to determine the minimum …
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The Department told us that it wanted to look at all elements of the design to see where the opportunities are to deliver something that prioritises passenger benefits and wider benefits of the scheme, but also reduces costs.14 It plans to use the pause in construction to determine the minimum requirements for the station and make decisions about what should be prioritised for the design to be affordable but still maximise value.15 Budget and cost estimates
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Government response AI summary
The government agrees and has commenced the Euston Reset Programme, aiming to develop an affordable Euston campus that maximizes benefits within available funding by April 2025, which reflects the committee's observation of the Department's plans.
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HM Treasury
10
Recommendation
Sixty-Third Report - HS2 Euston
Accepted
HS2 Ltd told us that there was pressure to drive the overall HS2 cost to what was deemed to be an affordable point. It viewed the £2.6 billion as a budget to work towards and undertook a lot of work on affordability and efficiencies to try and reduce costs. It …
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HS2 Ltd told us that there was pressure to drive the overall HS2 cost to what was deemed to be an affordable point. It viewed the £2.6 billion as a budget to work towards and undertook a lot of work on affordability and efficiencies to try and reduce costs. It told us that it generated somewhere between £300 million and £500 million of efficiencies.20
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Government response AI summary
The government accepts the recommendation for an affordable Euston station design, committing to the Euston Reset Programme which will set a realistic budget, assess design maturity, and provide a new delivery-into-service date by Summer 2025.
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HM Treasury
11
Recommendation
Sixty-Third Report - HS2 Euston
Accepted
Later, more detailed estimates showed that the costs were likely to be significantly higher, with the 11-platform design forecast to cost as much as £4.4 billion in June 2020, and the revised 10-platform design estimated to cost £4.8 billion in March 2023.21 The Department told us that it needs to …
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Later, more detailed estimates showed that the costs were likely to be significantly higher, with the 11-platform design forecast to cost as much as £4.4 billion in June 2020, and the revised 10-platform design estimated to cost £4.8 billion in March 2023.21 The Department told us that it needs to try to work out what the right next step is, what the right options are to consider and how it gets to a better outcome.22 It intends to look at whether and where it may be appropriate to make some trade-offs in order to get to something that is more affordable, and acknowledged that it may have to take a substantial amount out of the £4.8 billion estimate to get to an affordable position.23 The costs and impacts of pausing construction
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Government response AI summary
The government accepts the recommendation for an affordable Euston station design, committing to the Euston Reset Programme which will set a realistic budget, assess design maturity, and provide a new delivery-into-service date by Summer 2025.
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HM Treasury
18
Recommendation
Sixty-Third Report - HS2 Euston
Accepted
One potential source of additional funding to help manage higher costs from inflation and also higher costs at Euston is the government-held £4.3 billion contingency. This was set by the Department in 2020 as part of the £44.6 billion budget for the whole of Phase One.42 The Department told us …
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One potential source of additional funding to help manage higher costs from inflation and also higher costs at Euston is the government-held £4.3 billion contingency. This was set by the Department in 2020 as part of the £44.6 billion budget for the whole of Phase One.42 The Department told us that it had no expectation on what this contingency would have been needed for when it was established. However, it is also unclear on what it could be used for, with the Department acknowledging that it had ‘never reached any formal view or agreement on what basis the contingency would be drawn down on’.43 Reporting to Parliament
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Government response AI summary
The government accepts the recommendation to clarify contingency use, outlining existing principles for accessing the £4.3 billion government-held contingency via the Development Agreement, and commits to providing a six-month update to the Committee.
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HM Treasury
19
Recommendation
Sixty-Third Report - HS2 Euston
Accepted
In response to our May 2020 recommendation on the lack of transparency on the HS2 programme, the Department began providing six-monthly reports to Parliament on progress, including on costs.44 The Department published its first update in October 2020 and, on Euston, reported that design work was indicating a ‘cost pressure’ …
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In response to our May 2020 recommendation on the lack of transparency on the HS2 programme, the Department began providing six-monthly reports to Parliament on progress, including on costs.44 The Department published its first update in October 2020 and, on Euston, reported that design work was indicating a ‘cost pressure’ or overspend 37 Q 34; C&AG’s Report, para 12 38 Committee of Public Accounts, Oral evidence, High Speed 2: 2022 Spring Update, HC 51,16 May 2022; Q92 39 Q 109; C&AG’s Report, paras 12, 2.21 40 Qq 34, 109; C&AG’s Report, para 13 41 Qq 34–35 42 Qq 9, 25; C&AG’s Report, paras 2.2 and 2.5 43 Q 9, 25 44 Committee of Public Accounts, High Speed 2: Spring 2020 update, Third Report of Session 2019–21, HC 84, 17 May 2020, para 1; Written statement to Parliament, HS2 6 monthly report to Parliament: October 2020, 13 October 2020 14 HS2 Euston against its budget. HS2 Ltd reported this to be ‘in the order of £0.4 billion’ and that further ongoing work might potentially identify further pressures. However, the Department also stated that work was underway to address these pressures.45
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Government response AI summary
The government agrees, noting it transparently disclosed the significant £4.8 billion revised cost estimate to Parliament via the National Audit Office when it became available, and reaffirms its commitment to upholding transparency in the HS2 programme.
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HM Treasury
20
Recommendation
Sixty-Third Report - HS2 Euston
Accepted
The Department has continued to report that the cost pressure at Euston was £0.4 billion throughout its six-monthly updates, including in the October 2022 update, which was the latest at the time we took evidence.46 Since October 2021, with the Department’s decision to change the design of the station to …
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The Department has continued to report that the cost pressure at Euston was £0.4 billion throughout its six-monthly updates, including in the October 2022 update, which was the latest at the time we took evidence.46 Since October 2021, with the Department’s decision to change the design of the station to a smaller and less complex 10 platform single-stage build, the Department has stated that it expected that the cost pressure would be reduced.47 The Department also reported throughout 2022 including its latest update to Parliament in October 2022 that, as part of ongoing design work, it would need to consider the appropriate level of contingency to manage risks during construction of the station.48
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Government response AI summary
The government agrees, noting it transparently disclosed the significant £4.8 billion revised cost estimate to Parliament via the National Audit Office when it became available, and reaffirms its commitment to upholding transparency in the HS2 programme.
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HM Treasury
21
Recommendation
Sixty-Third Report - HS2 Euston
Accepted
However, HS2 Ltd’s latest cost estimate of £4.8 billion is significantly higher than previously reported, at £2.2 billion over the budget.49 The Department told us that it did not know of the £4.8 billion estimate until HS2 Ltd reported it to them during February and March 2023.50 Prior to that, …
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However, HS2 Ltd’s latest cost estimate of £4.8 billion is significantly higher than previously reported, at £2.2 billion over the budget.49 The Department told us that it did not know of the £4.8 billion estimate until HS2 Ltd reported it to them during February and March 2023.50 Prior to that, the Department noted that HS2 Ltd had been reporting a cost estimate of £3.3 billion, within a range of £2.6 billion to £3.6 billion.51 It acknowledged that this cost pressure was ‘slightly greater’ than the £0.4 billion being reported to Parliament but that those figures had not been validated while work was still underway.52 As a result, the Department told us that it reported what was known and validated which, until February 2023, was a cost pressure of £400 million.53 HS2 Ltd acknowledged that the £2.6 billion budget was seen as a stretch target, and that it had been working towards trying to get back to its previous estimate of £3.3 billion.54
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Government response AI summary
The government agrees, noting it transparently disclosed the significant £4.8 billion revised cost estimate to Parliament via the National Audit Office when it became available, and reaffirms its commitment to upholding transparency in the HS2 programme.
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HM Treasury
22
Recommendation
Sixty-Third Report - HS2 Euston
Accepted
HS2 Ltd explained that it had not expected to have an estimate of costs that it was confident in until the end of 2022 following work by the construction partner on a detailed, ‘bottom-up’ costing of the design.55 This followed the two-stage procurement process that HS2 Ltd told us it …
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HS2 Ltd explained that it had not expected to have an estimate of costs that it was confident in until the end of 2022 following work by the construction partner on a detailed, ‘bottom-up’ costing of the design.55 This followed the two-stage procurement process that HS2 Ltd told us it is employing on the HS2 programme, where the construction partner is first appointed based on capability and suitability and then works with HS2 Ltd to develop a design and agree a target price for construction.56 The Department confirmed that this is a standard approach for large construction projects where there is significant unknown risk and where more design work is required before a realistic target price can be agreed.57 45 Written statement to Parliament, HS2 6 monthly report to Parliament: October 2020, 13 October 2020 46 Committee of Public Accounts, High Speed 2: 2022 Spring Update, 16 May 2022, Q 48; Written statement to Parliament, HS2 6 monthly report to Parliament: October 2022, 27 October 2022 47 Committee of Public Accounts, High Speed 2: 2022 Spring Update, 16 May 2022, Q 48; Written statement to Parliament, HS2 6 monthly report to Parliament: October 2021, 20 October 2021 48 Committee of Public Accounts, High Speed 2: 2022 Spring Update, 16 May 2022, Q 48; Written statement to Parliament, HS2 6 monthly report to Parliament: March 2022, 16 March 2022; Written statement to Parliament, HS2 6 monthly report to Parliament: October 2022, 27 October 2022 49 C&AG’s Report, para 2.19 and Figure 7 50 Q 5 51 Ibid 52 Ibid 53 Ibid 54 Q 8, C&AG’s Report, Figure 7 55 Qq 6, 8 56 Q 10 57 Q 11 HS2 Euston 15
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Government response AI summary
The government agrees, noting it transparently disclosed the significant £4.8 billion revised cost estimate to Parliament via the National Audit Office when it became available, and reaffirms its commitment to upholding transparency in the HS2 programme.
Read full response →
HM Treasury