Select committee inquiry
HS2 and Euston: Recall
Closed
What the inquiry looked at
“In July 2023, the Committee reported that the Department for Transport (DfT) does not know what it is trying to achieve with the High Speed 2 station at Euston, despite spending over eight years planning and designing it. Construction work at Euston was paused for two years in March 2023. The Committee has called on the DfT to use the pause to finally establish the design and expectations for the station against what it is willing to spend, while noting that the costs and impacts of the pause for the local community and small businesses remain unknown. The Committee will question senior officials at the DfT and HS2 Ltd. on progress on the project since its April 2023 evidence session and leadership changes at HS2 following the Committee’s report. Dame Meg Hillier MP, Chair of the Public Accounts Committee, said: “The HS2 Euston project is floundering. This is a multi-billion pound scheme which has already caused major disruption to the local community put on pause. The pause, ostensibly to save money, is not cost free – mothballing and possible compensation for businesses which have lost work will all need to be added to the HS2 tally. The Government must now be clear what it is trying to achieve with this new station, and how it will benefit the public. “Our report found that a wildly unrealistic budget for HS2 Euston was set in 2020 in the expectation that it would be revised. The Government must demonstrate that that it is not just repeating the same mistakes of unrealistic costings. HS2 Euston has shown us that forging ahead over-optimistically in an unclear direction is clearly not the right approach.” If you have evidence on these issues, please submit it here by 23:59 on Friday 10 November 2023. Please look at the requirements for written evidence submissions and note that the Committee cannot accept material as evidence that is published elsewhere. Please note that the Committee will not be scrutinising policy decisions in relation to HS2 Euston or the HS2 project.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of Tenth Report - HS2 and Euston ↗
This Committee has been reporting its concerns on how High Speed 2 (HS2) has been managed for over a decade, but recent events have left us more concerned about the HS2 programme than ever before. The cancellation of the latter stages of the HS2 programme and operating just Phase 1, from London to the West Midlands will achieve poor value for money for the taxpayer, as the Department for Transport (the Department)
acknowledged to us. The Department told us it was still better to complete Phase 1, given the approximately £11 billion of remediation costs (in 2019 prices) that would be incurred if they cancelled the whole programme.
Even before the cancellation of Phases 2a, 2b and East, the costs of HS2 continued to escalate, with HS2 Ltd’s estimated costs for Phase 1 now as high as £57 billion against a budget of £44.6 billion (in 2019 prices). HS2 Ltd estimates that inflation since 2019 will add a further £8 billion to £10 billion to the cost, making a total in current prices of up to £67 billion. Poor cost management indicates a failure of governance and oversight across both HS2 Ltd and the Department. This is of great concern given the scale of the challenge they face in resetting the programme to complete Phase 1 and manage the closedown of the other phases, for example in disposing of land and property no longer needed. We are also highly sceptical that the Department will be able to attract private investment on the scale and speed required to make the London terminus station a success.
Alongside managing changes to the HS2 programme, including the impact on Northern Powerhouse Rail, the Department also has work to do to confirm exactly how the £36 billion redirected from HS2 will be used over the next two decades, and how it will manage this long-term portfolio of projects.
Crucially, the Department does not yet understand how HS2 will operate as a functioning railway following recent changes. It is vital the Department now gets to grips with the programme to complete Phase 1 within the estimated range of 2029 to 2033, with HS2 Ltd aiming for 2030, and maximises what value it can for the taxpayer.
What the government said
The government responded on 2 April 2024.
Summary written by Accountability Index from the government's response.
The government agrees with the Committee's recommendations on benefits, costs, Phase 1 changes, Euston and Network North reporting, but disagrees with the recommendation on reporting a land and property disposal plan alongside the Treasury Minute response.
- On benefits, it agrees and says an updated programme business case will be published in 2024, setting out updated benefits, how delivery will be monitored and updated benefit-cost ratios, with a target implementation date of during 2024.
- On cost control, it agrees and says a plan has been developed with HM Treasury and HS2 Ltd; it will provide an update in forthcoming six-monthly reports to Parliament, with the work on suppliers reported "subject to commercially sensitive details".
- On Euston, it agrees (target dates Summer 2024 and Winter 2024) and says work is "currently underway" on funding packages and financing mechanisms, including "consideration of options" to pay for the Old Oak Common to Euston section.
- On land and property disposal, it disagrees with the recommendation. It says it is "not yet able to share its plan" but will do so by summer 2024, as the programme "will take some time" to set up.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 31 July 2023 to its close on 3 April 2024.
- Oral evidence 16 Nov 2023
- Report 7 Feb 2024
- Government response 2 Apr 2024
- Correspondence 5 letters
What it recommended 3 recommendations · 29 conclusions
2Require Department and HS2 Ltd to implement effective cost controls and oversight for programme
Recommended (the committee's words)
Costs have continued to escalate and the Department and HS2 Ltd do not know how much the programme will now cost. This Committee has repeatedly raised concerns about the Department’s and HS2 Ltd’s management of costs. But, despite our warnings and recommendations, costs have continued to rise. The Department’s estimate of how much it will cost to complete Phase 1 is now £45 billion to £54 billion (in 2019 prices), above a budget of £44.6 billion that had been reset only three years previously in 2020. HS2 Ltd is estimating an even higher range, of from £49 billion to £57 billion (also in 2019 prices). HS2 Ltd estimates that inflation since 2019 will add a further £8 billion to £10 billion to the cost. HS2 Ltd has not been able to constrain costs in its main works civils contracts, despite this being an area we flagged for attention in spring 2020. In our view there has been insufficient senior level focus on cost control before; but HS2 Ltd says it is now implementing changes to increase its focus on cost control, for example through new senior roles and better management information. The Department has also set out its intention to bear down on the costs of Phase 1, help HS2 Ltd to change its culture on cost control, and strengthen its own governance and control of the programme with increased oversight and reduced delegation. 6 HS2 and Euston Recommendation 2: The Department and HS2 Ltd should set out in its next six- monthly update: • Progress in recruitment of Executive and Non-Executive Board roles at HS2 Ltd. • How they are going to ensure that effective cost controls, oversight, transparency, design, and contracting are put in place so that cost overruns and delays which have been a constant problem throughout the whole HS2 project will now be brought under acceptable and properly accountable control. • Progress in reviewing existing contracts to ensure that contractors are now incentivised to minimise costs.
3Require Department and HS2 Ltd to establish revised plans for Phase 1 and organisational needs
Recommended (the committee's words)
The Department and HS2 Ltd do not yet know what the impact of the decision to cancel Phase 2 will be on the HS2 programme and how HS2 Ltd will need to adapt so it can be successfully delivered. HS2 Ltd and the Department need to work through in detail how they will close-down work on the cancelled sections of HS2. The Department does not yet understand how the high-speed trains will operate as part of the rail network or how the HS2 line will connect to the West Coast Mainline to maximise benefits from Phase 1. For example, trains designed for the high-speed line will likely be slower when on the West Coast Mainline compared to the existing tilting rolling stock as they will not be able to travel on the older track infrastructure at the speeds they were designed for. It will also need to identify ways to resolve impacts on other projects, such as Northern Powerhouse Rail which will need a new revised scope. HS2 Ltd acknowledges that it needs to think about the capabilities the organisation needs to complete the tasks ahead. HS2 Ltd says, however, that although it has flexibility in the pay it can offer, competitors can offer much higher salaries still, impacting on its recruitment and retention. Recommendation 3: The Department and HS2 Ltd should set out in its next six- monthly update: • Progress in establishing what it needs to do to amend Phase 1 and manage the closedown of the other phases. • The work HS2 Ltd has done in re-establishing the organisation to deliver the revised programme, including identifying the skills and capability it requires.
4Require Department to develop private investment plans for Euston and decide on tunnelling
Concluded (the committee's words)
Developing Euston is dependent on attracting private finance to pay for it, but the Department does not yet have any plan for how to do so and has to make investment decisions soon to protect long-term value for money. Despite the intention to scale back the station itself compared with previous plans, redevelopment work at Euston remains a huge and complex project. Government has redirected £6.5 billion (in 2023 prices) of expenditure away from Euston, and the Department is now looking for private funding to cover the costs of the re-scoped Euston station and the over-site development. It is also considering ways the private sector might contribute towards the cost of tunnelling from Old Oak Common to Euston. The Department has previously had more modest proposals for private sector investment HS2 and Euston 7 at Euston rejected by HM Treasury due to the risks involved. The Department told us there is ‘in principle’ interest from the private sector, but that it needs to decide on the financing model. The Department does not yet have a plausible or detailed proposition it could take to the market and it is likely to take significant time to develop one. There are urgent decisions the Department must make on funding the tunnelling from Old Oak Common to Euston or it will incur much greater costs from stopping and restarting work. Recommendation 4: The Department should: a) Develop plans for a range of private investment scenarios, including different levels of public finance, as part of its consideration of how to progress with the station at Euston; and b) Decide soon how to proceed with the tunnelling from Old Oak Common to Euston to best protect value for the taxpayer.
5Publish comprehensive plan for HS2 land and property disposal balancing taxpayer and local needs
Concluded (the committee's words)
The Department and HS2 Ltd do not yet know when they will dispose of land and property no longer needed and how they will balance different interests. The Department has spent over £600 million on land and property (in 2019 prices) along the section of the route that has now been cancelled. Part of this land may be required for other projects, such as Northern Powerhouse Rail, but the Department is looking to release land for other purposes quickly. When disposing of the land, HS2 Ltd and the Department will need to ensure that this is done in a way that protects the taxpayer as well as local interests, while also being fair to those who have had their properties compulsorily purchased. The sale of land and property can take many years, with individuals seeking to buy back land no longer needed for Phase 1 finding the process difficult and lengthy. There is a moral expectation that government should expedite opportunities for people who wish to buy back their land and property where they have been required to sell it. Recommendation 5: The Department and HS2 Ltd should, alongside the Treasury Minute response, report to the Committee their plan for land and property disposal. This plan should include: • how they will factor in the need for value for money for the taxpayer and the needs of those who have been affected; and • how they will learn the lessons from land and property sales already occurring as part of Phase 1 and from other property disposal programmes across government.
6Publish reporting plan for Network North projects including timescales and value for money assurance
Concluded (the committee's words)
The Department has yet to finalise what the redirected £36 billion (in 2023 prices) originally intended for the cancelled HS2 phases will fund or decide on when these projects can be expected to start. The Department has redirected the £36 billion that would have been spent on HS2 Phases 2a, 2b and East to a large portfolio of different road and rail projects through ‘Network North’. This funding will be available over the period up to 2041, very roughly mirroring the timings of when it would have been spent on HS2. The Department has announced how some of this funding will be redirected, such as support for bus services and additional funds for mayoral combined authorities. The Department says that the list of 8 HS2 and Euston alternative investments contained in Network North would go through normal business case processes to be approved and while some projects are well advanced, other projects still require a significant amount of further work. There is not yet a list, with expected costs and benefits, of what projects the Department expects will be delivered over the long-term with the redirected funds. Recommendation 6: The Department should, alongside its Treasury Minute response, report to the Committee on how it intends to report and update the list of projects by region that will be funded through money redirected to Network North, over what timescale projects will be delivered, and how it will ensure value for money will be achieved. HS2 and Euston 9 1 Value for money of HS2 Phase 1
1HS2 programme repeatedly plagued by escalating costs and lack of transparency
Concluded (the committee's words)
This Committee has reported regularly on progress with the High Speed 2 programme over the last decade. Our first report was in 2013 and even at that early stage we were warning about an emerging pattern of costs increasing, benefits decreasing, and the apparent lack of the necessary commercial expertise to oversee the programme. We continued to report our concerns over the years, for example being critical about the lack of transparency over increasing costs, about some of the decisions taken by management, and about engagement with the people, communities and businesses near the route. Our most recent report before this one was in July 2023, and focused on the proposed High Speed 2 station at Euston. Amongst other things we noted that the budget for Euston had proved completely unrealistic even before considering the impact of inflation, and that Parliament had again not had the transparency it needed on the likelihood of cost increases.1
7HS2 Phase 1 alone does not achieve value for money as previously asserted
Concluded (the committee's words)
The inclusion of an allowance for remediation costs if Phase 1 were to be discontinued, and the exclusion of sunk costs, had a significant impact on the calculation of a positive BCR in the range 1.1 to 1.8, and thus on the AO Assessment. In addition, the figures quoted for these elements are in 2019 prices and would be significantly higher in 2023 prices, though benefits would also be higher in 2023 terms.13 The Accounting Officer 6 HS2 6-monthly report to Parliament: November 2023 7 Q 15 8 Q 20 9 Letter from DfT to PAC (original dated 4 October, reissued on 14 November with correction to BCR range) 10 Q 46; Letter from DfT to PAC (original dated 4 October, reissued on 14 November with correction to BCR range) 11 Q 12 12 Qq 12, 13 13 Qq 15–17 HS2 and Euston 11 reiterated the point she had previously emphasised in her letter, stating that “if you step back, as it were, and look at the totality of benefits and of costs as if you were starting on day 1 with Phase 1, it would not achieve value for money.”14
8Revised HS2 Phase 1 business case requires significant work on costs and benefits
Concluded (the committee's words)
The Department told us that a full, revised business case will need to be produced for Phase 1, taking account of what it now knows about costs, the changes to scope and what that means for the overall benefits.15 The Department said that key benefits remain – such as increased capacity, journey times and wider economic benefits from investment and regeneration around stations.16 But not building 2a and 2b reduces additional capacity and the possibility of faster journeys north of Birmingham, and the previous business case depended on delivering 2a and 2b.17 The Department said that there is undeniably more work to do to get to the new business case, as it represents a significant reset of the programme, and it will need to do further work both to figure out costs and on the benefits that can now be delivered. It told us it would be doing that work in the first half of 2024.18 The Department told us it would take longer than that to produce a detailed plan for a privately funded Euston development.19 Cost escalation
9HS2 programme costs have consistently escalated beyond original budget forecasts.
Concluded (the committee's words)
In our previous reports we have regularly raised concerns about escalating costs and cost forecasts for the HS2 programme. For example, in our May 2020 report we commented that “The High Speed Two programme has gone badly off-course and is now estimated to cost up to £88 billion, significantly more than the original budget of £55.7 billion (both figures are 2015 prices)”.20 In our September 2021 report we noted that “The programme’s funding was reset in 2020 and is now expected to cost a total of between £72 billion and £98 billion (2019 prices). The Phase One budget is £44.6 billion including almost £10 billion of contingency (2019 prices).”21
10Differing cost estimates for HS2 Phase 1 exceed budgets due to inflation and design.
Concluded (the committee's words)
HS2 Ltd’s most recent estimate for the cost of Phase 1 is that it will be in the range £49 billion to £57 billion (2019 prices). It cites a range of issues as the cause of increases, including “design performance, delivery productivity, consenting delays, and a difficult operating environment with COVID-19 and the Ukraine War affecting the supply chain.” In particular it also cites the increased cost of ‘Main Work Civils’. The Government disagrees with this forecast because a) it was drawn up by HS2 Ltd before being told of the decision to cancel Phase 2 and b) because the Department makes different assumptions on how much cost risk remains addressable. The Department’s most recently published estimate is a range of £45 billion to £54 billion (2019 prices) for the cost of Phase 1.22 After our evidence session, when giving evidence to the Transport Committee in January 2024, HS2 Ltd estimated that bringing its estimate in 2019 prices up to 2023–24 prices would 14 Q 17 15 Q 25 16 Qq 21, 24 17 Qq 26, 37 18 Qq 27, 30, 31, 37 19 Qq 32, 33 20 Committee of Public Accounts: High Speed 2: Spring 2020 Update, 3rd Report of Session 2019–21, HC 84, 17 May 2020 21 Committee of Public Accounts; HS2 Summer 2021, 17th Report of Session 2021–22, HC 329, 22 Sept 2021 22 HS2 6-monthly report to Parliament: November 2023 12 HS2 and Euston add a further £8 billion to £10 billion to the cost of Phase 1. It said that construction inflation over the past three years had been 27%, with, for example, steel rising by 47%, rebar by 53%, and concrete by 48%.23
11Department's lowest Phase 1 cost estimate still exceeds allocated budget, requiring additional funding.
Concluded (the committee's words)
HS2 Ltd told us that its cost estimate had been the result of much detailed analysis and many meetings, all done transparently with the Department. It told us that while Ministers had committed to an opening date between 2029 and 2033, HS2 Ltd was well within that range at the moment, and was aiming for 2030.24 The Department said that it had worked off the same data and been in the same meetings as HS2 Ltd when coming up with its own overlapping but lower forecast range of costs. But it said it had taken different views to HS2 Ltd on the extent to which risks could be mitigated. The Department accepted that it and HS2 Ltd would have to bottom out differences and reach an agreed range in the next stage of work.25 But even the Department’s lowest cost estimate is higher than the reset Phase 1 budget of £44.6 billion (2019 prices), so the Department is projecting to need more money than has been allocated and will need to agree funding for that with the Treasury.26
12HS2 cost increases driven by inflation, supply chain issues, and poor financial management.
Concluded (the committee's words)
To explain cost increases since 2020, the Department pointed to several factors including: Covid, inflation, Ukraine, the supply chain and the scale of the cost of dealing with ‘planning and consenting’. It said that poor cost information and cost reporting from the supply chain had been a significant contributing factor, and that financial and risk management broadly had not been as robust and as good as it needed to be. The Department acknowledged the need for HS2 Ltd to focus on building the organisation, the capability, the processes and the leadership to drive a relentless focus on cost control.27
13Cost-plus Main Works Civils contracts are primary driver of HS2 programme cost increases.
Concluded (the committee's words)
HS2 Ltd told us more directly that 89% of the difference between the Departments’ 2020 estimate of £44.6 billion and now was about how the Main Works Civils contracts were manifesting. It said that the Government’s decision to let cost-plus contracts, with few incentives and penalties, had left HS2 Ltd without any real levers on contractors to do better in relation to schedule and costs. The Department then agreed that the Main Works Civils had been the principal driver of cost increase.28 In our May 2020 report we had noted how the revised commercial model with main civil contractors had left HS2 Ltd (and therefore the taxpayer) bearing more of the risk of cost increases. We had pointed to the corresponding need for HS2 Ltd to ensure that it had the right commercial skills to manage these arrangements, and for the Department to be able to oversee and challenge HS2 Ltd’s performance.29 HS2 Ltd told us that the decision to let cost-plus contracts had not itself made the costs increases inevitable, and that there was the key factor to consider of how well the company had managed those contracts, as well as just the form of those contracts.30 23 Transport Committee, Oral evidence: HS2: progress update, HC 85, Q 408 24 Qq 41, 55, 56 25 Qq 56, 58 26 Qq 83–85 27 Q 59 28 Qq 59, 60 29 Committee of Public Accounts: High Speed 2: Spring 2020 Update, 3rd Report of Session 2019–21, HC 84, 17 May 2020 30 Q 95 HS2 and Euston 13
14Department outlines new strategy to enhance HS2 Phase 1 cost control and governance.
Concluded (the committee's words)
In its October 2023 Command Paper on Network North and its new plans for completion of Phase 1, the Department stated that “We need to make changes quickly and decisively so the remainder of HS2 is delivered as cost effectively as possible. That means: a) Bearing down on the costs of Phase 1 and only delivering what is essential. b) Embedding a singular focus on cost control in HS2 Ltd and its supply chain and being prepared to take difficult decisions on contracts, scope and benefits to hold to budget. c) Reinforcing the leadership of HS2 Ltd, under Sir Jon Thompson, to change the culture on cost control with challenge from DfT, HMT and the IPA. d) Providing strengthened governance and control from the Government whilst this reset is developed and delivered, with increased oversight and reduced delegation.”31
15HS2 Ltd has streamlined governance and strengthened board for enhanced cost control.
Concluded (the committee's words)
On recent development in governance in HS2 Ltd, the company told us it had streamlined executive governance to focus on costs and deliverables, and improved management information significantly, and that it had also recruited two further finance directors and established a new sub-committee for finance and performance. HS2 Ltd said it had significantly strengthened the Board with two recent appointments, and would be making two further non-executive director appointments with a particular focus on cost control. It also said it was also introducing a new ‘chief railway officer’ post from January 2024 to integrate all elements of the new railway. The chief railway officer would report directly to the new chief executive. The new chief executive has not been appointed yet, and HS2 Ltd told us the question of salary was still with Ministers to consider, but a job description and person specification had been agreed.32 31 Department for Transport: NETWORK NORTH: TRANSFORMING BRITISH TRANSPORT, CP 946, October 2023 32 Qq 6–11 14 HS2 and Euston 2 Closing down HS2 Phase 2 Impact of decision to cancel Phase 2
16No final decisions made on HS2 operational train services for Phase 1.
Concluded (the committee's words)
The Department’s November 2023 update to Parliament stated that “No decisions have been made on the train service that will run when HS2 is operational.”33 The Department told us it had developed “an outline train specification that sets out an assumed service”, but before bringing it into service there would need to be proper consultation nearer the time. Final decisions would need to take account of the economic conditions and the demand at the time. It explained that some assumptions are more certain, for example between Birmingham and London, but it needed to work out how to optimise services beyond that, across HS2 and Network Rail, to optimise the whole corridor. The Department said it would continue to look at optimising the benefits of Phase 1 and what the optimal train service to run is, but final decisions would be made much closer to opening.34
17Cancellation of HS2 Phase 2 impacts Phase 1 design, particularly West Coast Main Line integration.
Concluded (the committee's words)
The cancellation of other HS2 phases will inevitably result in some design changes to Phase 1. HS2 Ltd told us that the top of its list is the implications for how HS2 trains will join the West Coast Main Line. HS2 trains would have joined the line north of Manchester if Phase 2a were being built. But in order to travel on HS2 trains through to Manchester, Liverpool and Scotland, HS2 trains will now need to join it at Handsacre, which is near Lichfield.35 Once the HS2 trains have joined the West Coast Main Line they will be limited to that line speed, rather than able to travel at faster HS2 line speeds, and likely be slower than the existing tilting Pendolino rolling stock.36 HS2 Ltd described Handsacre junction as already being a choke point for the West Coast Main Line. It told us it was working with the Department to look at whether the junction needed to be bigger and what expansion might mean in terms of land and cost.37
18Cancellation of HS2 Phase 2 impacts other interdependent projects, lacking business cases.
Concluded (the committee's words)
We asked the Department about the impact of cancelling HS2 Phases 2 on other projects that would have had existing business cases dependent in part on Phases 2a or 2b. The Department highlighted the interdependency between 2b and Northern Powerhouse Rail and said that it would be some time before it had a business case for the revised scope of that. It said that while some of the programmes within Network North were well established, it did not yet have a business case for some of the others.38
19HS2 Ltd faces estimated sub-£10 million legal exposure from cancelled Phase 2 contracts.
Concluded (the committee's words)
We also asked whether any contracts would need to be cancelled in respect of Phase 2 and payments made to companies as a result. HS2 Ltd told us that for Phases 2a and 2b the number of contracts let was very small, but it was exposed to some legal challenge, the value of which exposure it estimated to be under £10 million.39
20HS2 Ltd faces capacity challenges and struggles with recruitment in overheated market.
Concluded (the committee's words)
Notwithstanding the Board and Director level changes referenced above, HS2 Ltd also acknowledged that it needed to think about its capacity and capability throughout to deliver the task ahead. It told us it was going through that process and highlighted three areas it needed to address: more people to focus on railway systems; more skills to bear 33 HS2 6-monthly report to Parliament: November 2023 34 Qq 64–66 35 Q 61; Department for Transport: NETWORK NORTH: TRANSFORMING BRITISH TRANSPORT, CP 946, October 2023 (page 18) 36 Qq 70, 71 37 Q 61 38 Qq 114, 115 39 Q 119 HS2 and Euston 15 down on finances, getting the right information from the supply chain and whether it was on time, on schedule, and meeting quality standards; and more skills on managing and mitigating financial risk.40 On recruitment and retention, HS2 Ltd told us that there was a significant attraction for people to work on HS2”, but that it was a competitive recruitment market, particularly for good contract managers. Although HS2 has some flexibility in what pay it can offer, it told us that it was exposed to an overheated market and people would therefore leave, especially when being offered double or even triple their current salaries.41 Euston
21Department acknowledges unaffordable Euston station plans, shifts to stripped-back, privately funded development.
Concluded (the committee's words)
In July 2023 we reported on how the Department’s previous plans for the HS2 station at Euston had proved to be unrealistic and unaffordable.42 Alongside the October 2023 cancellation of HS2 phases 2, the Department acknowledged that previous plans for the station had been unaffordable, and announced that the station design would be stripped back to focus on delivering a station that works and can be open as soon as possible. The Department announced that it “will deliver a new Euston Quarter to provide much-needed homes”, appoint a development company (separate from HS2 Ltd) to manage delivery of the project, leverage private sector investment, and by so doing release £6.5 billion (2023 prices) of previously planned expenditure.43
22Treasury now supports private sector funding for Euston station and wider development.
Concluded (the committee's words)
The Department confirmed to us that “At the moment we are expecting the private sector to fund the station and all the development. The benefit for developers comes from the commercial housing development.”44 It confirmed that this included looking for private funding to cover the whole cost of running from Old Oak Common to Euston.45 We noted that the Treasury had previously rejected the idea of Euston being privately funded; the Department replied that the Treasury stance had changed and that “They are now very supportive of us seeking private sector-led investment.”46 The Department told us that the expectation is that a development corporation will be set up to take the Euston plans forward, but that there are different sorts and it would be working with DLUHC and the Treasury “to develop the best possible plan to secure the ambition for Euston.”47
23Euston remains HS2 London terminus ambition, but its delivery date remains uncertain.
Concluded (the committee's words)
The Department confirmed it remains the Government’s ambition that Euston be the London terminus for HS2.48 But it confirmed it was still expecting trains to stop at Old Oak Common for a period of time before Euston was developed, because Euston would not be up and running in the same timeframe. The Department could not give any date or range of dates for when it thought Euston might be delivered.49
24Delaying Euston tunnel contracts risks significant additional costs and taxpayer burden.
Concluded (the committee's words)
We raised concerns about the risk of incurring significant additional cost later if contracts for the tunnel between Old Oak Common and Euston were not let in the coming months. The Department said there were significant phasing issues of this nature 40 Q 129 41 Q 132 42 Committee of Public Accounts: HS2 Euston, 63rd Report of Session 2022–23, HC 1004, 7 July 2023 43 Department for Transport: NETWORK NORTH: TRANSFORMING BRITISH TRANSPORT, CP 946, October 2023 44 Q 147 45 Q 149 46 Qq 147, 164–5 47 Qq 152–3 48 Q 160 49 Qq 155, 156 16 HS2 and Euston for the Euston redevelopment that it would have to address pragmatically. It recognised the issue that there is a dependency on getting the tunnelling away to open Old Oak Common and said that, ultimately, it might seek funds to compensate the Government for that tunnelling from the private sector as part of the wider development – “If there is a cash flow issue, the taxpayer will probably have to substitute for that in the short term.”50 The Department told us that “The attractiveness of Euston and the high-speed station at Euston is only going to be realised if you have the approach into Old Oak Common. That is understood.”51
25Realising Euston's private sector funding requires greater certainty and a coherent market proposition.
Concluded (the committee's words)
We raised the issue that private sector involvement and finding would be dependent on there being greater certainty on dealing with issues in and around Euston. The state of the general property market in the area and how much infrastructure the public sector provides will be critical factors in how much the private sector will pay for the whole site. The Department said it had started to discuss with Treasury Colleagues, the IPA and DLUHC how to start turning this into a proposition that would allow it to have a deeper engagement with the market in order to ensure and test appetite. It said that both the Secretary of State and the Chancellor have had conversations with developers who have said that in principle they can see lots of attractions.52 But the Department recognised that there was a lot of work to do if the ambition of private sector funding is to be realised, noting that “We need to have a coherent and plausible position to interface sensibly with the private sector.”53 Land and property disposal
26HS2 Ltd spent £634 million acquiring land for cancelled Phase 2 sections.
Concluded (the committee's words)
HS2 Ltd told us it had spent £3.6 billion on land and property for Phase 1, and believed it had acquired more than 95% of the land it would require for Phase 1. It had spent £634 million on acquiring land and property for the HS2 phases that have now been scrapped – £273 million on Phase 2a, plus £201 million on 2b, plus £160 million on the eastern leg to Leeds.54
27Releasing acquired Phase 2 land faces complex and time-consuming 'Crichel Down' rules.
Concluded (the committee's words)
The Department said it needed to assess what land that had been acquired for Phase 2b might need to be retained for Northern Powerhouse Rail and for some local interests, where the local authorities would like to retain the land. It said that the Department and HS2 Ltd would need to make careful value for money assessments on releasing land back to the market in a way that meets local interests and protects the taxpayer. HS2 Ltd emphasised that release of Phase 2 land would take some time and not be a quick process, notably because of the six tests that made up the ‘Crichel Down’ rules.55 HS2 Ltd said that, assuming the six tests were satisfied, former owners who had been compulsorily purchased would get first refusal to buy back at current market value.56
28Balancing fairness to taxpayers and affected individuals crucial for Phase 2 land disposal.
Recommended (the committee's words)
We highlighted the argument for there being a moral expectation that, having cancelled Phase 2, the Government should expedite the opportunity for people to be able to buy back their house or their property. HS2 Ltd acknowledged the point while also not wanting to commit to any timescales given the rules it had to follow and the 50 Qq 161–3 51 Q 166 52 Qq 166, 167 53 Q 168 54 Qq 50, 52 55 Q 122 56 Q 123 HS2 and Euston 17 dependency on steers from Ministers. We also highlighted the argument for maximising return to the taxpayer, which could mean hanging on to property until the market improved. The Department said it was keen to ensure it respected that people had been individually impacted. It emphasised the need to consider both fairness to taxpayers and fairness to affected individuals, on which it would have to put advice to Ministers on the right balance between the two, and then enact the steer received.57 The Department’s Permanent Secretary and Accounting Officer said that, were she to be asked by Ministers to proceed in a way that was not consistent with the tests of Managing Public Money, then she would give that advice and seek a ministerial direction if required.58
29Process for returning unused HS2 Phase 1 land remains painfully slow
Concluded (the committee's words)
We also highlighted that, where some Phase 1 land was going through the process of being returned (it could have been taken for temporary reasons such as utility diversions) the process had been painful and lengthy. HS2 Ltd said that land and property should be returned, once it is not needed anymore, to those who owned it before if they wanted it, subject to all of the associated rules. It said that HS2 Ltd and the Department ought to do that as fast as possible, while acknowledging that on Phase 1 it had been a “pretty slow trickle” so far. It also commented, however, that this was something of an improvement on previous policy which had been to only release any land and property at the end of the whole project. The Department added that it should look for opportunities to allow use of land no longer required if it benefits all parties to do so; for example to look at renting back rural land while the sale and purchase process goes through.59 57 Qq 124, 125 58 Q 127 59 Q 128 18 HS2 and Euston 3 Network North
30£36 billion HS2 savings to be reinvested across UK regions
Concluded (the committee's words)
The Department has said that the decision not to proceed with HS2 phases 2a, 2b and East will unlock £36 billion (2023 prices) and that “every penny of the £19.8 billion committed to the Northern leg of HS2 will be reinvested in the North; every penny of the £9.6 billion committed to the Midlands leg will be reinvested in the Midlands; and the full £6.5 billion saved through our new arrangements for Euston will be spread across every other region in the country. This will be money additional to the local transport, road and rail budgets allocated at the last Spending Review and additional to what those organisations were expecting for the next decade.”60 The Department told us these figures were assumed savings from not continuing with the HS2 phases, with the 2019 prices previously used inflated to 2023 prices.61
31Network North projects funded by HS2 savings require individual business case approvals
Concluded (the committee's words)
In its Network North paper the Department described a number of road and rail projects to be included in what will be funded from the £36 billion, subject to approval of business cases.62 The Department told us that these “alternative investments” ranged from specific projects like Northern Powerhouse Rail to uplifts in city regional sustainable transport funding and local integrated transport funding, and that it would assess projects “in the normal way rather than as a bundle.63 It explained that “about half” of the £36 billion would, in effect, be given to other parties through devolved funding arrangements, with the principle being that it should be for mayors, local authorities and others to decide what the key priorities are in their areas.64 The Department said that there are other specific projects, some of which are well advanced and some of which are going to take a very significant amount of further work.65 The Department told us that the money would be spent broadly to the same timescales as it would have been under HS2, up to 2041, but with the potential of bringing benefits earlier.66
32No comprehensive profiled list of projects funded by redirected HS2 savings exists
Concluded (the committee's words)
The Department told us it had already announced separately how some of this funding will be redirected.67 For example, on 23 October it announced a £150 million reallocation of HS2 funding to support bus services.68 It also announced additional funds for mayoral combined authorities to be provided through City Region Sustainable Transport Settlements.69 In written evidence provided after the session the Department added that it had made a commitment to increase the government contribution to ‘most existing Major Road Network and Large Local Major road schemes’ from 85% to 100%, subject to business case approval.70 We asked when there would be a profiled list, with costs, of what is going to be delivered with the £36 billion. The Department said it would be wanting that internally and would talk to Ministers about how to provide transparency by making some of it public.71 In written evidence provided after the session, the Department added 60 Department for Transport: NETWORK NORTH: TRANSFORMING BRITISH TRANSPORT, CP 946, October 2023 (page 23) 61 Q 141 62 Department for Transport: NETWORK NORTH: TRANSFORMING BRITISH TRANSPORT, CP 946, October 2023 63 Qq 112, 113 64 Q 145 65 Q 145 66 Qq 114, 142 67 Q 143 68 Major £150 million funding boost for local bus services as fare cap set to be extended – GOV.UK (www.gov.uk) 69 Network North CRSTS2 indicative allocations, 4 October 2023 - GOV.UK (www.gov.uk); q143 70 Correspondence from the Department for Transport to the Public Accounts Committee, dated 8 December 2023 71 Q 143 HS2 and Euston 19 that it was working closely with Number 10 and the Cabinet Office to deliver the Network North programme effectively and to share public updates on progress against projects and schemes included in the announcement regularly.72 72 Correspondence from the Department for Transport to Public Accounts Committee, dated 8 December 2023 Q 143 20 HS2 and Euston
Evidence
Oral evidence sessions 1
- 16 Nov 2023HS2 and Euston4 witnesses, listed belowparliament.uk ↗
Who gave evidence 4 witnesses
- Alan OverDirector General, Major Rail Projects Group, Senior Responsible Owner for High Speed 2 Programme, Department for Transport
- Dame Bernadette Kelly DCBPermanent Secretary, Department for Transport
- Dr Nick BissonIntegrated Rail Plan and Northern Powerhouse Rail, Department for Transport
- Sir Jon Thompson KCBExecutive Chair, High Speed Two (HS2) Ltd
Correspondence 5 letters
- 10 Jan 2024Correspondence from Sir Jon Thompson, Executive Chair, High Speed Two (HS2) Ltd, re Public Accounts Committee HS2 and Euston: Recall (16th November) follow up, dated 11 December 2023
- 10 Jan 2024Correspondence from Dame Bernadette Kelly DCB, Permanent Secretary, Department for Transport, re Follow-up to the session of Thursday 16 November 2023 - HS2 and Euston, dated 8 December 2023
- 16 Nov 2023Correspondence from Dame Bernadette Kelly DCB, Permanent Secretary, Department for Transport, re Accounting Officer Assessment of Decision to complete Phase 1 of HS2 – Background and Overview, dated 14 November 2023
- 16 Nov 2023Correspondence from Dame Bernadette Kelly DCB, Permanent Secretary, Department for Transport, re Accounting Officer Assessment of Decision to complete Phase 1 of HS2 – revision to BCR Range, dated 14 November 2023
- 16 Nov 2023Correspondence from Dame Bernadette Kelly DCB, Permanent Secretary, Department for Transport, re Accounting Officer Assessment of Decision to complete Phase 1 of HS2, dated 14 November 2023