Source · Select Committees · Public Accounts Committee
Recommendation 4
4
Accepted
Establish plan with Treasury for managing inflation and HS2 programme contingency.
Recommendation
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.
Government Response 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.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. outlines the principles for accessing the government-held contingency on HS2. Before accessing government-held contingency, HS2 Ltd must consider the use of its existing funds, including making use of its flexibility rights and delegated contingency. The exception is any Secretary of State Retained Risk events, which results in a material and adverse impacts on HS2 Ltd.’s ability to deliver the programme, that cannot reasonably be mitigated by HS2 Ltd. These include the COVID-19 pandemic and any applicable changes to legislation, such as relevant tax reforms. Provision of government-held contingency in these scenarios remains subject to appropriate scrutiny and collective agreement by the department and HM Treasury. The department will provide an update to the Committee in six months. billion revised estimate only became available in January 2023. In advance of the subsequent Parliamentary Report, which was published in June 2023, the department disclosed this transparently to Parliament through the National Audit Office. 5.3 The department is committed to upholding transparency in the HS2 programme. billion. High Speed Rail Group is learning from the more mature elements of the HS2 programme, including those from Birmingham Curzon Street and other major projects in the department's portfolio. These are being actively shared with projects that are less mature. 6.5 HS2 Ltd are undertaking work in order to understand the key cost drivers of the current station design and the reasons why the station cost increased following the move to a 10- platform single-stage build design in 2021. The department is also keen to understand appropriate lessons to enact as part of the Euston Reset Programme. Learning, both within the department and at HS2 Ltd will be shared with colleagues developing Manchester Piccadilly and Birmingham Curzon Street stations. 6.6 The department is working with delivery partners to complete the optioneering stage of the Euston Reset Programme. Once appropriate options have been identified, the department will undertake a sift process in which only solutions that are deliverable cross-campus will be considered.