Recommendation 4

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.