Source · Select Committees · Public Accounts Committee
Recommendation 17
17
Deferred
Department discusses HS2 inflation management with Treasury, recognising mid-year cuts' poor value.
Conclusion
The Department told us that, although budgets are now set, it continues to have discussions with HM Treasury about how it manages inflation on programmes like HS2 in order to deal with any issues that may arise later in the year. The Department also acknowledged the value for money implications of any further reduction in spending during the year, telling us that it and HM Treasury recognise that for such programmes it is ‘almost impossible—and certainly impossible in a way that is consistent with value for money—to put the brakes on expenditure mid-year’.41
Government Response Summary
The government agrees with the observation and states that while departments must absorb inflation, they are discussing with HM Treasury how to manage future HS2 cost pressures to protect value for money, and will report back in six months.
Government Response
Deferred
HM Government
Deferred
4.1 The government agrees with the Committee’s recommendation. Target implementation date: January 2024 4.2 HM Treasury’s standard approach, as set out in Consolidated Budget Guidance and reaffirmed in the 2022 Autumn Statement, is that departments must absorb inflationary pressures within their existing budgets in the first instance. This means that in the first instance, pressures have to be managed within the DfT capital portfolio, which is particularly difficult given the size of the HS2 programme. As is also standard, HM Treasury is open to considering the case for additional funding for such pressures if there is clear evidence of how they have arisen, of the steps that have been taken to manage them, and that they are clearly unavoidable, unforeseeable, and unabsorbable. 4.3 To manage these effects, HM Treasury agreed to defer expenditure across a number of transport capital programmes prior to Spring Budget 2023. DfT and HM Treasury have been discussing how they might manage future cost pressures on the programme in order to best protect value for money for taxpayers, including by giving DfT sufficient flexibility to manage HS2’s budgets as effectively as possible, and will report back to the Committee in six months.