Source · Select Committees · Public Accounts Committee
Recommendation 10
10
Accepted
Differing cost estimates for HS2 Phase 1 exceed budgets due to inflation and design.
Conclusion
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
Government Response Summary
The government agrees with the implied concern regarding HS2 costs, committing to bear down on Phase 1 costs, strengthen HS2 Ltd's leadership through new recruitment, and reinforce governance with updates to be provided in six-monthly reports.
Government Response
Accepted
HM Government
Accepted
2.1 The government agrees with the Committee’s recommendation. Target implementation date: Spring and autumn 2024 2.2 HS2 Ltd’s leadership and its collective capability are critical to the success of HS2. The department commenced a recruitment exercise to identify new Non-Executive Directors in January 2024. Additionally, HS2 Ltd commenced a recruitment exercise to identify a new Chief Executive Officer in February 2024 and is also recruiting to a number of senior executive roles. 2.3 As noted in the Network North command paper of 4 October 2023, HS2 Ltd and the department are committed to: • bearing down on the costs of Phase 1 and only delivering what is essential; • 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; • reinforcing the leadership of HS2 Ltd, under Sir Jon Thompson, to change the culture on cost control with challenge from the department, HM Treasury and the Infrastructure and Projects Authority; and • providing strengthened governance and control from the government whilst this reset is developed and delivered, with increased oversight and reduced delegation. 2.4 A plan has been developed by the department, HM Treasury and HS2 Ltd to implement the above commitments. The department will provide an update in its forthcoming six-monthly reports to Parliament. 2.5 HS2 Ltd and the department are working together and with the principal suppliers to ensure focus on cost-effective delivery of the remainder of the civil works. The department will provide an update on that work in forthcoming reports to Parliament, subject to commercially sensitive details.