Sixty-Third Report - HS2 Euston

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 … Read more 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. Show less

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HS2 Ltd told us that there was pressure to drive the overall HS2 cost to what was deemed to be an affordable point. It viewed the £2.6 billion as a budget to work towards and undertook a lot of work … Read more HS2 Ltd told us that there was pressure to drive the overall HS2 cost to what was deemed to be an affordable point. It viewed the £2.6 billion as a budget to work towards and undertook a lot of work on affordability and efficiencies to try and reduce costs. It told us that it generated somewhere between £300 million and £500 million of efficiencies.20 Show less

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Later, more detailed estimates showed that the costs were likely to be significantly higher, with the 11-platform design forecast to cost as much as £4.4 billion in June 2020, and the revised 10-platform design estimated to cost £4.8 billion in … Read more Later, more detailed estimates showed that the costs were likely to be significantly higher, with the 11-platform design forecast to cost as much as £4.4 billion in June 2020, and the revised 10-platform design estimated to cost £4.8 billion in March 2023.21 The Department told us that it needs to try to work out what the right next step is, what the right options are to consider and how it gets to a better outcome.22 It intends to look at whether and where it may be appropriate to make some trade-offs in order to get to something that is more affordable, and acknowledged that it may have to take a substantial amount out of the £4.8 billion estimate to get to an affordable position.23 The costs and impacts of pausing construction Show less

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One potential source of additional funding to help manage higher costs from inflation and also higher costs at Euston is the government-held £4.3 billion contingency. This was set by the Department in 2020 as part of the £44.6 billion budget … Read more One potential source of additional funding to help manage higher costs from inflation and also higher costs at Euston is the government-held £4.3 billion contingency. This was set by the Department in 2020 as part of the £44.6 billion budget for the whole of Phase One.42 The Department told us that it had no expectation on what this contingency would have been needed for when it was established. However, it is also unclear on what it could be used for, with the Department acknowledging that it had ‘never reached any formal view or agreement on what basis the contingency would be drawn down on’.43 Reporting to Parliament Show less

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In response to our May 2020 recommendation on the lack of transparency on the HS2 programme, the Department began providing six-monthly reports to Parliament on progress, including on costs.44 The Department published its first update in October 2020 and, on … Read more In response to our May 2020 recommendation on the lack of transparency on the HS2 programme, the Department began providing six-monthly reports to Parliament on progress, including on costs.44 The Department published its first update in October 2020 and, on Euston, reported that design work was indicating a ‘cost pressure’ or overspend 37 Q 34; C&AG’s Report, para 12 38 Committee of Public Accounts, Oral evidence, High Speed 2: 2022 Spring Update, HC 51,16 May 2022; Q92 39 Q 109; C&AG’s Report, paras 12, 2.21 40 Qq 34, 109; C&AG’s Report, para 13 41 Qq 34–35 42 Qq 9, 25; C&AG’s Report, paras 2.2 and 2.5 43 Q 9, 25 44 Committee of Public Accounts, High Speed 2: Spring 2020 update, Third Report of Session 2019–21, HC 84, 17 May 2020, para 1; Written statement to Parliament, HS2 6 monthly report to Parliament: October 2020, 13 October 2020 14 HS2 Euston against its budget. HS2 Ltd reported this to be ‘in the order of £0.4 billion’ and that further ongoing work might potentially identify further pressures. However, the Department also stated that work was underway to address these pressures.45 Show less

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The Department has continued to report that the cost pressure at Euston was £0.4 billion throughout its six-monthly updates, including in the October 2022 update, which was the latest at the time we took evidence.46 Since October 2021, with the … Read more The Department has continued to report that the cost pressure at Euston was £0.4 billion throughout its six-monthly updates, including in the October 2022 update, which was the latest at the time we took evidence.46 Since October 2021, with the Department’s decision to change the design of the station to a smaller and less complex 10 platform single-stage build, the Department has stated that it expected that the cost pressure would be reduced.47 The Department also reported throughout 2022 including its latest update to Parliament in October 2022 that, as part of ongoing design work, it would need to consider the appropriate level of contingency to manage risks during construction of the station.48 Show less

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However, HS2 Ltd’s latest cost estimate of £4.8 billion is significantly higher than previously reported, at £2.2 billion over the budget.49 The Department told us that it did not know of the £4.8 billion estimate until HS2 Ltd reported it … Read more However, HS2 Ltd’s latest cost estimate of £4.8 billion is significantly higher than previously reported, at £2.2 billion over the budget.49 The Department told us that it did not know of the £4.8 billion estimate until HS2 Ltd reported it to them during February and March 2023.50 Prior to that, the Department noted that HS2 Ltd had been reporting a cost estimate of £3.3 billion, within a range of £2.6 billion to £3.6 billion.51 It acknowledged that this cost pressure was ‘slightly greater’ than the £0.4 billion being reported to Parliament but that those figures had not been validated while work was still underway.52 As a result, the Department told us that it reported what was known and validated which, until February 2023, was a cost pressure of £400 million.53 HS2 Ltd acknowledged that the £2.6 billion budget was seen as a stretch target, and that it had been working towards trying to get back to its previous estimate of £3.3 billion.54 Show less

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HS2 Ltd explained that it had not expected to have an estimate of costs that it was confident in until the end of 2022 following work by the construction partner on a detailed, ‘bottom-up’ costing of the design.55 This followed … Read more HS2 Ltd explained that it had not expected to have an estimate of costs that it was confident in until the end of 2022 following work by the construction partner on a detailed, ‘bottom-up’ costing of the design.55 This followed the two-stage procurement process that HS2 Ltd told us it is employing on the HS2 programme, where the construction partner is first appointed based on capability and suitability and then works with HS2 Ltd to develop a design and agree a target price for construction.56 The Department confirmed that this is a standard approach for large construction projects where there is significant unknown risk and where more design work is required before a realistic target price can be agreed.57 45 Written statement to Parliament, HS2 6 monthly report to Parliament: October 2020, 13 October 2020 46 Committee of Public Accounts, High Speed 2: 2022 Spring Update, 16 May 2022, Q 48; Written statement to Parliament, HS2 6 monthly report to Parliament: October 2022, 27 October 2022 47 Committee of Public Accounts, High Speed 2: 2022 Spring Update, 16 May 2022, Q 48; Written statement to Parliament, HS2 6 monthly report to Parliament: October 2021, 20 October 2021 48 Committee of Public Accounts, High Speed 2: 2022 Spring Update, 16 May 2022, Q 48; Written statement to Parliament, HS2 6 monthly report to Parliament: March 2022, 16 March 2022; Written statement to Parliament, HS2 6 monthly report to Parliament: October 2022, 27 October 2022 49 C&AG’s Report, para 2.19 and Figure 7 50 Q 5 51 Ibid 52 Ibid 53 Ibid 54 Q 8, C&AG’s Report, Figure 7 55 Qq 6, 8 56 Q 10 57 Q 11 HS2 Euston 15 Show less

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The £2.6 billion budget set in 2020 proved to be completely unrealistic for what the Department wanted to deliver. In April 2020, as part of the overall Phase One budget of £44.6 billion set by the Department, HS2 Ltd set a £2.6 billion budget for Euston. This budget was below …

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The Department has not yet learned lessons from managing major rail programmes. In previous examination of other rail programmes like Thameslink and the Great Western Railway modernisation we have reported very similar problems to the ones we are now seeing again with Euston. The Department and HS2 Ltd say that …

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We asked the Department to give us an indication of what a reduced design for Euston station might look like. The Department told us that it would need to examine two options before it could come to the right solution: the minimum station option that would support passenger services and …

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The Department told us that it wanted to look at all elements of the design to see where the opportunities are to deliver something that prioritises passenger benefits and wider benefits of the scheme, but also reduces costs.14 It plans to use the pause in construction to determine the minimum …

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