A report warns of risks to the rest of the UK’s flagship rail project after its northern leg was cancelled.
The cancellation of HS2’s northern leg received a lot of public and media attention.
A new National Audit Office (NAO) report has assessed the Department for Transport (DfT) and HS2 Ltd’s response to the decision.
It’s largely positive about their initial planning to close development of the northern leg.
That’s expected to take three years and cost up to £100m.
The report also looks at how DfT and HS2 Ltd are “resetting” the project to focus on Phase 1, from London to Birmingham.
The NAO has previously highlighted the need to better understand the risks, costs and benefits of HS2 to improve delivery.
The ICE has launched its own Next Steps Programme to learn lessons from the cancellation of the northern leg of HS2.
Here are three takeaways from the NAO’s latest analysis of the project:
1. The costs still aren’t fully understood
DfT and HS2 Ltd disagree about how much finishing Phase 1 will cost.
Both say the current funding envelope of £44.6 billion (in 2019 prices) won’t be enough.
Prior to the cancellation of Phase 2, DfT’s estimate for Phase 1 was £45-£54 billion (2019 prices). HS2 Ltd said it will cost £49-£57 billion (2019 prices).
These estimates are likely to increase because many expected costs remain unknown - including stations and the main construction contracts.
DfT and HS2 Ltd are working to agree a final cost estimate of Phase 1.
Only then can they work with HM Treasury on a revised budget and cost controls.
The NAO says agreeing multi-year funding settlements as part of this would provide longer-term certainty for HS2 Ltd and the supply chain.
2. Contracts have failed to drive cost efficiency
The report examines the causes of cost increases and how they are being addressed.
Factors include:
- the budget and delivery schedule being set too early;
- delays to planning consents; and
- the impact of external events, like the Covid-19 pandemic.
In 2020, HS2 Ltd revised the terms of the main construction contracts to incentivise better performance and reduce costs.
But the report says this hasn’t been achieved.
The NAO highlighted various risks in 2020, including HS2 Ltd’s ability to manage the contracts and oversee performance.
These issues weren’t addressed. Only now is HS2 Ltd implementing much needed structural and operational changes.
Renegotiating the four main construction contracts again is part of its plans to reset the project.
But as the report notes, it’s unlikely to be a straightforward process.
3. Reduced benefits leave strategic questions
The report says that DfT isn’t yet clear how it will maximise the benefits from what remains of the project.
They should include more seats, lower carbon emissions and new investment in places along the route.
But the cancellation of Phase 2 has reduced the scale of those potential benefits.
To maximise what can be achieved from the revised project, the NAO says DfT must prioritise developing a new shared vision with other stakeholders.
These include other government departments, local authorities and businesses.
Until there’s clarity about what those benefits will be, it’ll be harder for the project to manage risks and costs.
The ICE has previously explored the need for a clear strategic vision to drive projects in its work on a national transport strategy for England.
Unresolved capacity problems
Crucially, the NAO says that the revised project won’t address the lack of capacity on the West Coast Main Line (WCML) north of Birmingham.
This can’t be achieved without either managing demand for rail services or investing in additional infrastructure.
DfT estimates that the WCML will reach capacity by the mid-2030s.
It plans to run HS2 trains from Birmingham onto the WCML instead of conventional trains.
But these will have fewer seats than existing services unless existing stations are extended to accommodate longer trains.
The ICE’s view
Many issues set out in the NAO’s report align with those identified by the ICE in our briefing paper on the emerging lessons from HS2.
These include capability in DfT and HS2 Ltd to challenge costs, the contracting approach and uncertain outcomes.
The NAO’s report says that lessons are being learned and changes made by DfT and HS2 Ltd.
But the cancellation of the northern leg has in many respects left the UK with the worst possible outcome.
There are major gaps in the country’s transport network which existing plans cannot meet.
Addressing those is among the most urgent priorities for the new Labour government.
The cancellation also means the lessons and efficiencies being gained through Phase 1 won’t be passed on to Phase 2.
The ICE has continued gathering insight and responses to our initial HS2 briefing paper.
A final, updated paper will be launched later this year.
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