Might spiralling costs compromise the future of HS2 - ?

Chloe mcculloch black

“HS2 is real and happening.” This was the response from the government-owned HS2 Ltd to our questions about progress on the £56bn infrastructure project. And it backed up this statement with compelling evidence: there are 62 live sites – the most visible at Euston and Curzon Street stations – while the project has created 7,000 jobs and worked with 2,000 companies. And this week it appointed firms for the main construction works at Euston and Old Oak Common stations.

A project involving 330 miles of new track as well as all the station infrastructure (construction contracts are worth £1.65bn for Euston and £1.3bn for Old Oak Common alone) has to be good news for the construction industry. HS2 predicts that at its peak there will be 30,000 people working on the programme. More than this, the government argues this is the great leap forward this country’s infrastructure needs, cutting journey times, improving capacity on the network and boosting economic growth. The claim is that for every £1 spent on HS2, the country is up £2.30 in benefits.

At a time when politicians are bracing for the impact of Brexit, another story of cost overruns on a bigger scale than already seen at Crossrail would not play well with voters

But despite all this, 2019 is a crunch year for the project. HS2’s notice to proceed has been delayed and even though it says it will happen later this year, the actual decision to press ahead with the bulk of the work depends on the business case being approved by the Cabinet Office and the Treasury. And this is where the project faces its biggest challenge yet.

With an original budget of £32.5bn in 2012, it jumped to £55.7bn in 2015 and last year a leaked report indicated it could rise to £80bn. When Building spoke to rail expert QS Michael Byng, he said it could bust the £85bn mark. At a time when politicians are bracing for the impact of Brexit, another story of cost overruns on a bigger scale than we have already seen at Crossrail would not play well with voters.

No wonder there are signs of a political wobble over HS2’s future. Constituency MPs representing communities along the line have been long-time opponents, but the spiralling projected costs are now sowing doubt among Cabinet ministers such as Andrea Leadsom and David Lidington. Most chilling for the project was the warning from the Treasury’s Liz Truss that the spending review later this year “must be prepared to junk the white elephants”.

So there are plenty of voices out there calling for a rethink and pointing out that we could get the same benefits or better by doing something different with those billions of infrastructure cash. The former chancellor and transport minister Alistair Darling told Building: “It would be better to spend the money on improving lines in the Midlands and the North-east and west of England and their links to the East Coast.”

But ex-HS2 chair David Higgins has no truck with that argument. He thinks politicians and the industry should just get on with it. Brexit just adds to the urgency as we “can’t afford to have substandard infrastructure” once we are on our own in a highly competitive global market. The budget is do-able in his eyes, well above European projects of a similar scale and so the real issue is “to challenge the industry to deliver it to the median that is set out in the budget”.

The concern for contractors working on HS2 is that this process of “challenge” actually just reflects a mismatch between the funding needed and the funding that is actually available, and there is a pressure to agree to target costs that do not seem realistic. Contractors hoping to win work are understandably reluctant to openly criticise the project, but some did tell us they are worried that the need to stay within the current budget could mean the line between Birmingham and Leeds gets the chop.

The problem with lopping off bits of the line or radically changing the scope of the programme is that this could fundamentally undermine the case for continuing with the project. Indeed, the reaction to suggestions from HS2’s chief executive Mark Thurston that the speed or frequency of trains could be cut has been very negative, adding to the pressure on ministers to scrap it.

However, Terry Morgan, who resigned as HS2 chair at the end of last year, is optimistic the project still has the backers it needs to happen, although he warns that setting in stone the project’s scope, timing and costs would make it very difficult. In his words “something has got to give”, and if the message is that there is no more money, then he thinks the focus inevitably moves to driving innovation through the supply chain.

One radical suggestion from Morgan is to take Euston station out of the picture for phase 1. This, he says, would relieve pressure on the overall programme’s timing. It is not an option being considered by HS2, which is pushing forward with the scheme as currently defined by the government. But expect scrutiny to ramp up in the coming months as the transport select committee gets ready to quiz its leadership next month. And as the government comes closer to making critical decisions over costs and schedules, we should get a clearer view of HS2’s final destination.

Chloë McCulloch, editor, Building