How did the costs escalate?
According to the National Audit Office (NAO) reports, the forecast costs have swollen on every bit of HS2 bar the trains – mainly because fewer trains will now be bought for the high-speed network.
The critical moment of truth for HS2’s budget came soon after the signing of the first major contracts in July 2017, at a target price of £6.1bn. These were the big civil construction deals to shape the route of Phase 1 – the earthworks, tunnels and bridges from London to Birmingham.
Within six months, the winning bidders had reported back that the eventual costs would be 50% more than budgeted. Now, at the lowest end of government estimates, the price is expected to virtually double.
Through 2018, HS2 Ltd looked for ways to trim back the specifications and save costs, before in March 2019 formally notifying the Department for Transport that it could not meet the budget.
In Phase 1, from London to Birmingham, where most of the £7.4bn spend to date has taken place, the NAO found a 47% increase in costs in the two and a half years since its last accounting.
Civil construction on dodgy ground
Detailed geological surveys could be carried out only in certain areas once the route was approved. Ground conditions were worse than assumed by HS2 Ltd, making the task of building the track harder, needing more reinforcement and materials in places where engineers had hoped to use the freshly excavated rock. An additional year is now thought to be needed for ground to settle before later works can continue.
Meanwhile, work to prepare the ground – such as demolition around London Euston – has more than doubled in cost, with the discovery of unexpected asbestos, and more archaeological work than expected contributing to the best part of another £1bn.
Complicated stations
This was another overly optimistic forecast in the early HS2 budget, with estimates based on other station-building programmes. Costs from alterations to the original designs helped add a further billion to the present forecast. One bridge just outside Euston station has proved tricky enough to add a year’s delay.
Overlooked utilities
Underground cables were expected to cost £480m, at 2015 prices. But diverting gas and power lines for construction is now assessed at £970m at 2019 prices, partly for the amount of work needed, and the cost of skilled labour to carry it out.
Mythical savings and playing down risk
Because HS2 cost more than the typical bill for European high-speed railways, back in 2015, when the budget was creaking, it was assumed there were could be simple savings made – even though the UK route was struggling with greater population density and was being built to higher standards and specifications. Unfortunately, the NAO said, although HS2 Ltd had “identified where savings could be found, they did not develop these … into a programme of activity to achieve them”.
Nor did they include standard Network Rail levels of contingency, ie probable budget overrun. Without this two-pronged optimism, the 2016 forecast would have burst through the current £40bn Phase 1 ceiling already, the NAO noted.
Environmental mitigation
Once HS2’s detailed route was published, every local stretch of development was put through scrutiny via the hybrid bill process. The costs of undertaking and assurances given about the effects of construction, according to HS2 Ltd analysis cited by the NAO, may run to £1.2bn, rather than the £245m it had set aside.
Delays and overruns compounding
Drawing up a revised schedule for Phase 1 has already added a further year’s delay to the process. The start of construction is likely to be delayed by 21 months – even without the current political hiatus over the project, which lies outside the scope of the NAO report.
The future: Phase 2
Comparatively little has been done or spent on the northern sections of the route past Birmingham, bar design work and property acquisition and compensation.
However, the estimated bill has gone up: for Phase 2a, running as far as Crewe, to up to £6.5bn (almost double the budget), to be completed by 2031. Phase 2b, to Manchester and Leeds, now has a top-end forecast of £41bn, 63% over budget, as well as a potential seven-year delay.
A small fraction of this is a material change, added costs from incorporating the revised rail route around Sheffield; but mainly the forecasts are simply learning the lessons of Phase 1. That is, more realistic forecasts of what is likely to lie ahead, once work gets going; and abandoning the pretence that “efficiencies” can be found to fit the scheme to the price the government set.
