GovWire

Overview

The government announced a new plan, via the Network North command paper, to improve transport across Great Britain on 4 October 2023. This directs spending away from future phases of High Speed 2 (HS2) towards local and regional transport schemes, whilst committing to the improved delivery of HS2 Phase 1.

This is because the facts around HS2 have changed since its inception: costs have increased, delivery has been delayed and the pandemic has changed the travel patterns HS2 was originally designed to serve. Cumulatively, these factors have weakened the economic case. The government has, therefore, made the difficult decision to not extend HS2 beyond Birmingham, while taking a radical new approach to Euston Station.

Instead, the government has announced a new plan for transport spending, as outlined in the Network North command paper. Through this, the government intends to reallocate 36 billion (2023 prices) of funding earmarked for the HS2 programme to a range of other high priority transport schemes across the North, the Midlands and Great Britain, investing in hundreds of projects in towns, cities and rural areas.

We will complete Phase 1 of HS2 between London and the West Midlands. There will be 2 branches: one to central Birmingham, and one to Handsacre, near Lichfield, meaning passengers will be able to travel on HS2 trains through to Manchester, Liverpool and Scotland, joining the West Coast Main Line for the rest of their journeys. No decisions have been made on the train service that will run when HS2 is operational.

As set out by the Network North command paper:

• The governments view is that the best interests of our country are not served by progressing with further phases of the project, in the face of diminishing relative benefits and more pressing transport priorities elsewhere. So we will not proceed with Phase 2a, 2b or HS2 East.

• HS2 Phase 2b Western Leg is now cancelled but some sections of the route are the same as those anticipated to be part of Northern Powerhouse Rail (NPR). As set out in the Network North command paper, the government will take the time to consider next steps for the Phase 2b legislation that has been reintroduced into Parliament and whether there is a way to repurpose that to deliver NPR. A further 12 billion (2023 prices), additional to the 36 billion, has been earmarked to better connect Manchester and Liverpool. This would allow the delivery of NPR as previously planned, including high-speed lines. But we will work with local leaders to agree whether they wish to suggest other uses of this money to achieve the objective with that 12 billion.

• We are going to scale back the project at Euston and adopt a new development led approach to the Euston Quarter which will deliver a station that works, is affordable and can be open and running trains as soon as possible. We will not provide design features we do not need and will instead deliver a 6-platform station which can accommodate the trains we will run to Birmingham and onwards and which best supports regeneration of the local area. In this way we will attract private funding and unlock the wider land development opportunities the new station offers, while radically reducing its costs to the taxpayer.

• The scope of Phase 1 will now be reviewed to guarantee delivery of only that required for updating the reduced HS2 programme.

• Delivery remains on track for the initial high-speed services between Old Oak Common in west London and Birmingham Curzon Street by 2029 to 2033.

• Work on HS2 in Lichfield and the surrounding villages, including the connection to the West Coast Mainline at Handsacre Junction, will continue.

In the Department for Transports (DfT) Accounting Officer assessment of 4 October 2023, the Accounting Officer concluded that continuing to build Phase 1 resulted in an estimated benefit cost ratio above 1 in a range of scenarios taking into account sunk costs to date, the estimated remediation costs of not continuing and based on an indicative timetable of 8 trains per hour between Euston, Birmingham Curzon Street and the North West. Work has begun on an updated Business Case for the revised programme. This will update the strategic case for HS2 in light of Network North and provide a full economic assessment following decisions being made on the HS2 train services running to and from Euston. These will be made in due course, taking advice from West Coast partnership development, High Speed 2 Limited (HS2 Ltd) and Network Rail, and will be subject to consultation. An updated Phase 1 business case will be published in due course.

This report uses data provided by HS2 Ltd and covers the period between March 2023 and September 2023 inclusive. Unless stated, all figures are presented in 2019 prices. Data on benefits is taken from September 2023.

Programme update????

Schedule????

The forecast date for initial HS2 services between Birmingham Curzon Street and Old Oak Common remains within the range of 2029 to 2033.

An updated delivery-into-service range for services to Euston will be provided in due course.

Affordability?

In my last report, I highlighted the cost pressures faced by HS2 and the work HS2 Ltd was undertaking to review the Phase 1 estimate at completion (EAC). The HS2 Ltd Board has now advised me that its updated EAC for Phase 1 is 49 billion to 57 billion (2019 prices), the scope of which was the route from Euston to Birmingham and works north to Fradley and the Handsacre Junction. This is a very significant upwards revision compared with HS2 Ltds previous projections and is a wide range in comparison to the scope of the remaining work.

HS2 Ltd has advised that cost increases on Phase 1 since baseline 7.1 (aggregated costs as set out in the full business case which was approved at notice to proceed in 2020) stem from a wide range of compounding issues 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 the costs of Main Work Civils (MWCC) work has increased in cost since notice to proceed due to an interplay of these factors. The latest projection HS2 Ltd provided for MWCC is 21.8 billion to 23.4 billion (in 2019 prices), which represents a cost increase of 6.1 billion from baseline 7.1.

The government disagrees with the 49 billion to 57 billion figure for 2 reasons. First, it was drawn up by HS2 Ltd before they were notified of the decision to cancel Phase 2. It reflects HS2 Ltds understanding of the project in September that it would be proceeding to Manchester and the East Midlands, and with more expansive plans for Euston. The scope and costs of Phase 1 will now be reassessed following the decision not to proceed beyond the Midlands, including the decision to adopt a development-led approach to Euston.

Secondly, DfT makes different assumptions on how much cost risk remains addressable, including different assessments of: how future risks could be actively mitigated: how revised incentives could change the trajectory on the costs of completing the civils and systems work and the size and composition of HS2 Ltds own operating costs. As set out in the Network North command paper, for the historic Phase 1 scope DfT officials have, therefore, estimated a provisional range of 45 billion to 54 billion on the basis of the same data used by HS2 Ltd, but using different assumptions on how much remaining cost risk remains addressable.

I have asked the HS2 Ltd Executive Chair, Sir Jon Thompson, to update HS2 Ltds estimate to consider the revised scope of Phase 1 and the cancellation of the wider scheme reflecting reduced scope and the costs of any changes: to explain and e

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